EXHIBIT 10.1
AGREEMENT OF PURCHASE AND SALE OF STOCK
THIS AGREEMENT OF PURCHASE AND SALE OF STOCK (the "Agreement") is made
as of December 20, 2004, at Culver City, California, by and among PRACTICE XPERT
SERVICES CORP., ("Buyer"), a California Corporation and wholly owned subsidiary
of PracticeXpert, Inc. ("Parent"), having its principal office at 00000
Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX 00000, and, PI (CAYMAN), LIMITED, , a
corporation duly organized and existing under the laws of the Cayman Islands,
("Majority Shareholder"), and PHYSICIAN INFORMATICS, INC., t/a PracticeOne
("Corporation"), a Virginia corporation, having its principal office at 0000
Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000.
RECITALS:
WHEREAS, the Board of Directors of Corporation and Majority Shareholder
deem it advisable for their welfare and best interests that Majority Shareholder
sell and Buyer purchase all of the issued and outstanding capital stock of
Corporation (the "Shares") owned by Majority Shareholder and the other
shareholders of the Corporation (collectively, the "Shareholders"), upon the
terms and subject to the conditions hereinafter set forth.
WHEREAS, in connection with the consummation of the purchase of the
Shares, Parent, Buyer, Corporation and Majority Shareholder have agreed to
provide for certain matters with respect to the sale, assignment or transfer of
Corporation's capital stock and other matters with respect to Corporation, as
more fully set forth herein. In this Agreement, Majority Shareholder and
Corporation are collectively referred to as "Selling Parties".
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained in this Agreement, and subject to the
satisfaction or waiver of the conditions contained herein, the parties hereto
hereby agree as follows:
1. Agreement
1.1. On the terms and subject to the conditions set forth in this
Agreement, on the Closing Date (as defined in Section 6.6 hereof), Majority
Shareholder will sell, transfer, convey and deliver to Buyer, and Buyer will
purchase, acquire and accept from Majority Shareholder, the number of shares of
Capital Stock set forth opposite the name of Majority Shareholder on Schedule
2.2 hereto, constituting all of the issued and outstanding shares owned by
Majority Shareholder. To effect the transfers contemplated by this Section 1.1,
at the Closing (as defined in Section 6.6 hereof), Majority Shareholder shall
deliver, stock certificates representing the Shares being sold by Majority
Shareholder hereunder, duly executed in proper form acceptable to Buyer for
transfer to Buyer on the books of Corporation, against payment therefor in
accordance with Section 1.2 hereof.
1.2. As full payment for the transfer of the Shares by Majority
Shareholder to Buyer, Buyer shall deliver the following at the Closing:
1.2.1 12,500,000 shares of unregistered common stock, par
value $.001 per share, of Parent (the "Parent Common Stock"), which shall be
allocated among the Shareholders in accordance with their respective ownership
interests as set forth on Schedule 2.2 hereof.
1.3. In addition, the following terms have been agreed to:
1.3.1 Majority Shareholder has been authorized in writing to
represent all of the Shareholders for purposes of sale of the capital stock of
the Corporation and Majority Shareholder is entitled under the Corporation's
Bylaws to exercise "drag along" rights with respect to the Shares of the other
Shareholders of Corporation. Majority Shareholder shall be responsible for
ensuring the assignment, transfer, conveyance and delivery of such Shares to
Buyer together with duly executed stock powers in blank or otherwise in proper
form acceptable to Buyer for transfer to Buyer on the books of Corporation and
subject to Section 5.1.1 hereof.
1.3.2 Shares of Parent Common Stock issued pursuant to Section
1.3.1 shall be allocated among the other Shareholders in accordance with their
respective ownership interests, as set forth on Schedule 2.2 hereof.
1.3.3 Corporation shall restructure the balance sheet of
Corporation such that it shall carry only the following liabilities upon
Closing:
1.3.3.1 A $2,000,000 promissory note to Citibank,
N.A., a copy of which appears in Schedule 1.3.3.1 (the "Citibank Note"); and
1.3.3.2 A $4,000,000 promissory note to Majority
Shareholder, a copy of which appears in Schedule 1.3.3.2, bearing no interest
and carrying a five year term and convertible into Parent common stock at a
conversion price equal to $.40 per share in accordance with the following time
constraints: (a) at any time at the option of Parent; and (b) at anytime on or
following the 181st calendar day after the Closing Date at the option of
Majority Shareholder.
1.3.3.3. Trade Payables and Accounts Payable of
Corporation, as set forth in Schedule 1.3.3.3, and to include Other Liabilities
incurred in the Ordinary Course of Business.
1.3.4 The parties hereto shall review the performance of
Corporation on a quarterly basis or other periodic basis as may be agreed from
time to time.
1.3.5 The existing secured debt on the balance sheet of
Corporation owed to Citibank and any New Funding (defined below) shall be
secured by a first position lien on the assets of the Corporation, a first
position lien on assets acquired by Buyer and/or Parent through use of the New
Funding and a second position lien on the assets of the Parent. Such second
position lien shall be subordinate to liens made in conjunction with existing
debt of the Parent as shown on Schedule 1.3.5, and new debt which Parent may
obtain for working capital and other purposes which is currently under
negotiation. Buyer and Parent agree to enter into such security agreements,
guarantee agreements, UCC filings and other documents as may be necessary to
memorialize said security interest.
1.3.6 Buyer, Parent and Corporation agree to repay the
Citibank Note in accordance with the terms of the Citibank Note. In no event
shall any portion of the debt represented by the Citibank Note remain
outstanding after 5:00 pm EST on the earlier of (i) demand for payment by
Citibank as may be permitted under the Citibank Note or (ii) the last business
day of the 36th calendar month following the Closing Date.
1.3.7 Majority Shareholder shall provide a funding commitment
("New Funding") to Parent., in an amount of up to $2 million, carrying the
following terms;
1.3.7.1 Available within 72 hours of the signing
hereof;
1.3.7.2 An interest rate similar to that on the
Citibank Note;
1.3.7.3 A term of 36 months with the balance due at
the end of such term;
1.3.7.4 Secured by a first lien on the assets
acquired with the New Funding and a second lien on the assets of Parent;
1.3.7.5 The New Funding will be used solely for
acquisitions and a promissory note shall be executed by Parent each time the
facility is drawn upon.
1.3.7.6 Buyer and Parent will be fully obligated and
responsible for all payments and obligations arising from the New Funding and
its associated uses.
1.3.8 As consideration for obtaining the commitment for the
New Funding, Parent will provide the following consideration to Majority
Shareholder:
1.3.8.1 A fee equal to eight percent (8%) interest
per annum on the outstanding balance under the loan provided to Parent under the
New Funding, net of interest paid on New Funding payable in shares of Parent
Common Stock. Such interest shall be calculated on a quarterly basis on the
average outstanding balance under the loan during such quarterly period and
shares of Parent Common Stock due under this section shall be issued within 30
days of the end of each fiscal quarter in which interest is earned, and
1.3.8.2 Warrants for the purchase of up to 6,000,000
shares of Parent Common Stock at an exercise price of $.30 per share and a term
of 7 years to be delivered at Closing pursuant to the terms of that certain
warrant agreement to be delivered at closing in a form substantially similar to
that set forth in Schedule 1.3.8.2.
1.3.9 Majority Shareholder shall have a first right of refusal
to participate, in part or whole, on all future debt or equity financings in
excess of $250,000 sought or issued by Parent in accordance with the following.
For the purpose of this agreement, "debt or equity financings" shall be defined
as any debts assumed or stock issuances occurring as a direct result of cash
being contributed to Buyer, Parent or any of Buyer's other wholly owned
subsidiaries;
1.3.9.1 In the event that Parent receives a bona fide
offer from an unrelated third party for a debt or equity financing in a single
transaction or a series of related transactions, and Parent desires to accept
such offer, then Parent shall promptly send a written notice (the "Notice") to
Majority Shareholder. Such Notice shall contain (i) a true and complete copy of
the offer, setting forth the price and all terms and conditions, and the name,
address (both home and office) and business or other occupation of the party
making the offer (the "Offeror") and (ii) an offer to enter into a transaction
with Majority Shareholder at the same price and upon the same terms and
conditions as are contained in the offer. Majority Shareholder and the Parent
shall then have the following obligations, rights and privileges.
1.3.9.1.1 For a period of ten business (10) days from
its receipt of the Notice, Majority Shareholder shall have the right, but not
the obligation, to enter into the transaction so offered (or to participate in
part by purchasing some of the shares or providing a portion of the debt).
1.3.9.1.2 If, within the times specified in this
Agreement, (i) Majority Shareholder fails to exercise its First Right of
Refusal, then the Parent shall have the right to accept the offer and to enter
into the proposed transaction with Offeror, subject to all of the provisions and
restrictions of this Agreement, but only in strict accordance with the
provisions of the offer; provided however, if the transaction is not fully
consummated, the provisions of Section 1.3.9 must again be complied with by the
Parent before the Parent may enter into the transaction described in the offer.
1.3.9.1.3 If Majority Shareholder elects to exercise
its First Right of Refusal hereunder, then Majority Shareholder shall send to
the Parent within ten business (10) days from Majority Shareholder's receipt of
the Notice, a written notice confirming its desire to accept (the "Acceptance")
the offer and to participate in such debt or equity financing. The closing of
the transaction between Majority Shareholder and Parent shall take place within
the number of days (as opposed to specific dates) provided in the offer. If no
time frame is provided in the offer, then the closing shall occur within sixty
(60) days of Parent's receipt of Majority Shareholder's Acceptance.
1.3.10 All stock and warrants issued under this Agreement
shall be eligible for "piggy-back" registration rights and other rights in
accordance with the Registration Rights Agreement attached as Schedule 1.3.10.
1.3.11 Majority Shareholder shall provide funds in cash to
cover Corporation's operating deficit (if any) for the six months of operations
following the Closing Date;
1.3.11.1 The funding of operating deficits, if any, shall be made at the end of
each of the three two month periods after the Closing Date. The amount of the
operating deficit shall be determined within ten (10) days after the close of
each such two month period;
1.3.11.2 The determination of any operating deficit shall be made by the CFO of
Parent and reviewed by Majority Shareholder;
1.3.11.3 Upon agreement of the final operating deficit, the Parent will submit a
formal, written request for reimbursement of the operating deficit;
1.3.11.4 If Buyer, Parent and Majority Shareholder
initiate any changes in operations other than changes which occur as a result of
normal day-to-day operations, and which are in line with historical activities
of the Corporation, which negatively impact Cash Flow from Operations, make it
impracticable to calculate Cash Flow from Operations or properly account for
Corporation as a separate business unit and to prepare a segregated Cash Flow
Report for Corporation, then Buyer, Parent and Majority Shareholder agree to
negotiate in good faith to amend the formula for determining the reimbursement
due from Majority Shareholder to cover operating deficits; and
1.3.11.5 Majority Shareholder will transfer by wire
in immediately available funds the amount requested within fifteen (15) business
days of receipt of written notice from Parent requesting reimbursement of
Corporation's operating deficit pursuant to this Section 1.3.11.
