STOCK PURCHASE AGREEMENT
between
RATIONALE, INC.
and
FINITY HOLDINGS INC.
June 1, 2001
STOCK PURCHASE AGREEMENT
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This is a Stock Purchase Agreement dated as of June 1, 2001 (the
"Agreement") between and among (i) Rationale, Inc. ("Purchaser"), a Nevada
corporation and (ii) Finity Holdings Inc. (the "Shareholder"), a Delaware
corporation and sole shareholder of Finity Corporation ("Finity"), a Texas
corporation and Fi-Scrip, Incorporated ("Fi-Scrip"), a Nevada corporation
(Finity and Fi-Scrip each singularly a "Company" and collectively the
"Companies").
RECITALS
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A. Finity and Fi-Scrip provide processing and document retention and
installation of data receipt machines, respectively, for all types of cash and
credit transaction cards (the "Business"), and the Companies maintain their
principal offices at 0000 Xxxxx Xxxxx Xxxxxx, Xxxxxxx, Xxxxx 00000.
B. The Shareholder owns 100% of the issued and outstanding shares of the
capital stock of each of the Companies, respectively (the "Shares").
C. The Shareholder wishes to sell, and the Purchaser wishes to purchase,
all of the Shares pursuant to the terms and conditions of this Agreement.
D. This Agreement is the definitive acquisition agreement and supersedes
any prior understandings, agreements or undertakings between the parties hereto.
NOW, THEREFORE, in consideration of the mutual benefits and covenants of
the parties set forth in this Agreement, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
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1.1 Purchase and Sale of Shares. Subject to the terms and conditions of
this Agreement, the Shareholder hereby agrees to sell, transfer and deliver the
Shares to the Purchaser, and the Purchaser hereby agrees to purchase the Shares
from the Shareholder.
1.2 Purchase Price. The purchase price for the Shares (the "Purchase
Price") shall be Two Hundred Thousand Dollars ($200,000) to be paid to the
Shareholder by a non-negotiable promissory note in the form attached as Annex A
and due on the October 1, 2001 (the "Note").
1.3. Interest. Interest on the Note and the Convertible Notes (as
defined in Section 2.2(a)(vi)) shall accrue at a rate as set forth in the Note
and the Convertible Notes from the date of the Closing until the applicable
payment date. All accrued but unpaid interest earned on the Note and the
Convertible Notes shall be paid pursuant to the terms of the Note and the
Convertible Notes, respectively. If there are offsets against the Purchase Price
for any reason, the accrued interest will be adjusted accordingly to reflect
such reduction or increase pursuant to the terms of the Note and the Convertible
Notes.
1.4 Right of Offset. In addition to any other rights and remedies, the
Purchaser may offset any amounts owed by the Shareholder to the Purchaser
against any amounts owed by either the Purchaser or the Companies to the
Shareholder including, without limitation, any amounts owed to the Shareholder
pursuant to this Agreement, the Note, the Convertible Notes, the Noncompetition
Agreement (as defined in Sections 2.2(a)(vi)).
1.5 Election Under IRC ss.338(h)(10)
(a) If the Purchaser determines that the election provided for by Section
338(h)(10) of the Code and Temp. Reg. ss.338(h)(10)-lT and any comparable
election required under applicable state law (collectively, the "Election") with
respect to the sale of the Shares is in the best interest of the Purchaser, no
later than the 15th day of the ninth month after the Closing Date, but subject
to 30 days' prior written notice by the Purchaser, the Shareholder shall join
with the Purchaser in making the Election; and each party shall provide the
other all necessary information to permit the Election to be made. As promptly
as practicable after the Purchaser notifies the Shareholder of its decision to
make the Election, the Purchaser, the Shareholder and the Companies
(collectively the "Parties") shall take, or cause to be taken, all action and
file, or cause to be filed, all documents necessary or desirable to effect and
preserve a timely Election. The Shareholder shall cause the Company to include
any income, gain, loss, deduction or other tax item resulting from the Election
on its Returns and the Returns of the Shareholder for periods ending on or
before the date of Closing attributable to the making of the Election all as
described in Temp. Reg. ss.1.338(h)(10)- lT(d) and the Treasury Regulations
referenced therein. The Shareholder shall indemnify the Purchaser and the
Companies against any adverse consequences arising out of any failure of the
Companies or the Shareholder to pay any such taxes. If Parties make a Section
338 (h)(10) election and it results in the Shareholder having to pay additional
Federal Income Tax on its 2001 Federal Income Tax Return, the Purchaser shall
indemnify Shareholder for such additional taxes. It is understood by the Parties
that any adverse effect caused by the use of Net Operating Losses of the
Shareholder or members of its Consolidated Group shall not be indemnified by
Purchaser.
(b) In connection with the Election, the Parties shall cooperate in good
faith to (i) determine and agree upon the amount of the "adjusted grossed-up
basis" of the Shares within the
meaning of Treas. Reg. ss.1.338(b)-1(c) and (ii) determine and agree upon the
proper allocations (the "Allocations") of the "adjusted grossed-up basis" of the
Stock among the assets of the Companies in accordance with IRC ss.1.338(b)-1(5)
of the Code and Treas. Reg. ss.1.338(b)-2T and ss.1.338(b)-3T promulgated
thereunder (it being understood, however, that such determination and/or
agreement by the Parties is not a condition to the obligation of a Party to
consummate the transactions contemplated by this agreement). The calculations of
the "adjusted grossed-up basis" and the Allocations shall not include respective
legal, accounting or other fees or costs incurred by the Parties as a result of
the transactions contemplated by this agreement (the "Transaction Costs").
