STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of the
29/th/ day of January, 2001, by and between Wolfpack Corporation, a Delaware
corporation ("Purchaser") with its principal executive offices at c/o Capital
Investment Partners, LLC, The Europa Center, 000 Xxxxxx Xxxxx, Xxxxx 000, Xxxxxx
Xxxx, Xxxxx Xxxxxxxx 00000; Basic Phone, Inc., a Texas corporation ("Target")
with its principal executive offices at 0000 XxxXxxxxx Xxxxx, Xxxxxx, Xxxxx
00000; Xxxxxx X. Xxxxxx, Xx. residing at 0000 Xxxxxxxxx, Xxxxxx, Xxxxx 00000;
Xxxxx X. Xxxxxx, wife of Xxxxxx X. Xxxxxx, Xx., residing at 0000 Xxxxxxxxx,
Xxxxxx, Xxxxx 00000; Xxxxx' Ernst residing at 104 So. 0 0/0 Xxxxxx, Xxxxx
00000; Xxxx Xxxxxxxxx residing at 000 XxXxxx Xxxx, Xxxxxx, Xxxxx 00000;
Xxxxxxxxxxx Xxxxxxx residing at 000 Xxxxxx Xxxxx, Xxxxxx, Xxxxx 00000 and Xxxx
Xxxxxxxxx residing at 0000 XxXxxxxxx Xxxxxx, Xxxxxx, Xxxxx 00000 (each a
"Shareholder" and collectively "Shareholders"). Purchaser, Target and
Shareholders are referred to severally herein as a "Party" and jointly as
the"Parties".
BACKGROUND
WHEREAS, Shareholders desire to sell to Purchaser, and Purchaser desires to
purchase from Shareholders, 1,040 shares of common stock of Target (the
"Shares"), being all of the issued and outstanding capital stock of Target, on
the terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the Parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in this Agreement are listed in
alphabetical order and defined below (such terms as well as any other terms
defined elsewhere in this Agreement shall be equally applicable to both the
singular and plural forms of the terms defined).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" means this Stock Purchase Agreement and the Exhibits and
Disclosure Schedules hereto.
"Assets" means, with respect to Purchaser or Target, as shown by the
context in which used, all of the assets, properties, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in such Party's most recent financial
statements, that are owned or possessed by such Party and its Subsidiaries,
taken as a whole.
"Benefit Plan" means all employee benefit, health, welfare, supplemental
unemployment benefit, bonus, pension, profit sharing, deferred compensation,
severance, incentive, stock compensation, stock purchase, retirement,
hospitalization insurance, medical, dental, legal, disability, fringe benefit
and similar plans, programs, arrangements or practices, including, without
limitation, each "employee benefit plan" as defined in Section 3(3) of ERISA.
"Business" means with respect to any Person the entire business and
operations of such Person and its Subsidiaries, taken as a whole.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Code" means the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.
"Contract" means any written or oral contract, agreement, letter of intent,
agreement in principle, lease, instrument or other commitment that is binding on
any Person or its property under applicable Law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority, or any arbitrator that is binding on any Person or its property under
applicable Law.
"Default" means (i) a breach, default or violation, (ii) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"DGCL" means the Delaware General Corporation Law, as amended.
"$" means United States dollars.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" means any condition or circumstance, including
the presence of Hazardous Substances which does or would (i) require assessment,
investigation, abatement, correction, removal or remediation under any
Environmental Law, (ii) give rise to any civil or criminal Liability under any
Environmental Law, (iii) create or constitute a public or private nuisance or
(iv) constitute a violation of or non-compliance with any Environmental Law.
"Environmental Law" means all Laws, Court Orders, principles of common law,
and permits, licenses, registrations, approvals or other authorizations of any
Governmental Authority relating to Hazardous Substances, pollution, protection
of the environment or human health.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Execution Date" means January 29, 2001.
"GAAP" means United States generally accepted accounting principles
including those set forth: (a) in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (b) in the statements and pronouncements of the Financial
Accounting Standards Board, (c) in such other statements by such other entity as
approved by a significant segment of the accounting profession, and (d) the
rules and regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements from
the accounting staff of the SEC.
"Governmental Authority" means any federal, state, local, municipal or
foreign or other government or governmental agency or body.
"Hazardous Substances" means any material, waste or substance (including,
without limitation, any product) that may or could pose a hazard to the
environment or human health or safety including, without limitation, (i) any
"hazardous substances" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)9601 et seq. and its implementing
regulations, (ii) any "extremely hazardous substance," "hazardous chemical" or
"toxic chemical" as those terms are defined by the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. (S)11001 et seq. and its implementing
regulations, (iii) any "hazardous waste," as defined under the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. (S)6901 et seq. and its implementing regulations, (iv) any "pollutant,"
as defined under the Water Pollution Control Act, 33 U.S.C. (S)1251 et seq. and
its implementing regulations as any of such Laws in clauses (i) through (iv) may
be amended from time to time, and (v) any material, substance or waste regulated
under any Laws or Court Orders that currently exist or that may be enacted,
promulgated or issued in the future by any Governmental Authority concerning
protection of the environment, pollution, health or safety or the public
welfare.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology, licenses, trade secrets, computer software and other intellectual
property.
"Knowledge" of any Shareholder means that which such Shareholder actually
knows or, after diligent investigation commensurate with such Shareholder's
position with Target, should have known. "Knowledge" of Purchaser means that
which an executive officer of Purchaser actually knows or, after diligent
investigation, should have known.
"Law" means any statute, law, ordinance, regulation, order, rule, common
law principles or consent agreements of any Governmental Authority, including,
without limitation, those covering environmental, energy, safety, health,
transportation, bribery, record keeping, zoning, anti-discrimination, antitrust,
wage and hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
3
"Material Adverse Effect", as to Purchaser, means a fact or event which has
had or is reasonably likely to have a material adverse effect on the Assets,
Business, financial condition or results of operations of Purchaser, either as a
corporate entity or with its Subsidiaries taken as a whole, as indicated by the
context in which used, and when used with respect to representations,
warranties, conditions, covenants or other provisions hereof means the
individual effect of the situation to which it relates and also the aggregate
effect of all similar situations unless the context indicates otherwise.
"Material Adverse Effect", as to Target, means a fact or event which has had or
is reasonably likely to have a material adverse effect on the Assets, Business,
financial condition or results of operations of Target, and when used with
respect to representations, warranties, conditions, covenants or other
provisions hereof means the individual effect of the situation to which it
relates and also the aggregate effect of all similar situations unless the
context indicates otherwise.
"Patents" means patents, patent applications, reissue patents, patents of
addition, divisions, renewals, continuations, continuations-in-part,
substitutions, additions and extensions of any of the foregoing.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Purchaser Disclosure Schedule" means the Disclosure Schedule containing
information relating to Purchaser pursuant to Article IV and other provisions
hereof that has been provided to the other Parties on the date hereof.
"Purchaser Indemnified Party" means Purchaser and each of its officers,
directors, shareholders, employees, agents and counsel.
"Regulation" means any federal, state, local or foreign rule or regulation.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders Disclosure Schedule" means the Disclosure Schedule containing
information relating to Target and Shareholders pursuant to Article V and other
provisions hereof that has been provided to Purchaser on the date hereof.
"Subsidiary" means any corporation or other legal entity of which Purchaser
or Target, as the case may be (either above or through or together with any
other Subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of directors or other governing body of such corporation or other
entity.
"Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions, levies and
liabilities, including, without limitation, taxes based upon gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, gains, franchise, withholding, payroll, recapture, employment, excise,
unemployment, insurance, social security, business license, occupation, business
organization, stamp, environmental and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts.
4
"Tax Return" means any report, return, election, notice, estimate,
declaration, information statement and other forms and documents (including all
schedules, exhibits and other attachments thereto) relating to and filed or
required to be filed with a taxing authority in connection with any Taxes
(including, without limitation, estimated Taxes).
"Termination Date" means April 22, 2001.
"Trademarks" means registered trademarks, registered service marks,
trademark and service xxxx applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement and the other agreements
described in Article III.
"Transactions" means the purchase and sale of the shares and the other
transactions contemplated by the Transaction Documents.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1. SALE OF STOCK. Subject to the terms and conditions set forth in this
Agreement, each Shareholder shall sell to Purchaser and Purchaser shall purchase
from each Shareholder, the Shares as set forth on Schedule 2.1.
