EXHIBIT 10.7
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, made and entered into as of July 2, 1999,
by and among, USA Digital, Inc., a Nevada corporation (the "HOLDING COMPANY"),
DSA Computer, Inc., a Florida corporation (the "ACQUIRED COMPANY"), and Xxxxx
Xxxx, an individual residing in Florida (the "SELLER").
W I T N E S S E T H:
--------------------
WHEREAS, the Holding Company is engaged in the business of acquiring
internet service providers, switchless resellers, interconnect companies and
various other communication companies, so as to be able to offer its customer
base a complete variety of convergent communication products and services; and
WHEREAS, the Holding Company is publicly traded; and
WHEREAS, the Acquired Company is engaged in the business of a computer
sales and the sale of related products and services to predominately small to
medium sized businesses; and
WHEREAS, the Seller owns all of the issued and outstanding shares of
the common stock, par value $1.00 per share, of the Acquired Company (the
"STOCK") and desires to sell the Stock to the Holding Company; and
WHEREAS, the Holding Company desires to purchase the Stock for the
purpose of owning and operating the Acquired Company as a wholly owned
subsidiary; and
WHEREAS, the parties desire the Holding Company to acquire from the
Seller all of the Stock in a transaction intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, in consideration of the premises herein set forth, and
the mutual promises and respective representations and warranties of the
parties, one to another made herein, and the reliance of each party upon the
other(s) based hereon, the parties hereto adopt this plan of reorganization and
agree, as follows:
ARTICLE I
PRELIMINARY MATTERS
SECTION 1.01. RECITALS. The parties acknowledge the recitals herein
above set forth in the preamble are correct, incorporated herein and are made a
part of this Agreement.
SECTION 1.02. EXHIBITS AND SCHEDULES. Exhibits (which are documents to
be executed and delivered at the Closing (as hereinafter defined) by the party
identified therein or in the provision requiring its delivery) and Schedules
(which are documents setting forth information about either the Acquired Company
or the Holding Company) referred to herein and annexed
hereto are, by this reference, incorporated herein and made a part of this
Agreement, as if set forth fully herein.
SECTION 1.03. USE OF WORDS AND PHRASES. Natural persons may be
identified by last name, with such additional descriptors as may be desirable.
The words "herein," "hereby," "hereunder," "hereof," "herein before,"
"hereinafter" and any other equivalent words refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision hereof. The
words, terms and phrases defined herein and any pronoun used herein shall
include the singular, plural and all genders. The word "and" shall be construed
as a coordinating conjunction unless the context clearly indicates that it
should be construed as a copulative conjunction.
SECTION 1.04. ACCOUNTING TERMS. All accounting terms not otherwise
defined herein shall have the meanings assigned to them under the profession's
generally accepted accounting principles ("GAAP") unless specifically referenced
to regulatory accounting principles.
SECTION 1.05. CALCULATION OF TIME LAPSE OR PASSAGE; ACTION REQUIRED ON
HOLIDAYS. When a provision of this Agreement requires or provides for the
calculation of the lapse or passage of a time period, such a time period shall
be calculated by treating the event which starts the lapse or passage as zero;
provided, that this provision shall not apply to any provision which specifies a
certain day for action or payment, e.g. the first day of each calendar month.
Unless otherwise provided, the term "month" shall mean a period of thirty days
and the term "year" shall mean a period of 360 days, except that the term
"calendar year" shall mean the actual calendar year period. If any calendar day
on which action is required to be taken or payment is required to be made under
this Agreement is not a business day (meaning Monday through Friday, excluding
national holidays), then such action or payment shall be taken or made on the
next succeeding business day.
SECTION 1.06. USE OF TITLES, HEADINGS AND CAPTIONS. The titles,
headings and captions of Articles, sections, paragraphs and other subdivisions
contained herein are for the purpose of convenience only and are not intended to
define or limit the contents of said articles, sections, paragraphs and other
subdivisions.
ARTICLE II
TERMS OF THE TRANSACTION
SECTION 2.01. PURCHASE AND SALE OF STOCK. Upon and subject to the terms
and conditions of this Agreement, the Seller agrees to sell, assign, deliver and
transfer to the Holding Company, and the Holding Company agrees to purchase and
accept delivery from the Seller at the Closing, all of the Stock, free and clear
of all liens, pledges, security interests, claims, charges, restrictions,
equities or encumbrances of any kind whatsoever (the "ACQUISITION").
SECTION 2.02. PURCHASE PRICE. As consideration for the Stock, the
Holding Company shall issue and deliver to the Seller, forty thousand (40,000)
shares of preferred stock (the "PREFERRED STOCK"). The Preferred Stock will be
designated as Class B Convertible Preferred
2
Stock, Series "1", of which each share (a) will have a liquidation value of
$4.00, (b) will be convertible into five (5) shares of the Holding Company's
common stock beginning one year after the Closing Date, (c) will be entitled to
one vote per share on matters submitted to a vote of the holders of the common
stock, and (d) will be subject to cash redemption at the election of either the
Holding Company or the Seller beginning three years from the date hereof, upon
thirty days' written demand for redemption by either party, at liquidation
value. The liquidation value and conversion rate will be subject to proportional
adjustment for stock splits, stock dividends, recapitalizations and the like.
SECTION 2.03. SECURITY FOR HOLDING COMPANY'S OBLIGATIONS. As security
for the Holding Company's payment obligation under Section 2.02 of this
Agreement in the event of the exercise of the cash redemption right by the
Seller, (a) the Holding Company shall grant to Seller a security interest in all
of the Stock of the Acquired Company, as evidenced by the Pledge Agreement in
the form of EXHIBIT A attached hereto (the "PLEDGE AGREEMENT"), and (b) the
Holding Company shall cause the Acquired Company to grant to the Seller a
security interest in all of the assets of the Acquired Company, as evidenced by
the Security Agreement in the form of EXHIBIT B attached hereto (the "SECURITY
AGREEMENT").
SECTION 2.04. PRESS RELEASES. The Holding Company, the Acquired Company
and the Seller agree not to make any public announcement with regard to the
Acquisition without the prior consent of the other party, which shall not be
unreasonably withheld; provided however, that the Holding Company may make such
disclosures as are required under federal and state securities laws in the
opinion of counsel to the Holding Company.
SECTION 2.05. TRANSACTION COSTS. Each of the Holding Company and the
Acquired Company shall bear its own costs associated with the negotiation,
drafting and closing of this Agreement and its related documents. In addition,
the Acquired Company may bear the Seller's reasonable costs directly related to
the negotiation, drafting and closing of this Agreement and its related
documents.
SECTION 2.06. CAPITAL INFUSION. For a twelve month period commencing on
the Closing Date and ending on the date twelve months after the Closing Date,
upon the request of the Acquired Company, the Holding Company agrees to lend to
the Acquired Company an amount not to exceed five thousand dollars ($5,000) per
month, which such loans are to be used by the Acquired Company to expand its
business. Each such loan will be represented by a promissory note in a form
mutually acceptable to the parties.
ARTICLE III
CLOSING OF THE TRANSACTION;
CONDITIONS PRECEDENT
SECTION 3.01. LOCATION, DATE AND TIME OF THE CLOSING. The closing of
the Acquisition herein contemplated (the "CLOSING") shall take place on or
before July 9, 1999 (the "CLOSING DATE"), at the offices of the Acquired
Company, 00000 Xxxxxxxxx 00xx Xxxxxx, Xxxxx 000,
0
Xxxxxxx, Xxxxxxx, subject to the satisfaction of the conditions to Closing set
forth in Sections 3.08 and 3.09.
The effective date of this Agreement shall be the Closing Date.
SECTION 3.02. DOCUMENTS DELIVERED BY THE ACQUIRED COMPANY AND THE
SELLER AT CLOSING. At the Closing, the Acquired Company or the Seller, as
appropriate will deliver the following documents:
(a) A certificate of an officer of the Acquired Company and
the Seller, dated the Closing Date, certifying (i) as to the accuracy of their
representations and warranties at and as of the Closing Date, (ii) that the
Acquired Company and the Seller have performed and complied with all of the
agreements and conditions to be performed and complied with by them on or before
the Closing Date, (iii) that no material adverse change in the business,
condition (financial or otherwise), operations (present or prospective), assets
or properties of the Acquired Company has occurred from the date of this
Agreement through the Closing Date, and (iv) that no action or proceeding has
been instituted or, to their best knowledge, been threatened before a court or
other government body or by any public authority to restrain or prohibit any of
the transactions contemplated hereby or which could reasonably be expected to
have a material adverse effect on the Acquired Company;
(b) A certificate of the Secretary of the Acquired Company,
dated the Closing Date, certifying true, correct and complete copies of (i) the
Acquired Company's Certificate of Incorporation, including all amendments
thereto, (ii) the Acquired Company's By-Laws, including all amendments thereto,
and (iii) resolutions of the board of directors and stockholders of the Acquired
Company authorizing the transactions contemplated hereby;
(c) A certificate of good standing issued by the Secretary
of State of the Acquired Company's State of incorporation and of each State in
which it is qualified to do business as a foreign corporation;
(d) A duly executed Security Agreement;
(e) The certificate(s) representing all of the Stock,
together with a duly executed stock power in favor of the Holding Company;
(f) Stock ledger and minute books of the Company reflecting
all transactions in the Stock and all meetings of the board of directors,
committees thereof and stockholders of the Company to date;
(g) An opinion of counsel for the Acquired Company and the
Seller, as of the date of the Closing, confirming the legality of the Stock
acquired by the Holding Company;
(h) A duly executed closing memorandum as required under
Section 3.04 hereof (the "CLOSING MEMORANDUM");
4
(i) Such consents of third parties as may be necessary to
consummate the transactions contemplated hereby; and
(j) Such other certificates or documents as the Holding
Company or its counsel may reasonably request.