1.3.12 As consideration for the provision of funds in cash to
cover Corporation's operating deficit (if any) for the six months of operations
following the Closing Date, Parent will provide the following to Majority
Shareholder:
1.3.12.1 Majority Shareholder shall receive a
quantity of Parent Common Stock equal in dollar value to two times the Annual
Cash Flow From Operations (as defined below) for each of the three consecutive
calendar years starting with the year in which the Closing Date occurs (2005,
2006, and 2007) . Said stock shall be issued annually and shall be priced at the
average closing price of the Parent Common Stock for the 365 calendar days
preceding issuance.
1.3.12.2 The "Annual Cash Flow" shall be defined as
the Cash Flow From Operations (as defined below).
1.3.12.3 "Cash Flow From Operations" for the
Corporation shall be determined by inclusion of the components included in
Schedule 1.3.12.3. Any funding of operations of Corporation in accordance with
Section 1.3.12 will be included in the calculation of Cash Flow From Operations.
1.3.12.4 Within thirty (30) days following the end of
each period ending December 31, 2005, 2006 and 2007, Parent shall provide a Cash
Flow Report (the "Cash Flow Report") to Majority Shareholder. The Cash Flow
Report will calculate Cash Flow From Operations for the Corporation, identifying
the key components used in determining Cash Flow From Operations and any
information needed to evaluate the reasonableness of the calculation.
1.3.12.5 Majority Shareholder shall have the right to
have an audit of the Cash Flow From Operations calculation as set forth on the
Cash Flow Report performed by a Certified Public Accountant. Majority
Shareholder must notify Buyer and Parent of the audit in writing prior to the
issuance of shares of Parent Common Stock, within thirty (30) days after
delivery of the Cash Flow Report to Majority Shareholder. If the audit shows
that the Cash Flow From Operations was understated by more than ten percent
(10%), the audit will be paid for by the Buyer or Parent. Otherwise, the audit
will be at the expense of the Majority Shareholder. If the audit shows the Cash
Flow From Operations was understated, additional shares of Parent Common Stock
will be issued to the Majority Shareholder equal to the amount of the
understatement subject to Section 5.1.1 hereof. No change in the number of
shares of Parent Common Stock issued to Majority Shareholder will be made if the
audit shows an overstatement of the Cash Flow From Operations.
1.3.12.6 Shares of Parent Common Stock to be issued,
if any, will be issued no later than thirty (30) days after the completion of
the Cash Flow Report. If Majority Shareholder exercises its right to audit the
Cash Flow Report, such shares will still be issued within this 30-day period.
Any additional shares of Parent Common Stock that may be issued as a result of
the audit, will be issued within thirty (30) days of the delivery of the
completed audit to the Buyer and Parent.
1.3.12.7 Buyer, Parent and Majority Shareholder agree
that changes to the operations of Corporation or accounting allocations made by
the Buyer or Parent could negatively impact Cash Flow from Operations, and thus
affect the number of shares of Parent Common Stock to be issued pursuant to
Section 1.3.12 hereof. Therefore, any such changes in operations or accounting
allocations made by Buyer or Parent which could negatively impact Cash Flow from
Operations, other than changes which occur as a result of normal day-to-day
operations and consistent with historical activities of the Corporation, must be
agreed to by Majority Shareholder. In such an instance, Parent and Majority
Shareholder agree to negotiate in good faith to amend the formula for
determining the shares to be issued under paragraph 1.3.12. accordingly.
1.3.12.8 To the degree that Buyer and/or Parent's
operations ("Other Divisions"), and the operations of Corporation, share
resources, an accounting allocation consistent with standard accounting
procedures will be made between Corporation and the Other Divisions. Such shared
resources could include, but are not limited to, advertising and marketing
expenses, insurance, customer revenues, sales costs, employee benefit plans,
audit fees, and other expenses that could be obtained at less cost on a
corporate wide basis, than on a business unit basis. Any and all such accounting
allocations, whether from Corporation to Buyer and/or Parent, or from Buyer
and/or Parent to Corporation, will be detailed in the Cash Flow Report for
Majority Shareholder's review.
1.3.12.9 If Buyer, Parent and Majority Shareholder
agree to change Corporation's operations or to integrate the operations of the
Corporation with the operations of Other Divisions to such a degree that it
becomes impracticable to calculate the Annual Cash Flow from Operations set out
in Schedule 1.3.12.3 or properly account for Corporation as a separate business
unit and to prepare a segregated Cash Flow Report for Corporation, Buyer, Parent
and Majority Shareholder agree to negotiate in good faith to amend the formula
for determining the shares of Parent Common Stock to be issued pursuant to
Section 1.3.12.
1.3.13 Within a reasonable time following Closing, execution
of an Intercreditor Agreement by and among Corporation, Buyer, Parent, Majority
Shareholder, Citicorp and the secured creditors of Parent and Buyer consenting
to the liens of each creditor and the subordination items described in the
Intercreditor Agreement.
1.3.14 Parent shall appoint one representative selected by
Majority Shareholder to the Board of Directors Parent.
1.3.15 Each certificate evidencing shares of Parent's common
stock issued in connection with this Agreement shall bear a restrictive legend.
1.3.1516 Buyer and Parent shall have no liability to any
Shareholder arising out of the acts or omissions of Majority Shareholder or any
disputes among the Shareholders with Majority Shareholder. Buyer and Parent may
rely entirely on their dealings with, and notices to and from, Majority
Shareholder to satisfy any obligations it might have to the Shareholders under
this Agreement and any agreement referred to herein or otherwise. Furthermore,
Xxxxxxx Xxxxx (the "Shareholder Representative") shall serve as the sole and
exclusive representative of Majority Shareholder. Unless Parent and Buyer
otherwise consent in writing, the Shareholder Representative shall serve as the
sole and exclusive representative of Majority Stockholder with respect to any
issue that arises in respect of this Agreement. As more fully set forth below,
Parent, Buyer, Corporation and Majority Shareholder hereby agree that the
Shareholder Representative shall have the power to take any action in order to
contest, resolve and settle each such issue on behalf of Majority Shareholder,
including but not limited to actions taken by Majority Shareholder on behalf of
other Shareholders, and any action by the Shareholder Representative shall be
final and binding on Majority Shareholder and the other Shareholders. The
parties hereto are hereby expressly authorized to rely on the genuineness of the
signature of the Shareholder Representative, and upon receipt of any writing
which reasonably appears to have been signed by the Shareholder Representative.
The parties hereto any other person may act upon the same without any further
duty of inquiry as to the genuineness of the writing. By executing this
Agreement, Xxxxxxx Xxxxx hereby (a) accepts his appointment and authorization to
act as the Shareholder Representative and as representative of Majority
Shareholder in accordance with the terms hereof and (b) agrees to perform his
obligations hereunder and otherwise to comply with this Section. Notwithstanding
anything herein to the contrary, the Shareholder Representative may resign at
any time; provided, that Majority Shareholder shall be required to designate a
successor within five (5) business days from the date of such Shareholder
Representative's resignation in accordance with this Section.
1.3.17 The Shareholder Representative is hereby exclusively
authorized after the Closing Date to take such action as the Shareholder
Representative, acting in his sole discretion, deems necessary, appropriate or
convenient to perform the actions and satisfy the obligations of Majority
Shareholder contemplated by this Agreement, the Registration Rights Agreement,
Warrant and any other agreements, documents or instruments made in connection
with the Agreement (collectively, the "Transaction Documents") and any other
action reasonably related thereto. Without limiting the generality of the
foregoing, the Shareholder Representative is specifically authorized:
(a) to assert claims, make demands and commence actions on
behalf of Majority Shareholder under the Transaction Documents;
(b) to act on behalf of Majority Shareholder in connection
with the Transaction Documents;
(c) to negotiate and compromise any dispute which may arise
under, and exercise or refrain from exercising remedies available to Majority
Shareholder, or any other Shareholder under, the Transaction Documents and to
sign any releases or other documents with respect to such dispute or remedy (and
to bind Majority Shareholder or any Shareholder in so doing);
(d) to retain and compensate attorneys, accountants and other
professionals or consultants to assist in performing his duties hereunder;
(e) to give such instructions and do such other things and
refrain from doing such things as it shall deem appropriate to carry out the
provisions of the Transaction Documents;
(f) to give any and all consents and notices under the
Transaction Documents; and
(g) to perform all actions, exercise all powers, and fulfill
all duties otherwise assigned to it in the Transaction Documents.
1.3.18 The authorization of the Shareholder Representative
contained herein shall be irrevocable and effective until the rights and
obligations of Majority Shareholder under the Transaction Documents terminate.
1.3.19 The Shareholder Representative will not be liable to
the parties hereto or any Shareholder for any action taken by him in good faith
pursuant to this Agreement. Majority Shareholder shall indemnify and save
harmless the Shareholder Representative from and against any and all liability,
including all expenses reasonably incurred in his defense and all costs and
expenses reasonably incurred in connection with the performance of his
reasonable duties under the Transaction Documents. This Section shall survive
the termination of this Agreement.
2. Each of the Corporation and Majority Shareholder jointly and severally
represents and warrants that all of the representations and warranties in this
Section 2 are true and correct at the date of this Agreement, and agrees that
such representations and warranties shall survive the Closing Date for a period
of eighteen (18) months (the last day of such period being the "Selling Parties
Expiration Date"), except that the representations and warranties regarding tax
matters set forth in this Agreement shall survive until such time as the statute
of limitations period has run for all tax periods ended on or prior to the
Closing Date, which shall be deemed to be the Selling Partes Expiration Date for
purposes of Section 2. Any excerpt from or summary of any of the following
representations and warranties that may be set forth on any of the Schedules
hereto shall not modify or limit the following representations and warranties in
any manner.
2.1. Corporation is a corporation duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Virginia and has all
necessary corporate powers to own its properties and operate its business as now
owned and operated by it. The Articles of Incorporation and By-laws of
Corporation, copies of which are attached as Schedule 2.1, are complete and
reflect all amendments thereto through the date hereof.
2.2. The authorized capital stock of Corporation is shown on Schedule
2.2. The issued and outstanding shares of capital stock of Corporation are owned
of record and beneficially by the Shareholders as shown on Schedule 2.2. and the
shares of Parent Common Stock are to be allocated among the Shareholders as set
forth on Schedule 2.2. which sets forth all of the issued and outstanding shares
of capital stock of Corporation on a fully diluted basis. All outstanding shares
of capital stock of Corporation are validly issued, fully paid, and
non-assessable, and such shares have been so issued in full compliance with all
federal, state and foreign securities laws and Corpoation's Articles of
Incorporation, as amended, and Bylaws, as amended. Corporation has not issued
any other shares of its capital stock and there are no outstanding options,
warrants, subscriptions or other rights or obligations to purchase or acquire
any of such shares, nor any outstanding securities convertible into or
exchangeable for such shares, and there are no preemptive rights affecting the
issuance or sale of the Shares except as set forth on Schedule 2.2. Except as
contemplated under this Agreement, there are no agreements to which Corporation
is a party regarding the issuance, registration, voting or transfer of its
outstanding shares of its capital stock.
