EXHIBIT 2.1
-----------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
EQUITEX, INC.
and
THE SELLING STOCKHOLDERS
OF CHEX SERVICES, INC.
WITH RESPECT TO THE
SALE OF THE STOCK OF
CHEX SERVICES, INC.
Dated August 31, 2001
------------------------------------------------------------------------------
NO AGREEMENT, ORAL OR WRITTEN, REGARDING OR RELATING TO ANY OF THE MATTERS
COVERED BY THIS DRAFT HAS BEEN ENTERED INTO BETWEEN THE PARTIES. THIS DOCUMENT,
IN ITS PRESENT FORM OR AS IT MAY BE HEREAFTER REVISED BY ANY PARTY, WILL NOT
BECOME THE AGREEMENT OF THE PARTIES UNTIL, WITH ALL SCHEDULES AND EXHIBITS
ATTACHED AND INITIALED BY THE PARTIES, IT HAS BEEN SIGNED BY ALL PARTIES AND
COMPLETE SIGNED COPIES HAVE BEEN EXCHANGED. THE EFFECT OF THIS LEGEND MAY NOT BE
CHANGED BY ANY ACTION OF THE PARTIES.
TABLE OF CONTENTS
Section Page
1. DEFINITIONS...............................................................1
1.1. DEFINITIONS.................................................1
2. PURCHASE AND SALE.........................................................3
2.1. SALE OF THE SHARES..........................................3
2.2. PURCHASE PRICE..............................................3
2.3. EFFECTIVENESS SUBJECT TO COMPLETION OF EXHIBITS
AND SCHEDULES..............................................3
3. CLOSING...................................................................4
3.1. TIME; PLACE.................................................4
3.2. EFFECTIVE TIME..............................................4
3.3. FURTHER ASSURANCES..........................................4
4. REPRESENTATIONS AND WARRANTIES
OF THE MANAGEMENT STOCKHOLDERS...................................4
4.1. SELLERS AUTHORITY; BINDING AGREEMENT4
4.2. SHARE OWNERSHIP.............................................4
4.3. THE CORPORATION: ORGANIZATION, POWER AND FOREIGN
QUALIFICATION..............................................5
4.4. SUBSIDIARIES................................................5
4.5. NON-CONTRAVENTION; CONSENTS.................................5
4.6. CAPITALIZATION; DEBENTURES..................................6
4.7. FINANCIAL STATEMENTS........................................6
4.8. UNDISCLOSED LIABILITIES.....................................7
4.9. ABSENCE OF CERTAIN CHANGES..................................7
4.10. TAXES.......................................................8
4.11. TITLE TO AND CONDITION OF ASSETS............................9
4.12. REAL ESTATE AND LEASES......................................9
4.13. CONTRACTS..................................................10
4.14. CASH ON HAND...............................................11
4.15. CHECKS NOT YET COLLECTED...................................11
4.16. COMPLIANCE WITH LAW........................................12
4.17. LITIGATION.................................................12
4.18. BANK ACCOUNTS, GUARANTEES AND POWERS.......................13
4.19. INSURANCE..................................................13
4.20. EMPLOYMENT, LABOR AND OTHER RELATIONS......................14
4.21. EMPLOYEE BENEFITS..........................................14
4.22. PROPRIETARY RIGHTS.........................................15
4.23. GOVERNMENTAL PERMITS.......................................15
4.24. ENVIRONMENTAL MATTERS......................................16
4.25. BAD CHECK LIABILITY........................................17
4.26. PRINCIPAL CUSTOMERS AND SUPPLIERS..........................17
4.27. SENSITIVE PAYMENTS.........................................17
4.28. OTHER MATERIAL ADVERSE INFORMATION.........................17
II
4.29. DISCLOSURE..................................................17
5. REPRESENTATIONS AND WARRANTIES OF BUYER..................................17
5.1. ORGANIZATION; GOOD STANDING; OWNERSHIP.....................17
5.2. AUTHORIZATION..............................................18
5.3. NON-CONTRAVENTION; CONSENTS................................18
5.4. INVESTMENT INTENT..........................................18
6. CERTAIN TAX MATTERS......................................................18
6.1. FILING OF TAX RETURNS......................................18
7. COVENANTS................................................................19
7.1. CONDUCT OF BUSINESS........................................19
7.2. SUPPLEMENTS TO EXHIBITS....................................21
7.3. RENEWAL OF DEBENTURES......................................21
7.4. MUTUAL COVENANT............................................21
7.5. NOMINATION TO BUYER'S BOARD OF DIRECTORS...................22
8. CONDITIONS TO CLOSING....................................................22
8.1. MUTUAL CONDITIONS..........................................22
8.1.1. NO SUIT............................................22
8.1.2. CLOSING............................................22
8.2. CONDITIONS TO BUYER'S OBLIGATIONS..........................22
8.2.1. REPRESENTATIONS AND WARRANTIES.....................22
8.2.2. CONSENTS AND APPROVALS.............................22
8.2.3. MANAGEMENT AGREEMENTS..............................22
8.2.4. COVENANT NOT TO COMPETE AND CONFIDENTIALITY
AGREEMENT.........................................22
8.2.5. NO MATERIAL ADVERSE CHANGE.........................23
8.2.6. MINIMUM CASH ON HAND...............................23
8.2.7. RENEWAL OF DEBENTURES..............................23
8.2.8. DELIVERY OF OTHER DOCUMENTS........................23
8.3. CONDITIONS TO THE SELLING STOCKHOLDERS' OBLIGATIONS........23
8.3.1. REPRESENTATIONS AND WARRANTIES.....................23
8.3.2. APPROVALS..........................................24
8.3.3. DELIVERY OF DOCUMENTS..............................24
9. TERMINATION..............................................................24
9.1. TERMINATION OF AGREEMENT...................................24
9.1.1. MUTUAL CONSENT.....................................24
9.1.2. BREACH.............................................24
9.1.3. RESPECTIVE CONDITIONS..............................24
9.1.4. MUTUAL CONDITIONS..................................25
10. INDEMNIFICATION..........................................................25
10.1. BY MANAGEMENT STOCKHOLDERS..................................25
10.2. BY BUYER....................................................25
10.3. PROCEDURE FOR INDEMNIFICATION CLAIMS........................26
10.4. SURVIVAL....................................................27
10.5. PAYMENT OF INDEMNIFICATION OBLIGATION.......................28
III
11. OTHER AGREEMENTS.........................................................28
11.1. NONCOMPETE; NONSOLICITATION; CONFIDENTIALITY................28
12. GENERAL PROVISIONS.......................................................29
12.1. WAIVER OF TERMS.............................................29
12.2. AMENDMENT OF AGREEMENT......................................29
12.3. PAYMENT OF EXPENSES.........................................29
12.4. CONTENTS OF AGREEMENT; BINDING NATURE.......................29
12.5. NOTICES.....................................................29
12.6. COMMISSIONS AND FINDER'S FEES...............................30
12.7. SEVERABILITY................................................30
12.8. COUNTERPARTS................................................30
12.9. HEADINGS....................................................30
12.10. GOVERNING LAW; JURISDICTION.................................30
12.11. INSTRUMENTS OF FURTHER ASSURANCE............................30
12.12. PUBLICITY...................................................30
12.13. DISCLOSURE SCHEDULES........................................30
12.14. NO THIRD PARTY BENEFICIARIES................................31
iv
EXHIBITS
--------
A. List of the Investing Stockholders (Preamble)
B. Form of Investment Questionnaire (ss.2.2)
C. Form of Employment Agreement (ss.8.2.4)
D. Form of Covenant Not to Compete and Confidentiality Agreement (ss.8.2.5)
E. Form of Opinion of the Management Stockholder's Counsel (ss.8.2.5(b))
F. Form of Opinion of Buyer's Counsel (ss.8.3.3(b))
SCHEDULES
---------
2.2 Shares of Equitex Common Stock to issued to each Selling Stockholder
4.2 Encumbrances on Shares in favor of the Corporation
4.3 Foreign Qualification of the Corporation
4.5 Selling Stockholder Consents
4.6 Capitalization; Debentures
4.7 Financial Statements
4.8 Undisclosed Liabilities
4.9 Certain Changes Since December 31, 2000
4.10 Taxes
4.11 Title to and Condition of Assets
4.12 Real Estate and Leases
4.13 Contracts
4.14 Cash on Hand
4.15 Receivables; Payables
4.16 Compliance with Law
4.17 Litigation
4.18 Bank Accounts, Guarantees and Powers
4.19 Insurance
4.20 Employment, Labor and Other Relations
4.21 Employee Benefits
4.22 Proprietary Rights
4.23 Governmental Permits
4.24 Environmental Matters
4.25 Bad Check Liability
4.26 Principal Customers and Suppliers
5.3 Buyer Consents
7.3 Debenture Holders
v
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of August 31,
2001, by and between EQUITEX, INC., a Delaware corporation or its assignee, on
the one hand ("Buyer"), and Xxxxx X. Xxxxxxx and Xxxxx X. Xxxxxxxx, individuals
residing in the State of Minnesota, stockholders of Chex Services, Inc., a
Minnesota corporation (Messrs. Xxxxxxx and Xxxxxxxx being hereinafter
collectively referred to as the "Management Stockholders"), and each of the
other stockholders of Chex Services, Inc. as identified on Exhibit A hereto (the
"Investing Stockholders")(the Management Stockholders and the Investing
Stockholders being hereinafter referred to collectively as the "Selling
Stockholders"), on the other.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Selling Stockholders are the owners, beneficially and of
record, of 100% of the issued and outstanding shares of the capital stock, $.01
par value (the "Capital Stock") of CHEX SERVICES, INC., a Minnesota corporation
(the "Corporation"), which shares represent all of the issued and outstanding
capital stock of the Corporation; and
WHEREAS, Buyer desires to acquire 100% of the shares of the Capital
Stock owned by the Selling Stockholders from the Selling Stockholders, and the
Selling Stockholders are desirous of selling the Capital Stock to Buyer, on the
terms and subject to the conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, covenants and agreements hereinafter set forth, the parties
hereto agree as follows:
1. DEFINITIONS.
-----------
1.1. DEFINITIONS. In addition to the words and terms elsewhere defined
in this Agreement, the following words and terms as used in this Agreement shall
have the following meanings:
ACQUIRED SHARES: the shares of Common Stock to be acquired by Buyer, as
specified in Section 2.1.
AFFILIATE (AND VARIANTS THEREOF): of an entity means any person or
entity directly or indirectly controlling, controlled by or under
direct or indirect common control with that entity.
AFFILIATED GROUP: the meaning specified in Section 4.10.
CAPITAL STOCK: all authorized, issued and outstanding shares of capital
stock of the Corporation, including the Common Stock together with the
Preferred Stock, if any.
CLOSING AND CLOSING DATE: the meanings specified in Section 3.
1
COMMON STOCK: all of the authorized, issued and outstanding shares of
the common stock $.01 par value per share, of the Corporation.
CONTRACTS: the meaning specified in Section 4.13.
EMPLOYEE PLAN: the meaning specified in Section 4.21.
ENCUMBRANCES: the meaning specified in Section 4.11.
ENVIRONMENTAL LAWS: the meaning specified in Section 4.24.
ERISA: the meaning specified in Section 4.21.