(c) Subject to such limitations under the Code or applicable Treasury
Regulations as may be applicable, the Shareholder shall cause the Companies to
calculate the gain or loss, if any, resulting from the Election in a manner
consistent with the Allocations. The Shareholder shall cause the Companies not
to take any position inconsistent with the Election or the Allocations in
connection with any Return for any taxable period ending on or before the date
of Closing; provided, however, the Shareholder may allow the Companies to take
into account its Transaction Costs when calculating such gain or loss. The
Purchaser shall allocate the "adjusted grossed-up basis" of the Shares among the
assets of the Companies in a manner consistent with the Allocations and shall
not take any position inconsistent with the Election or any Allocations in any
Return; provided, however, the Purchaser may add its Transaction Costs to the
"adjusted grossed-up basis" of the Shares for purposes of the Allocations.
ARTICLE 2
THE CLOSING
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2.1 Closing. The closing of the transactions contemplated by this Agreement
shall take place at 11:00 a.m. Eastern Standard Time, on June 1, 2001, at the
Cincinnati, Ohio offices of Xxxxx
Xxxxx Xxxx LLC or at such other date, place and time as the parties may
hereafter agree (the "Closing").
2.2 Deliveries at the Closing.
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(a) The Shareholder shall deliver to the Purchaser:
(i) Certificate(s) representing the Shares, duly endorsed or
accompanied by stock powers duly executed in blank, and any
documents that are necessary to transfer to the Purchaser good
and marketable title to the Shares;
(ii) The stock register, minute books, corporate seals, books,
employee records and other records of the Companies;
(iii) Resignation(s) of the directors and officers from their
positions as directors and/or officers of the Companies;
(iv) A non-negotiable convertible promissory note in the form attached
as Annex B made by Finity to CNG Financial Corporation in the
amount of One Million Thirty-Two Thousand Four Hundred One
Dollars and Ninety-Nine Cents ($1,032,401.99) due on the fifth
anniversary of the Closing (the "Finity Note");
(v) A non-negotiable convertible promissory note in the form attached
as Annex C made by Fi-Scrip to CNG Financial Corporation in the
amount of Two Hundred Eight-Five Thousand Dollars ($285,000) due
on the fifth anniversary of the Closing (the "Fi-Scrip Note"; the
Finity Note and the Fi-Scrip note are collectively the
"Convertible Notes");
(vi) The Noncompetition, Non-Solicitation and Confidentiality
Agreement (the "Noncompetition Agreement") between the Purchaser,
the Companies, the Shareholder and its affiliates, and CNG
Financial Corporation in the form attached hereto as Annex D;
(vii) A tax indemnity agreement (the "Tax Indemnity Agreement")
between the Companies and the Shareholder and its affiliates, in
the form attached hereto as Annex E; (viii) A release of claims
(the "Release of Claims") between the Companies, the Shareholder
and its affiliates, and CNG Financial Corporation in the form
attached hereto as Annex F;
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(ix) A processing agreement (the "Processing Agreement") between
Finity and CNG, in the form attached hereto as Annex G;
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(x) All duly executed consents, authorizations, orders or approvals
of any public body or authority or third party which are required
for the consummation of the transactions contemplated by this
Agreement;
(xi) Evidence in the form reasonably satisfactory to the Purchaser
that Finity has received written consent from PaySys
International, Inc. ("PaySys") to the transfer of control of
Finity as required by Section 16 of the relevant PaySys Software
Product License Agreements between PaySys and Finity or its
predecessor, First Independent Computers, Inc.;
(xii) Evidence in the form reasonably satisfactory to the Purchaser
that the holders of the issued and outstanding voting stock of
the Shareholder approved this Agreement pursuant to the
requirements of the Delaware General Corporation Law and the
Articles of Incorporation and Bylaws of the Shareholder;
(xiii) An opinion of Squire, Xxxxxxx & Xxxxxxx L.L.P. dated the date
of the Closing, in the form of Annex H;
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(xiv) Evidence in the form reasonably satisfactory to the Purchaser
that all encumbrances on the Shares and the Companies' assets,
whether real or personal have been released;
(xv) Evidence in the form reasonably satisfactory to the Purchaser
that the Shareholder has (i) caused to be paid in full any debt
owed by the Shareholder to the Companies; (xvi) Evidence in the
form reasonably satisfactory to the Purchaser that there is no
pending or threatened litigation or governmental or judicial
decree or order prohibiting the consummation of this Agreement or
the transactions contemplated hereby;
(xvii) Evidence in the form reasonably satisfactory to the Purchaser
that the Shareholder has taken all appropriate corporate action
to cease, effective upon the Closing, all benefit accruals under
and terminate any of the Companies' employee benefit plans; and
(xviii) Evidence in the form reasonably satisfactory to the Purchaser
that the Shareholder has paid all fees and expenses to any broker
or finder in connection with the transactions contemplated in
this Agreement.
