BUSINESS COMBINATION AND INVESTMENT AGREEMENT
BUSINESS
COMBINATION
AND
INVESTMENT AGREEMENT
Agreement made as of July 6, 2004, between Espre Solutions, Inc., a Texas
corporation (“Espre”); the shareholders of Espre whose names and signatures
appear on the signature page to this Agreement (the “Espre Shareholders”); and
Financial Freedom Home Buyers, Inc., a Florida corporation (the
“Investors”).
The parties agree as follows:
1. Recitals.
1.1 Espre is engaged in the
development of
video applications intended to add both narrowband and broadband video to
traditional voice and data applications. Espre has certain intellectual
property rights, including an electronic messaging product which Espre calls
“ViewMail Marketing System,” as more particularly described herein.
1.2 The Investors have agreed
to provide
Espre with certain capital for use in the development and implementation
of
Espre’s business plan at the times, and in the amounts, which this Agreement
describes.
1.3 Espre has five (5) shareholders
(excluding the Investors, who are existing Espre shareholders and are excluded
from the term “Espre Shareholders”).
1.4 The parties agree that
in order best to
implement Espre’s business plan, Espre will combine with a publicly-traded
company (the “Public Company”), which the Investors will provide under the terms
which follow.
2. Definitions.
The following terms, as used herein, have the following meanings:
"Affiliate" of a Person means a Person, who directly or indirectly through
one
or more intermediaries, controls or is controlled by, or is under common
control
with, such person.
“Agreement”
has the meaning set forth in the introductory paragraph.
“Business
Combination” has the meaning set forth in Section 3.1.
“Closing”
has the meaning set forth in Section 3.3.
“Closing
Date” has the meaning set forth in Section 3.3.
“Common
Stock” means the voting common stock of the Company.
“Environmental
Permits” means federal, state and local governmental liens, permits and other
authorizations and approvals, whether foreign or domestic, which relate to
the
business of a Person as it may be affected by the environment or to public
health and safety or worker health and safety as they may be affected by
the
environment.
“ERISA”
means the Employment Retirement Income Security Act of 1974, as
amended.
“Espre
Shareholders” means the existing shareholders of Espre other than the
Investors.
“Evaluation
Material” has the meaning set forth in Section 8.2.
“Financial
Statements” has the meaning set forth in Section 7.11.
“Internal
Revenue Code” means the Internal Revenue Code of 1986, as amended.
“Intellectual
Property” has the meaning set forth in Section 7.17.
“Leases”
and “Lease” have the meanings set forth in Section 7.16.
“Licenses
and Permits” has the meaning set forth in Section 7.7.
“Material
Contract” means each contract, agreement or commitment of a Person other than
Leases:
(a)
upon which any substantial part of such Person's business is dependent or
which,
if breached, could reasonably be expected to affect, materially and adversely,
the earnings, assets, financial condition or operations o the business of
such
Person;
(b)
which provides for aggregate future payments of more than $5,000, except
for
purchase orders or sale orders arising in the ordinary and usual course of
business and having terms and in a form of contract approved hereafter by
the
Public Company’s Board of Directors, in which case for purposes of this
Agreement they are Material Contracts only if they provide for an initial
payment greater than $20,000 or if they contain terms other than the standard
terms approved hereafter by the Board of Directors;
(c)
which provides for the sale, after the date hereof and other than in the
ordinary course of business, of any of its assets;
(d)
which relates to the employment, retirement or termination of the services
of
any officer of former officer; or
(e)
which contains covenants pursuant to which any other Person has agreed not
to
compete with any business conducted by such Person or not to disclose to
other
information concerning such Person.
Collectively, the material contracts of such Person are referred to as “Material
Contracts.”
“PBGC”
means the Pension Benefit Guaranty Corporation.
“Pension
Plans” means all employee benefit plans and programs including, without
limitation, all retirement, savings and other Pension Plans.
“Person”
means an individual, a corporation, a partnership, an association, a trust
or
any other entity or organization, including a governmental or political
subdivision or an agency of instrumentality thereof.
“Real
Property” means all of the real property, together with the fixtures and other
improvements located thereon and the appurtenances thereto, owned by a
Person.
“Tax”
or
“Taxes” means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Internal Revenue Code
section 59A), customs duties, capital stock, franchise profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alterative or
add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
“Tax
Return” means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"Welfare Plans" means all health, severance, insurance, disability and other
employee welfare plans.
3. Combination
with Public Company.
3.1 No
later
than July 22, 2004, the Investors and Espre will cause Espre to be merged
with
and into the Public Company (the “Business Combination”) to be provided by and
through the Investors at their sole cost and expense. As a condition
of
the Business Combination, the Public Company will change its name to Espre
Solutions, Inc. The Public Company will have authorized capital of
55,00,000 shares, of which 50,000,000 shares will be common shares and 5,000,000
shares will be preferred shares, the rights and preferences of which will
be
designated by the board of directors.
3.2 Upon
completion of the Business Combination, the Espre Shareholders will own
9,686,500 shares (or 48.43%) of the Public Company’s common stock then
outstanding and 2,500,000 shares (or 50%) of the Public Company’s preferred
stock then outstanding; the Investors will own 7,086,500 (or 35.43%) of the
Public Company’s common stock then outstanding; Xxxxx Xxxxxx, President of
Espre, will own 2,500,000 shares (or 50%) of the Public Company’s preferred
stock then outstanding; and other shareholders will own 2,227,000 shares
(or
11.14%) of the Public Company’s stock then outstanding. Of the 7,086,500
shares of common stock of the Public Company to be held by the Investors
upon
completion of the Business Combination, 3,403,365 shares will
be
issued to them by the Public Company in exchange for 1,000,000 shares of
common
stock which the Investors have purchased from Espre and 1,600,000 shares
of
Espre common stock which they have purchased from Xxxxx X. Xxxx pursuant
to a
stock purchase agreement between the Investors and Xxxxx X. Xxxx dated April
15,
2004. The balance of 3,683,135 shares of common stock and 2,500,000 shares
of
preferred stock of the Public Company will be issued to them upon the Closing
of
the Business Combination in consideration of their Investment, as that term
is
defined in Section 3.1 hereof.