2.2 CONSIDERATION. As consideration for the Shares, Purchaser shall pay
to the Shareholders, subject to the terms and conditions set forth in this
Agreement, a total of Two Million Five Hundred Thousand Dollars ($2,500,000)
("Consideration"), allocated among the Shareholders as set forth on Schedule
1.2.
2.3 CLOSING.
(a) The closing of the purchase and sale of the Shares under this
Agreement (the "Closing") shall be held at the offices of Xxxxxx Gottbetter &
Xxxxxxxx, LLP in New York, New York at 10:00 a.m. (local time) as promptly as
practicable (and in any event within one Business Day) after satisfaction or
waiver of the conditions to the consummation of the Transactions set forth in
Articles IX and X. The date on which the Closing occurs is referred to herein as
the "Closing Date."
(b) At the Closing each of the Shareholders shall transfer to
Purchaser good and marketable title to the Shares owned by such Shareholder,
free and clear of any and all liens, claims, encumbrances and adverse interests
of any kind, by delivering to the Purchaser the certificates for the Shares in
negotiable form, duly endorsed in blank, or with stock transfer powers attached
thereto. At the Closing, Purchaser shall deliver the Consideration by cashier's
check or wire transfer, as set forth next to such Shareholder's name in Schedule
1.2. In addition, at the Closing, each person shall execute and deliver the
agreements under Article III herein to which each person is also a party. At the
Closing, the Shareholders shall make available the written resignations of all
of the directors of Target effective as of the Closing and shall cause to be
made available the books and records of Target to Purchaser. At the Closing, the
Purchaser shall issue to Xxxxxx X. Xxxxxx, Xx. and Xxxxx X. Xxxxxx certificates
of Purchaser representing good and marketable title to an aggregate of 250,000
fully paid and nonassessable shares of Purchaser common stock in accordance with
the consulting agreements referenced in Sections 3.2 and 3.3 herein. At the
Closing, each of Xxxxxx X. Xxxxxx, Xx. and Xxxxx X. Xxxxxx shall deliver to
Purchaser an executed investment intent letter referenced in Article VI. At the
Closing, each of Purchaser and Target shall deliver the other closing
5
documents referenced in Articles IX and X. At any time and from time to time
after the Closing, the Parties shall duly execute, acknowledge and deliver all
such further assignments, conveyances, instruments and documents, and shall take
such other action consistent with the terms of this Agreement to carry out the
transactions contemplated by this Agreement.
ARTICLE III
OTHER AGREEMENTS
3.1. NON-COMPETE AGREEMENT. At the Closing, each Shareholder, except Xxxx
Xxxxxxxxx, shall execute and deliver to Purchaser the Non-Compete Agreement in
the form annexed hereto as Exhibit 3.1.
3.2. CONSULTING AGREEMENT. At the Closing, Xxxxxx X. Xxxxxx, Xx. and the
Purchaser shall each execute the Consulting Agreement in the form annexed hereto
as Exhibit 3.2.
3.3. CONSULTING AGREEMENT. At the Closing, Xxxxx X. Xxxxxx and the
Purchaser shall each execute the Consulting Agreement in the form annexed hereto
as Exhibit 3.3.
3.4. REGISTRATION RIGHTS AGREEMENT. At the Closing, each of Xxxxxx X.
Xxxxxx, Xx. and Xxxxx X. Xxxxxx and the Purchaser shall each execute the
Registration Rights Agreement in the form annexed hereto as Exhibit 3.4.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Shareholders as follows, except
as otherwise set forth in the Purchaser Disclosure Schedule:
4.1. CORPORATE. Purchaser is a corporation duly organized, validly existing
and in good standing under the Laws under which it was incorporated. Purchaser
is qualified to do business as a foreign corporation in any jurisdiction where
it is required to be so qualified.
4.2. AUTHORIZATION. Purchaser has the requisite corporate power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by Purchaser has been duly authorized by all necessary
corporate action. Each Transaction Document executed and delivered by Purchaser
as of the date hereof has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, and any Transaction Document executed
and delivered by Purchaser after the date hereof will be duly executed and
delivered by Purchaser and will constitute a valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms, except as
otherwise limited by bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally, and except that the remedy of specific
performance or other equitable relief is available only at the discretion of the
court before which enforcement is sought.
4.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with the
Securities Act, the Exchange Act and applicable state securities Laws, neither
the execution and delivery by Purchaser of the respective Transaction Documents
to which it is or will be a party, nor the performance of the Transactions to be
performed by it, will require any filing, consent or approval under or
constitute a Default, or result in a loss of material benefit under, (a) to
Purchaser's Knowledge, any Law or Court Order
6
to which Purchaser is subject, (b) the Charter Documents or bylaws of Purchaser,
or (c) any Contracts to which Purchaser is a party or by which any of the
Purchaser Assets may be subject.
4.4. PURCHASER SEC REPORTS; FINANCIAL STATEMENTS. Purchaser has filed all
required forms, reports, statements, schedules and other documents with the SEC
since January 1, 1999, including (a) its Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999, (b) its Quarterly Reports on Form 10-QSB
for the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000, and
(c) all other reports filed by Purchaser with the SEC since January 1, 1999
(collectively, the "Purchaser SEC Reports"). Each of such Purchaser SEC Reports,
at the time it was filed or was amended, complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, and with
the forms and Regulations of the SEC promulgated thereunder, and did not
contain, at the time it was filed or was amended, any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The financial
statements, including all related notes and schedules, contained in the
Purchaser SEC Reports (or incorporated by reference therein) fairly present the
consolidated financial position of Purchaser as at the respective dates thereof
and the consolidated results of operations and cash flows of Purchaser for the
periods indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except for changes in accounting principles
disclosed in the notes thereto) and subject in the case of interim financial
statements to normal year-end adjustments and the absence of notes.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder hereby represents and warrants to Purchaser as follows,
except as otherwise set forth in the Shareholders Disclosure Schedule:
5.1. CORPORATE. Target is a corporation duly organized, validly existing
and in good standing under the Laws under which it was incorporated. Target is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified. The Charter Documents and bylaws of Target (all
of which have been delivered or made available to Purchaser) have been duly
adopted and are current, correct and complete. Target has all necessary
corporate power and authority to own, lease and operate the Target Assets and to
carry on the Target Business as it is now being conducted. Target has no
Subsidiaries.
5.2. AUTHORIZATION. Target has the requisite corporate power and authority
to execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by Target have been duly authorized by all necessary corporate
action. No consents or approvals of holders of Target capital stock is required
for the consummation of the Transactions. Each Shareholder has the capacity to
execute and deliver the Transaction Documents to which he or she is a party and
to perform the Transactions to be performed by him or her. Each Transaction
Document executed and delivered by Target and any Shareholder as of the date
hereof has been duly executed and delivered by Target and each such Shareholder
and constitutes a valid and binding obligation of Target and each such
Shareholder, enforceable against Target and each such Shareholder in accordance
with its terms, and any Transaction Document executed and delivered by Target
and any Shareholder after the date hereof will be duly executed and delivered by
Target and each such Shareholder and will constitute a valid and binding
obligation of Target and each such Shareholder, enforceable against Target and
each such Shareholder in accordance with its terms, except as otherwise limited
by bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specified performance or other
equitable relief is available only at the discretion of the court before which
enforcement is sought.
7
5.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the execution and
delivery by Target or any Shareholder of the respective Transaction Documents to
which he, she or it is or will be a party, nor the performance of the
Transactions to be performed by he, she or it, will require any filing, consent
or approval under or constitute a Default, or result in a loss of material
benefit under, (a) to any Shareholder's Knowledge, any Law or Court Order to
which Target or any Shareholder is subject, (b) the Charter Documents or bylaws
of Target, (c) any other Contracts to which Target or any Shareholder is a party
or by which any of the Target Assets may be subject.
5.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Target consists of 10,000 shares of Target common stock. Of such
authorized capital stock, the only issued and outstanding shares on the date
hereof are 1,040 shares of Target common stock. There are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of any issued or
unissued capital stock or other securities of Target. All of the issued and
outstanding shares of Target common stock are validly issued, fully paid and
non-assessable.
5.5. TARGET FINANCIAL STATEMENTS. The Statement of Assets, Liabilities and
Equity -Income Tax Basis as of November 30, 2000 and related Statement of
Revenues and Expenses, Statement of Changes in Retained Earnings and Statement
of Cash Flows - Income Tax Basis for the year ended November 30, 2000 (the
"Target Financial Statements"), delivered to Purchaser fairly present the
financial position of Target as at the respective dates thereof and the results
of operations of Target for the periods indicated in accordance with applicable
Federal income tax principles applied on a consistent basis throughout the
periods involved. If Target Financial Statements were adjusted to reflect the
items described in the letter from Xxx Xxxxx attached to this Agreement, said
Target Financial Statements would present all of Target's assets, liabilities,
revenues and expenses as of November 30, 2000 and for the fiscal year then
ended. For purposes of this Agreement, the Statement of Assets, Liabilities and
Equity of Target as of November 30, 2000 is referred to as the "Target Balance
Sheet" and the date thereof is referred to as the "Target Balance Sheet Date."