(b) The Purchaser shall deliver to the Shareholder:
(i) The Purchase Price in accordance with the provisions of Section
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1.2;
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(ii) Evidence in the form reasonably satisfactory to the Shareholder
that the Purchaser has paid One Million Dollars ($1,000,000) to
the Companies in accordance with the provisions of Section
5.2(b); -------
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(iii) Evidence in the form reasonably satisfactory to the Shareholder
that the Purchaser has paid Two Hundred Fifty Thousand Dollars
($250,000) to Finity in accordance with the provisions of Section
5.2(c);
(iv) All duly executed consents, authorizations, orders or approvals
of any public body or authority or third party which are required
for the consummation of the transactions contemplated by this
Agreement; and
(v) An opinion of Xxxxx Xxxxx Xxxx LLC, dated the date of the Closing
in the form of Annex I;
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(vi) A Guaranty Agreement (the "Guaranty Agreement") between
Convergence International Corporation and Finity Holding, Inc.,
in the form attached hereto as Annex A.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE
COMPANIES AND THE SHAREHOLDER
The Shareholder hereby represent and warrant to the Purchaser as follows:
3.1 Organizational Matters. The Shareholder, Finity and Fi-Scrip are
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corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware, the State of Texas and the State of Nevada,
respectively. The Companies are not, and never have been, required to be
qualified as a foreign corporation in any state. The Shares of Finity and
Fi-Scrip are the sole assets of the Shareholder.
3.2 Authority. The Companies have all requisite corporate power and
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authority to own, lease and operate their properties and to carry on the
Business as now being conducted by the Companies. The Shareholder has the
capacity (a) to enter into this Agree-ment; (b) to perform its obligations
hereunder; and (c) to consummate the transactions contemplated hereby. This
Agreement is a valid and binding obligation of the Shareholder, enforceable in
accordance with its terms.
3.3 Title. The Shareholder owns, and has good and marketable title to, the
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Shares. The transfer of the Shares to the Purchaser at the Closing will pass
good and marketable title to the Shares to the Purchaser, free and clear of all
claims, liens, charges, options, security interests and other encumbrances of
any kind or nature. The Shares constitute all of the Companies' issued and
outstanding shares of capital stock. Except for the Convertible Notes, there are
no agreements,
obligations, promises or undertakings relating to the issuance, sale or transfer
of any equity securities or other securities of the Companies.
3.4 No Claims. The Shares represent the Shareholder's entire equity
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interest in the Companies. There are no amounts owed to the Shareholder by the
Companies including, without limitation, any indebtedness, accrued or unpaid
wages, bonuses or benefits. 3.5 Noncontravention. Neither the Shareholder's
execution, delivery and performance of this Agreement, nor the consummation by
the Shareholder of the transactions contemplated hereby, nor compliance by the
Shareholder with any of the provisions hereof will:
(a) conflict with or result in a breach of any provision of the Articles of
Incorporation or By-laws of the Companies;
(b) cause a default, or give rise to any right of termination,
cancellation, or acceleration, under any of the terms of any note, bond, lease,
mortgage, indenture, license, warranty or other instrument or agreement to which
either the Companies or the Shareholder is a party, or by which the Companies or
the Shareholder or any of their respective assets is or may be bound or
benefited; or
(c) violate any law, statute, rule or regulation or order, writ, judgment,
injunction or decree applicable to the Companies or the Shareholder or any of
their respective assets.
No consent or approval by, or any notification of or filing with, any
public body or authority or any other third party is required in connection with
the Shareholder's execution, delivery and performance of this Agreement or the
consummation by the Shareholder of the transactions contemplated hereby.
3.6 Financial Statements.
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(a) Schedule 3.6 attached hereto contains true and complete
copies of the unaudited balance sheet, the unaudited statement of income and
notes related thereto (collectively, the "Financial Statements") of the
Companies dated December 31, 2000, December 31, 1999 and December 31, 1998.
(b) Except as otherwise noted in the Financial Statements, the
Financial Statements present fairly the financial position of the Companies and
the results of their respective operations as of the dates thereof and for the
periods covered thereby in conformity with generally accepted accounting
principles applied on a consistent basis.
(c) The Shareholder has furnished the Purchaser an unaudited
balance sheet and income statement (the "Unaudited Statements") for each of the
Companies for the period ending March 31, 2001, and notes related thereto. The
Companies prepared the Unaudited Statements in a manner consistent with prior
periods and the Unaudited Statements present fairly the financial position of
each of the Companies and the results of each of their operations as of the
dates thereof and for the periods covered thereby in conformity with generally
accepted accounting principles applied on a consistent basis.
3.7 Tax Matters.
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(a) For the purposes of this Agreement, "Taxes" means all
taxes, charges, fees, levies or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, occupancy or property
taxes, customs duties, fees, assessments or charges of any kind whatsoever
(together with any interest and any penalties, additions to tax or additional
amounts) imposed by any taxing authority upon or payable by the Companies.
(b) The Companies have filed all returns, declarations,
reports, estimates, information returns and statements ("Returns") required to
be filed by the Companies within the time and in the manner prescribed by law
and all such Returns are true and complete in all material respects.
(c) The Companies have paid all Taxes associated with the
Business that are due and payable prior to the Closing within the time and in
the manner prescribed by law. The Companies have accrued for all Taxes
associated with the Business that are due and payable after the Closing.
(d) The Companies have complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has withheld from employee wages, and has paid to the proper
governmental authorities all amounts required to be so withheld and paid under
all applicable laws within the time and in the manner prescribed by law.
3.8 Litigation. Except as set forth on Schedule 3.8, (a) there are no
audits, inspections, actions, suits, claims, investigations or legal,
administrative or arbitration proceedings pending or, to the Shareholder's
knowledge, threatened against the Companies, whether at law or in equity,
whether civil or criminal in nature and whether before or by any Federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality and (b) to the Shareholder's knowledge, no basis exists
therefor. Except as set forth on Schedule 3.8, there are no judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Companies. The Companies have made
available to the Purchaser all documents and correspondence relating to matters
referred to in Schedule 3.8.