SECTION 3.03. DOCUMENTS DELIVERED BY THE HOLDING COMPANY AT CLOSING. At
the Closing, the Holding Company will deliver the following documents:
(a) A certificate of an officer of the Holding Company,
dated the Closing Date, certifying (i) as to the accuracy of its representations
and warranties at and as of the Closing Date, (ii) that the Holding Company has
performed and complied with all of the agreements and conditions to be performed
and complied with by it on or before the Closing Date, (iii) that no material
adverse change in the business, condition (financial or otherwise), operations
(present or prospective), assets or properties of the Holding Company has
occurred from the date of this Agreement through the Closing Date, and (iv) that
no action or proceeding has been instituted or, to its best knowledge, been
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby or which could
reasonably be expected to have a material adverse effect on the Holding Company;
(b) A certificate of the Secretary of the Holding Company,
dated the Closing Date, certifying true, correct and complete copies of (i) the
Holding Company's Certificate of Incorporation, including all amendments
thereto, (ii) the Holding Company's By-Laws, including all amendments thereto,
and (iii) resolutions of the board of directors and stockholders of the Holding
Company authorizing the transactions contemplated hereby;
(c) A certificate of good standing issued by the Secretary
of State of its State of incorporation and of each State in which it is
qualified to do business as a foreign corporation;
(d) A duly executed Pledge Agreement,
(e) Certificates for the Preferred Stock, bearing the
restrictive legend set forth in Section 6.04 hereof, issued to and registered to
the order of the Seller;
(f) An opinion of counsel, as of the date of the Closing,
confirming the legality of the Preferred Stock issued to the Seller;
(g) A duly executed Closing Memorandum;
(h) Such consents of third parties as may be necessary to
consummate the transactions contemplated hereby; and
5
(i) Such other certificates or documents as the Seller or
its counsel may reasonably request.
SECTION 3.04. CLOSING MEMORANDUM AND RECEIPTS. As evidence that all
parties deem the Closing to have been completed, the conditions precedent to
have been satisfied, and the transaction contemplated by this Agreement to have
been consummated, the parties will jointly execute and deliver a Closing
Memorandum acknowledging such completion and consummation, setting forth any
matters or conditions which the parties agree to complete after the Closing and
containing an acknowledgment receipt for the Stock referenced above.
SECTION 3.05. WAIVER OF CONDITIONS. Notwithstanding Section 12.02
herein, any condition to the Closing which is not satisfied at or prior to the
Closing will be deemed to be waived by each of the affected parties or satisfied
by virtue of such party's execution of the Closing Memorandum; provided, that
any condition which is unsatisfied and is to be preserved for completion or
consummation after the Closing shall be set forth in the Closing Memorandum and
thereupon will become a covenant for completion or consummation by the parties
obligated for the performance thereof.
SECTION 3.06. FURTHER ASSURANCES. At any time and from time to time
after the Closing, at the reasonable request of any party and without further
consideration, any other party shall execute and deliver such other instruments
and documents as may be reasonably desirable or necessary to complete the
transactions contemplated by this Agreement.
SECTION 3.07. CONDITIONS PRECEDENT TO THE ACQUIRED COMPANY'S AND THE
SELLER'S OBLIGATION TO CLOSE. All obligations of the Acquired Company and the
Seller hereunder are subject to the fulfillment of each of the following
conditions at or prior to the Closing, and the Holding Company shall exert its
best efforts to cause each such condition to be fulfilled:
(a) All representations and warranties of the Holding
Company contained herein or in any document delivered pursuant hereto shall be
true and correct in all material respects when delivered and shall be deemed to
have been made again at and as of the date of the Closing, and shall then be
true and correct in all material respects except for changes in the ordinary
course of business after the date hereof in conformity with the covenants and
agreements contained herein.
(b) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Holding Company on or before the
Closing shall have been duly and properly performed in all material respects.
(c) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Holding Company not disclosed
to and acknowledged by the Acquired Company and the Seller. No action or
proceeding shall have been instituted or threatened before
6
a court or other government body or by any public authority to restrain or
prohibit any of the transactions contemplated hereby.
(d) All documents required to be delivered by the Holding
Company at or prior to the Closing shall have been so delivered.
(e) The Holding Company shall have received all consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement.
SECTION 3.08. CONDITIONS PRECEDENT TO THE HOLDING COMPANY'S OBLIGATION
TO CLOSE. All obligations of the Holding Company at the Closing are subject to
the fulfillment of each of the following conditions at or prior to the Closing,
and the Acquired Company and the Seller shall each exert their best efforts to
cause each such condition to be fulfilled.
(a) The Seller and the Acquired Company shall have delivered
within five (5) business days after the date of the execution of this Agreement
all of the schedules required to be delivered by the Seller and the Acquired
Company in form and substance satisfactory to the Holding Company in its sole
discretion. The Holding Company shall have completed its due diligence
examination of the Acquired Company and shall have become satisfied, in its sole
discretion, that the condition of the Acquired Company is acceptable to it.
(b) All representations and warranties of the Acquired
Company and the Seller contained herein or in any document delivered pursuant
hereto shall be true and correct in all material respects when delivered and
shall be deemed to have been made again at and as of the date of the Closing,
and shall then be true and correct in all material respects except for changes
in the ordinary course of business after the date hereof in conformity with the
covenants and agreements contained herein.
(c) All covenants, agreements and obligations required by
the terms of this Agreement to be performed by Acquired Company and the Seller
on or before the Closing shall have been duly and properly performed in all
material respects.
(d) Since the date of this Agreement there shall not have
occurred any material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of the Acquired Company not disclosed
to and acknowledged by the Holding Company, and no action or proceeding shall
have been instituted or threatened before a court or other government body or by
any public authority to restrain or prohibit any of the transactions
contemplated hereby.
(e) The Seller and the Acquired Company shall have received
all consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement.
7
(f) All documents required to be delivered by the Acquired
Company and by the Seller on or before the Closing shall have been so delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
SECTION 4.01. THE ACQUIRED COMPANY AND THE SELLER'S REPRESENTATIONS AND
WARRANTIES. The Acquired Company and Seller jointly and severally represent and
warrant to the Holding Company, except as set forth in the schedules annexed
hereto (collectively, the "DISCLOSURE SCHEDULE") that the following are true and
correct as of the date first above written and shall be true and correct on the
Closing Date:
(a) ORGANIZATION AND GOOD STANDING. The Acquired Company is
a corporation duly organized, validly existing and in good standing under the
laws of its State of incorporation. The Acquired Company is duly qualified and
licensed to do business and is in good standing in every jurisdiction where the
conduct of its business or the nature of its properties require it to be
qualified. The Acquired Company has delivered to the Holding Company true,
correct and complete copies of its articles of incorporation, as amended, bylaws
and the records of proceeding of its board of directors and stockholders, to the
extent such records exist, since the inception of the Acquired Company. The
Acquired Company does not own, directly or indirectly, any of the capital stock
of any other corporation or any equity, profit sharing, participation or other
interest in any corporation, partnership, joint venture or other entity.
(b) CORPORATE AUTHORITY. The Acquired Company has full
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been and all
other agreements to be executed hereunder upon such execution and delivery will
have been duly and validly authorized by all necessary corporate action of the
Acquired Company (including the approval of the board of directors and
stockholders), constitute the legal, valid and binding obligation of the
Acquired Company and the Sellers enforceable against them in accordance with
their terms subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of, relating to or affecting shareholders and
creditors rights generally and to general equitable principles.
(c) NO CONFLICT. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provision of the Acquired Company's articles of
incorporation or bylaws, (ii) violate any provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, any mortgage, lien, lease, material
contract, license, permit, instrument or any other material agreement to which
the Acquired Company is a party, (iii) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon any
property of the Acquired Company, (iv) violate or conflict with any order,
award, judgment or decree or other restriction or conflict with any law,
ordinance, rule or regulation to which the Acquired Company or its property is
subject or by which the Acquired Company or its
8
property may be bound or affected, or (v) result in the loss, forfeiture or
waiver of any rights or franchise owned by the Acquired Company, from which the
Acquired Company benefits or which is desirable in the conduct of the Acquired
Company's business.
(d) CAPITALIZATION; STOCK OWNERSHIP. The Acquired Company's
authorized capital stock consists of 1,000 shares of common stock, par value
$1.00 per share, of which 1,000 shares are issued and outstanding. The Acquired
Company's issued and outstanding capital stock has been duly and validly
authorized, is validly issued and fully paid and nonassessable. All of the
outstanding capital stock of the Acquired Company is legally and beneficially
owned by the Seller, free of any security interests, liens, claims,
encumbrances, equities, proxies, shareholder agreements, or other restrictions
of any kind. No shares of the Acquired Company's Common Stock are owned by the
Acquired Company in treasury. No shares of the Acquired Company's Common Stock
have been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of the Acquired Company's stockholders.
The Acquired Company has no bonds, debentures, notes or other obligations the
holders of which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the stockholders of the Acquired
Company on any matter.