5.6. TAXES. Target (i) has filed (or, in the case of Tax Returns not yet
due, will file) with the appropriate governmental agencies all Tax Returns
required to be filed on or before the Closing Date and all such Tax Returns
filed were true, correct and complete in all respects, and (ii) has paid (or, in
the case of Taxes not yet due, will pay), all Taxes shown on such Tax Returns.
Target has (i) duly paid or caused to be paid all Taxes and all Taxes shown on
Tax Returns that are or were due, and (ii) provided a sufficient reserve on the
Target Balance Sheet for the payment of all Taxes not yet due and payable. No
deficiency in respect of any Taxes which has been assessed against Target
remains unpaid, except for Taxes being contested in good faith, and Target has
no Knowledge of any unassessed Tax deficiencies or of any audits or
investigations pending or threatened against Target with respect to any Taxes.
Target has not extended or waived the application of any applicable statute of
limitations of any jurisdiction regarding the assessment or collection of any
Tax or any Tax Return. There are no liens for Taxes upon any assets of Target
except for liens for current Taxes not yet due. Target has to its Knowledge (i)
complied with all provisions of the Code relating to the withholding and payment
of Taxes and (ii) has made all deposits required by applicable Law to be made
with respect to employees' withholding and other payroll, employment or other
withholding or related Taxes. Target is not a party to any contract, agreement,
plan or arrangement that, individually or in the aggregate, or when taken
together with any payment that may be made under this Agreement or any
agreements contemplated hereby, could give rise to the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code. Target is not
a party to any agreement relating to the allocating or sharing of the payment
of, or liability for, Taxes for any period (or portion thereof). To Target's or
any
8
Shareholder's Knowledge, Target has never been a member of an affiliated group
of corporations (within the meaning of Section 1504 of the Code).
5.7. TITLE TO ASSETS AND RELATED MATTERS. Target has good and marketable
title to the Target Assets, free from any Encumbrances except for constitutional
and statutory liens arising from the obligation to pay for the provision of
materials or services not yet in Default and Taxes not yet due. Target owns all
Target Assets necessary or currently used in the operation of Target's Business.
5.8. REAL PROPERTY. All material real estate leased by Target as of the
date hereof and used in the operation of the Target Business are disclosed in
the Shareholders Disclosure Schedule. As of the date hereof, Target does not own
any real property.
5.9. LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS.
(a) There is no Litigation that is pending or, to Target's or any
Shareholder's Knowledge, threatened against Target. To Target's or any
Shareholder's Knowledge, Target is and has been in compliance with all
applicable Laws, including Environmental Laws and applicable securities Laws.
There has been no Default under any Laws applicable to Target, including
Environmental Laws. There has been no Default with respect to any Court Order
applicable to Target. Target has not received any written notice and, to the
Knowledge of Target or any Shareholder, no other communication has been received
to the effect that it is not in compliance with any applicable Laws. No
Shareholder has reason to believe that any presently existing circumstances are
likely to result in violations of any applicable Laws.
(b) To Target's or any Shareholder's Knowledge, there is no
Environmental Condition at any property presently or formerly owned or leased by
Target.
(c) Target has all material consents, permits, franchises, licenses,
concessions, registrations, certificates of occupancy, approvals and other
authorizations of Governmental Authorities (collectively, the "Governmental
Permits") required in connection with the operation of its Business, all of
which are in full force and effect. Target has complied with all of its
Governmental Permits.
5.10. CONTRACTS AND COMMITMENTS. Each Contract to which Target is a party
(i) is legal, valid, binding and enforceable by Target except as otherwise
limited by bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally, and except that the remedy of specific performance
or other equitable relief is available only at the discretion of the court
before which enforcement is sought, and (ii) Target, and to Target's and any
Shareholder's Knowledge, any other party, is not in Default under any such
Contract. Target is not subject to any Contract limiting the freedom of Target
to compete in any line of business, or with any Person, or in any geographic
area or market.
5.11. EMPLOYEE RELATIONS. Target is not (a) a party to, involved in or, to
Target's and any Shareholder's Knowledge, threatened by, any labor dispute or
unfair labor practice charge, or (b) currently negotiating any collective
bargaining agreement, and Target has not experienced any work stoppage during
the last three years.
5.12. ERISA. Target has delivered or made available to Purchaser (i)
accurate and complete copies of all Benefit Plans sponsored or maintained by
Target or under which Target may be obligated for its employees, directors or
independent contractors ("Target Benefit Plans") documents and of any summary
plan descriptions, summary annual reports and insurance contracts relating
thereto, (ii) accurate and complete detailed summaries of all unwritten Target
Benefit Plans, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all Target Benefit Plans for
which financial
9
statements or actuarial reports are required or have been prepared and (iv)
accurate and complete copies of all annual reports for all Target Benefit Plans
(for which annual reports are required) prepared within the last two years. The
Shareholders Disclosure Schedule lists all Target Benefit Plans. All Target
Benefit Plans conform to, and are being administered and operated in material
compliance with, the requirements of ERISA, the Code and all other applicable
Laws, including applicable Laws of foreign jurisdictions. There have not been
any "prohibited transactions," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA involving any of the Target Benefit Plans, that
could subject Target to any penalty or tax imposed under the Code or ERISA.
There are no pending or, to the Knowledge of Target, threatened claims by or on
behalf of any Target Benefit Plans, or by or on behalf of any individual
participants or beneficiaries of any Target Benefit Plans, alleging any breach
of fiduciary duty on the part of Target or any of the officers, directors or
employees of Target under ERISA or any other applicable Regulations, or claiming
benefit payments other than those made in the ordinary operation of such plans,
or alleging any violation of any other applicable Laws. Target has made all
required contributions under the Target Benefit Plans. The execution of this
Agreement and the performance of the Transactions will not (either alone or in
combination with the occurrence of any additional or subsequent events)
constitute an event under any Target Benefit Plan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any current or former employee, director or consultant
of Target.
5.13. PATENTS, TRADEMARKS, ETC. Target does not infringe upon or
unlawfully or wrongfully use any Intellectual Property owned or claimed by
another Person and no Person infringes on or wrongfully uses any Intellectual
Property owned or claimed by Target. Target owns or has valid rights to use all
Intellectual Property used in the conduct of Target Business, free and clear of
all Encumbrances.
5.14. ABSENCE OF CERTAIN CHANGES. Since the Target Balance Sheet Date,
Target has conducted the Target Business in the ordinary course, and, as of the
date hereof, there has not been, nor as of the Closing Date, will there have
been:
(a) any Material Adverse Effect on the Target Business;
(b) any distribution or payment declared or made in respect of
Target's capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any current director or officer of Target, nor any material change in any
existing employment, severance, consulting arrangements or any Target Benefit
Plan;
(d) any sale, assignment or transfer of any Target Assets, or any
additions to or transactions involving any Target Assets, other than those made
in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any material claim or right or cancellation of any material debt held
by Target;
(f) any change in practice with respect to Taxes, or any election,
change of any election, or revocation of any election with respect to Taxes, or
any settlement or compromise of any dispute involving a Tax Liability;
(g) (i) any creation, or assumption of, any leases, long-term debt or
any short-term debt for borrowed money other than under existing notes payable,
lines of credit or other credit facility or in the ordinary course of business
(ii) any assumption, granting of guarantees, endorsements or otherwise becoming
10
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person or (iii) any loans, advances or capital
contributions to, or investments in, any other Person;
(h) any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(i) any authorization, recommendation, proposal or announcement of an
intention to authorize, recommend or propose, or enter into any Contract with
respect to, any (i) plan of liquidation or dissolution, (ii) acquisition of a
material amount of assets or securities, (iii) disposition or Encumbrance of a
material amount of assets or securities, (iv) merger or consolidation or (v)
material change in its capitalization;
(j) any change in accounting procedure or practice; or
(k) any agreement or promise by Target to (i) do any of the foregoing
or (ii) do anything that would likely result in any of the foregoing.
5.15. CORPORATE RECORDS. The minute books of Target contain accurate,
complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders.