STOCKHOLDER COVENANTS: the Covenants Not to Compete and Confidentiality
Agreements referred to in Section 8.2.5.
GOVERNMENTAL PERMITS: the meaning specified in Section 4.23.
INDEBTEDNESS: the meaning specified in Section 4.13(c).
INTERIM FINANCIALS: the meaning specified in Section 4.7.
IRC: the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
IRS: the Internal Revenue Service.
LAWS: the meaning specified in Section 4.16.
LIABILITIES: the meaning specified in Section 4.8.
PREFERRED STOCK: all of the authorized, issued and outstanding shares
of the preferred stock of the Corporation, if any.
PRIME: shall mean the interest rate announced as its "Reference Rate"
by Bank of America at its principal office.
REAL PROPERTY LEASES: the meaning specified in Section 4.12.
SUBSIDIARIES: the meaning specified in Section 4.4.
TAXES: the meaning specified in Section 4.10.
TAX RETURNS: the meaning specified in Section 4.10.
TO THE BEST KNOWLEDGE OF THE MANAGEMENT STOCKHOLDERS: those facts and
circumstances known to management of the Corporation and those facts
known to the Management Stockholders, in each case after having made a
good faith effort to ascertain the fact in question pursuant to an
inquiry directed to such officers, directors, supervisors and advisors
of the Corporation or
2
Management Stockholders as would be reasonably likely to have
information relating to the fact in question, and those facts
and circumstances which they should have known in the exercise
of reasonable and customary due diligence.
YEAR-END FINANCIALS: the meaning specified in Section 4.7.
2. PURCHASE AND SALE; DELIVERY OF SCHEDULES AND EXHIBITS.
-----------------------------------------------------
2.1. SALE OF THE SHARES. The Selling Stockholders agree to sell and
deliver to Buyer at the place of Closing on the Closing Date referred
to in Section 3 hereof, free and clear of all claims, liens, charges
and encumbrances of any nature whatsoever, all of the shares of the
Capital Stock, and Buyer hereby agrees to purchase at the place of
Closing on the Closing Date, all of the shares of the Capital Stock,
which are hereinafter referred to as the "Acquired Shares."
2.2. PURCHASE PRICE. As consideration for the Acquired Shares, Buyer
shall issue or cause to be issued to the Selling Stockholders, at the Closing,
the aggregate amount of Two Million (2,000,000) shares of the common stock, $.02
par value of Equitex, Inc. ("Equitex Common Stock"), in the amounts set forth
opposite each Selling Stockholder's name on Schedule 2.2 hereto (the "Purchase
Price"). In addition, Buyer shall issue or cause to be issued, options to
purchase up to an additional Six Hundred Seventy-five Thousand (675,000) number
of shares of Equitex Common Stock (the "Options"), for an exercise price equal
to the closing price of Equitex Common Stock on the NASDAQ Stock Exchange at the
close of business on the Closing Date, in equal numbers to Messrs. Xxxxx X.
Xxxxxxx and Xxxxx X. Xxxxxxxx. Each Selling Stockholder acknowledges that the
Equitex Shares have not been registered under the Securities Act of 0000 (xxx
"Xxx,") and agrees to complete, prior to the issuance of any shares pursuant to
this Agreement, an Investment Questionnaire, substantially in the form of
Exhibit B hereto, establishing, to the satisfaction of Equitex, Inc. and its
counsel each such Selling Stockholder's status as an "Accredited Investor,"
under the Act, unless the availability of another exemption under the Act with
respect to such investor or investors shall have been established to the
satisfaction of Equitex and its counsel. Equitex shall agree, as of the Closing
Date, to consider in good faith from time to time the "piggy-back" registration
of the Equitex Common Stock issued hereunder or in connection with the Options
(subject only to any restrictions or limitations on such registrations in
agreements Equitex may have entered into prior to the issuance of the Equitex
Common Stock). It is hereby acknowledged that the parties desire and intend that
this transaction shall qualify as a tax-free exchange or reorganization under
Section 368 (a)(1) of the IRC, and the parties agree to use their mutual best
efforts to structure the transaction so as to achieve such qualification.
2.3. EFFECTIVENESS SUBJECT TO COMPLETION OF EXHIBITS AND SCHEDULES. It
is expressly acknowledged and agreed by the parties that, as of the date of
their execution hereof, the Exhibits and Disclosure Schedules hereto have not
been completed and agreed upon, with respect to the Exhibits, or supplied to and
accepted by Buyer, with respect to the Disclosure Schedules. The effectiveness
of this Agreement is hereby expressly conditioned upon and made subject to: (1)
the Corporation and the Management Stockholders having supplied each of the
Disclosure Schedules set forth at page iv of the preliminary matter hereto no
later than September 21, 2001, and the Buyer having accepted such Disclosure
Schedules, and having notified the Corporation and the Management Stockholders
of such acceptance, in writing, no later than September 28, 2001; and (2) the
parties and their respective counsel having agreed upon the form of the Exhibits
hereto no later than the Closing Date.
3
3. CLOSING.
-------
3.1. TIME; PLACE. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Xxxxxxxx &
Xxxxxx, 0000 Xxxxx Xxxxxx Towers, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX
00000-0000 at 10:00 A.M. (Central Daylight Time) on October 1, 2001, or such
other date and time as Buyer and the Management Stockholders shall agree (the
"Closing Date").
At the Closing on the Closing Date, each of the Selling Stockholders
shall sell, transfer, assign, convey and deliver to Buyer the portion of the
Acquired Shares owned by each such Selling Stockholder, constituting in the
aggregate all of the Acquired Shares; and Buyer shall deliver certificates
representing the number of shares of Equitex Common Stock to which each of the
Selling Stockholders is entitled pursuant to Schedule 2.2 hereof; and the
parties shall deliver the agreements, certificates, opinions and other documents
required to be delivered pursuant to Section 8 and elsewhere in this Agreement.
3.2. EFFECTIVE TIME. Title to the Acquired Shares shall be deemed to
have been transferred to Buyer at 11:59 P.M. on the Closing Date.
3.3. FURTHER ASSURANCES. If at any time after the Closing Date Buyer
shall consider or be advised that any further deeds, assignments or assurances
in law or any other acts are necessary, desirable or proper (i) to vest, perfect
or confirm, of record or otherwise, in Buyer, the title to the Acquired Shares,
or (ii) otherwise carry out the purposes of this Agreement, each of the Selling
Stockholders agrees that he shall execute and deliver all such deeds,
assignments and assurances in law and do all acts reasonably necessary,
desirable or proper to vest, perfect and confirm title to such Acquired Shares
in Buyer, and otherwise to carry out the purposes of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT STOCKHOLDERS.
--------------------------------------------------------------
The Management Stockholders hereby jointly and severally represent and
warrant to Buyer as follows:
4.1. SELLERS AUTHORITY; BINDING AGREEMENT. The Selling Stockholders
have, and each of them has, all requisite power and authority to enter into this
Agreement, to consummate the transactions contemplated hereby and otherwise to
carry out his obligations hereunder. This Agreement constitutes, and all other
agreements and documents to be executed and delivered by the Selling
Stockholders, including without limitation, any proxy executed by any of the
Investing Shareholders authorizing the transactions contemplated hereby and any
letter of transmittal or other agreement or document conveying each such
Investing Shareholder's Shares in accordance with the terms hereof, will
constitute the valid and binding agreements of the Selling Stockholders,
enforceable in accordance with their respective terms (subject, as to the
enforcement of remedies, to general equitable principles and to bankruptcy,
insolvency and similar laws affecting creditors' rights generally).
4.2. SHARE OWNERSHIP. Each of the Selling Stockholders is the lawful
beneficial and record owner of, and has good and valid title to, the portion of
the Acquired Shares indicated as owned by him on the stock transfer records of
the Corporation, free and clear of all mortgages, liens, pledges, security
interests, encumbrances or other third party interests of any nature whatsoever,
including, without limitation,
4
subscriptions, options, warrants, rights or other agreements granting to any
person, firm or corporation any interest in or right to acquire at any time, or
upon the happening of any stated event, any of the Corporation's Shares (or
interests therein), except and to the extent of any such encumbrances in favor
of the Corporation and which are set forth on Schedule 4.2 hereof, and the
Acquired Shares constitute all of the issued and outstanding capital stock of
the Corporation.
4.3. THE CORPORATION: ORGANIZATION, POWER AND FOREIGN QUALIFICATION.
The Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, and has all requisite
corporate power and authority to own or hold under lease its properties and
assets and to carry on its business as now conducted. The Corporation is duly
qualified to do business and is in good standing as a foreign corporation in
every jurisdiction in which the nature of its activities or the ownership or
leasing of property requires such qualification, except where the failure to so
qualify could have a material adverse effect upon its properties, assets,
financial condition, results of operations, business prospects or ability to
enforce its rights, and each jurisdiction in which it is so qualified is listed
on Schedule 4.3. True and complete copies of the certificate of incorporation,
as amended to date, and the by-laws, as amended to date, of the Corporation have
been furnished to Buyer. The minute books and stock record books of the
Corporation containing minutes of director and stockholder meetings and stock
transfer and ownership records are complete and correct in all material
respects.
4.4. SUBSIDIARIES. The Corporation has no subsidiaries. The Corporation
does not own, and on the Closing Date will not own, directly or indirectly, any
equity or other proprietary interest in any corporation, partnership, joint
venture, business enterprise or other entity of any nature whatsoever.
4.5. NON-CONTRAVENTION; CONSENTS. The execution and delivery of this
Agreement and the Stockholder Covenants by the Selling Stockholders does not,
and the consummation by the Selling Stockholders of the transactions
contemplated on their part hereby and thereby does not and will not, constitute
or result in (with or without the giving of notice or the lapse of time or both)
(A) a breach or violation of, or a default under, any provision of the articles
or certificate of incorporation or by-laws (or equivalent documents) of the
Corporation, (B) a breach or violation of, a default under, or the triggering of
any payment or other material obligations pursuant to, any of the benefit plans
described in Section 4.21 or any grant or award made under any of the foregoing,
or (C) a breach or violation of, or a conflict with, or a default under, or
termination of, or an event permitting any other person to terminate, or the
acceleration of, or the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance on any properties or assets of the
Corporation pursuant to any provision of any contract, license or other
agreement binding upon any Selling Stockholder or the Corporation, or any law,
rule, decree, regulation, ordinance or order, award or governmental permit or
license applicable to any Selling Stockholder, or the Corporation or any of
their respective properties or assets, or (D) any material change in the rights
or obligations of any party under any of the contracts described pursuant to
Section 4.13 hereof, including any such change as the result of a change in
control provision or similar provision contained in any such contract.
Except as disclosed in SCHEDULE 4.5, no consent of, notice to, or
filing with any federal, tribal, state, or local authority, or any other person
or entity, is required to be obtained, given or made by any of the Selling
Stockholders, or the Corporation in connection with the execution, delivery or
performance of
5
this Agreement or any other agreement or document to be executed, delivered or
performed hereunder by a Selling Stockholder or the Corporation, the
consummation of the Merger, or to enable Buyer to continue to conduct the
Corporation's business after the Closing in the manner in which such business is
currently conducted.