3.9 No Material Undisclosed Liabilities. The Companies have no
liabilities (including but not limited to liabilities under any Environment,
Health and Safety Laws, as defined in Section 3.10) whether currently due,
accrued, contingent or otherwise, other than the following:
(a) liabilities reflected or reserved against in the Financial
Statements;
(b) liabilities incurred in the ordinary course of business since
December 31, 2000; and
(c) liabilities set forth on Schedule 3.9.
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3.10 Compliance; Governmental Authorization. The Companies have
complied in all material respects with all, and have no liability with respect
to any violation of any, Federal, state, local and foreign laws, ordinances,
regulations and orders applicable to either the Companies or the Business
including, all laws, ordinances, regulations and orders relating to public
health and safety, workers health and safety pollution or protection of the
environment or the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, control or cleanup of any hazardous material,
substances or wastes, pollutants or noise ("Environment, Health and Safety
Laws"). The Companies have all governmental licenses and permits necessary to
conduct the Business as presently conducted including, but not limited to, those
required by Environment, Health and Safety Laws. The Companies' licenses and
permits are in full force and effect. No violations are outstanding or uncured
with respect to any of the Companies' licenses or permits and no proceeding is
pending or threatened to revoke or limit any of them.
3.11 Brokers. Neither the Companies nor the Shareholder have employed any
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broker or finder in connection with the transactions contemplated by this
Agreement.
3.12 Employee Benefit Plans.
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(a) For purposes of this Section 3.12, the term "em-ployee
benefit plan(s)" shall have the meaning ascribed to it in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations promulgated there-under, and the term "employee pension benefit
plan(s)" shall have the meaning ascribed to it in Section 3(2) of ERISA.
(b) Schedule 3.12 sets forth a complete list of all employee
benefit plans, policies and practices (whether or not sub-ject to ERISA)
applicable to employees of the Companies, includ- ing, without limitation,
plans, funds or programs providing medi-cal, surgical or hospital care or
benefits; benefits in the event of sickness, accident, disability, death or
unemployment; xxxx-tion benefits; apprenticeship or other training programs; day
care centers; scholarship funds; prepaid legal services; benefits described in
Section 302(c) of the Labor Management Relations Act; retirement income; income
deferral for periods extending to the termination of covered employment or
beyond; severance pay arrange-ments; and supplemental retirement income payments
which take into account increases in the cost of living. Each employee benefit
plan, policy or practice which is funded through a policy of insur-ance is
indicated by the word "insured" placed by the listing of the plan on Schedule
3.12.
(c) True and complete copies of all (i) employee bene-fit
plans and related trust agreements; (ii) policies and prac-tices; (iii) summary
plan descriptions; (iv) alloca-tion or actuarial reports prepared for each
employee pension ben-efit plan for the most recent three years; (v) insurance
policies; and (vi) communications in the last three years to or from the
Internal Revenue Service (the "IRS") (including the last three Form 5500s filed
with the IRS and the most recent determi-nation letter received from the IRS),
the Pension Benefit Guar-anty Corpo-ration (the
"PBGC") or the United States Department of Labor and other governmental filings
with respect to the employee benefit plans have been delivered by the Companies
to Purchaser.
(d) Except as specifically provided in the documents described
in this Section 3.12 and delivered to Purchaser, or as otherwise described on
Schedule 3.12, there are no amendments, modifications, extensions, changes in
benefits or benefit struc-tures, or other alterations which are currently in
effect or which the Shareholder or the Companies have undertaken to become
effective in the future, or which the Shareholder has knowledge of, to any of
the employee benefit plans, policies or practices.
(e) Each of the Companies' employee benefit plans has been
executed, managed and administered in material compliance with the applicable
provisions of ERISA, the Code, and the regulations pro-mulgated thereunder, and
all other applicable laws. The Share-holder has no knowledge of any fact which
would adversely affect the qualified status of any of the employee benefit
plans, or of any threatened or pending claim against any of the employee benefit
plans or their fiduciaries by any participant, benefi-ciary or government
agency.
(f) The Shareholder and the Companies have fully com-plied
with the notice and continuation requirements of Sections 601 through 608 of
ERISA and the regulations thereunder, the health plan portability and other
requirements of Sections 701 through 707 of ERISA and the regulations
thereunder, and all other provisions of the Health Insurance Portability and
Accountability Act of 1996 and the regulations thereunder. All reports,
statements, returns and other information required to be furnished or filed with
respect to the Companies' respective employee benefit plans have been timely
furnished, filed or both in accordance with Sections 101 through 105 of ERISA
and Sections 6057 through 6059 of the Code, and they are true, correct and
complete in all material respects. Records with respect to the employee benefit
plans have been maintained in
material compliance with Sec-tion 107 of ERISA. Neither the Shareholder, the
Companies nor any other fiduciary (as that term is defined in Section 3(21) of
ERISA) with respect to any of the Companies' employee benefit plans has any
material liability for any breach of any fiduciary duties under Sections 404,
405 or 409 of ERISA.
(g) The Shareholder and the Companies have not, with respect
to any of the employee benefit plans, nor has any admin-istrator of any of the
employee benefit plans, the related trusts or any trustee thereof, engaged in
any prohibited transaction which would subject the Shareholder, the Companies,
any of the employee benefit plans, any administrator or trustee or any party
dealing with any of the employee benefit plans or any such trusts, to a tax or
penalty on prohibited transactions imposed by ERISA, Section 4975 of the Code,
or to any other liability under ERISA.