5.16. FINDER'S FEES. No Person is or will be entitled to any commission,
finder's fee or other payment in connection with the Transactions based on
arrangements made by or on behalf of Target.
5.17 OWNERSHIP OF SHARES. Each Shareholder is the record and beneficial
owner of the Shares as set forth next to such Shareholder's name on Schedule
2.1, and has sole management power over the disposition of such Shares. The
Shares owned by each Shareholder as set forth on Schedule 2.1 are free and clear
of any liens, claims, encumbrances, and charges. The Shares have not been sold,
conveyed, encumbered, hypothecated or otherwise transferred by any Shareholder
except pursuant to this Agreement. Each Shareholder has the legal right to enter
into and to consummate the Transactions contemplated hereby and otherwise to
carry out his or her obligations hereunder.
ARTICLE VI
INVESTMENT INTENT
6.1. INVESTMENT INTENT. At the Closing, each of Xxxxxx X. Xxxxxx, Xx. and
Xxxxx X. Xxxxxx shall execute and deliver to Purchaser the investment intent
letter, the form of which is annexed hereto as Exhibit 6.1.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1. NOTIFICATION OF CERTAIN MATTERS. Each of Purchaser, on the one hand,
and Target and the Shareholders, on the other hand, shall give prompt notice to
each other of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence would be likely to cause either (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the
Execution Date to the Closing Date, or (ii) directly or indirectly, any Material
Adverse Effect; and
11
(b) any material failure of such Party, or any officer, director,
employee or agent of any thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
7.2. ACCESS TO INFORMATION.
(a) From the date hereof to the Closing Date, Purchaser and Target
shall, and shall cause its officers, directors, employees, auditors, counsel and
agents to afford the officers, employees, auditors, counsel, financial advisors
and agents of the other Party complete access at all reasonable times to such
Party's officers, employees, auditors, counsel, agents, properties, offices and
other facilities and to all of their respective books and records, and shall
furnish the other with all financial, operating and other data and information
as such other Party may reasonably request.
(b) All information so received from the other Party shall be deemed
received pursuant to the confidentiality agreement heretofore executed and
delivered by Target and Purchaser (the "Confidentiality Agreement"), and each
such Party shall, and shall cause its respective officers, directors, employees,
auditors, counsel, financial advisors and agents ("Party Representatives"), to
comply with the provisions of the Confidentiality Agreement with respect to such
information. The provisions of the Confidentiality Agreement are hereby
incorporated herein by reference with the same effect as if fully set forth
herein.
7.3. PUBLIC ANNOUNCEMENTS. Purchaser and Target (a) shall use all
reasonable efforts to develop a joint communications plan and each Party shall
use all reasonable efforts to ensure that all press releases and other public
statements with respect to the Transactions shall be consistent with such joint
communications plan or, to the extent inconsistent therewith, shall have
received the prior written approval of the other and (b) before issuing any
press release or otherwise making any public statements with respect to the
Transactions, will consult with each other as to its form and substance and
shall not issue any such press release or make any such public statement prior
to such consultation, except for each of (a) and (b) above as may be required by
Law (it being agreed that the Parties hereto are entitled to disclose all
requisite information concerning the Transactions in any filings required with
the SEC).
7.4. COOPERATION. Upon the terms and subject to the conditions hereof,
each of the Parties shall use its commercially reasonable efforts to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper or advisable to consummate as promptly as practicable the
Transactions and shall use its commercially reasonable efforts to obtain all
Purchaser Required Consents and Target Required Consents (as defined herein),
and to effect all necessary filings under the Securities Act and the Exchange
Act. Without limiting the generality of the foregoing, each Party shall use all
commercially reasonable efforts to take, or cause to be taken, all other actions
and to do, or cause to be done, all other things necessary, proper or advisable
to fulfill the conditions herein to the extent that the fulfillment thereof is
within a Party's control.
7.5. EXPENSES. Purchaser shall pay all of the legal, accounting and other
expenses incurred by Purchaser in connection with the Transactions, Target shall
pay all of the legal, accounting and other expenses incurred by Target in
connection with the Transactions, and each Shareholder shall pay all of the
legal, accounting and other expenses incurred by such Shareholder in connection
with the Transactions.
12
ARTICLE VIII
COVENANTS OF TARGET AND SHAREHOLDERS
8.1. OPERATION OF THE BUSINESS. Except as contemplated by this Agreement
or as expressly agreed to in writing by Purchaser, during the period from the
date of this Agreement to the Closing Date, Target will conduct its operations
only in the ordinary course of business consistent with sound financial,
operational and regulatory practice, and will take no action which would have a
Material Adverse Effect on its ability to consummate the Transactions. Without
limiting the generality of the foregoing, except as otherwise expressly provided
in this Agreement or except as disclosed in the Target Disclosure Schedule,
prior to the Closing Date, Target will not, and Shareholders shall not cause or
permit Target to, without the prior written consent of Purchaser:
(a) amend its Charter Documents or bylaws (or similar organizational
documents);
(b) except as set forth in the Shareholders Disclosure Schedule,
authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of its capital
stock or any other securities;
(c) recapitalize, split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any of its
securities or modify any of the terms of any such securities;
(d) (i) create, incur, assume or permit to exist any long-term debt
or any short-term debt for borrowed money other than under existing notes
payable, lines of credit or other credit facilities or in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other or (iii) make any loans, advances or capital contributions to, or
investments in, any other Person;
(e) (i) amend any Target Benefit Plan or (ii) (a) increase in any
manner the rate of compensation of any of its directors, officers or other
employees everywhere, (b) pay or agree to pay any bonus, pension, retirement
allowance, severance or other employee benefit except as required under
currently existing Target Benefit Plans, except for holiday bonuses in an
aggregate amount not to exceed holiday bonuses for the prior year, or (c) amend,
terminate or enter into any employment, consulting, severance, change in control
or similar agreements or arrangements with any of its directors, officers or
other employees;
(f) enter into any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(g) other than in the ordinary course of business, authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets or securities,
(iii) disposition or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or practice;
13
(i) take any action the taking of which, or knowingly omit to take
any action the omission of which, would cause any of the representations and
warranties herein to fail to be true and correct in all material respects as of
the date of such action or omission as though made at and as of the date of such
action or omission;
(j) compromise, settle or otherwise modify any material claim or
litigation;
(k) permit any existing insurance policy insuring Target Assets to
terminate; or
(l) commit, promise or agree to do any of the foregoing.
8.2. MAINTENANCE OF THE ASSETS. Target shall use its reasonable best
efforts to continue to maintain and service the Target Assets consistent with
past practice. Target shall not directly or indirectly, sell or encumber all or
any part of the Target Assets, other than sales in the ordinary course of
business or initiate or participate in any discussions or negotiations or enter
into any agreement to do any of the foregoing.
8.3. EMPLOYEES AND BUSINESS RELATIONS. Target shall use commercially
reasonable efforts to keep available the services of its current employees and
agents and to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it.
8.4. CERTAIN TAX MATTERS. From the date hereof until the Closing Date,
(a) Target will prepare and file, in the manner required by applicable Law, all
Post-Signing Returns required to be filed under applicable Law; (b) Target will
timely pay all Taxes shown as due and payable on such Post-Signing Returns that
are so filed; (c) Target will make provision for all Taxes payable by Target
under applicable Law for which no Post-Signing Return is due prior to the
Closing Date; and (d) Target will promptly notify Purchaser in writing of any
action, suit, proceeding, claim or audit pending against or with respect to
Target in respect of any Tax that is not disclosed on the Target Disclosure
Schedule. It is the Parties understanding that the Target, and not the
Shareholders, shall be responsible for payment of income taxes under this
Section 8.4; provided, however, that nothing in this sentence shall relieve any
Shareholder of such Shareholder's indemnification or other obligations in this
Agreement.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SHAREHOLDERS
The obligations of Shareholders to consummate the Transactions shall be
subject to the satisfaction or waiver, on or before the Closing Date, of each of
the following conditions:
9.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as of
an earlier date) shall also be true and correct on and as of the Closing Date,
except for changes contemplated by this Agreement, with the same force and
effect as if made on and as of the Closing Date.
9.2. AGREEMENTS, CONDITIONS AND COVENANTS. Purchaser shall have performed
or complied in all material respects with all agreements, conditions and
covenants required by this Agreement to be performed or complied with by it on
or before the Closing Date.
9.3. MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect on Purchaser.
14
9.4. CERTIFICATES. Target shall have received a certificate of an
executive officer of Purchaser to the effect set forth in Sections 9.1, 9.2 and
9.3, respectively.