4.6. CAPITALIZATION; DEBENTURES. SCHEDULE 4.6 to this Agreement sets
forth, for the Corporation (i) the number and class of shares of its Capital
Stock authorized, issued and outstanding; and (ii) a description of any
outstanding options, warrants or other rights and agreements to purchase or
subscribe to any such shares or any other shares of Capital Stock or securities
convertible into or exchangeable for such shares or other Capital Stock.
All of the currently issued and outstanding shares of Capital Stock of
the Corporation have been duly authorized and are validly issued, fully paid and
nonassessable and have not been issued in violation of any applicable law, its
certificate of incorporation or by-laws, or the terms of any agreement to which
any Selling Stockholder or the Corporation or any of their affiliates or their
assets are a party or are bound. There are no shares of Capital Stock reserved
for issuance, or any outstanding subscriptions, options, warrants, conversion or
other rights or other agreements granting to any person, firm or corporation any
interest in or right to acquire at any time, or upon the happening of any stated
event, any shares of the Capital Stock or any other equity securities of the
Corporation or any interest in or convertible into Capital Stock, or other
agreements or commitments by which the Corporation is obligated to issue
additional shares of Capital Stock or securities convertible into, exchangeable
for or evidencing the right to subscribe for any shares of Capital Stock or any
stock appreciation or similar rights; or requiring the Corporation to
repurchase, reacquire or redeem any of its outstanding Capital Stock.
All of the Corporation's currently outstanding one-year debentures, as
listed on SCHEDULE 4.6 hereto (the "Debentures"), represent valid and
collectable obligations of the holder thereof to the Corporation, are
enforceable in accordance with their terms and conditions, and are not subject
to any defenses, claims or set-offs. The Debentures have not been issued by the
Corporation in violation of any applicable law (including without limitation,
the Act), its certificate of incorporation or by-laws, or the terms of any
agreement to which any Selling Stockholder or the Corporation or any of their
affiliates or their assets are a party or are bound. To the best knowledge of
the Management Stockholders, each of the holders of the Debentures is an
Accredited Investor under the Act.
4.7. FINANCIAL STATEMENTS. SCHEDULE 4.7 hereto contains true and
correct copies of the following financial statements (collectively the
"Financial Statements"):
(i) The audited balance sheets of The Corporation together with the
related statements of income and retained earnings and changes in
financial position at and for each of the two consecutive fiscal years
ended December 31, 2000 (the "Year End Financials"); and
(ii) The balance sheet of the Corporation, each together with the
related statements of income and retained earnings and changes in
financial position at and for the interim period beginning January 1,
2001 and through and ending with the last month end which precedes the
Closing Date by more than twenty (20) days, all presented in a form and
on basis consistent with the Year End Financials (the "Interim
Financials").
6
Each of the balance sheets and the notes thereto included in the
Financial Statements are complete and accurate and fairly present the
consolidated assets, liabilities and financial condition of the Corporation as
at the respective dates thereof, and such consolidated statements of income and
retained earnings and changes in financial position and the notes thereto
included in the Financial Statements are complete and accurate and fairly
present the results of operations for the periods therein referred to; all in
accordance with United States generally accepted accounting principles
consistently applied throughout the periods involved except, in the case of the
Interim Financials, for normally recurring year-end adjustments, which
adjustments will not be material to such Interim Financials either individually
or in the aggregate.
4.8. UNDISCLOSED LIABILITIES. The Corporation does not have any
liabilities or obligations (direct or indirect, contingent or absolute, known or
unknown, matured or unmatured) of any nature whatsoever, whether arising out of
contract, tort, statute or otherwise ("Liabilities"), except (a) as reflected,
reserved against or given effect to in the Financial Statements; (b) as
specifically disclosed in SCHEDULE 4.8; or (c) Liabilities incurred in the
ordinary course of business since the date of the Year-End Financial Statements
and which will not individually or in the aggregate be materially adverse to, or
result in a material increase in the current or long term liabilities or
obligations of, the Corporation. To the best knowledge of the Management
Stockholders, there is no basis for assertion against the Corporation of any
Liabilities except for Liabilities described in clauses (a) through (c) of this
Section 4.8.
4.9. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 4.9,
since the date of the December 31, 2000 Balance Sheet included in the Financial
Statements, there has not been:
(a) any material adverse change in the condition (financial or
otherwise) of the properties, assets, liabilities, results of operation
or business prospects of the Corporation;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, assets,
liabilities, financial condition, results of operations or business
prospects of the Corporation;
(c) any declaration, setting aside, or payment of any dividend or
other distribution in respect of the Capital Stock of the Corporation, or
any direct or indirect redemption, retirement, purchase or other
acquisition of any of such stock, or any issuance of shares of stock or
the granting, issuance or exercise of any right, warrant, option or
similar commitment relating to the Corporation's authorized or issued
Capital Stock;
(d) any increase in the compensation, commissions or perquisites
payable or to become payable by the Corporation to any director, officer,
employee, or agent thereof, or any payment of any bonus, profit sharing
or other extraordinary compensation to any employee of the Corporation
(other than any such increase or payment paid or to become payable in the
ordinary course of business consistent with past practices to persons
other than the Selling Stockholders, and which, in the aggregate, are not
material to the total compensation, commissions or perquisites paid by
the Corporation);
(e) any increase in loans made by the Corporation to any
stockholder, director, officer, employee, or agent thereof, or any
forgiveness of any such loans;
7
(f) any change in any of the accounting methods or practices
followed by the Corporation or any change in depreciation or amortization
policies or rates theretofore adopted;
(g) any cancellation of any debts owed to or claims held by or on
behalf of the Corporation;
(h) any actual or threatened terminations of any business
relationships or material agreements between the Corporation and any of
their material customers and suppliers;
(i) any incurrence of any obligation or liability (absolute or
contingent) for Indebtedness, except current liabilities incurred, and
obligations under contracts entered into, in the ordinary course of
business and consistent with Section 4.8(c) and described in SCHEDULE
4.11; or any acceleration in the payment of, or payment other than in the
ordinary course of the Corporation's and the Selling Stockholders'
business consistent with past custom and practices thereof, of any
Indebtedness or amounts due or payable thereunder; or
(j) any mortgage, encumbrance, sale, lease, abandonment or other
disposition of any real property, or, other than in the ordinary course
of business, of any machinery, equipment or other properties, or any
intangible assets utilized by the Corporation.
4.10. TAXES. As used herein, the term "Taxes" means all federal, state,
local and foreign income, excise, property, sales, use, payroll, intangibles,
franchise and other taxes of whatever nature, all penalties related to such
taxes and interest on such taxes and penalties. All returns and reports
(including consolidated, combined, unitary or other reports or returns and
estimated tax and information returns) relating to Taxes (the "Tax Returns")
required to be filed by The Corporation through the date hereof have been, and
as to Tax Returns required to be filed through the Closing Date will be, timely
filed with the appropriate governmental agencies in all jurisdictions in which
such Tax Returns were or are required to be filed, and all such Tax Returns are
or will be true and correct and prepared in accordance with applicable law and
regulations and properly reflect, or will properly reflect, the Taxes of the
relevant taxpayer for the periods covered thereby.
Except as set forth in SCHEDULE 4.10, all Taxes due and payable by the
Corporation with respect to all periods prior to and through the date hereof
have been, and through the Closing Date will be, duly and properly computed,
reported, fully paid and discharged and there are no unpaid Taxes with respect
to any period prior to and through the date hereof, and there will not be any
unpaid Taxes with respect to any period through the Closing Date, which are or
could become a lien on the properties and assets of the Corporation, except for
current Taxes not yet due and payable. Adequate accruals on the Financial
Statements have been made for the payment of all accrued and unpaid Taxes,
whether or not disputed, for the tax year ended December 31, 2000 and for all
fiscal periods prior thereto or arising out of transactions entered into or any
state of facts existing on or prior thereto; and for such periods, and all
periods prior to and through the date hereof have been, and through the Closing
Date will be, properly accrued on the books and Financial records of the
Corporation in
8
accordance with generally accepted accounting principles and in amounts
sufficient for the payment of all unpaid Taxes required to be paid by the
Corporation with respect to such periods.
Except as set forth on SCHEDULE 4.10, there are no known or proposed
penalty, interest or deficiency assessments with respect to Taxes of the
Corporation that require payment by, relate to or could adversely affect the
Corporation or any of its assets. SCHEDULE 4.10 also describes all audits
conducted by any taxing authority on the Tax Returns of the Corporation during
the most recent five (5) fiscal years, including any penalty, interest or
deficiency assessment made against the Corporation as a result of such
examinations. Except as set forth on SCHEDULE 4.10, the Corporation has not
waived any law or regulation fixing, or consented to the extension of, any
period of time for the assessment of any Taxes, which waiver or consent is
currently in effect. Except as described on SCHEDULE 4.10, there is no agreement
in existence under which the Corporation has an obligation to contribute to the
payment of any portion of a federal or state income tax determined on a
consolidated basis with respect to an affiliated group of corporations (as
defined in Sections 1502 and 1504 of the IRC) of which the Corporation is a
member. All Taxes that the Corporation is or was required by law to withhold or
collect have been duly withheld and collected and, to the extent required, have
been paid to the proper governmental body or other person or entity. The
Corporation has not heretofore made the election referred to in Section 341(f)
of the IRC.
Copies of all income tax returns for or in respect of the Corporation
for all years not barred by the statute of limitations have heretofore been
delivered to Buyer and all such returns are listed in SCHEDULE 4.10.
4.11. TITLE TO AND CONDITION OF ASSETS. The Corporation is the lawful
owner of and has good and marketable title to (or valid and enforceable
leasehold, license or similar interests in) all of the properties and assets
necessary to or used in the conduct of its businesses, including without
limitation those assets and properties reflected in the Financial Statements
(other than those properties and assets disposed of since December 31, 2000 or
June 1, 2001, respectively, in the ordinary course of business and for fair
value) in the amounts and categories reflected therein, and to all properties
and assets acquired by the Corporation after the respective dates thereof, free
and clear of all mortgages, liens, pledges, charges, security interests,
encumbrances, claims or other third party interests of any nature whatsoever
("Encumbrances"), except for: (a) the lien of current taxes not yet due and
payable; (b) mechanics', carriers', workmen's, repairmen's or other like liens
arising or incurred in the ordinary course of business, which are not due and
payable or which may thereafter be paid without penalty or are being contested
in good faith by appropriate proceedings; (c) easements, covenants, rights of
way and other encumbrances or restrictions of record; (d) zoning and other
similar restrictions; (e) unrecorded easements, covenants, rights of way or
other restrictions which do not materially impair the value or use of the
property to which they relate; or (f) as disclosed on SCHEDULE 4.11, none of
which materially impair the value or use of the property to which they relate.
Except as disclosed in SCHEDULE 4.11, tangible personal properties and the
improvements to leased real properties of the Corporation are in good operating
condition and repair, ordinary wear and tear excepted, are useable in the
ordinary course of business and conform in all material respects to all
applicable statutes, ordinances and regulations relating to their construction,
use and operation.