(e) STOCK TRANSACTIONS, OPTIONS AND WARRANTS. Except as set
forth on SCHEDULE 4.01(e), the Acquired Company has not acquired any capital
stock of the Acquired Company within the two (2) year period preceding the
execution of this Agreement. There exist no options, warrants, subscriptions or
other rights to purchase, or securities convertible into or exchangeable for,
any of the authorized or outstanding securities of the Acquired Company, and no
option, warrant, call, conversion right or commitment of any kind exists which
obligates the Acquired Company to issue any of its authorized but unissued
capital stock. The Acquired Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Acquired Company nor the ownership
of shares among its stockholders has been altered or changed within the two (2)
year period preceding the date of this Agreement.
(f) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State or
subdivision thereof or any self-regulatory body to which the Acquired Company is
subject is required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby on the
part of the Acquired Company.
(g) THIRD PARTY APPROVALS. Except as set forth on SCHEDULE
4.01(g), there are no authorizations, consents or approvals of the parties under
any contracts, commitments or understandings to which the Seller or the Acquired
Company are a party or of any other person (including any public body or
authority) required to permit the consummation on the part of the Seller or the
Acquired Company of the transactions contemplated by this Agreement.
9
(h) SPIN-OFFS. Except as contemplated by this Agreement,
there has not been any sale, distribution or spin-off of significant assets of
the Acquired Company other than in the ordinary course of business within the
two (2) year period preceding the date of this Agreement.
(i) BRIBES; KICKBACKS. Neither the Acquired Company nor
Seller nor, to the best of the knowledge of the Acquired Company and the Seller,
any employee of the Acquired Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company to any government or
agency thereof or any agent of any supplier or customer any bribe, kick-back or
other similar payment or any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by the Company or as otherwise permitted by applicable law).
(j) FINANCIAL STATEMENTS. Attached hereto as SCHEDULE
4.01(k) are true and complete copies of the Acquired Company's balance sheet
(the "BALANCE SHEET") and related statement of income at and for the period
ended December 31, 1997 and December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). Such Financial Statements have not been audited, but are complete
and correct, have been prepared in accordance with GAAP, and fairly present the
financial condition of the Acquired Company and the results of operations at the
dates and for the periods indicated. Since December 31, 1998, there has been no
material adverse change in the financial conditions, results of operations or
business prospects of the Acquired Company and, to the best knowledge of the
Seller and the Acquired Company, no fact or condition exists or is contemplated
or threatened which might cause such a change in the future. The Acquired
Company is not liable for or obligated in any way to provide funds in respect of
or to guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Acquired Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount. No
person has guaranteed, indemnified or otherwise insured any obligation of the
Acquired Company.
(k) NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 4.01(k), the Acquired Company has no material liabilities or
obligations of any nature known by the Seller or the Acquired Company (whether
absolute, accrued or contingent) except for liabilities or obligations
adequately reflected or reserved against in the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business to the extent such liabilities are reflected on the Acquired Company's
books and records. Except as set forth on SCHEDULE 4.01(k), as at the Closing
Date there will not be any liability of any nature or in any amount that should
be properly reflected or reserved against in the Balance Sheet, in accordance
with generally accepted accounting principles consistently applied by the
Acquired Company according to its past practice, which will not be fully
reflected or reserved against in the Balance Sheet. Except as set forth on
SCHEDULE 4.01(k), the Acquired Company is not in default in any material respect
under the terms or conditions of any indebtedness for which it is obligated
directly, indirectly or as an endorser thereof.
10
(l) TITLE TO ASSETS. Except as set forth on SCHEDULE
4.01(l), the Acquired Company has good, valid, marketable and insurable title to
all of the properties and assets which it owns or uses in its business, free and
clear of all security interests, liens, claims and encumbrances. The assets and
properties of the Acquired Company are adequate for the conduct of the Acquired
Company's business in the manner in which it is currently conducted and
contemplated to be conducted by the Acquired Company.
(m) REAL PROPERTY. The Acquired Company does not own any
interest (other than leasehold interests referred to on SCHEDULE 4.01(m)) in
real property. The leased real property referred to on SCHEDULE 4.01(m)
constitutes the only real property necessary for the conduct of the Acquired
Company's business as currently conducted.
(n) CONTRACTS. Except as set forth on SCHEDULE 4.01(n), the
Acquired Company is not a party to or bound by, nor is the Stock or any of the
Company's assets or properties subject to, or bound by, whether or not in
writing, any of the following (collectively, the "CONTRACTS"): (i) partnership
or joint venture agreement; (ii) guaranty or suretyship, indemnification or
contribution agreement or performance bond; (iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another; (iv) contract to purchase real property;
(v) agreement with sales agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $5,000 and which is not terminable on thirty (30)
days' notice or without penalty; (vi) agreement relating to any material matter
or transaction in which an interest is held by a person or entity that is an
officer, director, employee, stockholder or affiliate of the Acquired Company or
Seller; (vii) agreement for the acquisition of services, supplies, equipment,
inventory, fixtures or other property involving more than $5,000 in the
aggregate, except in the ordinary course of business; (viii) powers of attorney;
(ix) contracts containing non-competition covenants; (x) agreement providing for
the purchase from a supplier of all or substantially all of the requirements of
the Acquired Company of a particular product or services; (xi) any other
agreement or commitment in excess of $5,000 not made in the ordinary course of
business or that is material to the business, operations, condition (financial
or otherwise) or results of operations of the Company. Copies of all of the
Contracts have been delivered to the Holding Company. All of such Contracts are
valid and binding, enforceable in accordance with their respective terms (except
as may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies), in full
force and effect, and no defenses, off-sets or counterclaims have been asserted,
nor has the Company waived any material rights thereunder. There are no existing
events of default or events, which after the giving of notice or lapse of time
or both, would constitute a default or result in a right to accelerate or a loss
of rights in connection with any such Contract, and no penalties have been
incurred nor are amendments pending, with respect to the Contracts. The Acquired
Company has not received notice of any plan or intention of any other party to
any Contracts to exercise any right to cancel or terminate such Contracts, and
neither the Acquired Company nor Seller knows of any fact that would justify the
exercise of such a right. No consents or approvals are required under the terms
of any Contracts in connection with the transactions contemplated herein. None
of the Contracts is,
11
either when considered singly or in the aggregate with others, unduly
burdensome, onerous or materially adverse to the Acquired Company's business,
properties, assets, earnings or prospects or is likely, either before or after
the Closing, to result in any material loss or liability.
(o) FIXED ASSETS. All of the fixtures, structures and
equipment reflected in the Financial Statements and used by the Acquired Company
in its business are in good operating condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Acquired Company has no actual
knowledge of any latent defects therein.
(p) LITIGATION; CLAIMS. Except as set forth in SCHEDULE
4.01(p), there is no claim, violation notice, legal action, suit, arbitration,
governmental investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or, to the Acquired
Company's or Seller's best knowledge, threatened, against or relating to the
Acquired Company, its directors, officers or employees, it properties, assets or
business, Seller, or the transaction contemplated by this Agreement and neither
the Acquired Company nor Seller know or has any reason to be aware of any basis
for the same, including any basis for a claim of sexual harassment or
discrimination based on race, age, sexual orientation or other protected class
of individuals, as well as health, safety or other environmental complaints or
exposure. Neither the Acquired Company nor Seller is subject to or in default of
any court or administrative order, judgment, writ, injunction or decree
applicable to the Acquired Company or to its business, assets, operations or
employees. All claims asserted, general liability incidents and incident reports
have been submitted to the Acquired Company's insurer therefor. All claims made
or threatened against the Acquired Company in excess of its deductible are
covered under its Insurance Policies.
(q) TAXES. All taxes, including without limitation, income,
property, special assessments, sales, use, franchise, intangibles, employees'
income withholding and social security taxes, imposed by the United States of
America, foreign government or any state, municipality, subdivision, authority
therein, which are due and payable, and all interest and penalties thereon,
unless disputed in good faith in proper proceedings and reserved for or set
aside, have been paid in full and all tax returns required to be filed in
connection therewith have been accurately prepared and timely filed
(collectively, the "TAX RETURNS") and all monies required to be withheld by the
Company and paid to governmental agencies for all income, social security,
unemployment insurance, sales, excise, use and other taxes have been collected
or withheld and paid to the respective governmental agencies. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. The
Acquired Company is not and has no reason to believe that it will be the subject
of an audit by any taxing authority. There is not now in force any extension of
time with respect to the date when tax return was or is due to be filed, or any
waiver or agreement by the Acquired Company for the extension of time for the
assessment of any tax and the Acquired Company is not a "consenting corporation"
within the meaning of Section 341(f)(1) of the Internal Revenue Code of 1986, as
amended; and, the Acquired Company has elected to be treated as an S corporation
for federal income tax purposes. All workers'
12
compensation, disability and similar items due and payable under any
governmental program have been paid. The Acquired Company is not a party to any
tax sharing agreement with any other person or entity. Neither the Company nor
Seller is a foreign person, as such term is referred to in Section 1445(f)(3) of
the Code. None of the assets or properties of the Acquired Company constitutes
property that the Acquired Company, the Holding Company, or any affiliate of the
Holding Company, will be required to treat as being owned by another person
pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of the Code
prior to repeal by the Tax Equity and Fiscal Responsibility Act of 1982. None of
the assets of the Acquired Company are subject to a lease to a "tax exempt
entity" as such term is defined in Section 168(h)(2) of the Code. The Acquired
Company has not at any time consented, and Seller will not permit the Acquired
Company to elect, to have the provisions of Section 341(f)(2) of the Code apply
to it. The Acquired Company has not at any time participated in or cooperated
with any international boycott as defined in Section 999 of the Code. No payment
required or contemplated to be made by the Acquired Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(r) EMPLOYEE BENEFIT PLANS. The Acquired Company does not
have any employee benefit, pension or profit sharing plans subject to ERISA or
other similar retirement plans to which the Acquired Company is obligated or
required to make contributions. The Acquired Company does not have any
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired.