2.3. Majority Shareholder owns, beneficially and of record, all of the
Shares, as set forth next to its name in Schedule 2.2, free and clear of all
liens, encumbrances, security agreements, equities, options, claims, charges,
and restrictions. Majority Shareholder has full power to transfer its Shares to
Buyer without obtaining the consent or approval of any other person or
governmental authority. Majority Shareholder is entitled under the Corporation's
Bylaws to exercise "drag along" rights with respect to the shares of
Corporation. Majority Shareholder is responsible for and will use their best
efforts to ensure the execution of the assignment, transfer, conveyance and
delivery of such shares pursuant to the terms of this Agreement.
2.4. Schedule 2.4 to this Agreement sets forth historical financial
statements and tax returns of Corporation.
2.4.1 The financial statements for the years 2001 to 2003 have
been audited and the opinion of the Corporation's auditors is included.
2.4.2 Corporation's tax returns for the years 2001 to 2003 are
also included.
2.4.3 The financial statements and tax returns identified in
Sections 2.4.1 and 2.4.2 and the financial statements for the period from
January 1, 2004 through October 31, 2004 have been certified by the chief
financial officer as accurately reflecting the financial condition and financial
performance of Corporation for those historical periods. The documents in
Schedule 2.4 are referred to as the "financial statements". The financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") consistently followed by Corporation throughout
the periods indicated, have been prepared from the books and records of
Corporation, and fairly present the financial position of Corporation on the
respective dates of the balance sheets included in the financial statements, and
the results of its operations for the respective periods indicated.
2.5 Since the date of the last financial statements in Schedule 2.4,
there has not been any change in the financial condition or operations of
Corporation, except changes in the ordinary course of business or those
necessary to implement the terms of this Agreement, which have been materially
adverse.
2.6. Since the date of the last financial statements in Schedule 2.4,
there has been no:
2.6.1 Transaction by Corporation except in the ordinary course
of business as conducted on that date;
2.6.2 Capital expenditure by Corporation exceeding $10,000.00;
2.6.3 Material adverse change in the financial condition,
liabilities (contingent or otherwise), assets, business, or prospects of
Corporation;
2.6.4 Destruction, damage to, or loss of any asset of
Corporation (whether insured or uninsured) that materially and adversely affects
the financial condition, business, or prospects of Corporation;
2.6.5 Change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) by Corporation;
2.6.6 Revaluation by Corporation of any of its assets;
2.6.7 Declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Corporation, or any direct
or indirect redemption, purchase, or other acquisition by Corporation of any of
its shares of capital stock, except as set forth in Schedule 2.6.7.;
2.6.8 Increase in the salary or other compensation payable or
to become payable by Corporation to any of its officers, directors, employees,
consultants or agents or declaration, payment, or commitment or obligation of
any kind for the payment, by Corporation, of a bonus or other additional salary
or compensation to any such person, except as set forth in Schedule 2.6.8.
2.6.9 Sale or transfer of any asset of Corporation, except in
the ordinary course of business, or any plan, agreement or arrangement granting
any preferential rights to purchase or acquire any interest in any of the
assets, property or rights of Corporation or requiring consent of any party to
the transfer and assignment of any such assets, property or rights;
2.6.10 Amendment or termination of any contract, agreement, or
license to which Corporation is a party, except in the ordinary course of
business;
2.6.11 Loan by Corporation to any person or entity, or
guaranty by Corporation of any loan;
2.6.12 Mortgage, pledge, or other encumbrance of any asset of
Corporation;
2.6.13 Waiver or release of any right or claim of Corporation,
including without limitation any indebtedness or obligation of any Shareholder,
except in the ordinary course of business.
2.6.14 Commencement, written notice, or written threat of
commencement of any civil litigation or governmental proceeding against
Corporation or investigation of its affairs;
2.6.15 Labor trouble or written claim of wrongful discharge or
other unlawful labor practice or action;
2.6.16 Issuance or sale by Corporation of any shares of its
capital stock of any class or of any other of its securities;
2.6.17 Change in the authorized capital of Corporation or its
outstanding securities or any change in its ownership interests or any grant by
Corporation of any options, warrants, calls, conversion rights or commitments,
except as necessitated as a result of this Agreement.
2.6.18 Change in the articles of incorporation or by-laws of
Corporation;
2.6.19 Agreement by Corporation to do any of the things
described in the preceding subsections (1) through (18).
2.7. Corporation does not have any debt, liability, or obligation of
any nature, whether accrued, absolute, contingent, or otherwise, and whether due
or to become due, that is not contemplated by Section 1.3.3, or is not reflected
or reserved against in Corporation's consolidated balance sheet, included in the
financial statements or set forth in Schedule 2.4 to this Agreement, except for
(1) those that may have been incurred after the date of that consolidated
balance sheet and (2) those that are not required by GAAP to be included in a
balance sheet. All debts, liabilities, and obligations incurred after that date
were incurred in the ordinary course of business and are usual and normal in
amount both individually and in the aggregate. Corporation is not liable upon or
with respect to, or obligated in any other way to provide funds in respect of or
to guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity.
2.8. All accounts receivable of Corporation shown on the balance sheet
of Corporation, as set forth on Schedule 2.4 arose from bona fide transactions
in the ordinary course of business, and the goods and services involved have
been sold, delivered and performed to the account of the obligors, and no
further goods are required to be provided and no further services are required
to be rendered in order to complete the sales and fully render the services and
to entitle Corporation to collect the accounts receivable in full. No such
account has been assigned or pledged to any other person, firm or corporation,
and, except only to the extent fully reserved against as set forth on the
balance sheet, no defense or setoff to any such account has been asserted by the
account obligor. That balance sheet reflects adequate and reasonable reserves to
provide for losses thereby contemplated. Trade discounts shown on the balance
sheet of Corporation (Schedule 2.4), if any, are on a basis consistent with that
of prior years.
2.9. Tax Returns. Corporation has properly filed, or caused to be
properly filed, all required federal tax returns and reports, all state and
local tax returns and reports and all related information required to be filed
with respect to income, withholding, property and sales taxes, and all other tax
returns, reports and related information, the filing of any of which is
reasonably required for the conduct of the businesses of Corporation or required
by any taxing authority having jurisdiction over Corporation. All such tax
returns properly reflect the taxes attributable to the businesses of Parent and
Buyer for the periods covered thereby. All federal, state and local taxes,
assessments, interest, penalties, deficiencies, fees and other governmental
charges or impositions called for by such tax returns or claimed to be due by
any taxing authority have been properly accrued or paid if due.
2.10. Corporation has never filed, and will not file on or before the
Closing Date, any consent under Internal Revenue Code Section 341(f).
2.11. Schedule 2.11 to this Agreement is a complete and accurate list
of all real property owned by or leased to Corporation, and all leases relating
thereto, together with an accurate brief description of each property. Schedule
2.11 also sets forth brief descriptions of all buildings and other major
improvements located on these properties. Buyer shall promptly assume the
obligations under such identified leases.
2.12. Schedule 2.12 contains a complete and accurate description and
specifies the location of all machinery, equipment, furniture, supplies, tools,
and all other tangible personal property owned by, in the possession of, or used
by Corporation in connection with its business. The tangible personal property
reflected in those books and records constitutes all such tangible personal
property necessary for the conduct by Corporation of its respective businesses
as now conducted.
2.13. Except as stated in Schedule 2.12, no personal property used by
Corporation in connection with its business is held under any lease, security
agreement, conditional sales contract, or other title retention or security
arrangement, or is located other than in the possession of Corporation.
2.14. Corporation has good and marketable title to all its respective
assets and interests in assets, whether real, personal, mixed, tangible, or
intangible, which constitute all the assets and interests in assets that are
used in the businesses of Corporation. All these assets are free and clear of
restrictions on or conditions to transfer or assignment and free and clear of
mortgages, liens, pledges, charges, encumbrances, equities, claims, easements,
rights of way, covenants, conditions, or restrictions, except for (1) the liens
of Majority Shareholder and lenders to the Corporation contemplated by Section
1.3.5; (2) those disclosed in Corporation's consolidated balance sheet, or in
Schedules to this Agreement; (3) the lien of current taxes not yet due and
payable; and (4) possible minor matters that, in the aggregate, are not
substantial in amount and do not materially detract from or interfere with the
present or intended use of any of these assets or materially impair business
operations. Corporation is not in default or in arrears in any material respect
under any lease. All real property and tangible personal property of Corporation
is in good operating condition and repair, ordinary wear and tear excepted.
Corporation is in possession of all premises leased from others. Neither
Majority Shareholder; nor any other shareholder, officer, director, or employee
of Corporation; nor any spouse, child, or other relative of any of these
persons, owns, or has any interest, directly or indirectly, in any of the real
or personal property owned by or leased to Corporation or any copyrights,
patents, trademarks, trade names, or trade secrets licensed by Corporation,
except as further described in Schedule 2.14 to this Agreement.
2.15. Corporation does not occupy any real property in violation of any
law, regulation, or decree.
2.16. Schedule 2.16 to this Agreement is a correct and current list of
all customers of Corporation together with summaries of the services provided or
sales made to each customer during the most recent twelve-month period. Except
as indicated in Schedule 2.16, neither the Corporation, nor Majority Shareholder
has any information indicating that any of these customers intend to cease doing
business with Corporation or materially alter the amount of the business they
are presently doing with Corporation.
2.17. Schedule 2.17 to this Agreement is a description of all insurance
policies held by Corporation concerning its businesses and properties.
Corporation has maintained and now maintains (1) insurance on all assets and
businesses of a type customarily insured, covering property damage and loss of
income by fire or other casualty, and (2) adequate insurance protection against
all liabilities, claims, and risks against which it is customary to insure,
except for errors and omissions insurance. Corporation is not in default with
respect to payment of premiums on any such policy. Except as set forth in
Schedule 2.17, no claim is pending under any such policy.
2.18. Corporation is not a party to any distributor's or manufacturer's
representative or agency agreement; any output or requirements agreement; any
agreement not entered into in the ordinary course of business; any indenture,
mortgage, deed of trust, or lease; or any agreement except for the agreements
listed in Schedule 2.18, copies of which have been furnished or made available
to Buyer. There is no default or event that, with notice, lapse of time, or
both, would constitute a default by any party to any of these agreements.
Corporation has not received written notice that any party to any of these
agreements intends to cancel or terminate any of these agreements or to exercise
or not exercise any options under any of these agreements. Corporation is not a
party to, nor is either the Corporation or the property of Corporation bound by,
any agreement that is materially adverse to the businesses, properties, or
financial condition of Corporation.