3.3 Closing
and Closing Date.
Closing of the Business Combination (the “Closing”) shall occur on or before
July 22, 2004 (the “Closing Date”), at 10:00 A.M. at the offices of Siegel,
Lipman, Xxxxx & Xxxxxxx, LLP, 0000 Xxxx Xxxxxx Xxxx, Xxxxx 000, Xxxx Xxxxx,
Xxxxxxx 00000, or such other time and place as the parties may
determine.
3.4 Deliveries
at Closing.
At Closing, the Investors in Espre will cause the Public Company to deliver
to
the Investors (i) certificates representing 7,086,500 shares of the Public
Company’s common stock and 2,500,000 shares of the Public Company’s preferred
stock; (ii) a resolution of the Public Company appointing two (2) nominees
of
the Investors directors of the Public Company; and (iii) all other items
required to be delivered by the Public Company or Espre at closing of the
Business Combination. At Closing the Investors will deliver to the Public
Company certificates for the 2,600,000 shares of Espre common stock held
by
them.
4. Capital
Investment in Espre and the Public Company by the Investors.
Prior
to
the date hereof, the Investors have agreed to invest $1,500,000 in Espre,
of
which amount $349,000 has been invested to the date of this Agreement.
Subject to the conditions which follow, the Investors have agreed to invest
the
balance of $1,151,000 in Espre, commencing upon its merger into the Public
Company (which amount, together with the $349,000 already invested, is called
the “Investment”). Of the balance of the Investment, $100,000 will be paid
by the Investors to Espre (or, if the business combination has then been
completed, to the Public Company) on July 26, 2004, and the balance of
$1,051,000 will be paid by the Investors to the Public Company in eight (8)
installments of $131,375 each on the twenty-sixth (26th)
day of
each month (or, if that day is not a week day, on the next business day),
with
the first of such eight installment payable by the Investors on August 26,
2004.
5. Composition
of the Public Company’s Board of Directors; Investors Consent to Major Corporate
Decisions.
5.1 Upon
completion of the Business Combination, the Public Company’s board of directors
will consist of five (5) persons, of whom three (3) persons will be nominees
of
the Espre Shareholders and two (2) persons will be nominees of the
Investors.
5.2 Notwithstanding
any requirement of the Public Company’s Certificate of Incorporation or By-Laws,
or governing statutory law, any of the following actions of the Public Company
will require the express prior consent of the Investors until the first to
occur
of (i) the Public Company’s becoming a reporting company required to file
periodic reports under the Securities Exchange Act of 1934 or (ii) two years
from the date of this Agreement:
(a) The
issuance of any capital stock of the Public Company. Notwithstanding
the
foregoing, the Public Company, through the approval of its board of directors,
may issue up to ten percent (10%) of its then outstanding common stock in
each
calendar year to its employees pursuant to a qualified or non-qualified stock
option plan, provided that if any shares are issued pursuant to such plan
to any
person who were among the Espre Shareholders, a pro rata number of shares
will
be issued to the Investor-appointed directors or their nominees in consideration
of their services as directors of the Public Company.
(b) Any
offering by the Public Company of its common stock or debt.
(c) Any
sale
of all or substantially all of the Public Company on a stock or asset purchase
basis.
(d) Any
change of control of the Public Company.
(e) Any
Material Contract into which the Public Company proposes to enter.
(f) Any
merger or acquisition by or on behalf of the Public Company, whether or not
the
Public Company is the surviving or acquired company.
(g) Any
agreement with a broker-dealer or investment banker for consulting, underwriting
or agency services of any kind.
(h) Any
technology license, technology sale, joint venture, or partnership agreement
of
or concerning the Intellectual Property.
(i) Any
forward or reverse stock split of the Public Company’s common
stock.
(j) The
designation of the terms of any class or series of preferred stock.
6. Certain
Additional Rights of the Investors.
In addition to any other rights provided to them by this Agreement, the
Investors shall have the following rights Investors until the first
to
occur of (i) the Public Company’s becoming a reporting company required to file
periodic reports under the Securities Exchange Act of 1934 or (ii) two years
from the date of this Agreement:
(a) The
Investors will have the right to select any investment banker, underwriter
or
placement agent to be used by the Public Company.
(b) The
Investors shall have the first right of refusal to provide funds to the Public
Company on a debt or equity basis (provided, however, that any such financing
must be on substantially the same terms as those between unrelated parties
acting on an arms’-length basis), and the Public Company will notify them
immediately if and when it determines that such funds are necessary and that
it
intends to obtain such funds from one or more investors.
(c) The
Investors’ accountants shall have the right to review the Public Company’s books
and records on a monthly basis at a reasonable time or times.
(d) The
Public Company shall provide the Investors with monthly Financial Statements
(which shall include a balance sheet, profit and loss statement, and statement
of cash flows) no later than the tenth (10th)
day of
each succeeding month.
(e) The
Investors shall have the first right of refusal with respect to the purchase
of
any asset of the Public Company.
(f) The
Espre
Shareholders and the Investors shall maintain at all times capital stock
of the
Public Company which shall maintain the relative common stock percentage
ownership of the Espre Shareholders and the Investors on a fifty-four percent
(54%) to forty-six percent (46%) basis, notwithstanding the number or percentage
of shares held by other shareholders of the Public Company.
(g) The
Public Company shall provide the investors with piggyback registration rights
for any and all of their shares of the common stock of the Public
Company.
(h) By
their
execution of this Agreement, the Espre Shareholders provide and grant to
the
Investors co-sale rights, so that if any or all of the Espre Shareholders
determine to sell any of their shares of common stock in the Public Company,
then they shall offer the Investors the right to sell forty-six percent (46%)
of
the shares which are proposed for sale.