(h) All employee pension benefit plans maintained by or
covering employees of the Companies which are intended to be quali-fied under
Section 401(a) or 403(a) of the Code, and the related trusts which are intended
to be exempt under Section 501(a) of the Code, are, and have been since
adoption, so quali-fied, and are identified on Schedule 3.12 as "qualified
plans," and the date of the most recent determination letter from the IRS
confirming the qualification of each such plan is set out on Schedule 3.12.
(i) Except as set forth on Schedule 3.12, none of the employee
pension benefit plans nor any of the related trusts has been terminated. The
Companies do not currently, and have never, maintained or participated in a
defined benefit or money purchase plan.
(j) None of the employee pension benefit plans is, and the
Companies have never contributed to, a "multiemployer plan," as that term is
defined in Section 3(37) of ERISA (as particularly amended by The Multiemployer
Pension Plan Amendments Act of 1980).
(k) The Companies have provided to Purchaser the informa-tion
reasonably necessary to determine the accounting treatment which may be accorded
any of the Companies' retiree welfare bene-fits currently in force at the
Companies under Financial Account-ing Standards Board guidelines.
(l) Any trust or fund maintained by or contributed to by the
Companies or their employees to fund an employee benefit plan (other than an
employee pension benefit plan) is qualified as an exempt organization under
Section 501(c)(9) of the Code and the regulations thereunder as a Voluntary
Employee's Benefit Associa-tion (a "VEBA"). Any "welfare benefit fund" within
the meaning of Section 419(a) of the Code (including, but not limited to, any
VEBA), provided by or pursuant to a plan of the Company has been maintained in
accordance with Section 419 of the Code and no con-tributions have been made to
such a fund in excess of the "quali-fied costs" of the benefits provided for a
taxable year (within the meaning of Section 419(b) of the Code), except as set
forth on Schedule 3.12.
(m) Neither of the Companies nor any related person (within
the meaning of Code Section 9701(c)(2)) has any liability under Subtitle J of
the Code (Coal Industry Health Benefits).
3.13 Business in the Ordinary Course. Except as set forth on Schedule
3.13, since December 31, 2000, the Companies have conducted the Business in the
ordinary course consistent with their past practices and specifically the
Companies have not (a) declared or paid any dividends or made any distributions;
(b) changed or terminated any material contract or operating arrangements; (c)
paid or accrued any bonuses or made any material change to compensation or wage
rates of the Companies' employees; (d) entered into any transaction except in
the ordinary course of business; (e) hired or fired any salaried employee; (f)
entered into any material transaction; (g) experienced any material damage,
destruction, or loss (whether or not covered by insurance) to
its property; or (h) incurred a loss as a result of an occurrence, event,
incident, action, failure to act, or transaction outside the ordinary course of
business.
3.14 Environmental Matters.
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(a) As used in this Section 3.14, the term "Hazardous Material" shall mean
any substance, chemical, contaminant, or waste (including, without limitation,
asbestos, polychlorinated biphenyl's (PCBs), pesticides, and petroleum) that is
designated or defined (either by inclusion in a list of materials or by
reference to exhibited characteristics) as hazardous, toxic or dangerous, or as
a pollutant or contaminant in any federal, state or local environmental, health
or safety law, code or ordinance, now existing or hereafter in effect, and all
rules and regulations promulgated thereunder, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C.ss.ss.9601 et seq., the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C.ss.ss.6901 et seq., the Clean Water Act, 33 U.S.C.ss.ss.1251
et seq., the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq., and all other similar
federal, state, and local laws, statutes, and ordinances (collectively defined
as "Environmental Laws").
(b) The Companies have duly complied with, and the Business is in full
compliance with, the provisions of all Environmental Laws. The Companies have
been issued, will maintain, and will be in compliance with until the Closing,
all federal, state and local permits, licenses, certificates and approvals
required, pursuant to any Environmental Laws, for the operation of the Business.
A true, accurate and complete list of all such permits, licenses, certificates
and approvals is set forth on Schedule 3.14.
(c) The Companies have not received notice of, and does not know of or
suspect, any fact(s) (i) which might constitute violations of any Environmental
Laws, or (ii) which indicate that there exists any liability or corrective or
remedial obligation arising under any Environmental
Laws associated with the operation of the Business or with any of the real
property currently or formerly occupied by the Companies. The Companies have not
received and do not know of any complaint, order, directive, claim, citation,
notice of violation, or notice of potential liability from any governmental
authority or any other Person with respect to any environmental, health or
safety matters affecting the Companies, the Business, or any of the Companies'
assets.
(d) Except in compliance with Environmental Laws, there has
been no emission, spill, release, disposal, discharge or threatened release of
any Hazardous Material into or upon the air, soils, water, improvements, or
sewer, septic system, or waste treatment, storage or disposal system, at, under
or from any real property currently or formerly occupied by the Companies.
(e) The Shareholder and the Companies have provided the
Purchaser with all information in their possession concerning any environmental
conditions relating to the operation of the Business or the real property
occupied by the Companies.
3.15 Insurance. Attached to Schedule 3.15 are (i) certificates of insurance
for all insurance policies (specifying the insurer, the amount of the coverage,
the type of insurance, the policy number and any pending claims thereunder)
maintained by or on behalf of the Companies on its assets or personnel; and (ii)
true and complete copies of the most recent inspection reports, if any, received
form insurance underwriters or others as to the condition of the assets of the
Companies. The Companies are not in default with respect to any of the
provisions contained in any such insurance policy. The Companies have not failed
to give any notice or present any claim under any such insurance policy in a due
and timely fashion.