(s) EMPLOYEES. SCHEDULE 4.01(s) contains (i) a complete and
accurate list of the names, titles and annual cash compensation as of the
Closing Date, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "CASH
COMPENSATION") of all employees of the Acquired Company, (ii) a complete and
accurate description of all increases in Cash Compensation of employees of the
Acquired Company during the current fiscal year and the immediately preceding
fiscal year and any promised increases in Cash Compensation of employees of the
Acquired Company that have not yet been effected, (iii) a complete and accurate
list of all compensation plans, arrangements or practices (the "COMPENSATION
PLANS") sponsored by the Acquired Company or to which the Company contributes on
behalf of its employees, and (iv) a complete and accurate list of all employment
arrangements which the Acquired Company is a party to or affected by, including
without limitation, employee leasing, employee services, consulting and
non-competition agreements. The Acquired Company does not have any written
employment agreements with its employees. The Compensation Plans include without
limitation plans, arrangements or practices that provide for performance awards
and stock ownership or stock options. The Company has provided or made available
to the Holding Company a copy of each written Compensation Plan, including all
amendments to date, and a written description of each unwritten Compensation
Plan. Each of the Compensation Plans can be terminated or amended at will by the
Company. The Company has provided or made available to Holding Company a copy of
all employee manuals and all written material policies, procedures and
work-related rules, including all amendments to date, and a written description
of all material unwritten Employee policies and procedures.
13
(t) EMPLOYEE MATTERS. The Acquired Company has been and is
in compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except for any such failures to be in compliance
that, individually or in the aggregate, would not result in a material adverse
effect, and the Acquired Company is not liable for any arrearages of wages or
penalties for failure to comply with any of the foregoing. The Acquired Company
has not engaged in any unfair labor practices or discriminated on the basis of
race, color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices and no such charges or complaints are pending
or, to the best knowledge of the Acquired Company and Seller, threatened against
the Acquired Company before any federal, state or local court, board,
department, commission or agency (nor, to the best knowledge of the Acquired
Company and Seller, does any valid basis therefor exist). No labor strikes,
disputes, grievances, controversies or other labor troubles affecting the
Acquired Company are pending or threatened (nor, to the best knowledge of the
Acquired Company and Seller, does any valid basis therefor exist).
(u) UNIONS; WORK STOPPAGES. The Acquired Company has never
been a party to any agreement with any union, labor organization or collective
bargaining unit. None of the Acquired Company's employees are represented by a
union, labor organization or collective bargaining unit or are subject to a
collective bargaining agreement and the Acquired Company considers its relations
with its employees as a whole to be good. The Acquired Company has not been
subject to any strikes, work stoppages or labor unrest. To the best knowledge of
the Acquired Company and Seller, none of the employees of the Company has
threatened to organize or join a union, labor organization or collective
bargaining unit. All employees of the Acquired Company are, to the best
knowledge of the Acquired Company and Seller, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
(v) ABSENCE OF CHANGES. Except as set forth on SCHEDULE
4.01(v) or as contemplated in this Agreement, since the date of the Balance
Sheet, the Acquired Company has not (i) suffered a material adverse effect; (ii)
contracted for the purpose of acquiring any capital asset having a cost in
excess of $5,000 or made any single expenditure for a capital asset in excess of
$5,000; (iii) incurred any indebtedness for borrowed money in excess of $5,000
(other than short-term borrowings in the ordinary course of business), or issued
or sold any debt securities; (iv) incurred or discharged any material
liabilities or obligations except in the ordinary course of business; (v) paid
any amount on any indebtedness prior to the due date, forgiven or canceled any
claims or any debt in excess of $5,000, or released or waived any rights or
claims except in the ordinary course of business; (vi) mortgaged, pledged or
subjected to any security interest, lien, lease or other charge or encumbrance
any of its properties or assets (other than statutory liens arising in the
ordinary course of business or other liens that do not materially detract from
the value or interfere with the use of such properties or assets); (vii)
suffered any damage or destruction to or loss of any assets (whether or not
covered by insurance) that has, individually or in the aggregate, resulted in a
material adverse effect; (viii) acquired or disposed of any assets having an
aggregate value in excess of $5,000, except in the ordinary course of
14
business; (ix) written up or written down the carrying value of any of its
assets, other than accounts receivable in the ordinary course of business; (x)
changed the costing system or depreciation methods of accounting for its assets
in any material respect; (xi) lost or terminated any employee, customer or
supplier that has, individually or in the aggregate, resulted in a material
adverse effect; (xii) increased the compensation of any key employee (except for
increases in the ordinary course of business consistent with past practice) or
any director, officer or consultant, or hired any new employee who is expected
to receive annualized compensation of at least $5,000; (xiii) formed or acquired
or disposed of any interest in any corporation, partnership, joint venture or
other entity; (xiv) redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any of its capital stock, paid
any dividend or made any distribution or payment on any of its capital stock, or
agreed to change the terms and conditions of any such capital stock; (xv)
entered into any agreement providing for total payments in excess of $5,000 in
any twelve (12) month period with any person or group, or modified or amended in
any material respect the terms of any such existing agreement, except in the
ordinary course of business whereupon the sum of total payments shall not exceed
$5,000 in any twelve (12) month period; or (xvi) entered into any other
commitment or transaction or experienced any other event that would materially
interfere with its performance under this Agreement or any other agreement or
document executed or to be executed pursuant to this Agreement, or otherwise
has, individually or in the aggregate, resulted in a material adverse effect.
(w) SECURITIES LAWS COMPLIANCE. All offers and sales of
securities by the Acquired Company have been made in compliance with the
requirements of federal and applicable state securities laws.
(x) INSURANCE. The Acquired Company carries property,
liability, workers' compensation and such other types of insurance pursuant to
the insurance policies listed and briefly described on SCHEDULE 4.01(x) (the
"INSURANCE POLICIES"). All of the Insurance Policies are issued by licensed
insurers and, to the best knowledge of the Acquired Company, are valid and
enforceable policies. All Insurance Policies shall be maintained in force
without interruption up to and including the Closing Date. True, complete and
correct copies of all Insurance Policies have been provided or made available to
the Holding Company. Except as set forth on SCHEDULE 4.01(x), neither the
Acquired Company nor Seller has received any notice or other communication from
any issuer of any Insurance Policy canceling such policy, materially increasing
any deductibles or retained amounts thereunder, and to the best knowledge of the
Acquired Company and Seller, no such cancellation or increase of deductibles,
retainages or premiums is threatened. The Acquired Company does not have any
outstanding claims, settlements or premiums owed against any Insurance Policy,
and the Acquired Company has given all notices or has presented all potential or
actual claims under any Insurance Policy in due and timely fashion. SCHEDULE
4.01(x) also sets forth a list of all claims under any Insurance Policy in
excess of $10,000 per occurrence filed by the Acquired Company since its
inception. The Acquired Company has established and maintains all required
insurance company reserves in all of those states that it is required to do so
and has established and maintains all required deposits and bonds as are
necessary in such state.
15
(y) INTELLECTUAL PROPERTY. SCHEDULE 4.01(Y) sets forth a
true and correct description of all trademarks, trade-names, service marks and
other trade designations, including common law rights, registrations and
applications therefor, and all patents and applications therefor currently
owned, in whole or in part, by the Acquired Company, and all licenses,
royalties, assignments and other similar agreements relating to the foregoing to
which the Acquired Company is a party (including the expiration date thereof if
applicable); and all agreements relating to technology, know-how or processes
that the Acquired Company is licensed or authorized to use by others (other than
technology, know-how or processes generally available to other healthcare
providers), or which it licenses or authorizes others to use (collectively, the
"PROPRIETARY RIGHTS"). The Acquired Company owns or has the legal right to use
the Proprietary Rights, and to the best knowledge of the Acquired Company, such
ownership or use does not conflict, infringe or violate the rights of any other
person. No consent of any person will be required for the use thereof by the
Holding Company upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. The Acquried Company has the
right to use, free and clear of any adverse claims or rights of others, all
trade secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or marketed
by it.
(z) RELATED PARTY TRANSACTION. No officer, director,
stockholder or employee of the Acquired Company, or their respective spouses,
children or affiliates owns, directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Acquired
Company or any organization that has a material contract or arrangement with the
Acquired Company, except for Seller's ownership interest in, and services as an
officer and director in, AccuData, Inc.. Neither the Acquired Company nor Seller
owns, directly or indirectly, any interest or has any investment in any person
or entity that is a competitor of the Acquired Company.
(aa) BANKRUPTCY. The Acquired Company is not, nor has it
ever been, under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(bb) BROKER'S AND FINDER'S FEES. The Acquired Company has
not incurred any obligation for any finder's, brokers or agent's fee in
connection with the transactions contemplated hereby.
(cc) DISTRIBUTIONS AND DIVIDENDS. No distribution, payment
or dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Balance Sheet Date.
(dd) COMPLIANCE WITH LAWS. The Acquired Company is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, orders, judgments and decrees of each and every
jurisdiction applicable to the Acquired Company. Within the last
16
five (5) years the Acquired Company has not received any written notice or other
written communication from any governmental authority or agency regarding any
actual, alleged or potential violation of, or failure to comply with, any law,
rule, regulation, ordinance, order, judgment or decree and to the Seller's and
the Acquired Company's best knowledge, there does not exist any reasonable basis
for any claim of material default under or material violation of any such law,
rule, regulation, ordinance, order, judgment or decree.