(i) The
Investors shall have a right of first refusal with respect to the sale or
assignment of any equity in the Public Company held by any Espre
Shareholder. Accordingly, in the event that an Espre Shareholder
receives
an offer to sell his shares of stock of the Public Company, he shall notify
the
Investors in writing of such offer. The notice shall include any
written
agreement or proposal as to the sale of shares, and shall provide all of
the
terms of the proposed transaction, including, without limitation, the price
per
share, the number of shares proposed to be sold, the closing date, and other
terms of purchase. The Investors shall have ten (10) days from the
date of
receipt of the notice of proposed sale to notify the selling Espre Shareholder
that they are exercising their right of first refusal as to the shares which
are
the subject of the notice. If the Investors exercise their right
of first
refusal, they shall be required to buy all of the shares which are the subject
of the proposed sale on the same terms, including price and closing date,
as
those that are contained in the notice of sale. In the event that
the
Investors do not provide written notice to the Espre Shareholder within ten
(10)
days of receipt of the notice, then the Espre Shareholder shall be free to
sell
his shares to the proposed buyer and in accordance with the proposed terms
of
sale, as set forth in the notice.
(j) The
transfer agent for the Public Company shall be Island Transfer, New York,
New
York, unless the Investors otherwise agree. The Public Company shall
direct the transfer agent (i) to speak to and correspond with representatives
of
the Investors and (ii) that on any matter requiring the written direction
of the
Public Company, two signatures shall be required, one of which shall be the
signature of a designee of the Investors.
(k) The
Public Company shall provide directors’ and officers’ liability insurance in
such amounts as the Investors may reasonably deem necessary to protect their
nominees as officers or directors of the Company.
(l) In
the
event that the Public Company forms one or more subsidiaries, the members
of the
board of directors of such subsidiary or subsidiaries shall be the same as
the
members of the board of directors of the Public Company. Notwithstanding
the foregoing, the Public Company shall not form any subsidiary without the
express prior written approval of the Investors.
(m) The
Public Company shall direct its counsel to cooperate and work with counsel
for
the Investors on all matters concerning the Public Company as and when such
counsel for the Investors may deem necessary, and such counsel shall be paid
by
the Investors.
(n) The
Investors shall be responsible for investor relations activities of the Public
Company. The Public Company shall provide them with DTC sheets every
Monday. Any press release of the Public Company shall be prepared
by a
representative of the Investors and shall be reviewed by appropriate officers,
directors, and professional advisors of the Public Company prior to its
release.
(o) The
Investors shall have the right to approve the salaries of all officers
(including all persons performing functions substantially the same as officers)
of the Public Company and each and every employment agreement of any officer
(and any person performing a similar function).
(p) Within
thirty (30) days of the Closing, the Investors and the Public Company shall
establish business plans and objectives on a monthly, annual and multi-year
basis, as they may agree. Such plans and objectives will include
standard
contract forms and terms of contracts, and may include revenue targets, license
agreements, other business contractual arrangements, and such additional
financial, marketing and other business goals as the parties may determine.
All
such plans and objectives, including the forms and terms of contracts, shall
be
subject to Board approval.
7. Representations
and Warranties of Espre and the Espre Shareholders.
Espre and the Espre Shareholders each jointly and severally represent
and
warrant the following to the Investors:
7.1
Organization,
Qualification.
Espre is a corporation duly organized, validly existing and in good standing
under the laws of Texas and has all requisite corporate power and authority
to
own all of its properties and assets and to carry on its business as it is
presently being conducted. Espre is duly qualified and in good standing
to
do business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary except in those jurisdictions where the failure to be duly qualified
and in good standing would not have a material adverse effect on Espre or
the
business conducted by it. Espre has heretofore delivered to Buyer
complete
and correct copies of the Articles of Incorporation and Bylaws of Espre,
as
currently in effect.
7.2
Capitalization
of Espre.
The authorized capital stock of Espre consists only of (i) 10,000,000 shares
of
common stock, of which, as of the date hereof, all of the shares are validly
issued and outstanding, fully paid and nonassessable, and were not issued
in
violation of any preemptive rights. Espre has not authorized any class or
series
of preferred stock. Espre has no issued or outstanding warrants or options
for
the purchase of shares of stock, and none will be issued or outstanding at
Closing. Espre has no commitment to issue or sell any shares of its capital
stock or any securities or obligations convertible into or exchangeable for,
or
giving any person the right to acquire from it, any shares of its capital
stock
and no such securities or obligations are issued or outstanding.
7.3
Consents
and Approvals.
Except as set forth in Schedule 7.3 there is no requirement applicable for
Espre
or the Espre Shareholders to make any filing with, or to obtain any permit,
authorization, consent or approval of, any public body as a condition to
the
consummation of the Business Combination. Except as set forth in
Schedule
7.3 there is no requirement that any party to any Material Contract of Espre,
or
any license or permit for the use of Intellectual Property of Espre or loan
agreement to which Espre or any of the Espre Shareholders is a party or by
which
it or they is or were bound, consent to the execution of this Agreement by
Espre
or to the consummation of the Business Combination.
7.4
Non-Contravention.
The execution and delivery by Espre and the Espre Shareholders of this Agreement
does not, and the consummation of the Business Combination will not, (i)
violate
or result in a breach of any provision of the Certificate of Incorporation
or
Bylaws of Espre, (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease
or
other instrument or obligation to which Espre or the Espre Shareholders is
a
party or by which Espre or the business conducted by it, may be bound, or
(iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Espre or the Espre Shareholders or to the business conducted
by
Espre, excluding from the foregoing clauses (ii) and (iii) such defaults
and
violations as would not have a material adverse effect on Espre.
7.5
Environmental
Matters.
Except as set forth in Schedule 7.5, Espre has obtained all Environmental
Permits required to conduct its business as it is presently being conducted
including, without limitation, those relating to (i) emissions, discharges
or
threatened discharges of pollutants, contaminants, hazardous or toxic substances
or petroleum into the air, surface water, ground water or the ocean, or on
or
into the land, and (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
hazardous or toxic substances or petroleum. Espre has not received
notice
of, or is otherwise aware of, any facts, events or conditions which (x)
interfere with, prevent, or, with the passage of time, could interfere with
continued substantial compliance with any of the aforementioned environmental
laws, regulations, policies, guidelines, orders, judgments or decrees, (y)
may
give rise to any liability (whether based in contract, tort, implied or express
warranty, criminal or civil stature or otherwise) under any law, regulation,
policy or guideline relating to hazardous emissions or handling hazardous
substances, or (z) obligate Espre or, with the passage of time, could cause
Espre to be obligated to clean up, remedy or otherwise restore to a former
condition, by itself or jointly with others, any contaminated surface water,
ground water, soil or any natural resource associated therewith.