2.19. Corporation has not received written notice of any violation of
any applicable federal, state, or local statute, law, or regulation (including
any applicable building, zoning, environmental protection, or other law,
ordinance, or regulation) affecting their properties or the operation of its
business; and to the best of the knowledge of Majority Shareholder and
Corporation, there are no such violations.
2.20. Except as set forth in Schedule 2.20, there is no pending, or, to
the best knowledge of Majority Shareholder and Corporation, threatened in
writing, suit, action, arbitration, or legal, administrative, or other
proceeding, or governmental investigation against or affecting Corporation, or
any of it's businesses, assets, or financial conditions. The matters set forth
in Schedule 2.20, if decided adversely to Corporation, will not result in a
material adverse change in the business, assets, or financial condition of
Corporation. Selling Parties have furnished or made available to Buyer copies of
all relevant court papers and other documents relating to the matters set forth
in Schedule 2.20. Corporation is not in default with respect to any order, writ,
injunction, or decree of any federal, state, local, or foreign court,
department, agency, or instrumentality. Except as set forth in Schedule 2.20,
the Corporation is not presently engaged in any legal action to recover money
due to it or damages sustained by it.
2.21. Except as otherwise set forth in Schedule 2.21, neither the
execution and delivery of this Agreement nor the carrying out of the
transactions contemplated by this Agreement will: (1) result in or constitute a
default or an event that, with notice, lapse of time, or both, would result in a
default, breach, or violation of the articles of incorporation or bylaws of
Corporation or any lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument,
or arrangement to which the Corporation is a party or by which any of it or the
property of it is bound; (2) result in or constitute an event that would permit
any party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of Corporation; (3) result in the creation or
imposition of any lien, charge, or other encumbrance on any of the properties of
Corporation or its shares of capital stock; or (4) require any of the
Shareholders or Corporation to obtain or make any waiver, consent, action,
approval or authorization of, or registration, declaration, notice or filing
with, any private non-governmental third party or any governmental authority.
Any and all consents required to be obtained by Corporation as set forth in
Schedule 2.21 shall be obtained and copies thereof delivered to Buyer within a
reasonable period of time following Closing.
2.22. Selling Parties have the right, power, legal capacity, and
authority to enter into and perform their respective obligations under this
Agreement. The execution and delivery of this Agreement by Corporation has been
duly authorized by all necessary corporate action.
2.23. Except as set forth in Schedule 2.23, neither Majority
Shareholder; nor any officer, director, or employee of Corporation; nor any
spouse or child of any of them has any direct or indirect interest in any
competitor, supplier, or customer of Corporation or in any person from whom or
to whom Corporation leases any real or personal property, or in any other person
with whom Corporation is doing business.
2.24. Selling Parties have furnished to Buyer for its examination (1)
copies of the articles of incorporation and bylaws of Corporation; (2) the
minute books of Corporation; (3) all permits, orders, and consents issued by the
appropriate Commissioner of Corporations with respect to Corporation, or any
security, and all applications for such permits, orders, and consents; and (4)
the stock transfer books of Corporation setting forth all transfers of any
capital stock.
2.25. Schedule 2.25 is a list of the names and addresses of all
officers, directors, employees, agents, and representatives of Corporation,
stating the rates of compensation payable to each.
2.26. Schedule 2.26 is a list of all Corporation's material
employment contracts; collective bargaining agreements; and pension, bonus,
profit-sharing, stock option, or other agreements providing for employee
remuneration or benefits. Schedule 2.26 also contains a complete and accurate
list of all Compensation Plans sponsored by Corporation or to which Corporation
contributes on behalf of its employees. As used herein, "Compensation Plans"
shall mean and include, without limitation, plans, arrangements or practices
that provide for severance pay, deferred compensation, incentive, bonus or
performance awards, and stock ownership or stock options. To the best of Selling
Parties' knowledge, Corporation is not in default under any of these agreements.
2.27. Schedule 2.27 lists (1) the names and addresses of all persons
holding a power of attorney on behalf of Corporation and a description of the
terms of such power, (2) the names and addresses of all banks or other financial
institutions in which Corporation has an account, deposit, or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or to have access to these boxes and (3) the type of account and account number.
2.28. None of the warranties made by Majority Shareholder or
Corporation, or made in any certificate or memorandum furnished or to be
furnished by any of them or on their behalf, contains or will contain any untrue
statement of a material fact, or omits to state any material fact necessary to
make the statements made.
2.29. Software Contracts.
2.29.1 Schedule 2.29.1 lists all contracts, agreements,
licenses, and other commitments and arrangements, oral or written, with any
person respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of computer program code, related
technical or user documentation, and databases, in each case relating to or
arising out of Corporation's business consisting of the items listed and
classified as follows: (1) licenses from third parties (development and/or
marketing); (2) licenses from third parties (internal use only); (3) development
contracts, work-for-hire agreements, and consulting and employment agreements;
(4) distributorships, dealerships, franchises, and manufacturer's representative
contracts; (5) licenses and sublicenses to others; and (6) maintenance, support,
or enhancement agreements (the "Software Contracts").
2.29.2 All Software Contracts are valid, binding, and
enforceable in accordance with their terms and are in full force and effect.
There are no existing defaults by Corporation under any such contracts, and no
act, event, or omission has occurred that, whether with or without notice, lapse
of time, or both, would constitute a default thereunder.
2.29.3 Corporation has not received any written notice from a
customer that is a party to any Software Contract requiring the performance of
services by Corporation that such customer will not do business on substantially
the same terms and conditions subsequent to the date as such customer did before
such date.
2.30. Technical Documentation.
2.30.1 Schedule 2.30.1 lists all technical and descriptive
materials relating to the acquisition, design, development, use, or maintenance
of computer code and program documentation and materials used by Corporation in
the conduct of its business (the "Technical Documentation").
2.30.2 Except as set forth on Schedule 2.30.2, the Technical
Documentation includes the source code, system documentation, statements of
principles of operation, and schematics for all Software Programs (as defined
below), as well as any pertinent commentary or explanation that may be necessary
to render such materials understandable and usable by a trained computer
programmer. The Technical Documentation also includes any program (including
compilers), "workbenches," tools, and higher level (or "proprietary") language
used for the development, maintenance, and implementation of the Software
Programs.
2.31. Third-Party Components in Software Programs.
2.31.1 Corporation has validly and effectively obtained the
right and license to use, copy, modify, and distribute the third-party
programming and materials contained in software programs (the "Software
Programs") and Technical Documentation pursuant to the Software Contracts
identified as "licenses from third parties (development and/or marketing)" or
"Licenses from third parties (internal use only)" in Schedule 2.31.1. The
Software Programs and Technical Documentation contain no other programming or
materials in which any third party may claim superior, joint, or common
ownership, including any right or license. The Software Programs and Technical
Documentation do not contain derivative works of any programming or materials
not owned in their entirety by Corporation.
2.31.2 Schedule 2.31.2 sets forth all obligations under which
Corporation has to pay royalties to any third party to use, copy, modify, and
distribute the third-party programming and materials contained in the Software
Programs and Technical Documentation.
2.32 Third-Party Interests or Marketing Rights in Software Programs.
2.32.2 Corporation has not granted, transferred, or assigned
any right or interest in the Software Programs, the Technical Documentation, or
the Intellectual Property (as defined below) to any Person, except pursuant to
the Software Contracts identified as "distributorships, dealerships, franchises,
and manufacturer's representative contracts" or "licenses and sublicenses to
others" in Schedule 2.32.2.
2.32.3 Except as set forth in Schedule 2.32.3(a), (1) all
Software Contracts identified as "licenses and sublicenses to others" in
Schedule 2.29.1 constitute only end-user agreements, each of which substantially
conforms to the standard form(s) established by Corporation, copies of which are
attached hereto as Schedule 2.32.3(b), (2) subject to changes that (assuming
continuation of present business practices) are not material. Except for
reasonable and ordinary marketing and service commitments and practices, or
except as provided in written purchase orders, license agreements, maintenance
contracts, and customer files identified in Schedule 2.16 and (3) Corporation
has not made or entered into any contracts or commitments, written or oral, for
the benefit of any current customers or prospects, including, without
limitation, custom software development.
2.32.4 There are no contracts, agreements, licenses, and other
commitments and arrangements in effect with respect to the marketing,
distribution, licensing, or promotion of the Software Programs, the Technical
Documentation, or the Intellectual Property by any independent salesperson,
distributor, sublicensor, or other remarketer or sales organization, except for
the Software Contracts identified as "distributorships, dealerships, franchises,
and manufacturer's representative contracts" in Schedule 2.29.1.
2.33 Intellectual Property.
2.33.1 Schedule 2.33.1 lists all patents, trademarks, service
marks, trade names, and copyrights (including registrations, licenses, and
applications pertaining thereto), and all other intellectual property rights,
trade secrets, and other proprietary information, processes, and formulae used
in Corporation's business or otherwise necessary for the ownership and use of
the assets used in Corporation's business and for the conduct of the
Corporation's business (the "Intellectual Property"). The specific location of
each trade secret's documentation, including its complete description,
specifications, charts, procedures, and other material relating to it, is also
set forth in Schedule 2.33.1. Each trade secret's documentation is current,
accurate, and sufficient in detail and content to identify and explain it and to
allow its full and proper use by Buyer without reliance on the special knowledge
or memory of others.
2.33.2 Except for the rights and licenses validly and
effectively established by the Software Contracts, Corporation owns the
Intellectual Property. The business of Corporation as conducted in the normal
course of business prior to the date hereof, including the development,
manufacture, marketing, sale or use of any product or service by Corporation,
does not require or use any intellectual property rights other than the
Intellectual Property.
2.33.3 The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, will not
breach, violate or conflict with any instrument or agreement governing any
Intellectual Property, will not cause the forfeiture or termination or give rise
to a right of forfeiture or termination of any Intellectual Property or in any
way impair the right of Corporation to use, sell, license (or sublicense),
transmit, broadcast, deliver (electronically or otherwise) or dispose of or to
bring any action for the infringement of, any Intellectual Property or portion
thereof
2.33.4 Corporation has taken all reasonable precautions to
protect the secrecy, confidentiality, and value of its trade secrets. The source
code and system documentation relating to the Software Programs (1) have at all
times been maintained in confidence and (2) have been disclosed by Corporation
only to employees and consultants having "a need to know" the contents thereof
in connection with the performance of their duties to Corporation.
2.33.5 All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated in the
conception and development of the Software Programs, Technical Documentation, or
Intellectual Property on behalf of Corporation either (1) are party to a
"work-for-hire" arrangement or agreement with Corporation, in accordance with
applicable federal and state law, that has accorded Corporation full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising, or (2) have executed appropriate instruments of assignment in
favor of Corporation as assignee that have conveyed to Corporation full,
effective, and exclusive ownership of all tangible and intangible property
thereby arising.
2.33.6 In no instance has the eligibility of the Software
Programs for protection under applicable copyright law been forfeited to the
public domain.
2.33.7 To the best knowledge of Corporation, no third party is
infringing upon, or is in violation of any license or agreement with Corporation
relating to, any Intellectual Property.