9.4. REQUIRED CONSENTS. Purchaser sure shall have obtained all consents
("Purchaser Required Consents") from third parties necessary for consummation of
the Transactions or the absence of which would result in a Material Adverse
Effect on Purchaser.
9.5. ANCILLARY DOCUMENTS. Purchaser shall have tendered executed copies
of the respective Transaction Documents to which it is intended to be a party.
9.6. LEGALITY. All required governmental approvals shall have been
obtained and any applicable waiting periods, shall have expired. No Law or Court
Order shall have been enacted, entered, promulgated or enforced by any court or
governmental entity that is in effect and that has the effect of making the
Transactions illegal or otherwise prohibiting the consummation of the
Transactions and no legal action shall be pending or threatened which is
reasonably likely to have a Material Adverse Effect on any Party.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the Transactions shall be
subject to the satisfaction or waiver, on or before the Closing Date, of each of
the following conditions:
10.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Target and Shareholders contained in this Agreement shall be true and correct
on the date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date, except for changes contemplated by this Agreement, with the same
force and effect as if made on and as of the Closing Date.
10.2. AGREEMENTS, CONDITIONS AND COVENANTS. Target and Shareholders shall
have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by each of them on or before the Closing Date.
10.3. MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect on Target.
10.4. CERTIFICATES. Purchaser shall have received a certificate of an
executive officer of Target and each Shareholder to the effect set forth in
Sections 10.1, 10.2 and 10.3, respectively.
10.5. REQUIRED CONSENTS. Target and Shareholders shall have obtained all
consents ("Target Required Consents") from third parties necessary for the
consummation of the Transactions or the absence of which would result in a
Material Adverse Effect on Target.
10.6. ANCILLARY DOCUMENTS. Target and each Shareholder shall have tendered
executed copies of the Transaction Documents to which each of them is intended
to be a party.
10.7. LEGALITY. All required governmental approvals shall have been
obtained and any applicable waiting periods, shall have expired. No Law or Court
Order shall have been enacted, entered, promulgated or enforced by any court or
governmental entity that is in effect and that has the effect of
15
making the Transactions illegal or otherwise prohibiting the consummation of the
Merger and no legal action shall be pending or threatened which is reasonably
likely to have a Material Adverse Effect on any Party.
10.8 FINANCING. Purchaser shall have raised net proceeds of at least Two
Million Five Hundred Thousand Dollars ($2,500,000), whether through the issuance
of debt or equity or otherwise, on such terms and conditions as determined in
the sole discretion of Purchaser. Purchaser shall use good faith efforts to
raise such financing.
ARTICLE XI
INDEMNIFICATION
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the provisions of
this Agreement will survive the Closing notwithstanding any investigation at any
time made by or on behalf of any Party hereto provided that the representations
and warranties set forth in Articles IV and V and in any certificate delivered
in connection herewith with respect to any of those representations and
warranties and will terminate and expire on the date two (2) years after the
Closing Date. After a representation and warranty has terminated and expired, no
indemnification will or may be sought pursuant to this Article XI on the basis
of that representation and warranty by any Person who would have been entitled
pursuant to this Article XI to indemnification on the basis of that
representation and warranty prior to its termination and expiration, provided
that, in the case of each representation and warranty that will terminate and
expire as provided in this Section 11.1, no claim presented in writing for
indemnification pursuant to this Article XI on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by that termination and expiration.
11.2. INDEMNIFICATION OF SHAREHOLDERS. Purchaser covenants and agrees that
it will indemnify each Shareholder against, and hold each Shareholder harmless
from and in respect of, all losses, costs, expenses and damage claims that arise
from, are based on, arise out of, or are attributable to (i) any breach of the
representations and warranties of Purchaser or in certificates delivered by
Purchaser in connection herewith; (ii) the nonfulfillment of any covenant or
agreement on the part of Purchaser under this Agreement to be performed prior to
the Closing or (iii) any liability under the Securities Act, the Exchange Act or
other applicable Law which arises out of or is based on (A) any untrue statement
or alleged untrue statement of a material fact relating to Purchaser which is
provided to Shareholders in writing by the Purchaser or (B) any omission or
alleged omission to state therein a material fact relating to Purchaser required
to be stated therein or necessary to make the statements therein not misleading,
and not provided to Shareholders by Purchaser after a written request therefor
(each damage claim described in Section 11.2 being a "Shareholder Indemnified
Loss"). Purchaser shall have no obligation to provide indemnification pursuant
to Section 11.2 until the aggregate amount of indemnification to which
Shareholders, in the aggregate, otherwise shall have become entitled hereunder
shall exceed $50,000, after which Purchaser's obligation to provide
indemnification shall be from the first dollar.
11.3. INDEMNIFICATION OF PURCHASER INDEMNIFIED PARTIES. Each Shareholder,
jointly and severally, covenants and agrees that he or she will indemnify each
Purchaser Indemnified Party against, and hold each Purchaser Indemnified Party
harmless from and in respect of, all losses, costs, expenses and damage claims
that arise from, are based on, arise out of, or are attributable to (i) any
breach of the representations and warranties of Target or any Shareholder or in
certificates delivered by Target or any Shareholder in connection herewith; (ii)
the nonfulfillment of any covenant or agreement on the part of Target or any
Shareholder under this Agreement to be performed prior to the Closing or (iii)
any liability under the Securities Act, the Exchange Act or other applicable Law
which arises out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating to Target or any Shareholder, or any of
them, which is provided to Purchaser or its counsel in writing by the Target or
any Shareholder or
16
(B) any omission or alleged omission to state therein a material fact relating
to Target or any Shareholder, or any of them, required to be stated therein or
necessary to make the statements therein not misleading, and not provided to
Purchaser or its counsel by Target or any Shareholder after a written request
therefor (each damage claim described in Section 11.3 being an "Purchaser
Indemnified Loss"). Shareholders shall have no obligation to provide
indemnification pursuant to Section 11.3 until the aggregate amount of
indemnification to which Purchaser otherwise shall have become entitled
hereunder shall exceed $50,000, after which Shareholders' obligation to provide
indemnification shall be from the first dollar.
11.4. CONDITIONS OF THIRD PARTY INDEMNIFICATION.
(a) All claims for indemnification under this Agreement arising from
third-party claims shall be asserted and resolved as follows in this Section
11.4.
(b) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement. Except as
set forth in Section 11.1, the failure to promptly deliver a Claim Notice shall
not relieve the Indemnifying Party of its obligations to the Indemnified Party
with respect to the related Third Party Claim except to the extent that the
resulting delay is materially prejudicial to the defense of that claim. Within
15 days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XI with respect to that Third Party Claim and (ii) if the
Indemnifying Party does not dispute its potential liability to the Indemnified
Party with respect to that Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against that Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 11.4(c) and the Indemnified
Party will furnish the Indemnifying Party with all information in its
possession, subject to a confidentiality agreement, with respect to that Third
Party Claim and otherwise cooperate with the Indemnifying Party in the defense
of that Third Party Claim; provided, however, that the Indemnifying Party shall
not enter into any settlement with respect to any Third Party Claim that (i)
purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any Affiliate of any Indemnified Party, (ii) involves a
guilty plea to any crime or (iii) involves a fine or penalty, whether or not
paid by the Indemnifying Party, without the prior consent of that Indemnified
Party (which consent may be withheld in the sole discretion of that Indemnified
Party). The Indemnified Party is hereby authorized, at the sole cost and expense
of the Indemnifying Party, to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 11.4(c) and will bear its own costs and expenses with respect to that
participation; provided, however, that if the named parties to any such action
(including any
17
impleaded parties) include both the Indemnifying Party, and the Indemnified
Party, and the Indemnified Party has been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party
(provided that such expenses are reasonable), and, on its written notification
of that employment, the Indemnifying Party shall not have the right to assume or
continue the defense of such action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Article XI,
(B) elects not to defend the Indemnified Party pursuant to Section 11.4(c) or
(C) fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 11.4(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 11.4(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (provided that such expenses are reasonable) (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XI
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 11.4 or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 16.4(d), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
(e) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Losses attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an Indemnifying Party pursuant
to this Article XI relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 11.4(e) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
11.5. REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement
shall not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
18
ARTICLE XII
TERMINATION
12.1. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time before the Closing Date:
(a) By mutual written consent of Purchaser and Shareholders owning at
least 51% of the Shares.