7.6
Financial
Condition of Espre at Closing; Transfer of Assets and Liabilities to Public
Company through Merger.
(a) At
Closing Espre and the Espre Shareholders shall cause Espre to merge with
the
Public Company, as a consequence of which all of the assets of Espre will
then
become assets of the Public Company, which will concurrently assume all of
Espre’s liabilities then outstanding.
(b) At
Closing of the Business Combination, Espre’s contracts shall become the
contracts of the Public Company, which shall then succeed to all rights,
privileges and obligations of Espre under any and all of such contracts.
No Material Contract of Espre contains any provision which requires the prior
consent of one or more other parties to any of such contracts to the completion
of the Business Combination and the assumption by the Public Company of Espre’s
rights and obligations under such contracts, all of which can be assigned
to and
assumed by the Public Company without further act or consent of any other
party.
7.7 Licenses
and Permits.
The term "Licenses and Permits" as used herein means federal, state and local
governmental licenses, permits, approvals and authorizations, whether foreign
or
domestic, other than Environmental Permits. The Company has all of
the
Licenses and Permits required to conduct its business as it is presently
being
conducted, all of which are in full force and effect. No written
notice of
a violation of any such License or Permit has been received by the Company
or,
to the knowledge of the Company, threatened, and no proceeding is pending
or, to
the knowledge of the Company, threatened, to revoke or limit any of them.
The Company has no reason to believe that any of its Licenses and Permits
in
effect on the date hereof will not be renewed.
7.8 Software
Source Code License and Revenue Share Agreement with Video Partners,
LLC.
Annexed to this Agreement as Exhibit 7.8 is a true and correct copy of the
Software Source Code License and Revenue Share Agreement dated March 2004
between Espre and Video Partners, LLC, including any amendments thereto
(the “Video Partners Agreement”). Espre and the Espre Shareholders jointly
and severally warrant and represent to the Investors that (i) the Video Partners
Agreement is in full force and effect; (ii) neither party thereto is in default
of the Video Partners Agreement; (iii) the assignment and assumption of the
Video Partners Agreement by the Public Company pursuant to the Business
Combination will not violate or terminate the Video Partners Agreement; and
(iv)
pursuant to the Video Partners Agreement (a) Espre has a non-transferrable,
non-exclusive right on a worldwide basis to use the Source Code (as that
term is
defined in the Video Partners Agreement), (b) Espre has the unrestricted
right,
among other things, to modify the Source Code, and (c) the assignment and
assumption by the Public Company of the Video Partners Agreement upon completion
of the Business Combination will not violate the Video Partners Agreement
or
cause its termination. Further, pursuant to the Video Partners Agreement
Espre has the right to acquire Video Partners’ Intellectual Property in
consideration of Three Million Dollars ($3,000,000) in royalty payments to
Video
Partners during a term ending March 2006 and, also, a right of first refusal
with respect to Video Partners’ intellectual property.
7.9 Title
to Intellectual Property.
Espre has good and valid title to all of its Intellectual Property as set
forth
in the due diligence review material provided by Espre to the Investors,
including, without limitation, a non-exclusive right to the source code of
the
Lightening Strike Suite Video Compression products pursuant to a Software
Source
Code License and Revenue Share Agreement dated March 2004 between Espre and
Video Partners, LLC, a true and correct copy of which has been provided by
Espre
to the Investors, and Espre’s ViewMail Marketing System, as to which Espre has
exclusive rights which it acquired from JOD Enterprises, Inc. Espre
is not
aware of any third party or governmental agency claim by any third party
adverse
to Espre’s Intellectual Property including, without limitation, any litigation,
claim, threat of litigation or threat of claim that any such Intellectual
Property violates the Intellectual Property rights of any third party or
is
invalid in whole or in part.
7.10 Compliance
with Laws.
In addition to the representations and warranties contained in Section 7.5
relating to environmental matters and in Section 7.7 relating to Licenses
and
Permits, to the best knowledge of Espre and the Espre Shareholders, Espre
has
operated its business in compliance with all laws, regulations, orders,
policies, guidelines, judgments or decrees of any federal, state, local or
foreign court or governmental authority applicable to it or its business
including, without limitation, those related to antitrust and trade matters,
civil rights, zoning and building codes, public health and safety, worker
health
and safety and labor and nondiscrimination, the failure to comply with which
could reasonably be expected to affect, materially and adversely, the earnings,
assets, financial condition or operations of Espre. Except as is disclosed
in
Schedule 7.10, Espre has not received any notice alleging non-compliance
with
any of the aforementioned laws, regulations, policies, guidelines, orders,
judgments or decrees.
7.11 Financial
Statements.
Within ten (10) days of the execution of this Agreement by the parties,
Espre will furnish the Investors a true and complete copy of Espre’s federal
income tax return for the calendar year ended December 31, 2003; the Audited
Financial Statements of Espre for the year then ended; and Espre’s unaudited
Financial Statements for the six months ended June 30, 2004 (which tax return,
annual and six-month statements, and the balance sheet described in the next
sentence are herein called the "Financial Statements"). At Closing,
Espre
shall deliver to the Investors a balance sheet of Espre dated as of the Closing
Date and certified by the president of Espre. The Financial Statements
fairly represent the financial position of Espre as of such dates and the
results of its operations and changes in financial position for such periods
and
have been prepared in accordance with generally accepted accounting principals
applied on a consistent basis.