2.33.8 The use and application of the Intellectual Property
and the operation of the business of Corporation in the normal course prior to
the date hereof does not infringe in any respect upon the intellectual property
rights of any Person. No claims have been asserted by any Person against
Corporation's use of the Intellectual Property, and Corporation does not know of
any valid basis for any such claim. No proceeding alleging infringement of the
intellectual property rights of any Person is pending or threatened against
Corporation (and to the best of Corporation's knowledge there is no basis for
any such allegation).
2.33.9 Set forth on Schedule 2.33.9 is a description of what
rights (unlimited, limited, restrictive, government purpose license rights,
etc.) if any, the U.S. government has in any technical data or computer software
that Corporation uses in its business. Except as set forth on Schedule 2.33.8,
Corporation has not developed any item, component, process or software as a
requirement of any U.S. government contract.
2.34 Significant Customers; Material Contracts and Commitments.
2.34.1 If any customer or client of Corporation during the
past 12-month period accounted for more than 15% of Corporation's revenues or
gross profits during such period, Schedule 2.34 hereto identifies such customers
or clients. If any customer or client of Corporation (or group of customers or
clients) that is material to Corporation or was material to Corporation or its
results of operations during the year ended December 31, 2003 or during the
period reflected by the most recent financial statements set forth on Schedule
2.4 has canceled or substantially reduced or, is currently attempting or
threatening to cancel or substantially reduce its or their utilization of the
services provided by the Corporation, Schedule 2.34.1 hereto identifies such
customers or clients.
2.34.2 Schedule 2.34.1 also lists all Material Contracts (as
defined below) to which Corporation is a party, and Corporation has delivered
true, complete and correct copies of such contracts to Buyer. For purposes of
this Agreement, the term "Material Contracts" means:
(i) contracts between Corporation and significant customers
(as described above);
(ii) contracts material (in the reasonable judgment of
Majority Shareholder) to the operation of the business of Corporation, including
those relating to medical practice management and billing, strategic alliances,
and other agreements of importance (in the reasonable judgment of Majority
Shareholder) to Corporation; and
(iii) any other contracts which involve payments by
Corporation in any twelve-month period in excess of $25,000.
All of the Material Contracts are in full force and effect and constitute valid
and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
2.35 The representations and warranties of Corporation and Majority
Shareholder set forth in this Agreement, including the Schedules hereto do not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in the light of the
circumstances under which they were made, not misleading. This Agreement,
including the Schedules hereto and all other documents and information made
available to Buyer and its representatives in writing pursuant hereto or
thereto, present fairly the business of the Corporation for the time periods
with respect to which such information was requested. Corporation's rights under
the documents delivered pursuant hereto would not be materially adversely
affected by, and no statement made herein would be rendered untrue in any
material respect by, any other document to which Corporation or any officer,
director or Majority Shareholder is a party, or to which its properties or
assets are subject, or by any other fact or circumstance regarding Corporation
(which fact or circumstance was, or should reasonably, after due inquiry, have
been known to Corporation or Majority Shareholder) that is not disclosed
pursuant hereto or thereto.
3. Each of the Buyer and Parent jointly and severally represents and warrants
that all of the representations and warranties in this Section 3 are true and
correct at the date of this Agreement, and agrees that such representations and
warranties shall survive the Closing Date for a period of eighteen months. Any
excerpt from or summary of any of the following representations and warranties
that may be set forth on any of the Schedules hereto shall not modify or limit
the following representations and warranties in any manner.
3.1. Due Organization, Qualification. The Buyer is duly organized,
validly existing and in good standing, under the laws of the State of
California. Parent is duly organized, validly existing and in good standing,
under the laws of the State of Nevada. If not qualified as of the Closing Date,
Buyer shall promptly (and in no event later than thirty (30) days after the
Closing Date) be duly qualified or licensed to do business as a foreign
corporation in every jurisdiction in which the ownership of property requires
qualification.
3.2. Authority; Binding Nature of Agreement. Upon the adoption of
appropriate resolutions by the Buyer's and Parent's boards of directors:
3.2.1 The Buyer and Parent will have the absolute and
unrestricted right, power and authority to enter into and perform its
obligations under this Agreement;
3.2.2 The execution, delivery and performance of this
Agreement by the Buyer and Parent will have been duly authorized by all
necessary action on the part of the Buyer, Parent and their respective board of
directors; and
3.2.3 This Agreement will constitute the legal, valid and
binding obligation of the Buyer, enforceable against the Parent and Buyer in
accordance with its terms; and
3.3. Capitalization.
The authorized capital stock of Parent is 200,000,000 shares
of common stock, par value $0.001 per share. All of the issued and outstanding
shares of the capital stock of Buyer are owned by Parent. All of the issued and
outstanding shares of the capital stock of Parent and Buyer have been duly
authorized and validly issued, are fully paid and nonassessable, and further,
such shares were offered, issued, sold and delivered by Parent and Buyer in
compliance in all material respects with all applicable state and federal laws
concerning the issuance of securities.
3.4. Financial Statements; SEC Filings.
3.4.1 The Consolidated balance sheets of Parent and its
subsidiaries as of December 31, 2003 and December 31, 2002 and related
statements of operations, shareholders' equity and cash flows for the years then
ended included in the Annual Report on Form 10-KSB of Parent for the fiscal year
ended December 31, 2003, as filed with the Securities and Exchange Commission
("SEC"), and the unaudited, consolidated balance sheet of Parent as of September
30, 2004 and the related unaudited statement of operations for the period then
ended included in the Quarterly Report on Form 10-QSB of Parent and its
subsidiaries for the quarter ended September 30, 2004 as filed with the SEC,
copies of all of which have been made available by Parent to Seller
(collectively, the "Parent Financial Statements"), have been prepared in
accordance with GAAP (except as disclosed in the notes thereto), and presented
fairly the financial position of Buyer at the dates, and the results of
operations of Parent and its subsidiaries for the periods, stated therein.
3.4.2 Since November 22, 2004, Parent and its principal
shareholders have filed with the SEC all forms, reports and documents required
to be filed pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
together with the rules and regulations promulgated there under, all of which,
as of the respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act. Parent has
made available to Seller a true and complete copy of each report filed by Parent
with the SEC since November 22, 2004 (the "Parent Filings). None of the Parent
Filings as of the dates they respectively were filed with the SEC contained any
untrue statement of a material fact or omitted to state a material fact
necessary to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.5. Absence of Undisclosed Liabilities. There are no liabilities of
Parent or its subsidiaries of any kind whatsoever, whether or not accrued and
whether or not contingent or absolute, determined or determinable, that are
material to Parent, other than:
3.5.1 Liabilities disclosed or provided for in the Parent
Financial Statements;
3.5.2 Liabilities disclosed in the Parent Filings;
3.5.3 Liabilities incurred by or on behalf of Parent or Buyer
in connection with the transactions; and
3.5.4 Liabilities incurred in the ordinary course of business
since September 30, 2004, none of which, either singly or in the aggregate, are
reasonably likely to be materially adverse to the financial condition, business
or properties of Parent.
3.6. Absence of Changes. Except as disclosed in the Parent Filings, or
the Parent Financial Statements, since September 30, 2004, and except as
contemplated by this Agreement, Parent and Buyer have conducted their respective
business in the ordinary course, and there has not been:
3.6.1 Any Material adverse change in the financial condition,
business or properties of Parent or Buyer;
3.6.2 Any change in the method of accounting or accounting
practice of Parent other than changes required by GAAP; or
3.6.3 Any setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) in respect of any shares of
any class of stock of Parent in excess of $5000.
3.7. Non-Contravention; Consents.
3.7.1 Except as set forth in Schedule 3.7.1, neither the
execution nor delivery of any of this Agreement or the documents contemplated
herein (the "Transaction Agreements"), nor the consummation or performance of
any of the transactions contemplated therein (the "Transactions"), will directly
or indirectly (with or without notice or lapse of time):
3.7.1.1 Contravene, conflict with or result in a
violation of (i) any of the provisions of either Parent's or the Buyer's
articles of incorporation or bylaws, or (ii) any resolution adopted by Parent's
or the Buyer's respective board of directors or any committee of Parent's or the
Buyer's board of directors; or
3.7.1.2 Contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Transactions or to exercise any remedy or obtain any relief
under, any legal requirement or any order to which Parent or the Buyer, or any
of the assets owned or used by Parent or the Buyer, is subject.
3.7.2 No governmental authorization or other consent of a
governmental body or other regulatory authority is required to be made or
obtained by Parent or Buyer in connection with the execution, delivery and
performance of this Agreement, the Transaction Agreements and the consummation
of the Transaction.
3.8. Proceedings; Orders.
3.8.1 Except as set forth in Schedule 3.8.1, there is no
pending legal proceeding, and no Person has threatened to commence any legal
proceeding;
3.8.1.1 that involves Parent or Buyer, or that
otherwise relates to or might affect Parent's or Buyer's respective businesses;
or
3.8.1.2 that challenges, or that may have the effect
of preventing, delaying, making illegal or interfering with, any of the
Transactions.
3.8.2 Except as set forth in Schedule 3.8.2, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
might directly or indirectly give rise to or serve as a basis for the
commencement of any such proceeding.
3.8.3 The Parent and Buyer have delivered to Majority
Shareholder accurate and complete copies of all pleadings, correspondence and
other written materials, to which Parent and/or Buyer have access that relate to
the proceedings identified in Schedule 3.8.1 and Schedule 3.8.2.
3.8.4 There is no proposed order that, if issued or otherwise
put into effect, (i) may have a material adverse effect on Parent's or Buyer's
businesses, condition, assets, liabilities, operations, financial performance,
net income or prospects (or on any aspect or portion thereof) or on the ability
of Parent or Buyer to comply with or perform any covenant or obligation under
any of the Transaction Agreements, (ii) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions,
or (iii) may have an adverse effect on either Parent's or Buyer's ability to
operate the business related to the Transactions.
3.8.5 No Other Defaults. Except as set forth on Schedule 3.8.1
and Schedule 3.82, neither Parent, nor Buyer is in material default under any
contract or other instrument to which it is a party and to the knowledge of
Parent and Buyer, no other party under any such contract or instrument is in
material default thereunder.
3.8.6 Tax Returns. Except as set forth on Schedule 3.8.6,
Parent and Buyer have properly filed, or caused to be properly filed, all
required federal tax returns and reports, all state and local tax returns and
reports and all related information required to be filed with respect to income,
withholding, property and sales taxes, and all other tax returns, reports and
related information, the filing of any of which is reasonably required for the
conduct of the businesses of Parent and/or Buyer or required by any taxing
authority having jurisdiction over Parent and/or Buyer. All such tax returns
properly reflect the taxes attributable to the businesses of Parent and/or Buyer
for the periods covered thereby. All federal, state and local taxes,
assessments, interest, penalties, deficiencies, fees and other governmental
charges or impositions called for by such tax returns or claimed to be due by
any taxing authority have been properly accrued or paid if due.