4.12. REAL ESTATE AND LEASES. There is disclosed in Schedule 4.12 a
description of all real estate (including buildings and improvements) owned or
leased by the Corporation according to the character of the property and the
location thereof. SCHEDULE 4.12 also includes a brief description (including in
each case the annual rental payable, the expiration date, a brief description of
the property covered and the name of the
9
lessor) of every lease or agreement (written or oral) under which the
Corporation is lessee of, or holds or operates, any real property (the "Real
Property Leases"). Except as described on SCHEDULE 4.12, each of the Real
Property Leases is in full force and effect and constitutes a legal, valid and
binding obligation of the Corporation and the other respective parties thereto.
The Corporation is not and, to the best knowledge of the Management
Stockholders, no other party thereto, is in default in any material respect
under any Real Property Lease nor has any event occurred which with the passage
of time or giving of notice or both would constitute such a default. No
Encumbrances have been placed, or have been permitted to be placed, by any
Selling Stockholder, the Corporation or any of their affiliates, on the
leasehold interests represented by the Real Property Leases. Except as disclosed
on SCHEDULE 4.12, the real property and the buildings thereon owned or utilized
by the Corporation in the conduct of its business does not violate any building,
zoning or other laws or ordinances, or any agreements, applicable thereto, and
no notice of any such violation or claimed violation or of any condemnation
proceedings has been received by any of the Management Stockholders or the
Corporation. Except as set forth on SCHEDULE 4.12, none of the Real Property
Leases is subject to modification, lapse or termination, nor is the consent of
any party to the Real Property Leases required to be obtained, as a result of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
4.13. CONTRACTS. Except as set forth in SCHEDULE 4.13, The Corporation
is not a party to, or bound by, any oral or written contracts, agreements,
commitments or understandings ("Contracts"):
(a) for the employment of any officer or employee earning more than
$25,000 per annum or which is not cancelable by The Corporation without
payment of less than $5,000 and on thirty (30) days' or less notice;
(b) for the purchase or sale of capital stock or interests in or
convertible to capital stock;
(c) for the borrowing of money or issuance of any note, bond,
indenture, loan, credit agreement or other evidence of indebtedness or
direct or indirect guarantee or assumption of indebtedness, liabilities
or obligations of others (the "Indebtedness");
(d) for leasing personal property (including, without limitation,
leases for machinery and equipment, furniture, fixtures, vehicles and
tools) which require in any case an annual payment in excess of $25,000
or the term of any of which exceeds two (2) years;
(e) involving the payment or receipt in any case of in excess of
$25,000 per annum by the Corporation or the term of any of which exceeds
two (2) years;
(f) providing for the services of agents, consultants, advisors,
advertisers, dealers, distributors, sales representatives or similar
representatives involving in any case the payment or receipt of in excess
of $25,000 per annum by the Corporation or not immediately terminable by
the Corporation at will and without cost or liability to the Corporation;
(g) relating to the ownership, use or licensing of any Proprietary
Rights (as defined in Section 4.22);
(h) relating to product or service warranties;
10
(i) involving capital expenditures or the acquisition of fixed
assets which require aggregate annual payments of more than $25,000;
(j) containing a covenant not to compete or confidentiality
agreement by the Corporation or any Selling Stockholder or which
otherwise restricts the Corporation from doing any type of business;
(k) for the sale of any of the assets, property or rights of the
Corporation outside the ordinary course of business;
(l) whereby the Corporation was acquired by the Selling Stockholders
prior to the date hereof;
(m) directly or indirectly between the Corporation, and any
Management Stockholders regarding the leasing or licensing of properties
or assets, the providing of services to or by the Corporation or any loan
or other financial or business relationship; or
(n) which could otherwise have a material effect on the properties,
assets, financial condition, results of operations or business prospects
of the Corporation.
All of the Contracts constitute legal, valid and binding obligations of
the respective parties thereto, are in full force and effect, and neither the
Selling Stockholders nor the Corporation, nor, to the best knowledge of the
Management Stockholders, any other party thereto, has violated any provision of,
or committed or failed to perform any act which with notice, lapse of time or
both would constitute a default under the provisions of any of the Contracts,
which violation or termination could have a material adverse effect upon the
properties, assets, liabilities, financial condition, results of operations or
business prospects of the Corporation. Correct and complete copies of all
written Contracts disclosed on SCHEDULE 4.13 have been delivered to Buyer.
Except as set forth on SCHEDULE 4.13, none of the Contracts is subject to
modification, lapse or termination, nor is the consent of any party required, as
a result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
4.14. CASH ON HAND. As of the date hereof the Corporation has cash on
hand of not less than $_____________, as shown on the Financial Statements or
acquired since the dates thereof, net of reserves. Such amount reflects the
Corporation's normal cash position, and the Corporation has, and on the Closing
Date will have, the proper amount of cash to conduct its business, and such
amounts are consistent with past practices.
4.15. CHECKS NOT YET COLLECTED. All of the checks paid but not yet
collected shown on the Financial Statements, and any such amounts which arose
since the date of the consolidated balance sheet included in the Interim
Financials ("Not Yet Collected Checks"), arose from check cashing services
performed in the ordinary course of business, represent legal and valid
obligations to the Corporation and, except as described on SCHEDULE 4.15, are
not subject to any Encumbrances or set-off or counterclaim, except for
adjustments reflecting uncollectible amounts in the ordinary course of business.
All of the checks cashed are current and collectible in the ordinary course of
business, net of reserves, and in accordance with their terms.
11
All of the accounts payable shown on the Financial Statements, and any
such accounts payable which arose since the date of the consolidated balance
sheet included in the Interim Financials ("Payables") were, and as of the
Closing Date will be, (i) due and payable in the ordinary course of business to
persons who are not Affiliates of any Management Stockholder or the Corporation,
(ii) current as of such dates and in amounts consistent with past practices of
the Corporation in paying its trade creditors, and (iii) in compliance with
applicable trade creditor payment terms for payment by the Corporation without
penalty or interest. Schedule 4.15 includes an aged list of unpaid Payables as
of August 31, 2001, and not more than $5,000.00 of the Payables reflected on
such lists have been outstanding for in excess of forty-five (45) days from
their respective billing dates.
4.16. COMPLIANCE WITH LAW. Except as described on SCHEDULE 4.16, each
of the Management Stockholders, the Corporation and the methods and means
employed by each of them in the operation of the business and the properties and
assets of the Corporation have complied and presently comply in all material
respects with all federal, tribal, state, local and foreign statutes, codes,
ordinances, rules or regulations (the "Laws"), including without limitation all
applicable tribal, local or other regulations and practices having the force of
law, and all other laws relating to the performance of check cashing services or
the provision of automatic teller machine services. None of the Management
Stockholders nor the Corporation has received notice of any violations of any
Laws and to the best knowledge of the Management Stockholders, there is no basis
for a claim of any such violation.
Without limiting the above, except as set forth in SCHEDULE 4.16:
(a) the operations of the Corporation and its inventory are in
compliance with all, and no allegations, suits, actions, claims for
penalties or lost duties, orders, judgments, decrees or settlements are
pending respecting any, state, federal, tribal and local laws relative
to:
(i) the performance of check cashing services or the provision of
automatic teller machine services; and
(ii) the provision of any support services in connection with the
gaming industry; and
(b) the services performed by the Corporation are not the subject of
any investigation of violations of any applicable law; and
(c) at no time have any services performed by the Corporation either
been found by any agency or court to have been in violation of any
applicable consumer protection or gaming industry standard, or subject to
any warning notice or other order requiring that the Corporation perform
or abstain from any activity in connection therewith.
4.17. LITIGATION. Except as disclosed in SCHEDULE 4.17, there are no
lawsuits, proceedings, claims, governmental investigations or other actions
pending before any court or governmental or regulatory authority or body or, to
the knowledge of the Management Stockholders, threatened against or involving,
(i) the Corporation, its assets or business, (ii) the Acquired Shares, (iii) the
Selling Stockholders, or any of the officers, directors, employees or agents of
the Corporation, that could materially and adversely affect the
12
Corporation, its properties or business, or the Acquired Shares, or (iv)
challenging the validity or propriety of or which could impair the ability of
the Selling Stockholders to consummate the transactions contemplated by this
Agreement. SCHEDULE 4.17 also sets forth all judgments, consents, decrees,
injunctions or any other judicial or administrative mandates outstanding against
the Corporation or by which it or its assets or business are bound; and a list
and brief description of any claims for reimbursement or other indemnification
made by or against any Selling Stockholder in connection with the transactions
by which the shares of Capital Stock of the Corporation was acquired by a
Selling Stockholder. Except as set forth in SCHEDULE 4.17, to the best knowledge
of the Management Stockholders, none of such disclosed matters will, and there
are no presently existing facts or circumstances likely to give rise to any such
action which could, have a material adverse effect upon the properties, assets,
liabilities, financial condition, results of operations or business prospects of
the Corporation or its right to conduct its business as presently conducted, or
its ability to consummate the transactions contemplated by this Agreement.
4.18. BANK ACCOUNTS, GUARANTEES AND POWERS. SCHEDULE 4.18 sets forth:
(a) a list of all accounts, borrowing resolutions and deposit boxes maintained
on behalf of the Corporation at any bank or other financial institution and the
names of the persons authorized to effect transactions in such accounts or with
access to such boxes; (b) all agreements or commitments of the Selling
Stockholders or any of their affiliates guaranteeing the payment of money or the
performance of other obligations by the Corporation; and (c) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney with respect to the Corporation, together
with a summary of the terms thereof.
4.19. INSURANCE. SCHEDULE 4.19 contains a list of all insurance
policies specifying (a) the insurer, (b) the amount of the coverage, (c) the
type of insurance, (d) the policy number and (e) any currently pending claims
thereunder or any claims asserted thereunder or under similar policies since
January 1, 1996) maintained by or on behalf of the Corporation on its
properties, assets, business or personnel. All such policies are (and pending
Closing will continue to be) in full force and effect, and neither the Selling
Stockholders nor the Corporation is in default in any material respect with
respect to any provision contained in any insurance policies, nor have the
Selling Stockholders or the Corporation failed to give any notice or present any
claim thereunder in due and timely fashion. The insurance policies listed on
SCHEDULE 4.19 are adequate and customary in scope and amount for the business
conducted by the Corporation. All premiums due and payable on such policies
covering all periods through the date hereof have been, and through the Closing
Date will be, paid in full or accrued on the books and records of the
Corporation. The Corporation is insured in amounts and pursuant to insurance
policies satisfying all requirements of applicable Laws. Also set forth on
SCHEDULE 4.19 is a list of all types of liabilities against which the
Corporation is self-insured.
Except as described in SCHEDULE 4.19, the insurance coverage provided
by the policies therein will not terminate or lapse or otherwise be affected by
the transactions contemplated by this Agreement. At no time has the Corporation
been denied any insurance or indemnity bond coverage which it has requested, or
received any written notice from or on behalf of any insurance carrier presently
providing insurance relating to any of them (i) that insurance rates may or will
be substantially increased; (ii) that policies presently in effect will be
canceled or will not be renewed; or (iii) that material alterations to any of
the properties or business operations of the Corporation are necessary or
required by such carrier. None of such insurance policies are subject to
retroactive premium adjustment in respect of prior periods.