7.12 Litigation.
Except as set forth in Schedule 7.12, there are no actions, suits, claims,
investigations or proceedings (legal, administrative or arbitrative) pending
or,
to the knowledge of Espre or the Espre Shareholders, threatened, against
Espre,
whether at law or in equity and whether civil or criminal in nature, before
any
federal, state, municipal or other court, arbitrator, governmental department,
commission, agency or instrumentality, domestic or foreign, nor are there
any
judgments, decrees or orders of any such court, arbitrator, governmental
department, commission, agency or instrumentality outstanding against Espre
which have, or if adversely determined could reasonably be expected to have,
a
material adverse effect on the earnings, assets, financial condition or
operations of the business conducted by Espre, or which seek specifically
to
prevent, restrict or delay consummation of the Business Combination or
fulfillment of any of the conditions of this Agreement.
7.13 Absence
of Changes.
Except as set forth in Schedule 7.13, since December 31, 2003, there has
not
been:
(a) any
obligation or liability involving more than $5,000 (whether matured, absolute,
accrued, contingent, or otherwise) incurred by Espre;
(b) any
general uniform increase in the compensation of the employees of Espre
(including, without limitation, any increase pursuant to any bonus, pension,
profit sharing or other plan);
(c) any
increase (other than normal increases consistent with past practices and
those
required by law or collective bargaining agreements) in the compensation
payable
to any employee (including officers) of Espre;
(d) any
amendment to any employment agreement to which any employee of Espre is a
party;
(e) any
sale
of assets by Espre other than in the ordinary course of business;
(f) any
material deterioration of relations between Espre and its suppliers, financial
institutions, or customers;
(g) any
direct or indirect redemption, purchase or other acquisition of any shares
of
the capital stock of Espre;
(h) any
declaration, setting aside or payment of any dividend (whether in cash, capital
stock or property) with respect to Espre’s common stock; or
(i) any
issuance by Espre of any shares of its capital stock, or any securities or
obligations convertible into or exchangeable for, or giving any person the
right
to acquire from it, any shares of its capital stock.
Since
December 31, 2003, except as set forth in Schedule 7.13, Espre has not operated
its business other than in the ordinary and usual course and in a manner
consistent with past practices.
7.14 No
Undisclosed Liabilities.
Except as set forth in Schedule 7.14, Espre does not have any material
liabilities or obligations, whether absolute, accrued, contingent or otherwise,
including, without limitation, any uninsured liabilities which were not accrued
or reserved against in the Financial Statements, in the ordinary course of
business of which in the aggregate do not or cannot reasonably be expected
to
have a material adverse effect upon the earnings, assets, financial condition
or
operations of Espre.
7.15 Title
to Properties.
Espre does not own any Real Property. Espre has good title to all
of the
personal property, tangible and intangible, owned by it, free and clear of
any
liens, charges, pledges, security interest of other encumbrances other than
those reflected in the Financial Statements heretofore delivered to the
Investors.
7.16
Leases.
Schedule 7.16 sets forth a complete and correct list of each agreement to
lease
into which Espre has entered, whether as a lessor or lessee, which relates
to
either real or personal property, other than monthly leases of personal property
which may be cancelled upon not more than 60 days notice or require the payment
of not more than $100 per month. The agreements listed in Schedule
7.16
are referred to herein as the "Leases" (each a "Lease"). Except as
set
forth in Schedule 7.16, Espre has not breached any such Lease and no event
has
occurred which, with the giving of notice or the passage of time or both,
would
cause a default under, or permit the termination, modification or acceleration
of any such Lease by any party thereto. Complete copies of all of
the
Leases have been delivered to the Investors.
7.17
Intellectual
Property.
The term "Intellectual Property" as used herein means the rights
of the
owner thereof in all trade names, trademarks and service marks, patents,
patent
rights, copyrights, whether domestic or foreign, (as well as applications,
registrations or certificates for any of the foregoing), inventions, trade
secrets, proprietary processes, software and other industrial and intellectual
property rights. Espre or is licensed or otherwise has the right
to use
all of the Intellectual Property which is being used in its business as it
is
presently being conducted. There is no claim, suit, action or proceeding,
pending or, to the knowledge of Espre or the Espre Shareholders, threatened,
against Espre asserting that its use of any Intellectual Property infringes
the
rights of any third party or otherwise contesting the Company's rights with
respect to any Intellectual Property, and no third party is known to Espre
or
the Espre Shareholders to be infringing upon the rights of Espre in the
Intellectual Property of Espre. Furthermore, no party is infringing
upon
the rights of Espre in Espre’s Intellectual Property. All letters,
patents, registrations and certificates issued by any governmental agency
relating to the Intellectual Property of Espre are valid and subsisting and
have
been properly maintained.
7.18
Material
Contracts.
Schedule 7.18 sets forth a complete and correct list of each Material Contract
of Espre. Except as set forth in Schedule 7.18, all of the Material
Contracts of Espre are in full force and effect and there has not occurred,
with
respect to any such Material Contract, any default or event of default, which,
with or without due notice of with the lapse of time, or both, would constitute
a default or event of default on the part of Espre or, to the knowledge of
Espre
or the Espre Shareholders, any other party thereto. Complete copies
of all
the Material Contracts of Espre have been delivered to the
Investors.
7.19
Insurance.
Espre has insurance contracts in force for such coverages and amounts as
are set
forth in Schedule 7.19.
7.20
Labor
Matters.
Schedule 7.20 sets forth a complete and correct list of each collective
bargaining agreement covering employees of Espre. There are no
controversies pending or, to the knowledge Espre or the Espre Shareholders,
threatened between Espre and any of its employees which affect, or can
reasonably be expected to affect, materially and adversely, its earnings,
assets, financial condition or operations of the business conducted by Espre,
or
relate to any specific effort to prevent, restrict or delay consummation
of the
Business Combination.
7.21 Employee
Benefit Plans.
(a) Schedule
7.21 lists all Pension Plans, all Welfare Plans of Espre, and all incentive,
vacation and other similar plans that are maintained by Espre with respect
to
its employees or to which Espre has contributed or is now contributing on
behalf
of its employees.