3.8.9 Solvency. As of the date hereof and as of the Closing
Date and the completion of all of the Transactions, Parent and Buyer will expect
to be able to pay their respective debts as they mature, will have capital
sufficient to carry on their business and all businesses in which they are about
to engage, and will have assets that will have a present fair salable value
greater than the aggregate amount of Parent and Buyer's indebtedness. Parent and
Buyer do not intend to incur debts beyond their ability to pay as such debts
mature. Neither Parent nor Buyer contemplate filing a petition in bankruptcy or
for reorganization under the federal Bankruptcy Code, or (ii) are aware of any
threatened bankruptcy or insolvency proceedings against either of them.
3.8.10 Disclosure. The representations and warranties of Buyer
and Parent set forth in this Agreement, including the Schedules hereto do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in the light of the
circumstances under which they were made, not misleading. This Agreement,
including the Schedules hereto and all other documents and information made
available to Corporation and its representatives in writing pursuant hereto or
thereto, present fairly the business of Buyer and Parent for the time periods
with respect to which such information was requested. Buyer's and Parent's
rights under the documents delivered pursuant hereto would not be materially
adversely affected by, and no statement made herein would be rendered untrue in
any material respect by, any other document to which Buyer, Parent or any
officer or director is a party, or to which its properties or assets are
subject, or by any other fact or circumstance regarding Buyer or Parent (which
fact or circumstance was, or should reasonably, after due inquiry, have been
known to Buyer or Parent) that is not disclosed pursuant hereto or thereto.
3.8.11 Brokers. The Buyer and Parent have not agreed and will
not become obligated to pay, and have not taken any action that might result in
any Person claiming to be entitled to receive, any brokerage commission,
finder's fee or similar commission or fee in connection with the Transactions.
4. Selling Parties covenant that from the date of this Agreement until the
Closing Date, except as necessary to carry out the Transactions contemplated
herein and in the Transaction Agreements:
4.1. Buyer and its counsel, accountants, and other representatives will
have full access during normal business hours to all properties, books,
accounts, records, contracts, and documents of or relating to Corporation.
Selling Parties will furnish or cause to be furnished to Buyer and its
representatives all data and information concerning the business, finances, and
properties of Corporation that may reasonably be requested.
4.2. Nothing in this Agreement will obligate Selling Parties to
disclose any classified information or provide any access to representatives of
Buyer prohibited or not authorized by applicable governmental authority.
4.3. Corporation will carry on its respective businesses and activities
diligently and in substantially the same manner as they previously have been
carried out and will not institute any unusual or novel methods of manufacture,
purchase, sale, lease, management, accounting, or operation that vary materially
from those methods used by Corporation as of the date of this Agreement.
4.4. Corporation will use commercially reasonable efforts, without
making any commitments on behalf of Buyer, to preserve its respective business
organizations intact; to keep available to Corporation its present officers and
employees; and to preserve its present relationships with suppliers, customers,
and others having business relationships with them.
4.5. Corporation will not (1) amend its articles of incorporation or
bylaws; (2) issue any shares of its capital stock; (3) issue or create any
warrants, obligations, subscriptions, options, convertible securities, or other
commitments under which any additional shares of its capital stock of any class
might be directly or indirectly authorized, issued, or transferred from
treasury; or (4) agree to do any of the acts listed above.
4.6. Corporation will continue to carry its existing insurance, subject
to variations in amounts required by the ordinary operations of its businesses.
At the request of Buyer and at Buyer's sole expense, the amount of insurance
against fire and other casualties that, at the date of this Agreement,
Corporation carries on any of its properties or in respect of its operations
will be increased by the amount or amounts Buyer will specify.
4.7. Other than in the ordinary course of business, Corporation will
not, or will not agree to: (1) make any change in compensation payable or to
become payable, to any officer, employee, sales agent, or representative; (2)
make any change in benefits payable to any officer, employee, sales agent, or
representative under any bonus or pension plan or other contract or commitment;
or (3) modify any collective bargaining agreement to which it is a party or by
which it may be bound.
4.8. Corporation will not or will not agree to do, without Buyer's
consent, any of the following:
4.8.1 Enter into any contract, commitment, or transaction not
in the usual and ordinary course of its business;
4.8.2 Enter into any contract, commitment, or transaction in
the usual and ordinary course of business involving an amount exceeding
$10,000.00, individually, or $50,000.00 in the aggregate;
4.8.3 Make any capital expenditures in excess of $10,000.00
for any single item or $50,000.00 in the aggregate, or enter into any leases of
capital equipment or property under which the annual lease charge is in excess
of $100,000.00; or
4.8.4 Sell or dispose of any capital assets with a net book
value exceeding $10,000.00, individually, or $50,000.00 in the aggregate.
4.9. Corporation will not:
4.9.1 Declare, set aside, or pay any dividend or make any
distribution in respect of its capital stock;
4.9.2 Directly or indirectly purchase, redeem, or otherwise
acquire any shares of its capital stock; or
4.9.3 Enter into any agreement obligating it to do any of the
foregoing prohibited acts.
4.10. Other than in the ordinary course of business, Corporation will
not, or will not agree to, without Buyer's prior consent: (1) pay any obligation
or liability, fixed or contingent, other than current liabilities; (2) waive or
compromise any right or claim; or (3) cancel, without full payment, any note,
loan, or other obligation owed to Corporation.
4.11. Corporation will not, or will not agree to, modify, amend,
cancel, or terminate any of its existing contracts or agreements except in the
ordinary course of business.
4.12. As soon as reasonably practical after the execution and delivery
of this Agreement, Selling Parties will obtain the written consent of the
persons required to consent to any of the items herein and will furnish to Buyer
executed copies of those consents.
4.13. Buyer will exercise commercially reasonable efforts, and promptly
execute and deliver any documents and instruments that may be reasonably
required, to assist Selling Parties in obtaining such consents provided,
however, that Buyer will not be obligated under this Section to execute any
guaranty, assumption of liability, or other document or instrument requiring it
to assume obligations not contemplated by this Agreement.
4.14. At the written request of Buyer, Corporation will document and
describe any of its trade secrets, processes, or business procedures specified
by Buyer, in form and content satisfactory to Buyer.
4.15. All warranties of Selling Parties set forth in this Agreement and
in any written statements delivered to Buyer by Selling Parties under this
Agreement will also be true and correct on the Closing Date as if made on that
date.
5. Conditions precedent to Buyer's performance:
5.1. At the Closing, Majority Shareholder shall deliver to Buyer the
following instruments, in form and substance satisfactory to Buyer and its
counsel:
5.1.1 A certificate or certificates representing Shares issued
in the name of Majority Shareholder, duly endorsed by Majority Shareholder for
transfer or accompanied by an assignment of the Shares duly executed by Majority
Shareholder. Majority Shareholder will collect and arrange for the transfer of
all remaining outstanding Shares held by the other Shareholders. On submission
of the certificate or certificates to Corporation for transfer, Corporation will
issue to Buyer a certificate or certificates representing the Shares, issued in
Buyer's name. For any certificates that are determined to be lost, a "Lost
Certificate Affidavit", satisfactory to the Buyer, will be provided that has
been duly executed by the appropriate parties. If any Shares (or Lost
Certificate Affidavits) of the other Shareholders are not delivered as provided
in this Section, then the stock of the Parent to be issued in exchange for those
Shares will be held back by Parent until such time as the Shares are delivered
as provided in this Section.
5.1.2 The stock books, stock ledgers, minute books, and
corporate seals of Corporation.
5.1.3 A certificate executed by officers of each of
Corporation and Majority Shareholder (the "Officers Certificates"), dated the
Closing Date, certifying that their respective representations and warranties in
this Agreement are true and correct on the Closing Date, as though each
representation and warranty had been made on that date and certifying, in such
detail as Buyer may reasonably request, that the conditions specified herein
have been fulfilled.
5.1.4 Buyer will have received certificate of good standing
certificate for the State of Virginia for Corporation and a good standing
certificate from the Cayman Islands for Majority Shareholder dated as of a date
not more than (30) days following the Closing date. In the event that Majority
Shareholder is not in good standing pursuant to the corporat laws of the Cayman
Islands, all steps will be taken to bring the company into good standing with 30
days following the Closing date.
5.2. The obligations of Buyer to purchase the shares under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
conditions set out herein. Buyer may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition will constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Majority Shareholder or Corporation are in
default of any of their representations, warranties, or covenants under this
Agreement.
5.3. Except as otherwise permitted by this Agreement, all warranties by
each of the Selling Parties in this Agreement, or in any written statement that
will be delivered to Buyer by any of them under this Agreement, must be true at
Closing as though made at that time.
5.4. Selling Parties must have performed, satisfied, and complied with
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them, or any of them, by the Closing Date.
5.5. During the period from the most recent financial statement to the
Closing Date, there will not have been any material adverse change in the
financial condition or the results of operations of Corporation, and Corporation
will not have sustained any insured or uninsured loss or damage to its assets
that materially affects its ability to conduct a material part of its business.
5.6. No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the Transactions or the
consummation thereof, will have been instituted or threatened on or before the
Closing Date.
5.7. Buyer will have received from Corporation's chief financial
officer a letter, dated the Closing Date, stating that on the basis of a limited
review (not an audit) of the latest available accounting records of Corporation,
consultations with other responsible officers of Corporation and with
Shareholders, and other pertinent inquiries that he may deem necessary, he has
no knowledge or reason to suspect that during the period from the latest audited
financial statement(s) to a specified date not more than five business days
before the Closing Date, there was any change in the financial condition or
results of operations of Corporation, except changes incurred in the ordinary
and usual course of it business during that period that in the aggregate are not
materially adverse, and any other changes contemplated by this Agreement.
5.8. The execution and delivery of this Agreement by Corporation and
Majority Shareholder, and the performance of their covenants and obligations
under it, will have been duly authorized by all necessary corporate action, and
Buyer and Parent will have received copies of all resolutions pertaining to that
authorization, certified respectively by the secretary of Corporation and the
secretary of Majority Shareholder.
5.9. All necessary agreements and consents of any parties to the
consummation of the Transactions contemplated by this Agreement, or otherwise
pertaining to the matters covered by it, will have been obtained by Selling
Parties and delivered to Buyer.
5.10. The form and substance of all certificates, instruments,
opinions, and other documents delivered to Buyer under this Agreement will be
satisfactory in all reasonable respects to Buyer and its counsel.
6. Conditions precedent to Selling Parties's performance:
6.1. The obligations of Majority Shareholder and the Corporation under
this Agreement are subject to the satisfaction, at or before the Closing Date,
of all the following conditions. Majority Shareholder and the Corporation may
waive any or all of these conditions in whole or in part without prior notice,
provided, however, that no such waiver of a condition will constitute a waiver
by Majority Shareholder or the Corporation of any of its other rights or
remedies, at law or in equity, if Parent or Buyer should be in default of any of
their representations, warranties, or covenants under this Agreement.