3.16 Intellectual Property. The Companies own or possess sufficient legal
rights to use all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, proprietary rights and processes and other intellectual
property used by the Companies or necessary for the
Companies to conduct their Business as now conducted and as proposed to be
conducted (collectively, "Intellectual Property"), without any conflict with, or
infringement of the rights of, others. Schedule 3.16 contains a complete list of
all patents, trademarks, service marks, and other Intellectual Property (and any
pending applications therefor) used by the Companies. Except for agreements with
their own employees or consultants and standard end-user license agreements, (a)
there are no outstanding options, licenses or agreements of any kind relating to
the foregoing and (b) the Companies are not bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, and proprietary
rights and processes of any other individual, corporation, limited liability
company, partnership, trust, unincorporated organization or any other form of
business organization or any government agency, authority or political
subdivision ("Entity"). The Companies have not received any communications
alleging that the Companies have violated, or by conducting its business as
proposed would violate, any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, or other proprietary rights or processes of
any other Entity.
3.17 Labor Relations. Except as set forth on Schedule 3.17, (a) the
Companies are not a party to, or negotiating, and have no obligations under, any
agreement, collective bargaining or other-wise, with any party relating to the
compensation or working condi-tions of any of the Companies' employees; (b) the
Companies are not obligated under any agreement to recognize or bargain with any
labor organization or union on behalf of their employees; (c) the Shareholder
knows, or has any reasonable grounds to know, of any union organizational or
representational activi-ties underway among any of the Companies' employees; and
(d) the Companies have not been charged or threatened with a charge of any
unfair labor prac-xxxx. There are no existing or threatened labor strikes,
slow-downs, disputes, grievances or disturbances affect-ing or which might
affect
operations at, or deliveries from or into, any facil-ity of the Companies. No
work stoppage against the Companies or their business is pending or threatened,
and no such work stoppage has ever occurred.
The Companies have not committed any act or failed to take any required
action with respect to any of their employees which have resulted or which may
result in a material violation of ERISA (as that term is defined in Section 3.12
above), or similar legisla-tion as it affects any employee benefit or welfare
plan of the Companies; the Immigration Reform and Control Act of 1986; the
National Labor Relations Act, as amended; Title VII of the Civil Rights Act of
1964, as amended; the Occupational Safety and Health Act; Executive Order 11246;
the Fair Labor Standards Act; the Rehabilitation Act of 1973; and all
regulations under such Acts, and all other fed-eral, state and local laws,
regulations and executive orders relat-ing to the employment of labor, including
any provisions thereof relating to wages, hours, col-lective bargaining, the
payment of Social Security and similar taxes, unemployment and workmens'
comp-ensation laws, any labor relations laws, or any governmental regu-lations
promulgated thereunder, as the same affect relationships or obligations of the
Companies with respect to any of the Companies' employees, and which will or
reasonably could result in any mate-rial liability, penalty, fine or the like
being imposed upon either Company. The Companies are not liable for any
arrearage of wages or taxes or pen-alties for failure to comply with any of the
foregoing, and there are no proceedings before any court, governmental agency,
instru-mentality or arbitrator relating to such matters, including any unfair
labor practice claims, either pending or threatened.
3.18 Corporate Records and Designations. Schedule 3.18 sets forth (a) a
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list of all banks with which the Companies have an account, deposits,
certificate of deposit, or a safe deposit box along with identifying numbers and
the names of all persons authorized to draw thereon or have
access thereto; (b) the names of all persons having powers of attorney from the
Companies and a summary statement of the terms thereof; (c) the names and job
descriptions of all the Companies' employees, together with a statement of the
full amount paid or payable to each such person in respect of such year, a
summary of the basis on which each such person is compensated if the basis is
other than a fixed salary rate, and any changes in any of the foregoing since
December 31, 2000. No person is employed by the Companies other than at the will
of the Companies for an indefinite period of time, and at the option of either
the Companies or the employee, such employee's employment with the Companies may
be terminated with or without cause, and with or without notice, at any time.
3.19 Contracts.
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(a) Except as set forth on Schedule 3.19, the Companies are
not a party to or bound by, and neither its business nor assets are bound or
affected by, any written or oral contact, agreement, lease or commitment of any
kind whatsoever.
(b) Each of the Companies has performed all obligations
required to be performed by it to date under all contracts and commitments to
which it is a party, and the Shareholder does not know, or have any reasonable
grounds to know, that any other party is in default (or would be in default on
the giving of notice or the lapse of time or both) under any contract or
commitment to which either of the Companies is a party.
(c) True and complete copies of all contracts and commitments
to which the Companies are a party or which are listed on Schedule 3.19 or which
are otherwise referred to in this Agreement, including any Schedule or Annex
hereto, have been delivered to Purchaser or made available for Purchaser's
inspection and there are no amendments to or modifications of, or significant
agreements of the parties relating to, any such contract, agreement or
commitment which
have not been disclosed to Purchaser and each such contract, agreement or
commitment is valid and binding on the parties thereto in accordance with its
respective terms. Schedule 3.19 includes a true and complete description of the
terms of any unwritten contract or commitment to which the Companies are a party
or by which either of the Companies is bound.
(d) The prices which the Companies shall receive or pay under
all outstanding contracts, agreements and commitments with its customers,
suppliers and others have been determined in accordance with the Companies
established pricing principles.
3.20 [Intentionally Omitted].