13
4.20. EMPLOYMENT, LABOR AND OTHER RELATIONS. Except as disclosed in
Schedule 4.20, the Corporation is not a party to or otherwise bound by any
contract, agreement or collective bargaining agreement with any labor union or
organization. Except as set forth in SCHEDULE 4.20, there are no charges or
complaints involving any federal, state or local civil rights enforcement agency
or court; complaints or citations under the Occupational Safety and Health Act
or any state or local occupational safety act or regulation; unfair labor
practice charges or complaints with the National Labor Relations Board; or other
claims, charges, actions or controversies pending, or, to the best knowledge of
the Management Stockholders, threatened or proposed, involving the Management
Stockholders in their operation of the Corporation or its business and any
employee or former employee of the Corporation or any labor union or other
organization representing or claiming to represent such employees' interests,
which could materially and adversely affect the Corporation. The Management
Stockholders in their operation of the Corporation's business was and is, and
has been and is, in compliance in all material respects with all laws, rules and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours, the sponsorship, maintenance, administration
and operation of (or the participation of its employees in) employee benefit
plans and arrangements and occupational safety and health programs, and the
Management Stockholders, in their operation of the Corporation were and are not
in violation of, and the Corporation has not been and is not engaged in any
violation of, any law, rule or regulation related to employment, including
unfair labor practices or acts of employment discrimination, which violation
could materially and adversely affect the Corporation. To the best knowledge of
the Management Stockholders, there is no existing or threatened labor
disturbance by employees of the Corporation.
The Corporation has not had a plant closing or mass lay-off (as those
terms are defined in the Worker Adjustment and Retraining Notification Act of
1988) affecting in whole or in part any facility, operating unit or employee
since the effective date of such Act.
4.21. EMPLOYEE BENEFITS. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life (including any individual life insurance policy relating to an employee of
the Corporation for which any Selling Stockholder or the Corporation makes
premium payments, whether or not the Selling Stockholder or the Corporation is
the owner, beneficiary or both of such policy), death benefit, group insurance,
profit sharing, deferred compensation, stock option, bonus, incentive, vacation
pay, severance pay, or other employee benefit plan, trust, arrangement,
contract, agreement, policy or commitment (including without limitation, any
pension plan ("Pension Plan") as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any welfare
plan as defined in Section 3(1) of ERISA ("Welfare Plan")), whether any of the
foregoing is funded, insured or self-funded, written or oral, (i) to which the
Corporation is a party or by which its (or any of its rights, properties or
assets) is bound or (ii) with respect to which the Management Stockholder, in
his operation of the Corporation, or the Corporation has made any payments,
contributions or commitments or may otherwise have any liability (whether or not
the Management Stockholders or the Corporation still maintain such Employee
Plan). With respect to the Employee Plans:
(a) There are no Employee Plans maintained by the Corporation, nor
are there any Welfare Plans under which employees of the Corporation are
entitled to any retiree benefits.
(b) The Corporation does not contribute, nor is it required to
contribute to any "multiemployer plan." Neither of the Management
Stockholders nor the Corporation is now, or has at any
14
time been, a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA) with respect to any "multiemployer pension plan," as defined in
Section 4001(a)(3) of ERISA.
(c) The Corporation has, and following the Closing will have, no
liability for any contributions, penalties, fines, assessments or other
liabilities as a result of having been a member of a controlled group
with the Management Stockholders under ERISA or the IRC.
4.22. PROPRIETARY RIGHTS. SCHEDULE 4.22 contains a list of all patents,
trademarks, trade names, service marks, copyrights and technology (and all
applications therefor), whether or not registered ("Proprietary Rights"), used
by the Corporation in the conduct of its business. The Corporation owns and has
the right to use without the payment of royalties or fees or other consideration
(except as disclosed on SCHEDULE 4.22), all Proprietary Rights necessary for or
used by it in the conduct of its business, including without limitation all
rights in the names "Chex," "Chex Services," and "Fast Funds." None of the
Proprietary Rights has been declared invalid, been limited by order of any court
or by agreement, or is the subject of any infringement, interference or similar
proceeding or challenge. Neither the Management Stockholders, in their operation
of the Corporation, nor the Corporation has infringed, or is infringing, on the
Proprietary Rights of others and neither the Management Stockholders nor the
Corporation has received any notice to that effect. The consummation of the
transactions contemplated by this Agreement will not terminate or alter the
Corporation's ability to utilize the Proprietary Rights or the terms of such
use. Listed on SCHEDULE 4.22 are all corporate, trade and fictitious names under
which the Corporation or its business has operated.
4.23. GOVERNMENTAL PERMITS. The Corporation possesses all governmental,
tribal and regulatory permits, licenses, consents, certificates, orders,
authorizations and approvals (the "Governmental Permits") necessary to own or
hold under lease and operate its properties and assets and to carry on its
business as now conducted, including without limitation any required by
applicable insurance, consumer finance, environmental or gaming laws or
regulations. All such Governmental Permits are in full force and effect. Neither
the Management Stockholders nor the Corporation has received any notice of
proceedings relating to the revocation or modification of any such Governmental
Permits which, singly or in the aggregate, if the subject of an unfavorable
ruling or finding, could have a material adverse effect on the properties,
assets, financial condition, results of operation or business prospects of the
Corporation. The Governmental Permits are listed on Schedule 4.23. The
Corporation is operating in compliance with the provisions, terms and conditions
of the Governmental Permits, and to the best knowledge of the Management
Stockholders, none of the Governmental Permits will be forfeited, terminated by,
suspended or modified, or will require the consent of any governmental or tribal
entity to, the consummation of the transactions contemplated hereby.
15
4.24. ENVIRONMENTAL MATTERS.
(a) DISPOSAL SITES. Except as set forth on SCHEDULE 4.24, with
respect to the period during which the Corporation owned, occupied or
operated real estate, and to the Management Stockholders' knowledge, with
respect to the time before The Corporation owned, occupied or operated
real estate, no person or entity has caused or permitted materials to be
treated, stored, disposed of, released as that term is defined in 42
U.S.C. ss.9601(22), deposited or recycled on, under or at any real estate
owned, occupied or operated by the Corporation, which materials, if known
to be present, would require clean-up, removal, response or remedial
action or other obligations ("Response") under Environmental Laws.
(b) TANKS. There are not now, nor to the Management Stockholders'
knowledge have there ever been, underground or above-ground storage or
disposal tanks or other facilities on, under, or at any real estate
owned, occupied or operated by the Corporation which contained materials
which, if known to have leaked or to be present in soil, groundwater or
surface water, would require Response under Environmental Laws.
(c) OTHER ENVIRONMENTAL CONDITIONS. Except as set forth on SCHEDULE
4.24, to the Management Stockholders' knowledge, there are no conditions
existing currently or likely, based upon the business as currently
conducted by the Corporation to exist hereafter which would subject the
Management Stockholders, the Corporation or Buyer to damages, penalties,
injunctive relief, expenses (including capital expenditures) or Response
costs under Environmental Laws or which require or are likely to require
Response pursuant to Environmental Laws by the Management Stockholders or
the Corporation. To the Management Stockholders' knowledge, there are no
hazardous substances (as that term is defined in 42 U.S.C. ss.9601(14)),
pollutants, contaminants, polychlorinated biphenyls, asbestos or urea
formaldehyde in or on the premises owned, occupied or operated by the
Corporation.
(d) CHANGES IN LAWS. To the Management Stockholders' knowledge,
there are no proposed or pending changes in Environmental Laws that would
adversely affect the Corporation.
(e) ENVIRONMENTAL JUDGMENTS, DECREES AND ORDERS/ PERMITS AND
LICENSES. The Corporation is not subject to any judgment, decree, order,
formal or informal commitment, or citation related to or arising out of
Environmental Laws or has been named, listed or subject to any request
for information as a potentially responsible party by any governmental
body or agency in a matter arising under any Environmental Laws. The
Corporation possesses all permits, licenses and approvals required under
Environmental Laws.
For purposes of this Agreement, the term "Environmental Laws" means all
federal, tribal, state and local laws including statutes, regulations,
ordinances, codes, rules and other governmental restrictions, requirements and
policies relating to the emission of air pollutants, discharge of water
pollutants or process waste water, or otherwise relating to the environment or
hazardous substances and solid waste including, but not limited to, the federal
Clean Air Act, the federal Clean Water Act, the federal Resource Conservation
and Recovery Act, the federal Comprehensive Environmental Response, Compensation
and Liability Act or their state or local counterparts now or at any time
hereafter in effect.
16
4.25. BAD CHECK LIABILITY. The reserves for bad check liabilities
reflected on the Financial Statements were adequate as of their respective
dates, and the reserves on the books and records of the Corporation as of the
date hereof are similarly adequate as of the date hereof. The method of
calculating such reserves is described in SCHEDULE 4.25.
4.26. PRINCIPAL CUSTOMERS AND SUPPLIERS. SCHEDULE 4.26 sets forth a
separate list of the ten largest operating locations of the Corporation in terms
of revenues during the fiscal year ended December 31, 2000, showing in each case
the total revenues from each such location during such period; and comparable
information for the six months ended June 30, 2001.
There has not been any material adverse change in the business
relationship of the Corporation with the operator or owner of any named
location, or any other person or entity that is material to the Corporation, and
there are no other locations, respectively, who accounted for more than 5% of
the Corporation's revenues during the periods shown.
4.27. SENSITIVE PAYMENTS. The Corporation has not directly or
indirectly made any payments or contributions to any political party, candidate
or government or tribal official of a kind prohibited by the Foreign Corrupt
Practices Act of 1977 as amended. The Corporation does not maintain any funds
not properly recorded on its financial and accounting records; and no payments
or transactions have been recorded on its books and records in a way that would
misstate or conceal the nature or purpose of the payment or transaction.
4.28. OTHER MATERIAL ADVERSE INFORMATION. Except as expressly set forth
in this Agreement and the Schedules or in the Financial Statements, or in the
certificates or other documents delivered pursuant hereto, the Management
Stockholders have no knowledge of any facts which will or may reasonably be
expected to have any material adverse effect on the value of the assets,
properties, business or goodwill of the Corporation, or upon its prospects or
earning power or upon the Acquired Shares.
4.29. DISCLOSURE. No representation or warranty of any of the
Management Stockholders made hereunder or in the Schedules or in any
certificate, statement or other document delivered or to be delivered by or on
behalf of the Management Stockholders in connection with the transactions
contemplated hereby contains, or will contain, any untrue statement of a
material fact or omits, or will omit, to state a material fact necessary in
order to make the statements contained herein or therein not misleading. Copies
of all documents referred to herein or in the Schedules have been delivered or
made available to Buyer, are true, correct and complete copies thereof, and
include all amendments, supplements or modifications thereto or waivers
thereunder.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants to the Management Stockholders as
follows:
5.1. ORGANIZATION; GOOD STANDING; OWNERSHIP. Buyer is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own or
hold under lease its properties and assets and to carry on its business as now
conducted.
17
5.2. AUTHORIZATION. Buyer has all requisite power and authority to
enter into this Agreement, to consummate the transactions contemplated hereby
and otherwise to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement constitutes, and all other agreements and
documents to be executed and delivered by Buyer pursuant hereto will constitute
the valid and binding agreements of Buyer, enforceable against it in accordance
with their respective terms (subject, as to the enforcement of remedies, to
general principles of equity and to bankruptcy, insolvency and similar laws
affecting creditors' rights generally).