(ee) GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. SCHEDULE
4.01(ee) lists all licenses, franchises, permits and other governmental
authorizations held by the Acquired Company material to the conduct of its
business. Such licenses, franchises, permits and other governmental
authorizations are valid, and the Acquired Company has not received any written
notice that any governmental authority intends to cancel, terminate or not renew
any such license, franchise, permit or other governmental authorization. The
Acquired Company holds all licenses, franchises, permits and other governmental
authorizations necessary for the operation of its business. The Acquired
Company's business is not being conducted, and no properties or assets of the
Acquired Company relating thereto are owned or are being used by it in violation
of any statute, law, ordinance, regulation, rule or permit of any governmental
entity or any judgment, order or decree.
(ff) DISCLOSURE. Disclosure made by the Acquired Company
and/or the Seller in any Exhibit or Schedule shall be deemed disclosure for
purposes of all representations and warranties contained in this Agreement. No
representation or warranty of the Acquired Company or the Seller in this
Agreement or in any schedule, agreement or certificate delivered in accordance
with the terms hereof by the Acquired Company or the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which made, in order to make the statements
contained herein or therein not misleading. There is no fact that affects, or in
the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present of prospective), properties,
assets or liabilities of the Acquired Company in any material respect that is
not set forth in this Agreement or the schedules hereto.
SECTION 4.02. THE SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Holding Company that, except as set forth in the
Disclosure Schedule, the following are true and correct as of the date first
above written and shall be true and correct on the Closing Date:
(a) LEGAL CAPACITY. This Agreement has been and each other
agreement to be executed in connection herewith upon such execution and delivery
will have been duly executed and delivered by the Seller, and all such
agreements constitute legal, valid and binding obligations of such Seller,
enforceable against Seller in accordance with their respective terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. Seller
has the legal capacity to enter into and perform this Agreement and such other
agreements to which it is a party.
17
(b) NO CONFLICTS. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provision of or result in the breach of or entitle
any party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation under, any mortgage, lien, lease, material contract,
license, permit, instrument or any other material agreement to which Seller is a
party, (ii) result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon the Stock, or (iii) violate or
conflict with any order, award, judgment or decree or other restriction or
conflict with any law, ordinance, rule or regulation to which Seller or his
property is subject or by which Seller or his property may be bound or affected.
(c) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State or
subdivision thereof or any self-regulatory body to which the Seller is subject
is required in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby on the part of the
Seller.
(d) STOCK TRANSACTIONS. Set forth on SCHEDULE 4.02(d) is an
accurate and complete list of all transfers or other transactions involving
capital stock of the Acquired Company made by Seller since January 1, 1997. All
transfers of capital stock of the Acquired Company by Seller have been made for
valid business reasons and not in anticipation or contemplation of the
consummation of the transactions contemplated by this Agreement.
(e) BRIBES; KICKBACKS. Seller has not paid or caused to be
paid, directly or indirectly, in connection with the business of the Acquired
Company, to any government or agency thereof or any agent of any supplier or
customer any bribe, kick-back or other similar payment; or any contribution to
any political party or candidate (other than from personal funds not reimbursed
by the Company or as otherwise permitted by applicable law).
(f) BROKER'S AND FINDER'S FEES. Seller has not incurred any
obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
(g) RELATED PARTY TRANSACTIONS. Neither Seller, nor his
spouse, children or affiliates, owns directly or indirectly, on an individual or
joint basis, any interest in, has a compensation or other financial arrangement
with, or serves as an officer or director of, any customer or supplier of the
Acquired Company or any organization that has a material contact or arrangement
with the Acquired Company. Neither Seller nor any of his affiliates is, or with
the last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any communications company, internet company or other person
which is in a position to make or influence referrals to, or otherwise generate
business for, the Acquired Company.
(h) INTEREST IN COMPETITORS. Seller does not own directly or
indirectly any interests or have any investment in any person other than the
Acquired Company that is a competitor of the Holding Company, except for
Seller's ownership interest in Accu-Data, Inc.
18
(i) LITIGATION AND CLAIMS. There are no claims, actions,
suits, proceedings (arbitration or otherwise) or investigations pending or, to
the best of Seller's knowledge, threatened against Seller at law or at equity in
any court or before or by any governmental authority, and, to Seller's
knowledge, there are no, and have not been any, facts, conditions or incidents
that may result in any such actions, suits, proceedings (arbitration or
otherwise) or investigations.
(j) DISCLOSURE. No representation or warranty of the Seller
in this Agreement or in any schedule, agreement or certificate delivered in
accordance with the terms hereof by the Seller contains any untrue statement of
a material fact or omits to state any material fact necessary, in light of the
circumstances under which made, in order to make the statements contained herein
or therein not misleading.
SECTION 4.03. THE HOLDING COMPANY'S REPRESENTATIONS AND WARRANTIES. The
Holding Company represents and warrants to the Acquired Company and the Sellers,
except as set forth in the Holding Company's disclosure schedule annexed hereto,
that the following are true and correct as of the date first above written and
shall be true and correct on the Closing Date:
(a) ORGANIZATION AND GOOD STANDING. The Holding Company is a
corporation duly organized, validly existing and in good standing under the laws
of its State of incorporation. The Holding Company is duly qualified and
licensed to do business and is in good standing in every jurisdiction where the
conduct of its business or the nature of its properties require it to be
qualified.
(b) CORPORATE AUTHORITY. The Holding Company has full
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been and all
other agreements to be executed hereunder upon such execution and delivery will
have been duly and validly authorized, executed and delivered by the Holding
Company and constitute the legal, valid and binding obligation of the Holding
Company enforceable against the Holding Company in accordance with their terms
subject, as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of, relating to or affecting shareholders and creditors rights
generally and to general equitable principles.
(c) NO CONFLICTS. The execution and delivery of this
Agreement and consummation of the transaction contemplated hereby will not (i)
violate or conflict with any provision of the Holding Company's articles of
incorporation or bylaws, (ii) violate any provision of or result in the breach
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, any mortgage, lien, lease, material
contract, license, permit, instrument or any other material agreement to which
the Holding Company is a party, (iii) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon any
property of the Holding Company, (iv) violate or conflict with any order, award,
judgment or decree or other restriction or conflict with any law, ordinance,
rule or regulation
19
to which the Holding Company or its property is subject or by which the Holding
Company or its property may be bound or affected.
(d) CAPITALIZATION. The Holding Company's authorized capital
stock consists of 50,000,000 shares of common stock and 10,000,000 shares of
preferred stock, of which 2,377,000 shares of common stock and -0- shares of
preferred stock are issued and outstanding. The issuance and delivery of the
Preferred Stock to be issued by the Holding Company in connection with this
Agreement have been duly and validly authorized and, when issued pursuant
hereto, will be validly issued, fully paid and nonassessable, and shall be free
and clear of all liens, pledges, restrictions, voting trusts, security interests
or other encumbrances of any nature whatsoever. The shares of Preferred Stock to
be issued pursuant to this Agreement will not be issued and disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any of the Holding Company's stockholders.
(e) GOVERNMENTAL APPROVAL. No action by or before any
governmental body or authority of the United States of America, any State
subdivisions thereof or any self-regulatory body to which the Holding Company is
subject, is required in connection with the execution and delivery of this
Agreement by the Holding Company and the consummation of the transactions
contemplated hereby.
(f) THIRD PARTY APPROVALS. There are no authorizations,
consents or approvals of the parties under any contracts, commitments or
understandings to which the Holding Company is a party or of any other person
(including any public body or authority) required to permit the consummation on
the part of the Holding Company of the transactions contemplated by this
Agreement.
(g) FINDER'S AND BROKER'S FEE. The Holding Company has not
incurred any obligation for any finder's, brokers or agent's fee in connection
with the transactions contemplated hereby.
(h) CLAIMS AND LITIGATION. Except as set forth on SCHEDULE
4.03(h), there is no claim, violation notice, legal action, suit, arbitration,
governmental investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or, to the Holding
Company's best knowledge, threatened, against or relating to the Holding
Company, its directors, officers or employees, it properties, assets or
business, or the transaction contemplated by this Agreement and the Holding
Company does not know or have any reason to be aware of any basis for the same,
including any basis for a claim of sexual harassment or discrimination based on
race, age, sexual orientation or other protected class of individuals, as well
as health, safety or other environmental complaints or exposure. The Holding
Company is not subject to or in default of any court or administrative order,
judgment, writ, injunction or decree applicable to the Holding Company or to its
business, assets, operations or employees. All claims asserted, general
liability incidents and incident reports have been submitted to the Holding
Company's insurer therefor. All claims made or threatened against the Holding
Company in excess of its deductible are covered under its Insurance Policies.
20
(i) COMPLIANCE WITH LAWS. The Holding Company is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, orders, judgments and decrees of each and every
jurisdiction applicable to theHolding Company. Within the last five (5) years
the Holding Company has not received any written notice or other written
communication from any governmental authority or agency regarding any actual,
alleged or potential violation of, or failure to comply with, any law, rule,
regulation, ordinance, order, judgment or decree and to the Holding Company's
best knowledge, there does not exist any reasonable basis for any claim of
material default under or material violation of any such law, rule, regulation,
ordinance, order, judgment or decree.
(j) GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. The Holding
Company holds all licenses, franchises, permits and other governmental
authorizations necessary for the operation of its business. All such licenses,
franchises, permits and other governmental authorizations are valid, and the
Holding Company has not received any written notice that any governmental
authority intends to cancel, terminate or not renew any such license, franchise,
permit or other governmental authorization. The Holding Company's business is
not being conducted, and no properties or assets of the Holding Company relating
thereto are owned or are being used by it in violation of any statute, law,
ordinance, regulation, rule or permit of any governmental entity or any
judgment, order or decree.