3.21 Real Property. Except as set forth on Schedule 3.21, the Companies
do not own, and never have owned, any real property. Except as set forth on
Schedule 3.21, the Companies do not lease or otherwise use or operate any real
property and have never leased, used, operated or had any other interest in any
real property. Each of the Companies has good and transferable leasehold
interests in all tangible personal property shown on Schedule 3.21 as currently
leased by it, in each case under valid leases enforceable against the lessors
thereunder, and each of the Companies enjoys quiet possession of all of its
personal property leaseholds.
3.22 Personal Property. Except as set forth on Schedule 3.22, the
Companies own good and marketable title to all of the tangible personal property
used by the Companies in their operation of the Business, free and clear of all
claims, liens, security interests and other encumbrances of any kind or nature;
and is valued on the Companies' books in accordance with generally accepted
accounting principles.
3.23 Subsidiaries. The Companies do not own or control, and never have
owned or controlled, directly or indirectly, any capital stock of any other
corporation or any other interest in any other entity.
3.24 Condition of Assets. The tangible real and personal property,
including, without limitation, plants, buildings, structures, equipment,
machinery and vehicles owned or leased by the Companies or used or employed by
them in their business are (a) sufficient and adequate to carry on their
business as presently conducted; (b) in good condition and repair (ordinary wear
and tear excepted); and (c) in the state of maintenance, repair and operating
condition required for the proper operation and use thereof in the ordinary
course of business.
3.25 Disclosure. Article 3 of this Agreement, including the Schedules
attached hereto, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein and therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Shareholder as follows:
4.1 Organizational Matters. The Purchaser is a corporation duly formed,
validly existing and in good standing under the laws of the state of Nevada.
4.2 Authority. The Purchaser has all requisite corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action on the part of the Purchaser. This Agreement has been duly and
validly executed and delivered by the Purchaser and is a valid and binding
obligation of the Purchaser, enforceable in accordance with its terms.
4.3 Noncontravention. Neither the Purchaser's execution, delivery and
performance of this Agreement, nor the consummation by the Purchaser of the
transactions contemplated hereby, nor compliance by the Purchaser with any of
the provisions hereof will:
(a) conflict with or result in a breach of any provision of the Articles of
Incorporation or By-laws of the Purchaser;
(b) cause a default, or give rise to any right of termination,
cancellation, or acceleration, under any of the terms of any note, bond, lease,
mortgage, indenture, license, warranty or other instrument or agreement to which
the Purchaser is a party, or by which the Purchaser or any of their respective
assets is or may be bound or benefited; or
(c) violate any law, statute, rule or regulation or order, writ, judgment,
injunction or decree applicable to the Purchaser or any of their respective
assets.
No consent or approval by, or any notification of or filing with, any
public body or authority or any other third party is required in connection with
the Purchaser's execution, delivery and performance of this Agreement or the
consummation by the Purchaser of the transactions contemplated hereby.
4.4 Litigation. Except as set forth on Schedule 4.4, (a) there are no
audits, inspections, actions, suits, claims, investigations or legal,
administrative or arbitration proceedings pending or, to the Purchaser's
knowledge, threatened against the Purchaser, whether at law or in equity,
whether civil or criminal in nature and whether before or by any Federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality and (b) to the Purchaser's knowledge, no basis exists
therefor. Except as set forth on Schedule 4.4, there are no judgments, decrees,
injunctions or orders of any court, governmental department, commission,
agency, instrumentality or arbitrator against the Purchaser. The Purchaser has
made available to the Shareholder all documents and correspondence relating to
matters referred to in Schedule 4.4.
4.5 No Material Undisclosed Liabilities. The Purchaser has no liabilities
(including but not limited to liabilities under any Environment, Health and
Safety Laws as defined in Section 3.10) whether currently due, accrued,
contingent or otherwise, other than the following:
(a) liabilities reflected or reserved against in the Financial Statements;
(b) liabilities incurred in the ordinary course of business since December
31, 2000; and
(c) liabilities set forth on Schedule 4.5.
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ARTICLE 5
MISCELLANEOUS
5.1 Indemnification and Offset Rights.
---------------------------------
(a) Each party to this Agreement shall defend, indem-nify, and hold
harmless the other party from and against any misrepresentation or breach of
warranty or any default in the due observance of any covenant or agreement in
connection herewith and any and all actions, suits, proceedings, claims,
demands, assess-ments, losses, liabilities, damages, deficiencies, judgments,
penalties, costs and expenses (including reasonable attorneys' fees and
expenses) (collectively, "Losses") incident to any such misrepresentation,
breach or default.
(b) The Shareholder shall indemnify the Purchaser for any material
liabilities not disclosed in the Financial Statements which arise out of the
Companies' operations prior to the Closing.
(c) The Purchaser shall have the right to offset any amounts arising from
any misrepresentation or breach of warranty or any default in the due observance
of any covenant or
agreement by the Shareholder from the amounts due to the Shareholder pursuant to
this Agreement and the Note. The Purchaser may only exercise such right of
offset in respect of claims relating to Losses actually incurred by the
Purchaser (in which case the amount of such offset shall be the amount of such
actual Loss) or claims actually asserted by a third party (in which case the
amount of the offset shall not exceed the Purchaser's good faith estimate of the
amount of indemnifiable Losses that will ultimately be payable to the Purchaser
in respect of such claims). If any such claims for indemnity are resolved in
favor of the Shareholder by mutual agreement or otherwise, or if the amount
withheld exceeds the amount ultimately payable to the Purchaser in respect of
such claim, the Purchaser shall pay the Shareholder the excess amount withheld
with respect to such claim, together with interest thereon for the period such
amount has been withheld at a rate of 8% per annum.