5.3. NON-CONTRAVENTION; CONSENTS. The execution and delivery of this
Agreement by Buyer does not, and the consummation by Buyer of the transactions
contemplated hereby does not and will not, constitute or result in (with or
without the giving of notice or the lapse of time or both) (A) a breach or
violation of, or a default under, any provision of the articles or certificate
of incorporation or by-laws (or equivalent documents) of Buyer, or (B) a breach
or violation of, or a conflict with, or a default under, or termination of, or
an event permitting any other person to terminate, or the acceleration of, or
the creation or imposition of any lien, charge, pledge, security interest or
other encumbrance on any properties or assets of Buyer pursuant to any provision
of any contract, license or other agreement binding upon Buyer or any law, rule,
decree, regulation, ordinance or order, award or governmental permit or license
applicable to Buyer or any of its properties or assets.
Except as disclosed in SCHEDULE 5.3, no consent of, or notice to, or
filing with any federal, state or local authority, or any other person or entity
is required to be obtained, given or made by Buyer in connection with the
execution, delivery or performance of this Agreement or any other agreement or
document to be executed, delivered and performed by Buyer pursuant hereto
(except for any filings required under federal or state securities laws).
5.4. INVESTMENT INTENT. Buyer is and will be acquiring the Acquired
Shares for investment only and not with a view to any public distribution or
resale.
6. CERTAIN TAX MATTERS.
-------------------
6.1. FILING OF TAX RETURNS.
(a) THE MANAGEMENT STOCKHOLDERS' OBLIGATIONS. The Management
Stockholders will timely file or cause to be filed on behalf of the
Corporation any Tax Returns required to be filed with respect to any
Taxes for any period ending on or prior to the Closing Date to reflect
the operations of the Corporation up to and including the Closing Date.
All such Tax Returns described in this subsection 6.2(a) shall be
prepared and filed using tax accounting methods and principles which are
consistent with those used in the Tax Returns applicable to the
Corporation for preceding tax periods. In preparing such Tax Returns, no
election shall be made with respect to the computation of any item of
income, deduction or credit of the Corporation which is inconsistent with
the preparation of prior years' Tax Returns. Buyer shall provide to the
Management Stockholders all records and documents of the Corporation
reasonably required by the Management Stockholders to prepare any Tax
Return required to be filed by the Management Stockholders under this
subsection 6.2(a). The Management Stockholders shall deliver to Buyer a
complete and accurate copy of each Tax Return filed in accordance with
this subsection 6.2(a), together with copies of the permanent financial
records (including tax work papers)
18
of the Management Stockholders used to prepare such Tax Return within
thirty (30) days after the date the Tax Return is filed with the
applicable taxing authority, except that in the case of consolidated
returns, this delivery requirement shall be limited to those portions of
such Tax Returns as shall be related to the Corporation.
(b) BUYER OBLIGATIONS. Buyer shall timely file or cause to be filed
on behalf of the Corporation any Tax Returns with respect to any Taxes
for any period which begins prior to the Closing Date and which extends
beyond the Closing Date. Buyer shall deliver to the Management
Stockholders, if requested, a complete and accurate copy of each Tax
Return filed in accordance with this subsection 6.2(b) and relating to
periods prior to the Closing Date, and shall provide the Management
Stockholders with access to the permanent financial records (including
tax work papers) of the Corporation used to prepare such Tax Return
within thirty (30) days after the date of such request, except that in
the case of consolidated returns, this delivery requirement shall be
limited to those portions of such returns as shall be related to the
Corporation.
7. COVENANTS.
---------
7.1. CONDUCT OF BUSINESS. The Management Stockholders covenant and
agree with Buyer that from the date hereof until the Closing or termination of
this Agreement, unless otherwise consented to in writing by Buyer:
(a) CONDUCT OF THE CORPORATION BUSINESS; NO MATERIAL CHANGE. The
Management Stockholders will cause the Corporation to operate and conduct
its business, properties and assets only in the ordinary course and,
without limiting the foregoing, will:
(i) not allow the Corporation to make any change in its business
or operations;
(ii) maintain the Corporation's cash on hand status consistent
with the past practices of the Corporation in the ordinary course of
business;
(iii) not sell, pledge, lease, mortgage, encumber or otherwise
dispose of (except with the prior written consent of Buyer) any of
the Corporation's assets other than sales of inventory in the normal
course of business for fair value;
(iv) not borrow money except pursuant to the loan agreements
described in SCHEDULE 4.13 part (c), and not accelerate the payment
of any mortgage or any other obligation or commitment of the
Corporation;
(v) keep in force all policies of insurance covering the
business, properties and assets of the Corporation and, if Buyer so
requests in writing, use their reasonable efforts to secure, at the
expense of Buyer, additional insurance from an insurance carrier, in
an amount, on terms and to become effective upon a date on or within
a reasonable period after the Closing Date as shall be satisfactory
to Buyer;
(vi) not make or agree to make any distribution of cash or other
assets to any Affiliates or the Selling Stockholders, or any
employees, agents, family members, affiliates or associates of such
persons, by way of loans, advances, dividends or other wise,
19
except for any normal monthly salaries (at the rate in effect on the
date hereof) of any such persons who are also employees of the
Corporation and as otherwise expressly approved in advance and in
writing by Buyer;
(vii) not enter into any contracts or commitments therefor for
the purchase or lease of equipment, supplies or inventories, or
cause the Corporation to become obligated upon any other contracts
involving, in the aggregate, in excess of $25,000 without the prior
written approval of Buyer, which approval will not be unreasonably
withheld;
(viii) not acquire or agree to acquire (through redemption or
otherwise) any of the outstanding securities of the Corporation,
incur or agree to incur any obligations to issue securities nor
issue, sell or dispose of any of their respective securities or
options or rights convertible into their respective securities or
stock appreciation or similar rights;
(ix) except with the written consent of Buyer, which will not be
unreasonably withheld, not authorize or pay or agree to pay or
accrue any wage, salary or other increase in remuneration of any of
the Selling Stockholders, directors, officers or other employees or
agents of the Corporation, not authorize or make any changes in
compensation or policy regarding compensation payable or to become
payable to any directors, officers or other employees, and not hire
any new employees or elect any new officers or directors of the
Corporation; provided that it may, in the normal course of business,
increase the compensation payable to employees, hire persons to
replace terminated employees and hire new employees as may be
necessary to conduct the Corporation's business, provided that such
increases and hiring do not, in the aggregate, materially increase
the Corporation's payroll costs; and
(x) not amend the Corporation's articles or certificates of
incorporation or by-laws.
(b) MAINTAIN THE CORPORATION AS GOING CONCERN. The Management
Stockholders will preserve the business organization of the Corporation
and keep available the services of the present officers, employees, and
agents thereof and will use their best efforts to preserve the goodwill
of the Corporation's suppliers, customers and others having business
relations therewith.
(c) INVESTIGATION. The Management Stockholders shall, and shall
cause the Corporation to, allow Buyer and its representatives and persons
or entities which may provide financing for Buyer in connection with the
transactions contemplated hereby, at all reasonable times, full access
during normal business hours to all stores, warehouses, operations,
machinery, equipment, inventories, property, offices, books, contracts,
commitments, records and affairs of the Corporation and its business, and
reasonable access to third parties having business dealings with the
Corporation, for the
20
purpose of familiarizing themselves with the operation and conduct of all
aspects of their business and for the purpose of reasonable inspection,
examination, audit, counting and copying; such access shall not
unreasonably interfere with the operation and conduct of the business or
the Corporation.
(d) PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
Management Stockholders will refrain, and will cause the Corporation to
refrain, from taking any action which would render any representation
and/or warranty contained in this Agreement inaccurate at and as of the
Closing Date, except for changes therein specified in, permitted or
contemplated by this Agreement.
(e) NO SOLICITATION. The Management Stockholders and their
affiliates will take no action, directly or indirectly, to solicit
indications of interest or offers for the sale of the Corporation
(whether by sale of stock, assets, merger or otherwise) to anyone other
than Buyer, furnish information to others in that connection, or enter
into discussions with any person with respect thereto, and the Management
Stockholders will instruct their investment bankers and other
representatives to refrain from doing any of the foregoing.
7.2. SUPPLEMENTS TO EXHIBITS. From time to time prior to the Closing
Date, the Management Stockholders will and will cause the Corporation to
promptly supplement or amend any Schedules provided for in this Agreement (i) if
any matter arises hereafter which, if existing or occurring at or prior to the
date of this Agreement, would have been required to be set forth or described in
any such Schedule, or (ii) if it becomes necessary to correct any information in
any such Schedule which has become inaccurate; provided, however, that no such
supplement or amendment to any Schedule shall be considered in determining
satisfaction of the conditions set forth in Section 8.2.1 of this Agreement.
7.3. RENEWAL OF DEBENTURES. The Corporation will obtain from each of
the holders of any the Debentures a renewal or extension of the due date, in the
case of Debentures which by their terms have a due date in 2001, of the
indebtedness evidenced thereby, to a due date not earlier than the one year
anniversary of the due date thereof. The Management Stockholders will use their
best efforts to effect the continual and ongoing renewal of any Debentures, as
they may become due from time to time from and after the Closing Date, or to
find replacement holders for such Debentures, on terms no less favorable to the
Corporation than the current terms of the Debentures. To the best knowledge of
the Management Stockholders it is the current intention of each of the holders
of the Debentures to renew such Debentures from time to time, and not to
accelerate the due date therefor as a result of the transaction contemplated
hereby, or otherwise.
7.4. MUTUAL COVENANT. The Management Stockholders and Buyer agree that
they shall prepare, submit and file, or cause to be prepared, submitted and
filed, all applications for approvals and actions as may be required by
applicable law with respect to the transactions contemplated by this Agreement,
and shall use their respective best efforts to obtain such approvals and
accomplish such results as expeditiously as possible. In addition, they will use
their respective best efforts to obtain all other approvals, consents and
authorizations which are conditions to the Closing, and they shall take all
other action as shall be reasonably necessary or appropriate in order to
effectuate the transactions provided for or contemplated herein. Notwithstanding
the foregoing, when used in connection with the obtaining of a consent, approval
or other act of an unaffiliated third party or governmental authority, "best
efforts" shall not require Buyer to commence litigation against or acquire
control of such third person or the assets or obligations requiring such
consent, and shall not require Buyer to accelerate the payment of any
indebtedness.
21
7.5. NOMINATION TO BUYER'S BOARD OF DIRECTORS. Buyer hereby covenants
and agrees that it will nominate Xx. Xxxxx X. Xxxxxxxx for election to the Board
of Directors of Equitex, Inc. at the next regularly scheduled or special meeting
of shareholders at which directors may be elected, and will use its best efforts
to promote the election of Xx. Xxxxxxxx to the Board of Directors.
8. CONDITIONS TO CLOSING.
---------------------
8.1. MUTUAL CONDITIONS. The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the following conditions:
8.1.1. NO SUIT. No suit, action or other proceeding or investigation
shall to the knowledge of any party hereto be threatened or pending before or by
any governmental agency or by any third party questioning the legality of this
Agreement or the consummation of the transactions contemplated hereby in whole
or in part.
8.1.2. CLOSING. The Closing shall have occurred by September 15,
2001, or such later date as may be agreed to by Buyer and the Management
Stockholders.