(k) DISCLOSURE. No representation or warranty of the Holding
Company in this Agreement or in any schedule, agreement or certificate delivered
in accordance with the terms hereof by the Holding Company contains any untrue
statement of a material fact or omits to state any material fact necessary, in
light of the circumstances under which made, in order to make the statements
contained herein or therein not misleading. There is no fact that affects, or in
the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present of prospective), properties,
assets or liabilities of the Holding Company in any material respect that is not
set forth in this Agreement or the schedules hereto.
SECTION 4.04. NATURE AND SURVIVAL OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained in this Agreement shall survive the
Closing Date for a period of one (1) year; provided, that (i) the
representations and warranties contained in Sections 4.01 (p), (q) and (t) shall
survive for the applicable statute of limitations periods, (ii) the
representations and warranties contained in in Section 4.01(a), (b), (d) and (l)
shall survive indefinitely.
21
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. COVENANTS OF THE PARTIES. Each of the respective parties
identified in the following sections of this Article V covenants and agrees, as
provided in the sections which are applicable to it. Except as otherwise
provided herein, these covenants shall be in full force and effect until this
Agreement is terminated by one of the parties as provided herein or this
Agreement has terminated according to its terms.
SECTION 5.02. CONDUCT OF THE ACQUIRED COMPANY'S BUSINESS PRIOR TO
CLOSING.
(a) From the date hereof to the Closing, the Acquired
Company will conduct its business and affairs in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve its
assets and properties in good condition and repair and maintain insurance
thereon in accordance with present practices, it will use all reasonable efforts
(i) to preserve its business and organization intact, (ii) to preserve for the
Acquired Company's goodwill of suppliers, customers, distributors, landlords and
others having business relations with it, and (iii) to cooperate and use its
best efforts to assist the Holding Company in obtaining the consent of any
landlord or other party to any lease or contract with the Acquired Company where
the consent of such landlord or other party may be required by reason of the
transactions contemplated hereby.
(b) From the date hereof to the Closing, the Acquired
Company will not (i) dispose of any of the customers, tariffs, licenses,
contracts or supplier agreements other than in the ordinary course of business,
(ii) engage in any extraordinary transactions, including but not limited to,
directly or indirectly, soliciting, entertaining, encouraging inquiries or
proposals or entering into negotiation or agreement with any third party for or
acquisition of the aforementioned assets or business as a going concern, sale of
equity securities or rights of any kind to acquire equity securities of the
Acquired Company or acquisition, consolidation, reverse acquisition, business
combination or similar transaction with any other entity, without the prior
written consent of the Holding Company (iii) enter into any employment agreement
or grant any salary or compensation increase or bonus to any employee, or
otherwise change or increase commission and compensation schedules of its
employees without the prior written approval of the Holding Company, which shall
not be unreasonably withheld, (iv) terminate, waive, not renew or allow to lapse
any tariff; (v) make any commitment for capital expenditures, other than as
disclosed to the Holding Company and approved by it, (vi) offer or sell any
equity securities or obligations entitling the holder thereof to purchase equity
securities of the Acquired Company, or (vii) enter into any contracts,
commitments or obligations or otherwise take any actions or enter into any
transactions other than in the ordinary course of business consistent with its
previous and current business plans, practices, policies and procedures.
(c) Notwithstanding anything contained in this Section 5.02,
the Acquired Company will not take or fail to take any action that, in the
Acquired Company's reasonable judgment, is likely to give rise to a substantial
penalty or a claim for damages by any third party
22
against the Acquired Company, or is likely to result in losses either to the
Acquired Company or to the Holding Company, or is otherwise likely to prejudice
in any material respect or unduly interfere with the conduct of its business and
operations in the ordinary course consistent with prior practice, or is likely
to result in a breach by the Acquired Company of any of its representations,
warranties or covenants contained in this Agreement (unless any such breach is
first waived in writing by the Holding Company).
SECTION 5.03. CONDUCT OF SELLER PRIOR TO CLOSING. The Seller shall not
offer for sale or solicit or entertain offers to purchase its Stock prior to
Closing.
SECTION 5.04. NOTICE OF CHANGES IN INFORMATION. Each party shall give
the other party prompt written notice of any material change(s) in any of the
information contained in their respective representations and warranties made in
Article IV, or elsewhere in this Agreement, or the exhibits and schedules
referred to herein or any written statements made or given in connection
herewith which occurs prior to the Closing.
SECTION 5.05. NOTICE OF EXTRAORDINARY CHANGES. The Acquired Company
shall advise the Holding Company with respect to any of the following which are
outside of the ordinary course of business or which are materially adverse: (i)
the entering into, cancellation or breach of contracts, agreements, commitments,
tariffs, or other understandings or arrangements to which the Acquired Company
is a party, including, without limitation, purchase orders for any item of
inventory and commitments for capital expenditures or improvements, orderly and
gradual discontinuance of particular items or (ii) any changes in purchasing,
pricing or selling policy (including, without limitation, selling merchandise at
discounts
SECTION 5.06. ACCESS TO INFORMATION AND DOCUMENTS. Upon reasonable
notice and during regular business hours, each party will give the other party,
its attorneys, accountants and other representatives full access to its
personnel, accountants, attorneys and other professional advisors (subject to
reasonable approval as to the time thereof) and all properties, documents,
contracts, books and records and will furnish copies of such documents
(certified by officers, if so requested) and with such information with respect
to its business, operations, affairs and prospects (financial and otherwise) as
it may from time to time request, and the party to whom the information is
provided will not improperly disclose the same prior to the Closing. Any such
furnishing of such information or any investigation shall not affect that
party's right to rely on the other party's representations and warranties made
in this Agreement or in connection herewith or pursuant hereto.
SECTION 5.07. COOPERATION BY THE PARTIES. Each party hereto shall
cooperate and shall take such further action as may be reasonably requested by
any other party in order to carry out the provisions and purposes of this
Agreement.
SECTION 5.08. RESTRICTIONS ON TRANSFER OF STOCK. The Holding Company
shall not sell, exchange, assign, transfer, dispose of, pledge, mortgage,
hypothecate or otherwise encumber, transfer or permit to be transferred all or
any of the Stock at any time prior to the termination of
23
the Security Agreement. The shares of Stock issued to the Holding Company on the
Closing Date shall bear a legend in substantially the following form:
The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition
pursuant to the laws of bankruptcy) of the shares of stock
evidenced by the within certificate is restricted under the
terms of an Acquisition Agreement dated July 2, 1999, by and
among the Issuer, the Registered Holder and, as defined in
said Agreement, the Seller.
SECTION 5.09. COOPERATION IN AUDITS. The Seller will cooperate with the
Holding Company and make such books and records of the Acquired Company
available as may be requested by the independent auditor engaged by the Acquired
Company to audit the financial statements of the Acquired Company and in any
audit by the Internal Revenue Service, foreign government, State, municipal or
other regulatory taxing authority. The period covered by such books and records
shall be the fiscal periods required for audit in order to comply with the
registration and reporting requirements promulgated under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, and the
Internal Revenue Code of 1986, as amended, or State income tax law, as may be
the case.
SECTION 5.10. CONFIDENTIALITY. The Seller covenants and agrees to
maintain in strictest confidence and refrain at all times from disclosing to any
other person for any purpose any confidential or proprietary information of or
pertaining to the Acquired Company or the Holding Company. For purposes hereof,
confidential or proprietary information shall include, but not be limited to,
all supplier and customer lists and files, techniques, processes, know how,
advertising, distribution and sales methods, sales and profit figures, budgets,
capital spending plans, acquisition and divestiture plans, marketing data,
financial information, employee lists, real property information (leasing or
otherwise) and the like.
SECTION 5.11. EXCLUSIVE DEALING. Until the date this Agreement is
terminated in accordance with ARTICLE VIII hereof (the "EXCLUSIVITY PERIOD"),
neither the Seller nor the Acquired Company will, directly or indirectly,
through any representative or otherwise, solicit or entertain offers from,
negotiate with or in any manner encourage, discuss, accept or consider any
proposal of any other person relating to the acquisition of the Acquired
Company, its capital stock, its assets or its business, in whole or in part,
whether directly or indirectly, through purchase, merger, consolidation or
otherwise (other than sales of inventory in the ordinary course of business).
The Seller or the Acquired Company shall immediately notify the Holding Company
regarding any contact between the Seller or the Acquired Company and any
potential acquirer or their respective representatives or any other person
regarding any such offer or proposal or related inquiry.
24
ARTICLE VI
SECURITIES LAW MATTERS AND STATUS OF SHARES
SECTION 6.01. "RESTRICTED" STOCK. The Seller acknowledges that the
Preferred Stock issued in the Acquisition and the common stock of the Holding
Company issuable upon the conversion of the Preferred Stock (the "HOLDING
COMPANY COMMON STOCK," and together with the Preferred Stock, the "SECURITIES")
will not be registered under the Securities Act of 1933, as amended,
("SECURITIES ACT") or the securities laws of the Seller's state of residence,
that the Securities are not transferable, except as permitted under various
exemptions contained in the Securities Act and applicable state securities law
and that the Securities are defined as "restricted securities" in, and subject,
to the provisions of Rule 144 under the Securities Act. The provisions contained
in the following sections are intended to ensure compliance with the Securities
Act and applicable state securities law.