6.2. All representations and warranties by Buyer and Parent contained
in this Agreement or in any written statement delivered by Buyer and Parent
under this Agreement must be true on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
6.3. Buyer must have performed and complied with all covenants and
agreements and satisfied all conditions that it is required by this Agreement to
perform, comply with, or satisfy before or at the Closing Date.
6.4. The board of directors of Buyer will have duly authorized and
approved the execution and delivery of this Agreement and all corporate action
necessary or proper to fulfill Buyer's obligations to be performed under this
Agreement on or before the Closing Date.
6.5. No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the Transactions or the
consummation thereof, will have been instituted or threatened on or before the
Closing Date.
6.6. The closing of the Transactions (the "Closing") will take place at
the offices of Buyer, at 10:00 a.m. local time, on January 7, 2005 or at such
other time and place as the parties may agree to in writing (the "Closing
Date").
6.7. At the Closing, subject to the provisions of Section 5.1.1 hereof,
Buyer must deliver, in accordance with Schedule 2.2 and at the direction of
Majority Shareholder, 12,500,000 shares of Parent Common Stock.
6.8. No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the Transactions or the
consummation thereof, will have been instituted or threatened on or before the
Closing Date.
6.9. Selling Parties will have received from the chief financial
officer of Parent, a letter, dated the Closing Date, stating that on the basis
of a limited review (not an audit) of the latest available accounting records of
Parent, consultations with other responsible officers of Parent , and other
pertinent inquiries that he may deem necessary, he has no knowledge or reason to
suspect that during the period from the latest audited financial statement(s) to
a specified date not more than five business days before the Closing Date, there
was any change in the financial condition or results of operations of Parent,
except changes incurred in the ordinary and usual course of their respective
businesses during that period that in the aggregate are not materially adverse,
and any other changes contemplated by this Agreement.
6.10. All necessary agreements and consents of any parties to the
consummation of the Transactions, or otherwise pertaining to the matters covered
by it, will have been obtained by Buyer and delivered to Selling Parties.
6.11. The form and substance of all certificates, instruments,
opinions, and other documents delivered to Selling Parties under this Agreement
will be satisfactory in all reasonable respects to Selling Parties and its
counsel.
6.12. There shall have been no material adverse change in either
Buyer's and/or Parent's business, condition, assets, liabilities, operations,
financial performance, net income or prospects (or in any aspect or portion
thereof) since September 30, 2004.
7. Majority Shareholder will indemnify, defend, and hold harmless Buyer and
Parent against and in respect of claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorney fees, that Buyer and/or Parent may
incur or suffer, which arise, result from, or relate to any breach of, or
failure by Selling Parties to perform, any of their representations, warranties,
covenants, or agreements in this Agreement or in any schedule, certificate, or
other instrument furnished or to be furnished by Selling Parties under this
Agreement. Majority Shareholder's liability under this section will not,
however, exceed the aggregate amount of $1,000,000.00. In computing the amount
to be paid by Majority Shareholder under its indemnity obligations, there will
be deducted an amount equal to any tax benefits actually received by Buyer,
taking into account the income tax treatment of the receipt of these payments.
This indemnity will be Buyer's and Parent's sole remedy against the Selling
Parties for any claims described in this Section or under this Agreement.
7.1. Buyer will promptly notify Majority Shareholder of the existence
of any claim, demand, or other matter to which Majority Shareholder's
indemnification obligations would apply and will give it a reasonable
opportunity to defend the same at its own expense and with counsel of its own
selection; provided that Buyer will at all times also have the right to
participate fully in the defense at its own expense. If Majority Shareholder,
within a reasonable time after this notice, fails to defend, Buyer will have the
right, but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment), the claim or other matter on
behalf, for the account, and at the risk, of Majority Shareholder. If the claim
is one that cannot by its nature be defended solely by Majority Shareholder
(including any federal or state tax proceeding), Buyer will make available all
information and assistance that Majority Shareholder may reasonably request.
7.2. Any indemnity claim may be paid by Majority Shareholder, at its
option, by an assignment of Shares of Parent's Stock (valued at the greater of
the current share price or the share price on the Closing Date) or by a
forfeiture of options or warrants granted hereunder (valued at the amount by
which the greater of the current share price or the share price as of the
Closing Date exceeds the option price for such Shares).
7.3. Threshold for Indemnification by Majority Shareholder. Majority
Shareholder shall not be required to make any indemnification payment pursuant
to this Section 7 until such time as the total amount of all damages (including
the damages arising from such claim and all other damages arising from any other
claims) that have been directly or indirectly suffered or insured by any one or
more of the indemnitees, or to which any one or more of the indemnitees has or
have otherwise become subject, exceeds $50,000 in the aggregate. At such time as
the total amount of such damages exceeds $50,000 in the aggregate, the
indemnitees shall be entitled to be indemnified against the full amount of such
damages (and not merely the portion of such damages exceeding $50,000).
7.4 Unless Parent or Buyer otherwise consents in writing, the
Shareholder Representative shall serve as the sole and exclusive representative
of Majority Shareholder with respect to any claim for indemnification brought by
Parent or Buyer under this Section 7 and with respect to any issue that arises
in respect of this Section 7. Majority Shareholder hereby agrees that the
Shareholder Representative shall have the power to take any action in order to
contest, defend and settle each such claim for indemnification on behalf of
Majority Shareholder and any action by the Shareholder Representative shall be
final and binding on Majority Shareholder.
8. Majority Shareholder agrees not to divulge, communicate, use to the detriment
of Buyer or for the benefit of any other person or persons, or misuse in any
way, any confidential information or trade secrets of Corporation, including
personnel information, secret processes, know-how, customer lists, recipes,
formulas, or other technical data. Majority Shareholder acknowledges and agrees
that any information or data it has acquired on any of these matters or items
was received in confidence and as a fiduciary of Corporation.
9. Buyer and Parent will jointly and severally indemnify and hold harmless
Majority Shareholder against, and in respect of, claims, losses, expenses,
costs, obligations, and liabilities it may incur by reason of Buyer's or
Parent's breach of or failure to perform any of its warranties, guaranties,
commitments, or covenants in this Agreement, or by reason of any act or omission
of Buyer or Parent, or any of its successors or assigns, after the Closing Date,
that constitutes a breach or default under, or a failure to perform, any
obligation, duty, or liability of any of Majority Shareholder under any loan
agreement, lease, contract, order, or other agreement to which it is a party or
by which it is bound at the Closing, but only to the extent to which Buyer or
Parent expressly assumes these obligations, duties, and liabilities under this
Agreement. This indemnity will be Majority Shareholder's sole remedy against
Buyer and Parent for any claims described in this Section or under this
Agreement.
9.1. Majority Shareholder will promptly notify Buyer and Parent of the
existence of any claim, demand, or other matter to which Buyer and Parent's
indemnification obligations would apply and will give it a reasonable
opportunity to defend the same at its own expense and with counsel of its own
selection; provided that Majority Shareholder will at all times also have the
right to participate fully in the defense at its own expense. If Buyer and
Parent, within a reasonable time after this notice, fail to defend, Majority
Shareholder will have the right, but not the obligation, to undertake the
defense of, and to compromise or settle (exercising reasonable business
judgment), the claim or other matter on behalf, for the account, and at the
risk, of Buyer and Parent. If the claim is one that cannot by its nature be
defended solely by Buyer and Parent (including any federal or state tax
proceeding), Majority Shareholder will make available all information and
assistance that Buyer and Parent may reasonably request.
9.2. Threshold for Indemnification by the Buyer and Parent. The Buyer
and Parent shall not be required to make any indemnification payment pursuant to
Section 9.1 until such time as the total amount of all damages (including the
damages arising from the claim and all other damages arising from any other
claims) that have been directly or indirectly suffered or insured by Majority
Shareholder, or to which Majority Shareholder has otherwise become subject,
exceeds $50,000 in the aggregate. At such time as the total amount of such
damages exceeds $50,000 in the aggregate, Majority Shareholder shall be entitled
to be indemnified against the full amount of such damages (and not merely the
portion of such damages exceeding $50,000).
10. All notices to third parties and all other publicity concerning the
Transactions will be jointly planned and coordinated by and between Buyer and
Majority Shareholder with the exception being that Parent will have full and
unencumbered authority to make any disclosures, including press releases and
public statements which are necessary or advisable to comply with any SEC
regulations or other relevant legal requirements or judicial or legislative
order or proceeding. Outside of any such required disclosures, no party will
take any action in this regard without the prior written approval of the other
pareties hereto; however, this approval will not be unreasonably withheld.
11. Majority Shareholder shall be solely responsible for any and all fees,
commissions, costs or compensation due to any broker or finder and Majority
Shareholder shall indemnify and hold harmless Parent, Buyer and Corporation
against any loss, liability, damage, cost, claim, or expense incurred by reason
of any brokerage commission or finder's fee alleged to be payable because of any
act, omission, agreement, or statement of Majority Shareholder. Buyer and Parent
represent and warrant that no commissions, costs or compensation are due to any
broker or finder engaged by them.
12. The parties covenant and agree that the terms of this Agreement are
sensitive and shall remain confidential and Majority Shareholder expressly
agrees not to divulge the terms of the Agreement herein or any information
relating to compensation or any other matters concerning the terms of Buyers
acquisition and payments to the Corporation to any other person or party without
the express written consent of Buyer.
13. FEDERAL SECURITIES ACT REPRESENTATIONS
Majority Shareholder represents and warrants that all of the
representations and warranties in this Section are true and correct at the date
of this Agreement, and agrees that such representations and warranties shall
survive perpetually.
13.1 Compliance with Law. Majority Shareholder acknowledges that the
shares of Parent Common Stock to be delivered to Majority Shareholder pursuant
to this Agreement have not been and will not be registered under the Securities
Act of 1933, as amended (the "1933 Act"), (except as provided in the
Registration Rights Agreement) and that such shares may not be resold without
compliance with the 1933 Act. The Parent Common Stock to be acquired by Majority
Shareholder pursuant to this Agreement is being acquired solely for Majority
Shareholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution, except as related to Majority Shareholder's intentions to
award or provide future incentives to former directors, management and
consultants. Except as noted here, Majority Shareholder covenants, warrants and
represents that none of the shares of Parent Common Stock issued to Majority
Shareholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC including,
if required by Parent, the obtaining of an opinion of counsel to Parent that
such disposition is exempt from registration under the 1933 Act and any other
applicable securities laws.
13.2 Economic Risk; Sophistication; Reg D. Majority Shareholder hereby
represents to Parent that Majority Shareholder is able to bear the economic risk
of an investment in the Parent Common Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience in financial and business matters that Majority
Shareholder is capable of evaluating the merits and risks of the proposed
investment in such common stock. Majority Shareholder hereby represents and
warrants to Parent that Majority Shareholder is an "accredited investor" as
defined in Regulation D under the 1933 Act. Majority Shareholder has not been
organized for the purpose of acquiring Parent Common Stock. Majority Shareholder
hereby further confirms that Majority Shareholder has had an adequate
opportunity to ask questions and receive answers from the officers of Parent
concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the officers and
directors of Parent, the business of Parent, any plans for additional
acquisitions, and any other matters Majority Shareholder considers appropriate.