(b) As
to
each of the Pension Plans, Espre has complied, in all material respects,
with
all applicable laws and regulations in administering such plans, including
specifically the provisions of ERISA and the qualification provisions of
Section
401 of the Internal Revenue Code. No prohibited transaction, as defined
in
Section 4975 of the Internal Revenue Code, has occurred with respect to any
of
such Pension Plans and none of the Pension Plans has incurred any accumulated
funding deficiency, as defined in Section 412 of the Internal Revenue Code,
whether or not waived.
(c) As
to
each of the Welfare Plans and other Espre employee benefit plans and programs
(including, without limitation, the plans listed on Schedule 7.20), Espre
has
complied, in all material respects, with all applicable laws and regulations
in
the administration thereof including, without limitation, the provisions
of
ERISA when applicable.
(d) Espre
has
not terminated any of its Pension Plans or incurred any material liability
to
the PBGC under Section 4001, et seq. of ERISA and, to the knowledge of
Espre or
the Espre Shareholders, no condition exists that could reasonably be expected
to
cause Espre to incur any such liability. All premiums payable to
the PBGC
have been paid when due.
7.22
Tax
Matters.
(a) The
provisions made for taxes in the Financial Statements are sufficient for
the
payment of all Taxes of Espre, whether or not disputed, which are properly
accruable. There are no agreements by Espre for the extension of
time, or
waiver of any statute of limitations, for the assessment of any taxes, and
all
taxes due and payable by Espre on or before the date of this Agreement have
been
paid or provided for, and are not delinquent, except as otherwise provided
in
Schedule 7.22.
(b) Espre
has
filed all Tax Returns that it was required to file. All such Tax
Returns
were correct and complete in all respects. No claim has ever been
made by
an authority in a jurisdiction where Espre does not file Tax Returns that
it is
or may be subject to taxation by that jurisdiction. There are no
liens on
any of the assets of Espre that arose in connection with any failure (or
alleged
failure) to pay any Tax.
(c) Espre
has
withheld and paid all Taxes required to have been withheld and paid through
May
31, 2004, in connection with the amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(d) None
of
the Espre Shareholders expect any authority to assess any additional Taxes
for
any period for which Tax Returns have been filed. Except as set forth
in
Schedule 7.22, there is no dispute or claim concerning any Tax liability
of
Espre either (i) claimed or raised by any authority in writing or (ii) as
to
which either of any of the Espre Shareholders has knowledge based upon personal
contact with any agent of such authority. Espre has delivered to
the
Investors correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Espre since October 31, 2000.
7.23 Finders.
No broker, finder or investment banker is entitled to any fee or commission
from
the Espre Shareholders or Espre for services rendered on behalf of the Espre
Shareholders or Espre in connection with the transactions contemplated by
this
Agreement, except as otherwise provided in Schedule 7.23.
7.24 Full
Disclosure.
None of the representations and warranties of Espre or the Espre Shareholders
which are made in Section 7 of this Agreement contains an untrue statement
of a
material fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
7.25 Insider
Interests.
Except as listed in Schedule 7.25 no Affiliate of Espre or the Espre
Shareholders (other than Espre) (i) competes with or is involved in or has
a
direct or indirect interest in any business entity which competes with the
business conducted by Espre, (ii) has any agreement with Espre, or (iii)
has any
interest, direct or indirect, in any property, real or personal, tangible
or
intangible, including, without limitation, Intellectual Property, used in
or
pertaining to the business of Espre, except as a stockholder or employee
of
Espre.
7.26 Insider
Transactions.
Schedule 7.26 sets forth a correct and complete statement of (a)
the
amounts and other essential terms of indebtedness or other obligations,
liabilities or commitments (contingent or otherwise) of Espre to or from
any
past or present officer, director, employee, partner or stockholder thereof
or
any person related to, controlled by or under common control of any of the
foregoing and (b) all transactions, together with their essential terms,
between
such persons and Espre during the past two years.
7.27 No
Interest in Competitors, Etc.
Except as set forth in Schedule 7.27, neither the Espre Shareholders nor
any
officer or director of Espre, nor any Affiliate of any of the foregoing,
directly or indirectly owns any interest in or controls or is an employee,
agent, member, principal, officer, director, or partner of, or participant
in,
or consultant to any corporation, partnership, limited liability company,
sole
proprietorship, limited partnership, joint venture, association, or other
entity
which is a competitor, supplier or customer, of Espre.
7.28 Purchase
and Sale Obligations.
All unfilled purchase and sale orders and other commitments for purchases
and
sales made by Espre were made in the usual and ordinary course of its
business. None of such orders or commitments call for deliveries
thereunder beyond a period of 90 days from the Closing Date with the exception
of normal outstanding maintenance and service contracts.
7.29 Books
and Records.
The books of account and other financial and corporate records of Espre are
in
all material respects complete and correct, are maintained in accordance
with
good business practices, and are accurately reflected in the Financial
Statements. The minute books of Espre as previously made or to be
made
available to the Investors contained accurate records of all
meetings.
7.30 Bank
and Safe Deposit Arrangements.
Schedule 7.30 sets forth a correct and complete list of each bank account
and
safe deposit box maintained by Espre, and the names of all persons authorized
to
deal with such accounts and safe deposit boxes.
8. Additional
Agreements.
8.1 Investigation
of Business and Properties; Additional Data.
From the date hereof until the Closing, Espre will afford the Investors and
their attorneys, accountants, financial advisors and other representatives
complete access at all reasonable times to its offices, and to the officers,
employees, properties, contracts, and books and records of Espre.
In
addition, Espre shall furnish to the Investors such financial, operating
and
additional data as the Investors may reasonably request concerning the business,
operations, properties and personnel of Espre.