(b) By Purchaser or Shareholders owning at least 51% of the Shares if
the Closing shall not have been consummated on or before the Termination Date;
provided, however, that the right to terminate this Agreement under this Section
12.1(b) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing Date to occur on or before the Termination Date;
(c) By Purchaser or Shareholders owning at least 51% of the Shares if
a court of competent jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued a Court Order (which Court Order the
Parties shall use commercially reasonable efforts to lift) that permanently
restrains, enjoins or otherwise prohibits the Transactions, and such Court Order
shall have become final and nonappealable;
(d) By Shareholders owning at least 51% of the Shares if Purchaser
shall have breached, or failed to comply with, in any material respect, any of
its obligations under this Agreement or any representation or warranty made by
Purchaser shall have been incorrect in any material respect when made, and such
breach, failure or misrepresentation is not cured within 10 days after notice
thereof, and in either case, any such breaches, failures or misrepresentations,
individually or in the aggregate, results or would reasonably be expected to
result in a failure to satisfy a condition to Purchaser's obligations to
consummate the transactions contemplated hereby;
(e) By Purchaser if Target or any Shareholder shall have breached, or
failed to comply with, in any material respect, any of its obligations under
this Agreement or any representation or warranty made by it shall have been
incorrect in any material respect when made, and such breach, failure or
misrepresentation is not cured within 10 days after notice thereof, and in
either case, any such breaches, failures or misrepresentations, individually or
in the aggregate, results or would reasonably be expected to result in a failure
to satisfy a condition to Target's or any Shareholder's obligations to
consummate the transactions contemplated hereby;
12.2. EFFECT OF TERMINATION.
(a) If this Agreement is terminated pursuant to Section 12.1(a), (b)
or (c), this Agreement shall be terminated and there shall be no liability on
the part of any of the Parties; notwithstanding the foregoing, nothing herein
shall relieve any Party from liability for any willful breach hereof; provided
that the provisions of Sections 7.2(b), 7.5, and this Section 12.2 shall survive
the termination hereof.
(b) If this Agreement is terminated by Shareholders owning at least
51% of the Shares pursuant to Section 12.1(d), then Purchaser shall pay Target
liquidated damages in the amount of $100,000.
(c) If this Agreement is terminated by Purchaser pursuant to Section
12.1(e), then Target shall pay Purchaser liquidated damages in the amount of
$100,000.
19
12.3. ADDITIONAL REMEDY FOR TERMINATION UNDER SECTION 12.1(d) OR FOR
FAILURE TO MEET THE CONDITION UNDER SECTION 10.8. If (i) this Agreement is
properly terminated by any Party under Section 12.1(b) and the only condition
not met is the failure of Purchaser to meet the condition under Section 10.8
herein, or (ii) this Agreement is properly terminated by Shareholders owning at
least 51% of the Shares pursuant to Section 12.1(d), then Purchaser shall pay
Target liquidated damages in shares of Purchaser common stock with a market
value equal to $150,000, but not less than 150,000 shares of Purchaser common
stock. For purposes of this Section 12.3., market value shall be the average
last trade price of Purchaser common stock as reported on Bloomberg for the ten
(10) consecutive trading days immediately prior to (A) the Termination Date (if
(i) above is applicable) or (B) the tenth day after the notice is delivered
under Section 12.1(d) (if (ii) above is applicable). If the Purchaser common
stock is otherwise to be issued to Target under this Section 12.3, it shall be a
condition to issuance of such shares that Target shall deliver to Purchaser an
investment intent letter in substantially the form annexed hereto as Exhibit
6.1.
ARTICLE XIII
GENERAL MATTERS
13.1. CONTENTS OF AGREEMENT. This Agreement, together with the other
Transaction Documents, set forth the entire understanding of the Parties hereto
with respect to the Transactions and supersede all prior agreements or
understandings among the Parties regarding those matters.
13.2. PARTIES IN INTEREST, ASSIGNMENT, ETC. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the Parties
hereto. No Party hereto shall assign this Agreement or any right, benefit or
obligation hereunder. Any term or provision of this Agreement may be waived at
any time by the Party entitled to the benefit thereof by a written instrument
duly executed by such Party. The Parties hereto shall execute and deliver any
and all documents and take any and all other actions that may be deemed
reasonably necessary by their respective counsel to complete the Transactions.
Nothing in this Agreement is intended or will be construed to confer on any
Person other than the Parties hereto any rights or benefits hereunder.
13.3. INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including," "includes" or similar words has the inclusive
meaning frequently identified with the phrase "but not limited to" and (e)
references to "hereunder" or "herein" relate to this Agreement. The section and
other headings contained in this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, Disclosure Schedule
and Exhibit references are to this Agreement unless otherwise specified. The
Exhibits and Schedules referred to in this Agreement will be deemed to be a part
of this Agreement. Each accounting term used herein that is not specifically
defined herein shall have the meaning given to it under GAAP.
13.4. NOTICES. All notices that are required or permitted hereunder shall
be in writing and shall be sufficient if personally delivered or sent by a
nationally recognized overnight courier upon proof of delivery. Any notices
shall be deemed given upon receipt at the address set forth below, unless such
address is changed by notice to the other Party hereto:
20
If to Purchaser: Wolfpack Corporation
c/o Capital Investment Partners, LLC
The Europa Center
000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxx, Xx.
with a required copy to: Xxxxxx Gottbetter & Xxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxxxxxx, Esq.
If to Target to: Basic Phone, Inc.
x/x Xxxx Xxxxxxx, Xxx.
Xxxxx, Xxxxxx, Xxxxxxxxx & Xxxx, LLP
X.X. Xxx 0000
Xxxxxxxx, Xxxxx 00000-0000
If to any Stockholder,
to such Stockholder
as follows: Xxxxxx X. Xxxxxx, Xx.
0000 Xxxxxxxxx
Xxxxxx, Xxxxx 00000
Xxxxx' Ernst
104 So. 0 0/0 Xxxxxx
Xxxxxxxxx, Xxxxx 00000
Xxxx Xxxxxxxxx
000 XxXxxx Xxxx
Xxxxxx, Xxxxx 00000
Xxxxxxxxxxx Xxxxxxx
000 Xxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Xxxx Xxxxxxxxx
0000 XxXxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Xxxxx X. Xxxxxx
0000 Xxxxxxxxx
Xxxxxx, Xxxxx 00000
13.5. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the Laws of the State of New York without regard to its
provisions concerning conflict of laws.
13.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same
21
instrument. Each such copy shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
13.7. WAIVERS. Compliance with the provisions of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the Party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
13.8. MODIFICATION. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
each of Purchaser and Shareholders owning at least 51% of the Shares and that
specifically refers to this Agreement.
13.9. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction, this being in addition
to any other remedy to which they are entitled at law or equity.
13.10. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
[Signatures on following page]
22
IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto
as of the day and year first written above.
Purchaser: Shareholders:
Wolfpack Corporation /s/ Xxxxxx X. Xxxxxx, Xx.
----------------------------------
Xxxxxx X. Xxxxxx, Xx.
/s/ Xxxxxxx Xxxxx /s/ Xxxxx' Ernst
By: ______________________________ ----------------------------------
Xxxxxxx Xxxxx Xxxxx' Ernst
Title: President
/s/ Xxxx Xxxxxxxxx
----------------------------------
Xxxx Xxxxxxxxx
Target:
/s/ Xxxxxxxxxxx Xxxxxxx
----------------------------------
Basic Phone, Inc. Xxxxxxxxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxxx
----------------------------------
/s/ Xxxxxx X. Xxxxxx, Xx. Xxxx Xxxxxxxxx
By: ------------------------------
Xxxxxx X. Xxxxxx, Xx. /s/ Xxxxx X. Xxxxxx
President and Chief Executive ----------------------------------
Officer Xxxxx X. Xxxxxx
23
[LOGO] X.X. Xxx 000
Xxxxxx, Xxxxx 00000 888-503-3663 (voice) 000-000-0000 (fax)
--------------------------------------------------------------------------------
SHAREHOLDERS DISCLOSURE SCHEDULE
Item 5.3 Signed proxies are in place, in the event that one or more
Shareholders is (are) unavailable at the time of Transaction
Item 5.5 Internal Financials - Per Xxx Xxxxx, the November 30, 2000
Financial Statement complied by Borel, XxXxxxxxx & Xxxxxxxxx, PLLC, were
prepared on the Income Tax Basis, which is a comprehensive basis of accounting
other than General Accepted Accounting Procedures (GAAP)
Due to acquisition of Kansas customer base list from Local Phone
Company and the inaccurate number of customers actually available, December
2000, income statement shows a negative $20,000.00 net income. BasisPhone was
forced to credit memo over $61,000.00.