Majority Shareholder has asked any and all questions of the nature described in
the preceding sentence, and all questions have been answered to Majority
Shareholder's satisfaction. Majority Shareholder understands that the sale of
shares of Parent Common Stock to Majority Shareholder pursuant to this Agreement
is intended to be a "private placement" exempt from registration under the 1933
Act by virtue of Regulation D thereof and/or other applicable exceptions.
Majority Shareholder represents and warrants that, as of the Closing Date,
assuming the truth of the representations and warranties made herein by each of
the parties thereto, Majority Shareholder has taken no action without the prior
written consent of the other parties that would cause the sale of Parent Common
Stock pursuant to this Agreement to become subject to the registration
requirements of the 1933 Act.
13.3 SEC Filings. Majority Shareholder hereby confirms that Majority
Shareholder has received a copy of Parent's Form SB-2 Registration Statement
which was declared effective by the SEC on August 13, 2004, and Form 10-QSB for
the period ended September 30, 2004, has reviewed them carefully, as well as the
other filings by Parent on the SEC's website at xxx.xxx.xxx, and has discussed
them and the transactions contemplated by this Agreement, to the extent Majority
Shareholder desires to do so, with Majority Shareholder's attorney, accountant,
tax, financial or other advisor.
13.4 Purchase Entirely for Own Account. Except as may occur as noted in
13.1 above, the shares of Parent Common Stock to be received by Majority
Shareholder from Parent will be acquired for investment for Majority
Shareholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of applicable securities
laws, and Majority Shareholder has no present intention of selling, granting any
participation in or otherwise distributing the same in a manner that would
require registration under the 1933 Act. Majority Shareholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to any third person, with respect to any of
Parent's common stock, except as may ensue as noted in Section 13.1 above.
14. Each party will pay all costs and expenses incurred or to be incurred by it
in negotiating and preparing this Agreement and in closing and carrying out the
Transactions contemplated by this Agreement.
15. The subject headings of the sections and subsections of this Agreement are
included for convenience only and will not affect the construction or
interpretation of any of its provisions.
16. Unless the context clearly requires otherwise; plural and singular numbers
will each be considered to include the other; the masculine, feminine, and
neuter genders will each be considered to include the others; "shall," "will,"
"must," "agree," and "covenants" are each mandatory; "may" is permissive; "or"
is not exclusive; and "includes" and "including" are not limiting.
17. This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this Agreement will be binding
unless executed in writing by all the parties. No waiver of any of the
provisions of this Agreement will constitute a waiver of any other provision,
whether or not similar, nor will any waiver constitute a continuing waiver. No
waiver will be binding unless executed in writing by the party making the
waiver.
18. This Agreement may be executed simultaneously in one or more counterparts,
each of which will be considered an original, but all of which together will
constitute one and the same instrument.
19. Nothing in this Agreement, whether express or implied, is intended to confer
any rights or remedies under or by reason of this Agreement on any persons other
than the parties to it and their respective successors and assigns. Nothing in
this Agreement is intended to relieve or discharge the obligation or liability
of any third persons to any party to this Agreement. No provision gives any
third persons any right of subrogation or action against any party to this
Agreement.
20. This Agreement will be binding on, and will inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successors, and
assigns.
21. Except for claims for specific performance or injunctive relief pursuant to
Section 22 hereof, any controversy or claim arising out of, or relating to, this
Agreement, or the making, performance, or interpretation of it, will be settled
by binding arbitration in Los Angeles, California if initiated by the Selling
Parties, and in Fairfax County, Virginia, if initiated by the Buyer or Parent,
under the commercial arbitration rules of the American Arbitration Association
then existing, and judgment on the arbitration award may be entered in any court
having jurisdiction over the subject matter of the controversy. Arbitrators will
be persons experienced in negotiating, making, and consummating acquisition
agreements. In such proceeding the parties will have all rights to do discovery
as provided in the Code of Civil Procedure relating to discovery in normal court
actions in such state.
22. Each party's obligation under this Agreement is unique. If any party should
default in its obligations under this Agreement, both parties acknowledge that
it would be extremely impracticable to measure the resulting damages;
accordingly, the non-defaulting party or parties, in addition to any other
available rights or remedies, may xxx in equity for specific performance, and
the parties each expressly waive the defense that a remedy in damages will be
adequate. Despite any breach or default by any of the parties of any of their
respective representations, warranties, covenants, or agreements under this
Agreement, if the purchase and sale contemplated by it will be consummated at
the Closing, each of the parties waives any rights that it may have to rescind
this Agreement or the Transaction consummated by it; provided, however, that
this waiver will not affect any other rights or remedies available to the
parties under this Agreement or under the law.
23. If any legal action or any arbitration or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties will be entitled to
recover reasonable attorney's fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
24. Subject to the provisions herein relating to the postponement of the
Closing, neither party may on or before the Closing terminate this Agreement,
without liability to any other for any reason other than war, natural disaster
or any other unusual external factors or events totally beyond the control of
either party, including any bona fide action or proceeding pending on the
Closing Date that could result in an unfavorable judgment, decree, or order that
would prevent or make unlawful the performance of this Agreement or if any
agency of the federal or of any state government has objected at or before the
Closing Date to this acquisition or to any other action required by or in
connection with this Agreement;
25. If either Buyer or Selling Parties materially default in the due and timely
performance of any of their warranties or agreements under this Agreement, the
non-defaulting party or parties may on the Closing Date give notice of
termination of this Agreement, in the manner provided herein. The notice will
specify with particularity the default or defaults on which the notice is based.
The termination will be effective five days after the Closing Date, unless the
specified default or defaults have been cured on or before this effective date
for termination.
26. All covenants, and agreements of the parties contained in this Agreement, or
in any instrument, certificate, opinion, or other writing provided for in it,
will survive the Closing.
27. All notices, requests, demands, and other communications under this
Agreement must be in writing and will be considered to have been duly given on
the date of service if served personally on the party to whom notice is to be
given, or on the second day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
To Selling Parties at: Xxxxxxx Xxxxx, Care of Physician Informatics, Inc.
Corporate Park III
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
To Parent or Buyer at: Xxxxxxx Xxxxxxx
PracticeXpert, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxx Xxxx, XX 00000
Any party may change its address for purposes of this section by giving
the other parties written notice of the new address in the manner set forth
above.
28. This Agreement will be construed in accordance with, and governed by, the
laws of the State of California as applied to contracts that are executed and
performed entirely in California without regard to its principles of conflict of
laws.
29. If any provision of this Agreement is held invalid or unenforceable by any
court of final jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed to remain fully valid, enforceable,
and binding on the parties.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
BUYER: PRACTICE XPERT SERVICES, CORP.
By: /s/ Xxxxxxxx Doctor
----------------------------------------
Xxxxxxxx Doctor, President/CEO
PARE PRACTICEXPERT, INC.
By: /s/ Xxxxxxxx Doctor
----------------------------------------
Xxxxxxxx Doctor, President/CEO
CORPORATION: PHYSICIAN INFORMATICS, INC.
By: /s/ Xxxxxxx Xxxxx
----------------------------------------
Xxxxxxx Xxxxx, Chairman/CEO
MAJORITY SHAREHOLDER: PI (CAYMAN), LIMITED
By: /s/ PI (Cayman), Limited
----------------------------------------
Name/title
SHAREHOLDER REPRESENTATIVE: XXXXXXX XXXXX
By: /s/ Xxxxxxx Xxxxx
----------------------------------------
XXXXXXX XXXXX
INDEX TO SCHEDULES
--------------------------------------------------------------------------------
Schedule Description Schedule Number
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Components of Cash Flow From Operations 1.3.2.2
--------------------------------------------------------------------------------
$2,000,000 Note Payable to Citibank 1.3.3.1
--------------------------------------------------------------------------------
$4,000,000 Note Payable to PI (Cayman), Limited 1.3.3.2
--------------------------------------------------------------------------------
Trade Payable of Corporation 1.3.3.3
--------------------------------------------------------------------------------
Secured Debt of Parent 1.3.5
--------------------------------------------------------------------------------
Form of Warrant to PI Cayman 1.3.8.2
--------------------------------------------------------------------------------
Restrictions and Rights Agreement 1.3.10
--------------------------------------------------------------------------------
Authorized Capital Stock of Corporation: List of Shareholders 2.2
--------------------------------------------------------------------------------
Financial Statements and Tax Returns of Corporation 2.4
--------------------------------------------------------------------------------
Dividends of Corporation 2.6.7
--------------------------------------------------------------------------------
Increases in Compensation 2.6.8
--------------------------------------------------------------------------------
Real Property of Corporation 2.11
--------------------------------------------------------------------------------
Tangible Personal Property of Corporation 2.12
--------------------------------------------------------------------------------
Third Party Interests in Assets of Company 2.14
--------------------------------------------------------------------------------
Current Customers List 2.16
--------------------------------------------------------------------------------
Insurance Policies 2.17
--------------------------------------------------------------------------------
Contracts Outside Normal Scope of Business 2.18
--------------------------------------------------------------------------------
Legal Matters 2.20
--------------------------------------------------------------------------------
Required Consents 2.21
--------------------------------------------------------------------------------
Related Party's Ownership in Competitors or Affiliates 2.23
--------------------------------------------------------------------------------
Officers, Directors, Employees, Agents and Representatives 2.25
--------------------------------------------------------------------------------
Corporation's Material Employment Contracts, Etc. 2.26
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Person's Holding Corporation's Power of Attorney; Banks, Etc. 2.27
--------------------------------------------------------------------------------
List of Software Contracts 2.29.1
--------------------------------------------------------------------------------
Technical Documentation 2.30.1
--------------------------------------------------------------------------------
Exceptions to Technical Documentation 2.30.2
--------------------------------------------------------------------------------
Software Licenses From Third Parties 2.31.1
--------------------------------------------------------------------------------
Software Royalty Obligations 2.31.2
--------------------------------------------------------------------------------
Transfers Of Ownership Interest 2.32.2
--------------------------------------------------------------------------------
Non-Conforming End User Software Contracts 2.32.3 (a)
--------------------------------------------------------------------------------
Copies of Conforming Licenses and Sub-Licenses to Others 2.32.3 (b)
--------------------------------------------------------------------------------
Intellectual Property and Location 2.33.1
--------------------------------------------------------------------------------
Government Rights and Products of Government Contracts 2.33.9
--------------------------------------------------------------------------------
Material Contracts 2.34
--------------------------------------------------------------------------------
Material Contracts Lost or Threatened 2.34.1
--------------------------------------------------------------------------------
Non-Contravention; Consents 3.7.1
--------------------------------------------------------------------------------
Legal Proceedings 3.8.1
--------------------------------------------------------------------------------
Potential Legal Proceedings 3.8.2
--------------------------------------------------------------------------------