8.2 Confidentiality.
Pursuant to the provisions of this Agreement, the parties have supplied and
will
supply to each other certain documents and information for use in investigating
the business of Espre. Such material is hereinafter referred to as
"Evaluation Material." The parties agree to hold in confidence any
Evaluation Material they have received or will receive and not to disclose
all
or any part of such material to anyone except their officers, directors,
employees, professional advisors, or other representatives who need such
information to perform their respective duties and who have been informed
of the
confidential nature of such material and directed to treat it
confidentially. If this Agreement is terminated, the parties will
return
or cause to be destroyed and will not retain, or permit any person to whom
they
have given copies thereof to retain, the originals or any copies of any
documents constituting a part of the Evaluation Material and after termination
the parties will continue to honor the confidentiality agreement contained
herein and will not disclose, directly or indirectly, any information obtained
from the Evaluation Material. The confidentiality agreement contained
in
this Section 8.2 will terminate upon the earlier of three years after the
date
hereof of upon consummation of the transactions contemplated hereby.
Notwithstanding the foregoing, the parties may use and disclose any such
information to the extent that (a) it had acquired such information on a
non-confidential basis prior to receipt thereof from the other party, (b)
such
information has become generally available to the public, (c) such information
is provided to a party by a third party who has obtained such information
other
than as a result of a breach of this Agreement. Furthermore, either
party
may disclose such information to the extent that it is required to do so
in
order to comply with a governmental or judicial order or decree, but upon
receiving notice that any such order or decree is being sought, it will promptly
notify the other party.
8.3 Efforts
to Consummate.
Subject to the terms and conditions herein provided, each of the parties
hereto
agrees to use its reasonable best efforts to take, or cause to be taken,
all
action and to do, or cause to be done, all things necessary, proper or advisable
to consummate, as promptly as practicable, the transactions contemplated
hereby,
including, but not limited to, the obtaining of all necessary consents, waivers,
authorizations, orders and approvals of third parties, whether private or
governmental, required of it to enable it to comply with the conditions
precedent to consummating the transactions contemplated by this Agreement.
Each party agrees to cooperate fully with the other party in assisting it
to
comply with this Section. Notwithstanding the foregoing, neither
party
shall be required to initiate any litigation, make any substantial payment
or
incur any material economic burden, except for a payment otherwise required
of
it, to obtain any consent, waiver, authorization, order or approval, and
if,
despite such efforts, either party is unable to obtain any consent, wavier,
authorization, order of approval the other party may terminate this Agreement
and shall have no liability therefor.
8.4 Further
Assurances.
The parties will use reasonable efforts to implement the provisions of this
Agreement, and for such purpose, the parties will, at the request of any
other
party, at or after the closing, without further consideration, promptly execute
and deliver, or cause to be executed and delivered, such additional documents
as
any other party may reasonably deem necessary or desirable to implement any
provision of this Agreement.
8.5 Expenses.
Whether or not the Business Combination is consummated all expenses incurred
in
connection with this Agreement and the transactions contemplated hereby will
be
paid by the party incurring such expenses.
9. Conditions
Precedent to Investors’ Obligations.
The following are certain conditions precedent to the Investors’ obligation to
complete the Business Combination and make the Investment.
9.1 Accuracy
of Representations and Warranties.
The representations and warranties of Espre and the Espre Shareholders herein
contained shall be true on and as of Closing with the same force and effect
as
though made on and as of Closing, except as affected by transactions
contemplated hereby and except to the extent that such representations and
warranties were made as of a specified date and as to such representations
and
warranties the same shall have been true as of the specified date.
9.2 Absence
of Default.
No condition or event which constitutes an event of default hereunder by
Espre
or the Espre Shareholders or which, after notice and lapse of time, or both,
would constitute an event of default hereunder by any of them shall have
occurred and be continuing.
9.3 Absence
of Liens.
There will have been no liens recorded after the execution of this Agreement
but
prior to Closing with respect to any personal, real or mixed property owned
by
Espre.
9.4 Actions,
Proceedings, Etc.
All actions, proceedings, instruments and documents required to carry out
the
transactions contemplated by this Agreement or incidental thereto and all
other
related legal matters shall have been satisfactory to and approved by counsel
for the Investors, and such counsel shall have been furnished with such
certified copies of actions and proceedings and such other instruments and
documents as they shall have reasonably requested.
9.5 Satisfaction
with Respect to Financial Condition and Performance.
The Investors must be satisfied that each and every representation made by
Espre
and the Espre Shareholders regarding the Financial Statements and the financial
condition of Espre shall be true, complete and accurate in all material respects
as of Closing. Without limiting the foregoing, the Investors must
be
satisfied that: (i) the Financial Statements shall have been prepared on
an
accrual basis of accounting, consistent with prior years, and in accordance
with
generally accepted accounting principles; and (ii) except as specifically
disclosed in the Financial Statements, there has been no distribution to
shareholders or others or bonuses made to employees.
10. Indemnification.
10.1
Investors’
Right to Indemnification.
Espre and the Espre Shareholders jointly and severally undertake and agree
to
defend and hold the Investors and the Public Company harmless against any
and
all losses, costs, liabilities, claims, obligations and expenses, including
reasonable attorneys' fees, incurred or suffered by the Investors or the
Public
Company arising from (i) the breach, misrepresentation or other violation
of any
covenants, warranty or representation of or by Espre or the Espre Shareholders
contained in this Agreement, and (ii) all liabilities of Espre not disclosed
to
the Investors. This indemnity provision shall survive Closing for
a period
of three (3) years.