SECTION 6.02. NO TRANSFERS IN VIOLATION OF SECURITIES ACT. The Seller
will not offer, sell, assign, pledge, hypothecate, transfer or otherwise dispose
of the Securities, except after full compliance with all of the applicable
provisions of the Securities Act and applicable State securities laws and this
Agreement.
SECTION 6.03. INVESTMENT INTENT. The Seller represents and warrants to
and covenants with the Holding Company that the Seller is acquiring and will
acquire the Securities for its own account for investment, and not with a view
to resale or other distribution; that the Seller currently has no intention of
selling, assigning, transferring, pledging, hypothecating or otherwise disposing
of all or any part thereof at any particular time, for any particular price, or
on the happening of any particular event or circumstance; and the Seller
acknowledges that the Holding Company is relying on the truth and accuracy of
the covenants, warranties and representations of the Seller in issuing
Securities without first registering them under the Securities Act.
SECTION 6.04. CONDITIONS TO SALE AND INVESTMENT LEGEND ON CERTIFICATES.
The Seller agrees not to sell, assign, transfer, pledge, hypothecate or
otherwise dispose of any of the Securities, otherwise than by bona fide gift, by
inheritance or in a private sale, for two years following the Closing, unless
and until (i) the Seller has delivered to the Holding Company a written legal
opinion in form and substance satisfactory to counsel for the Holding Company to
the effect that the disposition is permissible under the terms of the Securities
Act; (ii) the Holding Company has registered the Securities for resale by the
Seller pursuant to an effective registration statement; or (iii) the Seller has
presented the Holding Company with satisfactory evidence that the transfer will
comply with Rule 144 under the Securities Act. The Seller further agree that the
certificates evidencing the Securities shall contain the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND IS A "RESTRICTED SECURITY" AS DEFINED UNDER
SAID ACT. ACCORDINGLY, NEITHER THIS SECURITY NOR ANY INTEREST
THEREIN MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED,
PLEDGED OR HYPOTHECATED, EXCEPT BY BONA FIDE GIFT OR
INHERITANCE, IN THE ABSENCE OF AN EFFECTIVE
25
REGISTRATION STATEMENT AS TO THIS SECURITY UNDER SAID ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED.
The Seller acknowledges the Holding Company will also place a "stop transfer"
order against any transfer of the Securities until one of the conditions set
forth in this section has been met.
SECTION 6.05. INDEMNIFICATION BY THE SELLER. If at any time in the
future, the Seller should offer, sell, assign, pledge, hypothecate, transfer or
otherwise dispose of any of the Securities without registration under the
Securities Act, unless an exemption from registration is available, the Seller
agrees to indemnify and hold harmless the Holding Company against any and all
claims, liabilities, penalties, costs and expenses which may be asserted against
or suffered by the Holding Company as a result of such disposition.
SECTION 6.06. FUTURE REGISTRATIONS. If at any time the Holding Company
registers securities under the Securities Act to be sold in an underwritten
public offering, the Holding Company may include at the Seller's request, and at
the Holding Company's expense, the Holding Company Common Stock then held by the
Seller in the registration statement, provided that sales of the Holding Company
Common Stock issued to the Seller included in the registration statement shall
be subject to the approval of the Holding Company's investment banker and
provided that the Seller agrees to reasonable volume and other limitations
required or desirable to maintain an orderly market.
SECTION 6.07. THE ACQUIRED COMPANY'S OUTSTANDING SECURITIES. The
Acquired Company represents and warrants to the Holding Company that all offers
and sales which it has made of its securities prior to the date of this
Agreement and to the Closing date have been made in compliance with an exemption
from the registration requirements of the Securities Act and applicable state
securities laws.
SECTION 6.08. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Securities and Exchange
Commission (the "COMMISSION") which may at any time permit the sale of the
Securities to the public without registration, after such time as a public
market exists for the Securities of the Holding Company, the Holding Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act (at any
time after it has become subject to such reporting requirements); and
26
(c) So long as the Seller owns any of the Securities, to
furnish to the Seller forthwith upon request a written statement by the Holding
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety days after the effective date of the first registration
statement filed by the Holding Company for an offering of its securities to the
general public), and of the Securities Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Holding Company, and such other reports and documents of
the Holding Company and other information in the possession of or reasonably
obtainable by the Holding Company as the Seller may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Seller
to sell any of the Securities without registration.
ARTICLE VII
FEDERAL INCOME TAX MATTERS AND ELECTIONS
SECTION 7.01. TAX TREATMENT. The parties intend that the Acquisition
herein shall qualify as a tax free reorganization for federal (and all other
taxing authorities, as applicable) income tax purposes.
SECTION 7.02. TAX EFFECT ON THE SELLER. In the event the Acquired
Company has made an election under Chapter S of the Internal Revenue Code of
1986, as amended, the effect of the Acquisition on the Seller is the
responsibility of the Seller.
ARTICLE VIII
TERMINATION
SECTION 8.01. TERMINATION FOR DEFAULT.
(a) The Holding Company may, by notice to the Acquired Company and the
Seller given in the manner provided below on or at any time prior to the Closing
Date, terminate this Agreement if default shall be made by the Acquired Company
or by the Seller in the observance or in the due and timely performance of any
of the conditions, obligations, covenants and agreements contained, made by or
imposed upon it, in this Agreement, if the defaulting party has not commenced
curing such default within thirty (30) days after receipt of the notice
specifying the default.
(b) The Acquired Company and the Seller may, by notice to the Holding
Company given in the manner provided below on or at any time prior to the
Closing Date, terminate this Agreement if default shall be made by the Holding
Company in the observance or in the due and timely performance of any of the
conditions, obligations, covenants and agreements contained, made by or imposed
upon it, in this Agreement, if the default has not been fully cured within
thirty (30)days after receipt of the notice specifying the default.
27
(c) The party giving notice of the other party's default, if the
default is not cured as provided in subsection (a) or (b), above, will be
entitled to recover its reasonable costs incurred in connection with this
Agreement.
SECTION 8.02. TERMINATION FOR FAILURE TO CLOSE. If the Closing does not
occur by July 31, 1999, any party, if that party is not then in default in the
observance or in the due or timely performance of any covenants and conditions
under this Agreement, may at any time terminate this Agreement by giving written
notice to the other parties; provided, that the parties may extend the Closing
Date in writing and the Closing Date shall be automatically and reasonably
extended if the failure of the parties to Close is a result of delay in
receiving from the independent accountant the completed audited financial
statement of the Acquired Company.
SECTION 8.03. EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to this ARTICLE VIII, this Agreement shall become void and
of no effect and there shall be no liability on the part of the parties hereto;
provided, however, that SECTIONS 2.05 and 5.10 hereof shall survive any
termination.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION BY SELLER. Subject to the terms and
conditions of this Agreement, the Seller agrees to indemnify, defend and hold
the Holding Company and its directors, officers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "DAMAGES") asserted against or
incurred by the Holding Company or any of such individuals or entities, arising
out of or resulting from:
a. a breach of any representation or warranty of the
Acquired Company or the Seller contained herein or in any agreement, schedule or
certificate delivered hereunder;
b. the Seller's or the Acquired Company's failure to perform
or observe any covenant, agreement, or condition to be performed or observed by
them under this Agreement or any agreement, schedule or certificate delivered
hereunder;
c. any taxes of the Acquired Company with respect to any tax
year or portion thereof ending on or before the Closing Date to the extent such
taxes are not reflected in the reserve for tax liability in the Balance Sheet
for the Acquired Company;
d. any matters set forth on Schedules 4.01(k) and (p); or
e. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.01.
28
SECTION 9.02 INDEMNIFICATION BY HOLDING COMPANY. Subject to the terms
and conditions of this Agreement, the Holding Company hereby agrees to
indemnify, defend and hold Seller harmless from and against all Damages asserted
against or incurred by Seller arising out of or resulting from:
a. a breach by the Holding Company of any representation,
warranty or covenant of the Holding Company contained therein or in any
agreement, schedule or certificate delivered hereunder;
b. the Holding Company's failure to satisfy any liability of
the Acquired Company arising from events or occurrences after the Closing Date;
or
c. any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses and
court costs) incident to any of the foregoing or to the enforcement of this
Section 9.02.
SECTION 9.03 CONDITIONS OF INDEMNIFICATION. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under this Agreement (an
"INDEMNIFIED PARTY") shall promptly (and, in any event, at least ten (10) days
prior to the due date for any responsive pleadings, filings or other documents)
(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 such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. Except as set forth in Section 4.04, 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
such claim. Within thirty (30) 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 9 with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Third Party
Claim.
b. If the Indemnifying Party 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, such 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
29
Indemnifying Party in accordance with this Section. The Indemnifying Party shall
have full control of such defense and proceedings, including any compromise or
settlement thereof. The Indemnified Party is hereby authorized, at the sole cost
and expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), 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 and not prejudicial to the Indemnifying Party (it being understood and
agreed that if an Indemnified Party takes any such action that is prejudicial
and causes a final adjudication that is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations hereunder with respect
to such Third Party Claim). If requested by the Indemnifying Party, the
Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. 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 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any 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 that 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, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
c. If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 9.03(b), or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 9.03(b) 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 (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, provided; however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. 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 9 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 Indemnifying Party's defense pursuant to this
30
Section 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 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 9.03(b), and the Indemnifying
Party shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
d. 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 damages attributable to 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 sixty (60) 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, and if the parties do not reach a settlement of such dispute
within thirty (30) days after notice of a dispute is given, any such dispute
shall be submitted to arbitration in Tampa, Florida to a member of the American
Arbitration Association mutually appointed by the Indemnified and Indemnifying
Parties (or, in the event the Indemnified and Indemnifying Parties cannot agree
on a single such member, to a panel of three members selected in accordance with
the rules of such Association), who shall promptly arbitrate such dispute in
accordance with the rules of such Association and report to the parties upon
such disputed items, and such report shall be final, binding and conclusive on
the parties. Judgment upon the award by the arbitrator(s) may be entered in any
court having jurisdiction. The prevailing party in any such arbitration may, as
determined by the arbitrator or arbitrators in his or their discretion, recover
from, and have paid by, the other party hereto, all fees and disbursements of
such arbitrator or arbitrators and reasonable attorney's fees, costs and
expenses incurred by the prevailing party in such arbitration.
e. Payments of all amounts owing by an Indemnifying Party
pursuant to this Article 9 relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such 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 9.03(d) shall be made within thirty (30) days after
the later of (i) the expiration of the sixty (60) day Indemnity Notice period or
(ii) the expiration of the period for appeal, if any, of a final adjudication or
arbitration of the Indemnifying Party's liability to the Indemnified Party under
this Agreement.