Item 5.6 Per Xxx Xxxxx (Borel, XxXxxxxxx & Xxxxxxxxx, PLLC), "opinion is
that there are no unusual aggressive positions taken on the Form 1120 for FYE
11/30/2000"
In reference to Form 1120 due for FYE 11/30/2000 - all taxes have
been paid
All other taxes are paid, with the exception of current taxes for
January, 2001, which are due in February, 2001
State of Kansas 911 fees are not current. BasicPhone has been
unable to locate the proper Kansas agencies for remittance and is seeking, with
the assistance of the Kansas Corporation Commission, additional information to
obtain this information in order to remit fees. Total Kansas 911 fees are
estimated to be $30,000.00
Item 5.8 Target Business Corporate Facilities, located at 0000 XxXxxxxx
Xxxxx in Orange, Texas, is leased from Shareholder, Xxxxxx X. Xxxxxx, Xx. and
are to be considered leased assets
Item 5.9 (c) List of all agreements/leases/contracts in place (and terms) and
pending (with approximate effective due dates) - See Exhibit "A"
Item 5.10 "Purchaser" has, in its possession, copies of all State
Operational Agreements and Vendor Agreements See Exhibit "D"
Item 5.12 Summarize "retirement plan" here - See Exhibit "B"
PAGE 2 OF 2
Item 5.14 (j) Obtained new CPA firm - our Corporate CPA retired middle of 2000,
selling his firm to another CPA - we were not pleased with his performance and
took some time to find a permanent CPA - Xx. Xxx Xxxxx - Xxxxx, XxXxxxxxx &
Xxxxxxxxx, PLLC
Item 5.15 "Target" Board of Directors Approval process, all Charter
Documents, minutes of meetings, resolutions and other proceedings of its Board
of Directors and Stockholders will be presented upon "Closing"
Item 5.17 Cross-Reference Item 1.2 on Schedule *reference potential
transfer of shares - See Exhibit "C"
Item 13.4 Final address corrections still not complete
Page: 1 EXHIBIT 'A'
Date: 01/17/01 at 8:42 AM
BASICPHONE, INC.
Detail Vendor File Report - Ordered By Vendor Number
Matching: Code = R
Vendor Last Pmt Last Pay Amt YTD Purchases YTD Payments YTD Discounts YTD Adjustments Open Debits Balance
------ -------- ------------ ------------- ------------ ------------- --------------- ----------- -------
ACKAL1 01/02/01 500.00 1000.00 1000.00 0.00 0.00 0.00 0.00
ACKAL'S Contact, Title: XXXXX XXXXXX, Phone: 318/000-0000
IBERIA PHARMACY Fax:
0000 XXXXXXX XXXXXX
XXX XXXXXX, XX 00000
Terms: C.O.D. Limit: 500 Type: OPEN END Buyer: NI Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
ANWA01 01/02/01 475.00 950.00 950.00 0.00 0.00 0.00 0.00
XXXXXX XXXX Contact, Title: XXXXXX XXXX, Phone: 409/000-0000
000 XXXXX XXXXXX Xxx:
XXXXXX, XX 00000
Terms: C.O.D. Limit: 500 Type: OPEN END Buyer: JP Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
FOOD01 01/02/01 500.00 1000.00 1000.00 0.00 0.00 0.00 0.00
FOOD TOWN Contact, Title: Phone: / -
0000 XXXXXX XXXXX Fax:
XXXXXXX, XX 00000
Terms: C.O.D. Limit: 1000 Type: OPEN END Buyer: BT Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
GOOD01 01/02/01 900.00 1800.00 1800.00 0.00 0.00 0.00 0.00
GOODWILL IND. OF HOUSTON Contact, Title: XXXX XXX, J Ral., L York, Tele Phone: 713/000-0000
0000 XXXXXX XXXXX Fax:
XXXXXXX, XX 00000-0000
Terms: C.O.D. Limit: 1000 Type: OPEN END Buyer: 3 Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
HEB01 01/16/01 1026.00 2142.00 2142.00 0.00 0.00 0.00 0.00
H.E. BUTT STORE PROPERTY Contact, Title: XXXXX XXXXXXX, Phone: 210/000-0000
X.X. XXX 000000 Fax: 210/000-0000
000 X. XXXX
XXX XXXXXXX, XX 00000-0000
Terms: C.O.D. Limit: 2500 Type: 08/01/03 Buyer: HG Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
Page: 2
Date: 01/17/01 at 8:42 AM
BASICPHONE, INC.
Detail Vendor File Report - Ordered By Vendor Number
Matching: Code = R
Vendor Last Pmt Last Pay Amt YTD Purchases YTD Payments YTD Discounts YTD Adjustments Open Debits Balance
------ -------- ------------ ------------- ------------ ------------- --------------- ----------- -------
HERM01 01/02/01 500.00 1000.00 1000.00 0.00 0.00 0.00 0.00
XXXXXX PROPERTIES Contact, Title: XXXXXXX XXXXXX, Phone: 316/000-0000
0000 XXXXXX XXXXX Fax:
XXXXXXX, XX 00000
Terms: C.O.D. Limit: 1500 Type: 10/31/02 Buyer: WI Priority: 1 Tax: 0.000 Code: R
Year to Date 1099 payments: $2000.00 1099 Type: Interest
------------------------------------------------------------------------------------------------------------------------------------
HUGH01 01/02/01 400.00 800.00 800.00 0.00 0.00 0.00 0.00
XXXXXX MARKET BASKET Contact, Title: XX XXXXXX, Phone: 409/000-0000
X.X. XXX 0000 Fax:
XXXXXXXXX, XX 00000
Terms: C.O.D. Limit: 500 Type: OPEN END Buyer: NL Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
MABA01 01/02/01 1462.00 2924.00 2924.00 0.00 0.00 0.00 0.00
M & E FOOD MART, INC. NO.2 Contact, Title: XXX XXXXXXX, P Arth, Bmt, L Xxxxxxx Phone: 409/000-0000
X.X. XXX 0000 Fax:
XXXXXXXXX, XX 00000-0000
Terms: C.O.D. Limit: 500 Type: 10/31/01 Buyer: 3 Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
PARK01 01/02/01 980.00 1960.00 1960.00 0.00 0.00 0.00 0.00
XXXXXXX XXXXX, X.X.X. Xxxxxxx, Title: Phone: 337/000-0000
X.X. XXX 00 Fax:
XXXXXXXXX, XX 00000
Terms: C.O.D. Limit: 1000 Type: 8/31/02 Buyer: LF Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
RIVE01 01/02/01 905.00 1810.00 1810.00 0.00 0.00 0.00 0.00
RIVERTOWNE PROPERTY CO., Contact, Title: XXXXXX XXXXX,Y, Phone: 512/000-0000
2011 D. EAST RIVERSIDE Fax:
XXXXXX, XX 00000
Terms: C.O.D. Limit: 2000 Type: 01/01/02 Buyer: AU Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
Page: 3
Date: 01/17/01 at 8:42 AM
BASICPHONE, INC.
Detail Vendor File Report - Ordered By Vendor Number
Matching: Code = R
Vendor Last Pmt Last Pay Amt YTD Purchases YTD Payments YTD Discounts YTD Adjustments Open Debits Balance
------ -------- ------------ ------------- ------------ ------------- --------------- ----------- -------
SPEAR1 01/02/01 300.00 750.00 750.00 0.00 0.00 0.00 0.00
SPEARS AGENCY Contact, Title: Phone: 318/000-0000
000 X. XXXXXXX XXXXXX Fax:
XXXXXX, XX 00000
Terms: C.O.D. Limit: 200 Type: OPEN END Buyer: RU Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
STST01 01/02/01 800.00 1600.00 1600.00 0.00 0.00 0.00 0.00
XXXXXXX STORES, INC Contact, Title: XXXXX XXXXXXXX, Deridder, Vidor Phone: 409/000-0000
X.X. XXX 000 Fax:
XXXXX, XX 00000
Terms: C.O.D. Limit: 1000 Type: OPEN END Buyer: 2 Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
WJLJ01 01/11/01 669.84 19301.04 19301.04 0.00 0.00 0.00 0.00
XXXXXX X. XXXXXX XX. Contact, Title: Phone: 409/000-0000
6101 XXXXXXXXX Fax:
XXXXXX, XX 00000
Terms: C.O.D. Limit: 10000 Type: 01/01/02 Buyer: CO Priority: 1 Tax: 0.000 Code: R
------------------------------------------------------------------------------------------------------------------------------------
YTD Purchase Total: 37037.04
Open Balance Total: 0.00
Open Debit Total: 0.00
V A N K A M P E N F U N D S
EXHIBIT 'B'
Employer
[LOGO]
Exhibit C
Shareholder Ownership
BasicPhone, Inc. has 10,000 shares of common capital stock authorized.