10.2 Procedure.
If any claim or proceeding covered by the foregoing agreements to indemnify
and
hold harmless shall arise, the party who seeks indemnification (the "Indemnified
Party") shall given written notice thereof to the other party (the "Indemnitor")
promptly (but in no event more than ten (10) days) after it learns of the
existence of such claim or proceeding. Any claim for indemnification
hereunder shall be accompanied by evidence demonstrating the Indemnified
Party's
right or possible right to indemnification, including a copy of all supporting
documents relevant thereto. The Indemnitor shall have the right to
employ
counsel reasonably acceptable to the Indemnified Party to defend against
any
such claim or proceeding, or to compromise, settle or otherwise dispose of
the
same; provided,
however,
that no
settlement or compromise shall be effected without the consent of the
Indemnified Party, which consent shall not be unreasonably withheld, and
provided further
that in
the event the Indemnified Party does not consent to a bona fide
offer of
settlement made by a third party and the settlement involves only the payment
of
money, then the Indemnitor may, in lieu of payment of such settlement to
such
third party, pay such amount to the Indemnified Party. After the
payment
to the Indemnified Party, the Indemnitor shall have no further liability
with
respect to such claim or proceeding and the Indemnified Party shall assume
full
responsibility to defend the same. After notice from the Indemnitor
to the
Indemnified Party of its election to assume the defense of such claim or
proceeding, the Indemnitor shall not be liable to the Indemnified Party under
this paragraph for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof; provided,
however,
that
the Indemnified Party shall have the right to employ counsel to represent
it if,
in the Indemnified Party's reasonable judgment, it is advisable for the
Indemnified Party to be represented by separate counsel, and in that event
the
fees and expenses of such separate counsel shall be paid by the Indemnified
Party. The parties will fully cooperate in any such action, making
available to each other books or records for the defense of any such claim
or proceeding. If the Indemnitor fails to acknowledge in
writing its
obligation to defend against or settle such claim or proceeding within ten
(10)
days after receiving notice of the claim or proceeding from the Indemnified
Party (or such shorter time specified in the notice as the circumstances
of the
matter may dictate), the Indemnified Party shall be free to dispose of the
matter, at the expense of the Indemnitor (but subject to the Indemnitor's
right
subsequently to contest through appropriate proceedings its obligation to
provide indemnification), in any way which the Indemnified Party deems in
its
best interest.
10.3 Limitations
on Indemnification Rights.
Indemnification shall be due only to the extent of the loss or damage actually
suffered (i.e., reduced by any offsetting or related asset or service received
and by any recovery from any third party, such as an insurer), net after
the
amount equal to any reduction in federal, state or local income, franchise
or
other taxes occasioned by such loss or damage (even though the tax return
by
which such reduction would have been realized is not yet due), but including
an
amount equal to any increase in federal, state and local income, franchise
or
other taxes occasioned by the indemnification payment and then only to the
extent of the excess over the Agreed De Minimis Amount (hereinafter
defined). The Indemnitor shall be subrogated to all rights of the
Indemnified Party against any third party with respect to any claim for which
indemnification is paid. Notwithstanding the foregoing, (i) the Indemnitor
shall not be liable to the Indemnified Party for any individual
misrepresentation, breach of warranty or violation of covenant where the
otherwise indemnifiable amount does not exceed $1,000 and, as regards all
such
indemnifiable misrepresentations or breaches of warranty that do not exceed
$1,000, the Indemnitor shall not be liable except to the extent that the
aggregate amount thereof exceeds $5,000 (such sum being herein referred to
as
the "Agreed De Minimis Amount") and (ii) in the event that the Espre
Shareholders are the Indemnitor, their liability to pay the Investors in
respect
of the indemnification obligations shall not exceed the cumulative total
amount
of the Investment.
11. Miscellaneous
Provisions.
11.1 This Agreement has been prepared and executed by the parties
with the
understanding that it is to be replaced, as soon as practicable, by a more
complete agreement pursuant to which, among other things, they may make
additional agreements, representations and warranties with and to each
other. The parties confirm that they have prepared this Agreement
to
confirm and memorialize their relationship and the principal terms of their
agreement with each other, and that until such time as they replace, supplement
or amend this Agreement, this Agreement shall constitute a binding agreement
between them and shall be enforceable in accordance with its terms.
11.2 This Agreement shall be construed in accordance
with the
laws of the State of Florida.
11.3 This Agreement may not be amended or modified
except by
written agreement of the parties.
11.4 If any notice is to be provided by one party
to another
under this Agreement, the notice shall be sufficiently given if in writing
and
delivered (personally, by courier service such as Federal Express, or by
other
messenger, or mailed by registered or certified mail, return receipt requested)
as follows:
| If to Espre or | ||
| the Espre Shareholders: | Xxxxx Xxxxxx, President | |
| Espre Solutions, Inc. | ||
| 0000 Xxxxxxxx Xxxxx | ||
| Xxxxx, Xxxxx 00000 | ||
| If to Investors: | Xxxxxxx Xxxxxx, President | |
| Financial Freedom Home Buyers, Inc. | ||
| 0000 X. Xxxxxxxx Xxxx., Xxxxx 000-X | ||
| Xxxxxxx Xxxxx, XX 00000 | ||
11.5 This
Agreement has been prepared for the Investors by Siegel, Lipman, Xxxxx &
Xxxxxxx, LLP (“SLDS”), which has acted solely as counsel to the Investors. By
their execution of this Agreement, Espre and the Espre Shareholders confirm
that
SLDS has not provided them with any counsel or advice of any kind, that such
firm has advised each of them to obtain its or his own legal counsel, and
that
they have either obtained such counsel or determined not to retain such
counsel.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the
date first above written.
WITNESS/ATTEST:
| ESPRE SOLUTIONS, INC. | ||
| |
|
|
| /s/ | By: | /s/ Xxxxx Xxxxxx |
| Xxxxx Xxxxxx, President | ||
| FINANCIAL FREEDOM HOME BUILDERS, INC. | ||
| |
|
|
| /s/ Xxxxxxx Xxxxxxxx | By: | /s/ Xxxxxxx Xxxxxx |
| Xxxxxxx Xxxxxxxx, Secretary | Xxxxxxx Xxxxxx, President | |
| Title | ||
| ESPRE SHAREHOLDERS: | ||
| /s/ | /s/ Xxxxx Xxxxxx | |
| Xxxxx Xxxxxx | ||
| /s/ | /s/ Xxxx X. Xxxxxx | |
| Xxxx X. Xxxxxx | ||
| /s/ | /s/ Xxxxxx Xxxxx | |
| Xxxxxx Xxxxx | ||
| /s/ | /s/ Xxxxxxx Xxxxxx | |
| Xxxxxxx Xxxxxx | ||
| /s/Xxxxxx Xxxxxxxx | ||
| Xxxxxx Xxxxxxxx | ||
| /s/ | /s/ Xxxxx X. Xxxx | |
|
Xxxxx
X. Xxxx
|