31
SECTION 9.04 EXCLUSIVITY OF REMEDIES. The remedies provided in this
Agreement shall be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity; provided however such
remedies shall not be exclusive as to any claim based on fraud. This Article 9
regarding indemnification shall survive Closing.
SECTION 9.05 COSTS, EXPENSES AND LEGAL FEES. Each party hereto agrees
to pay the costs and expenses (including reasonable attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of the
terms of this Agreement, or (b) proving that another party breached any of the
terms of this Agreement.
ARTICLE X
NOTICES
SECTION 10.01. PROCEDURE FOR GIVING NOTICES. Any and all notices or
other communications required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered (excluding telephone facsimile and
including receipted express courier and overnight delivery service) or mailed by
first class certified U.S. mail, return receipt requested showing name of
recipient, addressed to the proper party.
SECTION 10.02. ADDRESSES FOR NOTICES. For purposes of sending notices
under this Agreement, the addresses of the parties are as follows:
As to the Acquired Company Xxxxx Xxxx
and the Seller DSA Computer, Inc.
00000 Xxxxxxxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Copy To: Xxxxxxx Xxxxx
Xxxxx & Xxxxxxxx
0000 X. Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
As to the Holding Company: Xxxx Xxxx, President
X.X. Xxx 000000
Xxxxx, Xxxxxxx 00000
Copy to: Xxxxxxx Xxxxxx, Esquire
Xxxxxxxx, Loop & Xxxxxxxx LLP
000 Xxxx Xxxxxxx Xxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
SECTION 10.03. CHANGE OF ADDRESS. A party may change its address for
notices by sending a notice of such change to all other parties by the means
provided in Section 9.01.
32
SECTION 10.04. NOTICES TO THE ACQUIRED COMPANY BY THE HOLDING COMPANY
AFTER CLOSING. Any notice required or permitted by this Agreement to be given to
the Acquired Company by the Holding Company after the Closing shall be given by
the Holding Company to the Seller.
ARTICLE XI
LEGAL AND OTHER COSTS
SECTION 11.01. PARTY ENTITLED TO RECOVER. In the event that any party
(the "DEFAULTING PARTY") defaults in his or its obligation under this Agreement
and, as a result thereof, the other party (the "NON-DEFAULTING PARTY") seeks to
legally enforce his or its rights hereunder against the Defaulting Party
(whether in an action at law, in equity or in arbitration), then, in addition to
all damages and other remedies to which the Non-Defaulting Party is entitled by
reason of such default, the Defaulting Party shall promptly pay to the
Non-Defaulting Party an amount equal to all reasonable costs and expenses
(including reasonable attorneys' and expert witness fees) paid or incurred by
the Non-Defaulting Party in connection with such enforcement.
SECTION 11.02. INTEREST. In the event the Non-Defaulting Party is
entitled to receive an amount of money by reason of the Defaulting Party's
default hereunder, then, in addition to such amount of money, the Defaulting
Party shall promptly pay to the Non-Defaulting Party a sum equal to interest on
such amount of money accruing at the rate of 1.5% per month during the period
between the date such payment should have been made hereunder and the date of
the actual payments thereof, unless otherwise adjudicated by court order,
arbitration or mediation agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. ENTIRE AGREEMENT. This Agreement, including the
Disclosure Schedule, Exhibits, Schedules, certificates and other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein, superseding all prior oral or written agreements, understandings,
representations and warranties. The Exhibits and Schedules attached or to be
attached to this Agreement are incorporated herein and shall be deemed to be a
part of this Agreement for all purposes.
SECTION 12.02. CERTAIN TRANSACTION COSTS. The Seller shall be liable
for and pay any and all excise, sales, use, stamp, documentary, filing,
recordation and other transfer taxes arising in connection with the transfer of
the Stock to the Holding Company hereunder and the Seller shall indemnify,
defend and hold the Holding Company harmless against any and all such transfer
taxes. The Holding Company shall be liable for and pay any and all excise,
sales, use, stamp, documentary, filing, recordation and other transfer taxes
arising in connection with the
33
transfer of the Preferred Stock to the Seller hereunder and the Holding Company
shall indemnify, defend and hold the Seller harmless against any and all such
transfer taxes.
SECTION 12.03. WAIVERS. No waiver of any provision, requirement,
obligation, condition, breach or default hereunder, or consent to any departure
from the provisions hereof, shall be considered valid unless in writing and
signed by the party giving such waiver, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
SECTION 12.04. AMENDMENTS. This Agreement may not be modified, amended
or terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto and amendment, modification or
alteration of, addition to or termination of this Agreement or any provision of
this Agreement shall not be effective unless it is made in writing and signed by
the parties.
SECTION 12.05. CONSTRUCTION. This Agreement has been negotiated by the
parties, section by section, and no provision hereof shall be construed more
strictly against one party than against the another party by reason of such
party having drafted such provision. The order in which the provisions of this
Agreement appear are solely for convenience of organization; and later appearing
provisions shall not be construed to control earlier appearing provisions.
SECTION 12.06. INVALIDITY. It is the intent of the parties that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision hereof shall be
prohibited, invalid, illegal or unenforceable, in any respect, under applicable
law, such provision shall be ineffective to the extent of such prohibition,
invalidity or non enforceability only, without invalidating the remainder of
such provision or the remaining provisions of this Agreement; and, there shall
be substituted in place of such prohibited, invalid, illegal or unenforceable
provision a provision which nearly as practicable carries out the intent of the
parties with respect thereto and which is not prohibited and is valid, legal and
enforceable.
SECTION 12.07. MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be an original and, taken
together, shall be deemed one and the same document.
SECTION 12.08. ASSIGNMENT, PARTIES AND BINDING EFFECT. This Agreement,
and the duties and obligations of any party shall not be assigned without the
prior written consent of the other party(ies). This Agreement shall benefit
solely the named parties and no other person shall claim, directly or
indirectly, benefit hereunder, express or implied, as a third-party beneficiary,
or otherwise. Wherever in this Agreement a party is named or referred to, the
successors (including heirs and personal representative of individual parties)
and permitted assigns of such party, if any, shall be deemed to be included, and
all agreements, promises, covenants and stipulations in this Agreement shall be
binding upon and inure to the benefit of their respective successors and
permitted assigns.
34
SECTION 12.09. ARBITRATION. Unless a court of competent jurisdiction
shall find that a particular dispute or controversy cannot, as a matter of law,
be the subject of arbitration, any dispute or controversy arising hereunder,
other than suit for injunctive relief which can be granted only by a court of
competent jurisdiction, shall be settled by binding arbitration in Tampa,
Florida, by a panel of three arbitrators in accordance with the rules of the
American Arbitration Association; provided, that the rules of discovery of the
U.S. District Court with jurisdiction of the state of the arbitration shall
apply. Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The parties may pursue all other remedies
with respect to any claim that is not subject to arbitration.
SECTION 12.10. JURISDICTION AND VENUE. Any action or proceeding for
enforcement of this Agreement and the instruments and documents executed and
delivered in connection herewith which is determined by a court of competent
jurisdiction not, as a matter of law, to be subject to arbitration as provided
in Section 12.09 or which seeks injunctive relief shall be brought and enforced
in the courts of the State of Florida in and for Broward County and in the 17th
Judicial Circuit, and the parties irrevocably submit to the jurisdiction of each
such court in respect of any such action or proceeding.
SECTION 12.11. "BEST KNOWLEDGE". "Best knowledge" means, with respect
to Acquired Company or Holding Company, the actual knowledge of their respective
executive officers after they have made due and diligent inquiry as to the
matters that are the subject of such representations and warranties and, with
respect to Seller, the actual knowledge of Seller after he has made due and
diligent inquiry as to the matters that are the subject of such representations
and warranties.
SECTION 12.12. APPLICABLE LAW. This Agreement and all amendments
thereof shall be governed by and construed in accordance with the law of the
State of Florida applicable to contracts made and to be performed therein (not
including the choice of law rules thereof).
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
35
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, the day and year first above
written
[Corporate Seal] USA DIGITAL, INC.
Attest: _____________________________ By: _____________________________
Secretary or Assistant Secretary Xxxx X. Xxxx, President
[Corporate Seal] DSA COMPUTER, INC.
Attest: _____________________________ By: _____________________________
Secretary or Assistant Secretary Xxxxx Xxxx, President
Witness SELLER
_____________________________________ __________________________________
Xxxxx Xxxx, individually
36