8.2. CONDITIONS TO BUYER'S OBLIGATIONS. The obligations of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the following conditions:
8.2.1. REPRESENTATIONS AND WARRANTIEs. All representations and
warranties made by the Management Stockholders contained in this Agreement shall
be true and correct on the date hereof and as of the Closing Date as though such
representations and warranties were made as of the Closing Date, and Management
Stockholders shall have duly performed or complied with all of the obligations
to be performed or complied with by him under the terms of this Agreement on or
prior to Closing.
8.2.2. CONSENTS AND APPROVALS. All authorizations, consents,
waivers, approvals or other action required in connection with the execution,
delivery and performance of this Agreement by the Selling Stockholders and
Buyer, and the consummation by each of them of the transactions contemplated
hereby, shall have been obtained, and the Selling Stockholders and the
Corporation shall have obtained any authorizations, consents, waivers, approvals
or other action required in connection with the execution, delivery and
performance of this Agreement to prevent a material breach or default under, or
the termination, modification or lapse of, any of the Contracts and any
comparable contracts entered into after the date hereof.
8.2.3. MANAGEMENT AGREEMENTS. The Management Stockholders shall each
have executed and delivered to Buyer the Employment Agreements in the form
attached as EXHIBIT C to this Agreement.
8.2.4. COVENANT NOT TO COMPETE AND CONFIDENTIALITY AGREEMENT. Each
of the Management Stockholders shall have executed a Covenant Not to Compete and
Confidentiality Agreement in the form attached as EXHIBIT D to this Agreement.
22
8.2.5. NO MATERIAL ADVERSE CHANGE. There shall have occurred no
material adverse change (whether or not covered by insurance) in the assets,
financial condition or prospects of the Corporation.
8.2.6. MINIMUM CASH ON HAND. At and as of the Closing Date, the Cash
on Hand of The Corporation will not be less than $___________.
8.2.7. RENEWAL OF DEBENTURES. The holders of the Debentures which
expire in 2001 shall have agreed to the one year renewal or extension of such
Debentures on the terms set forth in Section 7.3 hereof, and the Management
Stockholders shall provide a certificate to such effect, or other evidence
reasonably satisfactory to Buyer of such renewal or extension.
8.2.8. DELIVERY OF OTHER DOCUMENTS. The following documents shall
have been delivered to Buyer:
(a) CERTIFICATE. A certificate, dated as of the Closing Date,
executed by duly authorized officers of the Corporation and by the
Management Stockholders certifying that the conditions contained in
Section 8.2.1 have been satisfied;
(b) OPINION. The opinion of counsel to the Management Stockholders,
dated the Closing Date, in the form attached hereto as EXHIBIT E ;
(c) CONSENTS. The consents required by Section 8.2.2;
(d) RESIGNATIONS. If requested by Buyer, resignations of the
directors and officers of the Corporation, in form and substance
acceptable to Buyer;
(e) GOOD STANDING CERTIFICATES. Certificates of legal existence and
good standing dated within five (5) days prior to the Closing Date for
the Corporation from the jurisdiction in which it is incorporated and the
jurisdictions in which it is qualified to do business;
(f) CERTIFIED CHARTER. True and complete copies of the Certificate
of Incorporation of the Corporation, certified by the Secretary of State
of its state of incorporation as of a date within five (5) days prior to
the Closing;
(g) STOCK CERTIFICATE. A certificate or certificates evidencing the
Acquired Shares; and
(h) Other. Such other documents as counsel for Buyer shall
reasonably request.
8.3. CONDITIONS TO THE SELLING STOCKHOLDERS' OBLIGATIONS. The
obligations of the Selling Stockholders to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing of each of the following conditions:
8.3.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement shall be true and correct on the
date hereof and as of the Closing Date as though such representations and
warranties were made as of the Closing Date, and Buyer shall have duly performed
or
23
complied with all of the obligations to be performed or complied with by them
under the terms of this Agreement on or prior to Closing.
8.3.2. APPROVALS. All authorizations or approvals or other action
required in connection with the execution, delivery and performance of this
Agreement by Buyer, and the consummation by Buyer of the transactions
contemplated hereby shall have been obtained.
8.3.3. DELIVERY OF DOCUMENTS. The following documents shall have
been delivered to the Management Stockholders:
(a) CERTIFICATE. A certificate, dated as of the Closing Date,
executed by a duly authorized officer of Buyer certifying that the
conditions contained in Section 8.3.1 have been satisfied;
(b) OPINION. The opinion of Boodell LeBaron & Xxxxxx, LLC, counsel
to Buyer, dated the Closing Date, in the form attached hereto as EXHIBIT
F;
(c) CONSENTS. Any consents required by Section 8.3.2;
(d) GOOD STANDING CERTIFICATES. Certificates of legal existence and
good standing dated within five (5) days prior to the Closing Date for
Buyer from the State of Delaware;
(e) CERTIFIED RESOLUTIONS. Certified copies of resolutions of the
board of directors of Buyer authorizing the execution, delivery and
performance of this Agreement and all acts of Buyer required or advisable
in connection with the transactions contemplated hereby;
(f) CERTIFIED CHARTER. A true and complete copy of the Certificate
of Incorporation of Buyer, certified by the Secretary of State of the
State of Delaware; and
(g) OTHER. Such other documents as counsel for the Management
Stockholders shall reasonably request.
9. TERMINATION.
-----------
9.1. TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing, as follows:
9.1.1. MUTUAL CONSENT. By mutual consent of all of the parties
hereto.
9.1.2. BREACH. By Buyer, on the one hand, or by the Selling
Stockholders, on the other hand, by reason of the breach by the other in any
material respect of any of its representations, warranties, covenants or
agreements contained in this Agreement.
9.1.3. RESPECTIVE CONDITIONS. By Buyer, on the one hand, or by the
Selling Stockholders, on the other hand, if the conditions precedent to their
respective obligations contained in Sections 8.2 or 8.3 hereof have not been met
in all material respects through no fault of the terminating party.
24
9.1.4. MUTUAL CONDITIONS. By Buyer, on the one hand, or by the
Selling Stockholders, on the other hand, if any of the conditions described in
Section 8.1 shall not have been fulfilled through no fault of the terminating
party.
10. INDEMNIFICATION.
---------------
10.1. BY MANAGEMENT STOCKHOLDERS. The Management Stockholders agree to
indemnify and hold harmless Buyer and, for periods following the Closing, the
Corporation, against any loss, damage or expense (including court costs and
reasonable attorneys' fees) suffered by them as a result of:
(i) any breach by the Selling Stockholders in the performance of his
obligations under this Agreement and the separate agreements provided for
herein;
(ii) any inaccuracy in or breach of any representations, warranties
or covenants made by the Selling Stockholders in this Agreement or any
document, certificate Schedule or Exhibit delivered by the Selling
Stockholders in accordance with the provisions of this Agreement;
(iii) any Taxes, any payments or accruals of salaries, wages,
amounts payable under any Employee Plans or otherwise to employees and
agents of the Corporation, and any other operating expenses of the
Corporation, in each case relating and incurred with respect to periods
prior to the Closing Date, whether or not due and payable prior to the
Closing Date, and whether or not accrued or otherwise reflected on the
Financial Statements or the books and records of the Corporation;
(iv) the failure of The Corporation to meet the minimum Cash on Hand
amount specified in Section 8.2.7;
(vi) any fees, expenses or other payments incurred or owed by the
Management Stockholders or the Corporation to any brokers or comparable
third parties retained or employed by them or their affiliates in
connection with the transactions contemplated by this Agreement;
(vii) any claim made by a third party alleging facts which, if true,
would entitle Buyer, or for periods following the Closing, the
Corporation, to indemnification pursuant to (i) through (vi); or
(viii) any failure by the Selling Stockholders to comply with their
obligations under this Section 10.1.
10.2. BY BUYER. Buyer agrees to indemnify and hold the Management
Stockholders harmless against any loss, damage or expense (including costs and
reasonable attorneys' fees) suffered by them as a result of:
(i) any breach by Buyer in the performance of its obligations under
this Agreement and the separate agreements provided for herein;
25
(ii) any inaccuracy in or breach of any representations, warranties
or covenants made by Buyer in this Agreement or any document, certificate
or exhibit delivered by Buyer in accordance with the provisions of this
Agreement;
(iii) any fees, expenses or other payments incurred or owed by Buyer
to any brokers or comparable third parties retained or employed by it in
connection with the transactions contemplated by the Agreement;
(iv) any claim made by a third party alleging facts which, if true,
would entitle the Management Stockholders to indemnification pursuant to
(i) through (iii); or
(v) any failure by Buyer to comply with its obligations under this
Section 10.2.
10.3. PROCEDURE FOR INDEMNIFICATION CLAIMS.
(a) NOTICE. A party seeking indemnification (the "Indemnitee") shall
give written notice to the party from whom indemnification is claimed
("Indemnitor") of any matter with respect to which the Indemnitee seeks to be
indemnified (the "Indemnity Claim"). Such notice shall state the nature of the
Indemnity Claim and, if known the amount of the loss, cost or expense. If the
Indemnity Claim arises from a claim of a third party, the Indemnitee shall give
the aforesaid notice within a reasonable time after the Indemnitee has actual
notice of such Indemnity Claim, and in the event that a suit or other proceeding
is commenced, within twenty (20) days after receipt of written notice by the
Indemnitee of such suit or other proceeding. Notwithstanding anything herein to
the contrary, the failure of an Indemnitee to give timely notice of an Indemnity
Claim shall not bar such Indemnity Claim except and to the extent that the
failure to give timely notice has actually materially impaired the ability of
the Indemnitor to defend the Indemnitee Claim.
(b) THIRD PARTY CLAIMS. If the Indemnity Claim arises from the claim
or demand of a third party, the Indemnitor shall have the right to defend any
such Indemnity Claim. If an Indemnitor elects to defend any such Indemnity
Claim, it shall pay its expenses in connection therewith and shall pay any
judgment, damage or other liability arising from such Indemnity Claim or the
settlement thereof. If the Indemnitor has assumed the defense of such Indemnity
Claim, the Indemnitee shall have the right, but not the obligation, to
participate in or monitor the defense thereof by counsel of its own choosing.
The Indemnitor shall not agree to a compromise or settlement of any such
Indemnity Claim, or in the defense thereof in the defense of any such Indemnity
Claim consent to the entry of any judgment against or affecting the Indemnitee
without the written consent of the Indemnitee, or enter into any settlement,
without the written consent of the Indemnitee.
If the Indemnitor shall not timely notify the Indemnitee of its
election to defend any Indemnity Claim (and, in the case of litigated Indemnity
Claims, actually assume the defense of such Indemnity Claim), the Indemnitee may
defend against such Indemnity Claim in such manner as it may deem appropriate,
and if the Indemnitee shall desire to settle such Indemnity Claim, it shall give
the Indemnitor prior written notice of the proposed settlement. Within ten (10)
days following receipt by the Indemnitor of such written notice, the Indemnitor
shall either (i) consent to such settlement, in which event the Indemnitee may
settle such claim on the terms consented to by the Indemnitor and the
26
amount of such settlement and all reasonable and proper expenses of settling
such Indemnity Claim shall thereupon be chargeable to and payable by the
Indemnitor, or (ii) assume the defense of such Indemnity Claim. If the
Indemnitor shall refuse to consent to settlement and shall refuse or be unable
to assume the defense of such Indemnity Claim, the Indemnitee may settle such
claim in the amount of the proposed settlement and all reasonable and proper
expenses of settling such Indemnity Claim shall thereupon be chargeable to and
payable by the Indemnitor. If no settlement of such Indemnity Claim is made, the
Indemnitor shall be chargeable for the amount of any judgment rendered with
respect to such Indemnity Claim and for all expenses, legal or otherwise,
incurred by the Indemnitee in the defense of such Indemnity Claim and shall pay
such amounts immediately upon demand by the Indemnitee.