BasicPhone, Inc. has issued 1,040 shares of common capital stock. All shares
have been issued to its owners. The following represents the full payment
amount required at Closing (as individual Cashier's Checks, made by
Purchaser, payable to the Shareholders listed below in the amounts listed
below) to Purchase 100% of the outstanding Shares of BasicPhone, Inc. held
by 100% of its Shareholders:
Shareholder Name Number of Shares Percentage of Ownership Distribution
---------------- ---------------- ----------------------- ------------
Xxxxxx X. Xxxxxx, Xx. 1,000 96.0% $2,400,000.00
Xxxxx X. Xxxxxx 8 0.8% $ 20,000.00
Xxxxx' Xxxxx 0 0.8% $ 20,000.00
Xxxx Xxxxxxxxx 8 0.8% $ 20,000.00
Xxxxxxxxxxx Xxxxxxx 8 0.8% $ 20,000.00
Xxxx Xxxxxxxxx 8 0.8% $ 20,000.00
----- ----- -------------
Totals: 1,040 100.0% $2,500,000.00
===== ===== =============
[LOGO] X.X. Xxx 000
Xxxxxx, Xxxxx 00000 888-503-3663(voice) 000-000-0000(fax)
-----------------------------------------------------------------------------
EXHIBIT D
Item 5.10
List of States In Which BasicPhone Holds Retail/Resale Agreements
and Vendor Agreements
State Certification Vendor Agreement
------------------- ----------------
State of Arkansas: Southwestern Xxxx Telephone
State of Florida: Bellsouth Telephone
Century Telephone
State of Kansas: Southwestern Xxxx Telephone
State of Louisiana: BellSouth Telephone
Century Telephone
State of Mississippi: Southwestern Xxxx Telephone
State of Missouri: Southwestern Xxxx Telephone
State of Nevada: Pacific Xxxx Telephone
State of Oklahoma: Southwestern Xxxx Telephone
State of Texas: All-Tel Telephone Company
East Texas Telephone
Ganado Telephone
Xxxxxxxxxx Telephone
Lufkin-Conroe Telephone
Southwestern Xxxx Telephone
Sprint
Valor
Verizon
[LETTERHEAD OF BOREL, XXXXXXXXX & XXXXXXXXX, PLLC]
January 21, 2001
Xxxxxx X. Xxxxxx, Xx.
BasicPhone, Inc.
X.X. Xxx 000
Xxxxxx, XX 00000-0000
re: BasicPhone, Inc. November 30, 2000 Financial Statements Conversion of
financial statements from "Income Tax Basis" to "Generally Accepted
Accounting Principles (GAAP)"
Dear Xxxxxx:
Per our telephone conversations with Xxxx Xxxxxx, the following are
the major necessary changes, which we discussed, in converting BasicPhone,
Inc. November 30, 2000 financial statements from the "Income Tax Basis" to
Generally Accepted Accounting Principles (GAAP)" accrual method of
accounting. THE FOLLOWING INFORMATION IS BASED ON INFORMATION SUPPLIED BY
BASICPHONE, INC. THAT WOULD BE INCLUDED IN A COMPLIED FINANCIAL STATEMENT,
IF PREPARED BY US. WE HAVE NOT AUDITED OR REVIEWED THE FOLLOWING
INFORMATION OR SUPPORTING DOCUMENTATION AND, ACCORDINGLY, WE CANNOT EXPRESS
AN OPINION OR ANY FURTHER ASSURANCE ON THEM.
1. Accounts Receivable and contra-account Deferred Income-Accounts
---------------------------------------------------------------
Receivables
-----------
Of the accounts receivable of $636,227 at November 30, 2000, the
$321,090 would be recognized as revenues in the fiscal year ended November
30, 2000, increasing sales to $4,899,788, and the remaining $315,137 would
be a prior years' adjustment increase to retained earnings. The offsetting
debit entry would clear out the "Deferred Income-Accounts Receivables
account".
2. Provision for Doubtful Accounts
-------------------------------
A provision/reserve for doubtful accounts would be recorded to estimate
the amount of accounts receivables outstanding as of November 30, 2000 that
would ultimately be uncollectible, based on management's determination. The
accounts receivables indicated by BasicPhone, Inc. as bad debt write-offs
as of November 30, 2000 amounted to approximately $3,000.
In December 2000, pertaining to prior xxxxxxxx in the state of
Kansas, credit adjustments to invoices billed were made totaling approximately
$61,000. According to management, this was to correct previous months' xxxxxxxx
to individuals in Kansas that were believed to be customers of a new
acquisition, but were later determined not to be valid customers. Per
management, this unusual adjustment should be reflected against November 30,
2000 fiscal year-end sales.
3. Prepaid Insurance and other prepaid expenses
--------------------------------------------
Any material prepaid expenses would be recorded as an asset on the balance
sheet. BasicPhone, Inc. has indicated prepaid insurance in the amount of
approximately $8,500 and prepaid advertising in the amount of approximately
$9,800. However, it appears these adjustments would be offset in the accrual
financial statements by related adjustments required as of the fiscal year-end
November 30, 1999.
4. Accounts Payable
----------------
Information received from BasicPhone, Inc. indicated accounts payables as
of November 30, 2000 representing income statement expenses totaling
approximately $245,700. The majority of these accounts payables represent direct
telephone and long distance service expenses not billed until December 2000, but
were for November 2000 transactions. However, it also appears these adjustments
would be offset to a large extent in the accrual financial statements by
related adjustments required as of the fiscal year-end November 30, 1999.
5. Accrued Payroll and related payroll taxes for days worked in November 2000,
--------------------------------------------------------------------------
but paid the first of December 2000.
-----------------------------------
Accrued payroll expense in the estimated amount of $25,500 for "Salaries &
Wages" and the related employer's payroll tax expense for approximately $2,000,
should be recorded as expenses and offsetting liability as of November 30, 2000.
However, it also appears these adjustments would be offset to a large extent in
the accrual financial statements by related adjustments required as of the
fiscal year-end November 30, 1999.
6. Accrued Retirement expense
--------------------------
In relation to the above accrued payroll expense recorded as of November
30, 2000, an estimated accrued retirement expense of $524 should be recorded
with offsetting liability. However, it also appears these adjustments would be
offset to a large extent in the accrual financial statements by related
adjustments required as of the fiscal year-end November 30, 1999.
7. Depreciation Expense and Accumulated Depreciation
-------------------------------------------------
Depreciation expense and accumulated depreciation would be need to be
adjusted to reflect book depreciation methods (i.e. straight-
line depreciation) reported on the financial statements (GAAP) versus the
accelerated depreciation methods (i.e. IRC Section 179 expense, MACRS, ACRS,
etc.) reported under the income tax basis. The actual difference in depreciation
expense has not been estimated at this time.
8. Provision for current federal income taxes payable/Provision for deferred
-------------------------------------------------------------------------
federal income taxes
--------------------
As a result of the change in accounting method to the accrual basis, an
income adjustment is required under Internal Revenue Code Section 481. This
adjustment is required to account for changes in taxable income solely by reason
of the accounting method change in order to prevent income and expense items
from being duplicated or omitted. Under both the general procedure (IRS
Rev.Proc. 97-27) and the automatic consent procedure (IRS Rev.Proc 98-60), the
adjustment is spread over four (4) tax years unless special rules apply. An
additional increase in the liability for federal income taxes payable is
required to reflect the amount of the income adjustment. As indicated above, the
income adjustment carried over to future years would result in a future or
deferred federal income tax liability. The estimated additional provision for
current federal income taxes payable would be approximately $33,400 and the
provision for deferred income taxes payable relating to the income adjustment,
allowed to be carried over to three (3) future years, would be approximately
$100,120 (payable in the amount of approximately $33,400 per year).
The above is a general overview of the estimated major changes to the
November 30, 2000 financial statements resulting from a change to the accrual
basis method of accounting in accordance with generally accepted accounting
principles. It also must be noted that the above are estimated amounts based on
the information supplied by BasicPhone, Inc. and actual amounts will differ.
Such differences may be significant depending on the actual events, accounting
principles and income tax laws in effect at the time of actual occurrence.
If we can be of any further assistance, please do not hesitate to contact
us.
Sincerely,
/s/ Xxx X. Xxxxx
Xxx X. Xxxxx
Xxxxx, XxXxxxxxx & Xxxxxxxxx, PLLC