5.2 Special Covenants of Purchaser.
------------------------------
(a) For the period beginning as of the Closing and ending on October 1,
2001, Purchaser covenants that in the event the Companies' current ordinary and
necessary business expenses exceed operating revenue on an aggregate basis, the
Purchaser will loan the Companies funds, evidenced by a promissory note from the
respective Companies to the Purchaser, in an amount equal to the difference
between the Companies' current ordinary and necessary business expenses and
operating revenue.
(b) At Closing, Purchaser shall contribute capital to the Companies in the
aggregate amount of One Million Dollars ($1,000,000) in immediately available
funds to be used to pay the trade payables as set forth on Schedule 5.2(b).
(c) Purchaser shall contribute capital to Finity in the amount of Two
Hundred Fifty Thousand Dollars ($250,000) in immediately available funds to be
used to pay PaySys pursuant to the Software License Agreement dated ________ __,
2001 between Finity and PaySys.
5.3 Remedies. The Shares are of unique and extraordinary value. Breach of
this Agreement by the Shareholder would cause the Purchaser irreparable harm.
Upon any breach or threatened breach of this Agreement by the Shareholder, the
Purchaser shall have all remedies available to it for such breach or threatened
breach, including, but not limited to, the equitable remedy of specific
performance.
5.4 Further Assurances. From time to time and without further
consideration, each party shall execute and deliver such further instruments of
conveyance, assignment and transfer, and take such other actions as the other
party may reasonably request in order to more fully implement the terms and
conditions of this Agreement.
5.5 Entire Agreement. This Agreement, together with the documents and
instruments referenced herein and being contemporaneously executed herewith,
constitute the entire agreement and understanding of the parties in respect of
the trans-actions contemplated hereby and may be amended or modified only in
writing signed by the parties hereto.
5.6 Public Announcements. All notices to third parties and other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by the Purchaser and the Shareholder and no party shall
act unilaterally in this regard without the prior written approval of the other
party and such approval shall not be unreasonably withheld except in the event a
party is required to do so by law or by applicable regulations or policies of
any governmental or other regulatory agency of competent jurisdiction or any
stock exchange in circumstances where prior consultation with the other party is
not practicable.
5.7 Notices. Any notices or communications hereunder shall be written and
deemed to be duly given if delivered in person, by overnight courier, or other
similar means at the following addresses:
(a) If to the Purchaser:
Rationale, Inc.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
With a copy to:
Xxxxx Xxxxx Xxxx LLC
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attn: Xxxx Xxxxx
(b) If to the Shareholder:
Finity Holdings Inc.
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxx
With a copy to:
Xxxxxxx, Xxxxxxx and Xxxxxxx
0000 Xxxxxxxxxx Xxxxxx
00 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attn: Xxxx Xxxxxxx
5.8 Headings. The Article and Section headings in this Agree-ment are for
--------
convenient reference only and shall not affect the construction hereof.
5.9 Annexes and Schedules. The Annexes and Schedules to this Agreement are
---------------------
incorporated herein by reference and expressly made a part hereof.
5.10 Successors and Assigns. This Agreement shall be binding upon, inure to
----------------------
the benefit of, and be enforceable by, the parties hereto and their respective
successors. This Agreement may
not be assigned by either party without consent of the other party, except that
the Purchaser may freely assign its rights and obligations to any affiliate of
Purchaser.
5.11 Severability. The invalidity or unenforceability of any term of this
------------
Agreement shall not affect the validity or en-forceability of any of the
remaining terms or provisions hereof.
5.12 Survival. The representations and warranties of the parties herein
--------
shall survive the Closing of the purchase and sale of the Shares for thirty-six
(36) months, except (a) as to matters as to which the Purchaser has made a claim
for indemnification on or prior to such expiration of the representations and
warranties, and (b) with respect to any claim for Losses pertaining to a
misrepresentation or a breach of representation or warranty under Section 3.3,
3.7 or 3.12 or any other Section of Article 3 of this Agreement relating to
Taxes. The obligation to indemnify referred to in:
(i) the preceding clause shall survive the expiration of such
period until such claim for indemnification is finally resolved and any
obligations with respect thereto are fully satisfied; and
(ii) the preceding clause shall terminate 180 days after the
expiration of the relevant federal, state or local statute of limitations
(taking into account any extensions or waivers thereof), except as to matters as
to which the Purchaser has made a claim for indemnification on or prior to such
date, in which case the right to indemnification with respect thereto shall
survive the expiration of any such period until such claim for indemnification
is finally resolved and any obligations with respect thereto are fully
satisfied.
5.13 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all such
counterparts together shall constitute but one and the same instrument.
5.14 Knowledge. "Knowledge" or "Shareholder's Knowledge" (whether or not
capitalized) and all other references to matters which are known by the
Shareholder, refers to matters that are known, or should have been known, by the
Shareholder or matter which a prudent individual could be expected to discover
or otherwise become aware of in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter.
5.15 Material. "Material" or "Materially" (whether or not capitalized)
includes any matter which might reasonably be expected to influence the
Purchaser's decision to consummate the transaction contemplated in this
Agreement on the terms and conditions herein.
5.16 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without regard to the application
of its conflict of laws principles.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of June 1, 2001 but actually on the dates set forth below.
RATIONALE, INC.
By: /s/ Xxxxxxx Xxxxxxx
Title: President
Date: June 1, 2001
FINITY HOLDINGS INC.
By: /s/ Xxxx Xxxxx
Title: President
Date: June 1, 2001