The Indemnitor and the Indemnitee shall cooperate in reasonable
requests for documents, testimony and other forms of assistance in connection
with any Indemnity Claim pursuant to this subsection 11.2(b). Reimbursement to
the Indemnitee of any expenses and other amounts due the Indemnitee shall be
made by the Indemnitor from time to time as such expenses and amounts are
incurred by the Indemnitee.
(c) OTHER CLAIMS. If the Indemnity Claim does not arise from the
claim or demand of a third party, the Indemnitor shall have thirty (30) days
after receipt of written notice of such Indemnity Claim to object to the
Indemnity Claim by giving written notice to the Indemnitee specifying the
reasons for such objection or objections. If the Indemnitor has not so objected
to the Indemnity Claim as of the close of business on the last day of the
aforesaid period, the total amount of the Indemnity Claim shall thereupon become
chargeable to and payable by the Indemnitor. If the Indemnitor objects to the
Indemnity Claim and the parties are unable to settle any such dispute, the
parties shall have all rights and remedies at law or in equity, and either the
Indemnitor or the Indemnitee may commence an action or proceeding to determine
such dispute and any amounts due from the Indemnitor hereunder shall become
chargeable to and payable by the Indemnitor immediately upon the determination
of such liability pursuant to such action or proceeding.
10.4. SURVIVAL. Except as set forth below, all representations and
warranties made in this Agreement and each Schedule hereto shall continue in
full force and effect after the Closing Date and the sale of the Acquired Shares
hereunder and until (in the absence of a showing of willful and knowing
misrepresentation or breach) the third anniversary of the Closing Date; provided
that such representations and warranties shall not terminate for purposes of any
Claim made by an Indemnitee prior to the expiration of the respective
representation or warranty; and provided further that (i) all representations
and warranties made in or pursuant to Sections 4.1, (status, authority, binding
agreement), 4.2 (share ownership), 4.6 (capitalization), the first sentence of
Section 4.11 (title to assets), and 4.13(m) (affiliate transactions), and
related indemnification obligations, shall survive the Closing without
limitation as to time; and (ii) the representations and warranties contained in
Sections 4.10 and 6.2(a) (taxes) and related indemnification obligations shall
survive the Closing until such time as the assessment of any claims,
deficiencies or penalties therefor shall be barred by applicable periods of
limitation under applicable federal and state tax laws as the same may be
extended by waiver. Any representation and warranty in this Agreement or in any
Schedule, Exhibit, certificate, document, agreement or instrument delivered at
the Closing shall be deemed to have been relied upon by the party or parties to
which may, notwithstanding any investigation or inspection made by or on behalf
of such party or parties and shall not be affected in any respect by any such
investigation or inspection.
27
10.5. PAYMENT OF INDEMNIFICATION OBLIGATION. Any liability of the
Indemnitor to an Indemnitee under this Section 10 shall be paid within ten (10)
days following the date on which such amount becomes chargeable to Indemnitor
pursuant to the provisions of this Section 10, by the Indemnitor, jointly and
severally, (or its successors or assigns), in either case by wire transfer of
immediately available funds to such account as shall be designated by
Indemnitee.
11. OTHER AGREEMENTS.
----------------
11.1. NONCOMPETE; NONSOLICITATION; CONFIDENTIALITY. For a period ending
five (5) years after the Closing Date, none of the Management Stockholders nor
their Affiliates, shall without the prior written consent of Buyer, engage in a
business which competes with business conducted or currently proposed to be
conducted by any the Corporation, directly or indirectly, as an owner,
consultant, manager, associate, partner, agent or otherwise, or by means of any
corporate or other device in the geographic areas in which the business of the
Corporation now or hereafter shall be conducted (such geographic areas being
hereafter referred to as the "Territory"); nor shall they for such period and in
the Territory solicit, directly or indirectly from any customer of any The
Corporation, for the performance of any services substantially similar to those
performed by The Corporation, as an employee, owner, consultant, manager,
associate, partner, agent or otherwise, or by means of any corporate or other
device; nor shall the Management Stockholders or any of their Affiliates for
such period and in the Territory solicit for employment any employee of the
Corporation who continued employment with Buyer or the Corporation after the
Closing Date.
The Management Stockholders further acknowledge that by reason of their
affiliation with the Corporation they have had access to confidential
information of the Corporation. The Management Stockholders each covenant and
agree that he shall not permit any of his affiliates, directly or indirectly, to
use for their own behalf or on behalf of any third party or divulge to any third
party any confidential information or trade secrets of the Corporation. As used
herein, confidential information shall consist of all information, knowledge or
data in tangible or intangible form including personal files and notes, relating
to the Corporation (including without limitation all trade secrets, proprietary
and business information, and information relating to inventions, production
methods, customer and prospective customer lists, prices and trade practices)
which is not presently in the public domain, or is not otherwise published or
publicly available, unless published or made public through no fault of the
Management Stockholders.
This Section 11.1 shall not be construed to prohibit the ownership by a
Management Stockholder or any of his affiliates of not more than 2% of the
capital stock of any corporation having a class of securities registered
pursuant to the Securities Exchange Act of 1934.
The Management Stockholders acknowledge that the restrictions contained
in this Section 11.1 are reasonable and necessary to protect the legitimate
interests of Buyer, do not cause any of them undue hardship, and that any
violations of any provision of this Section 11.1 will result in irreparable
injury to Buyer and that, therefore, Buyer shall be entitled to preliminary and
permanent injunctive relief in any court of competent jurisdiction and to an
equitable accounting of all earnings, profits and other benefits arising from
such violation, which rights shall be cumulative and in addition to any other
rights or remedies to which Buyer may be entitled. In the event that any court
having jurisdiction shall determine that the foregoing restrictive covenant or
other provisions shall be unreasonable or unenforceable in any respect, then
such covenant and other provisions shall be deemed limited to the extent that
such court deems it reasonable and enforceable, and so limited shall remain in
full force and effect.
28
12. GENERAL PROVISIONS.
------------------
The Selling Stockholders and Buyer further covenant and agree as
follows:
12.1. WAIVER OF TERMS. Any of the terms or conditions of this Agreement
may be waived at any time by the party or parties entitled to the benefit
thereof but only by a written instrument signed by the party or parties waiving
such terms or conditions.
12.2. AMENDMENT OF AGREEMENT. This Agreement may be amended,
supplemented or interpreted at any time only by written instrument duly executed
by each party hereto.
12.3. PAYMENT OF EXPENSES. Regardless of whether the Closing shall
occur, each party shall pay all expenses incurred by or on its or their behalf
in connection with the preparation, execution and delivery of this Agreement and
the other agreements and documents referred to herein and the consummation of
the transactions contemplated hereby and thereby.
12.4. CONTENTS OF AGREEMENT; BINDING NATURE. This Agreement and the
other agreements and documents to be delivered by the parties as provided herein
set forth the entire understanding of the parties with respect to the subject
matter hereof. Any previous agreements or understandings between the parties
regarding such subject matter are merged into and superseded by this Agreement.
All representations, warranties, covenants, terms and conditions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the parties hereto.
12.5. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be by hand-delivery, certified
or registered mail, return receipt requested; telex, telecopier, or air courier
to the parties set forth below. Such notices shall be deemed given: at the time
personally delivered, if delivered by hand or by courier; at the time received
if sent certified or registered mail; when answered back, if telexed; and when
receipt acknowledged by receiving telecopy equipment if telecopied.
If to Buyer: Equitex, Inc.
0000 XXX Xxxxxxxxx, Xxxxx 000
Xxxx Xxxxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx
Telecopier: (000)000-0000
Copy to:. Boodell LeBaron & Xxxxxx, LLC
000 X. Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: C. Xxxxxxxxx XxXxxxx Xx.
Telecopier: (000) 000-0000
If to Management
Stockholders: Xx. Xxxxx X. Xxxxxxx
00000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, XX 00000
Telecopier: (000)000-0000
29
Copy to:. Xxxxxxx X. Xxxx, Esq.
Xxxxxxxx & Xxxxxx, P.A.
0000 Xxxxx Xxxxxx Towers
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000.
Telecopier: (000)000-0000
12.6. COMMISSIONS AND FINDER'S FEES. Buyer, on the one hand, and the
Management Stockholders on behalf of themselves, the Selling Shareholders and
the Corporation, on the other hand, represent and warrant that none of them has
retained or used the services of any individual, firm or corporation in such
manner as to entitle such individual, firm or corporation to any compensation
for brokers' or finders' fees with respect to the transactions contemplated
hereby for which the other may be liable.
12.7. SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.
12.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9.. HEADINGS. The headings of the Sections and the subsections of
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
12.10. GOVERNING LAW; JURISDICTION. This Agreement shall be governed,
construed and enforced in accordance with the internal laws of the State of
Delaware, excluding any choice of law rules that may direct the application of
the laws of another jurisdiction.
12.11. INSTRUMENTS OF FURTHER ASSURANCE. Each of the parties hereto
agrees, upon the request of any of the other parties hereto, from time to time
to execute and deliver to such other party or parties all such instruments and
documents of further assurance or otherwise as shall be reasonable under the
circumstances, and to do any and all such acts and things as may reasonably be
required to carry out the obligations of such requested party hereunder.
12.12. PUBLICITY. No notices to third parties or other publicity,
including press releases, concerning any of the transactions provided for herein
shall be made by any party hereto unless planned and coordinated jointly among
the parties hereto, except to the extent otherwise required by law.
30
12.13. DISCLOSURE SCHEDULES. Each matter disclosed in the Schedules
hereto shall be deemed a disclosure of such matter only for the purpose of the
Section or Sections of this Agreement to which such Schedule expressly relates,
and (except to the extent expressly cross-referenced) shall not be deemed a
disclosure with respect to any other Section of, or Schedule to, this Agreement.
12.14. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended nor shall it be construed to give any person, firm, corporation or
other entity, other than the parties hereto and their respective successors and
assigns, any right, remedy or claim under or in respect of this Agreement or any
provisions hereof.
31
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
EQUITEX, INC.
By: /S/ XXXXX XXXX
----------------------------------
Its: PRESIDENT
---------------------------------
THE MANAGEMENT STOCKHOLDERS
/S/ XXXXX X. XXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxx
/S/ XXXXX X. XXXXXXXX
-------------------------------------
Xxxxx X. Xxxxxxxx
THE INVESTING STOCKHOLDERS
/S/ XXXXX X. XXXXXXXX
-------------------------------------
By: XXXXX X. XXXXXXXX
As agent and attorney-in-fact
for the stockholders set forth
on Exhibit A hereto
TOGETHER BEING ALL OF THE STOCKHOLDERS
OF CHEX SERVICES, INC.
32
