Exhibit No. 10.2
Form 10-QSB
Buyers United, Inc.
File No. 0-26917
PURCHASE OPTION AGREEMENT
THIS PURCHASE OPTION AGREEMENT is made and entered into as of the 1st day
of October 2003 by and between BUYERS UNITED, INC., a Delaware corporation
("Buyers") and XXXXXXX X. XXXXXXX, an individual ("Xxxxxxx") and XXXXX X.
XXXXXXXX, an individual ("Xxxxxxxx").
Recitals
A. Buyers is a party to the Cooperation and Management Agreement dated
October 1, 2003 with MyACD, Inc. ("MyACD"). Xxxxxxx is the holder of record of
6,510,000 shares of the common stock of MyACD (the "Xxxxxxx Shares"), and
Xxxxxxxx is the holder of record of 700,000 shares of the common stock of MyACD
(the "Xxxxxxxx Shares"). The Xxxxxxx Shares and the Xxxxxxxx Shares
(collectively the "MyACD Shares") are all of the issued and outstanding shares
of common stock of MyACD.
B. As an inducement to Buyers to enter into the Cooperation and Management
Agreement, and in consideration of the benefits to be derived by Xxxxxxx and
Xxxxxxxx there under as the stockholders of MyACD, Xxxxxxx and Xxxxxxxx desire
to grant to Buyers the right and option to purchase all of the MyACD Shares as
provided herein. This is the Purchase Option Agreement contemplated by Section
3.1 of the Cooperation and Management Agreement.
Agreement
NOW, THEREFORE, for and in consideration of the foregoing recitals and the
terms and conditions hereinafter set forth, the parties hereto agree as follows:
Section 1. Grant of Option. Each of Xxxxxxx and Xxxxxxxx hereby grant to
Buyers an option to purchase all, but not part, of the MyACD Stock on the
following terms and conditions.
(a) The option to purchase the MyACD Stock may be exercised by written
notice given by Buyers to Xxxxxxx and Xxxxxxxx at any time prior to 5:00 P.M.
Mountain Time on September 30, 2004.
(b) The total purchase price for the MyACD Stock is $6,211,384, which is
allocated $5,629,846 to purchase of the Xxxxxxx Stock and $581,538 to purchase
of the Xxxxxxxx Stock.
(c) Payment of the purchase price for the MyACD Stock and delivery of the
certificates representing the MyACD Stock duly endorsed for transfer shall occur
at a closing (the Closing") to be held at 10:00 A.M. Mountain Time at the
offices of Cohne, Xxxxxxxxx & Xxxxx, P.C., 525 East 000 Xxxxx, 0xx Xxxxx, Xxxx
Xxxx Xxxx, Xxxx 00000 (or such other location within Salt Lake County, Utah as
Cohne, Xxxxxxxxx & Xxxxx, P.C. may designate by written notice to the parties to
this Agreement) on the 15th business day following the date notice of exercise
of the option is given pursuant to this Section 1.
(d) At the Closing Buyers shall make payment of the purchase price for the
MyACD Stock:
(i) To Xxxxxxx, by delivery of a promissory note in the form attached
hereto as Exhibit A ("Xxxxxxx Note") in the principal amount of $5,629,846,
the payment of which will be secured by a pledge of the Xxxxxxx Stock
pursuant to the Security and Pledge Agreement attached hereto as Exhibit B;
and
(ii) To Xxxxxxxx, by delivery of a promissory note in the form
attached hereto as Exhibit C ("Xxxxxxxx Note") in the principal amount of
$581,538, the payment of which will be secured by a pledge of the Xxxxxxxx
Stock pursuant to the Security and Pledge Agreement attached hereto as
Exhibit D.
Section 2. Additional Deliveries. At the Closing Buyers shall also deliver:
(a) To Xxxxxxx, a written offer to employ Xxxxxxx on the terms set forth in
the Employment Agreement attached as Exhibit E to this Agreement (the "Xxxxxxx
Agreement") and, upon acceptance of such offer by Xxxxxxx, an option to purchase
25,000 shares of the common stock of Buyers in the form and on the terms set
forth in Exhibit F attached hereto; and
(b) To Xxxxxxxx, a written offer to employ Xxxxxxxx on the terms set forth
in the Employment Agreement attached as Exhibit G to this Agreement (the
"Xxxxxxxx Agreement").
Section 3. Additional Covenants.
(a) So long as any of the payment obligations under the Xxxxxxx Note or the
Xxxxxxxx Note remain outstanding and unpaid (the "Payout Period"), Buyers agrees
to keep and maintain the separate corporate existence of MyACD as a wholly owned
subsidiary of Buyers, and during such period MyACD shall retain sole ownership
and all rights in and to the capabilities, ideas, software, products, practices,
patents, know-how, trademarks, copyrights, copyright registrations and
applications for registration, inventions, designs, methods, trade secrets,
specifications, processes, plans, concepts, technical information, data, and
other information that comprise the "Enhanced Services," "Intellectual
Property," and "Confidential Information" as those terms are defined in the
Cooperation and Management Agreement and incorporated herein by this reference.
(b) During the Payout Period Buyers agrees: (A) not to disclose any
Confidential Information transferred or disclosed to it by MyACD; (B) to protect
the Confidential Information from unauthorized dissemination and use and may, in
doing so, use the same degree of care that it uses to protect its own like
information, but Buyers must use at least the degree of care that is reasonable
under the circumstances; and (C) not to disclose to third parties the
Confidential Information without the prior written consent of Xxxxxxx.
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(c) During the Payout Period MyACD shall not incur, and Buyers agrees not
to permit or allow MyACD to incur, any debt or liability for goods and services
other than the same usual and customary debts and liabilities that MyACD
incurred in the ordinary course of its business as conducted prior to the date
of Closing. During the Payout Period MyACD shall not suffer or permit, and
Buyers agrees not to permit or allow MyACD to suffer or permit, any sale,
transfer, or other disposition of, or any encumbrance, security interest, or
lien upon, any of the property or assets of MyACD, except for purchase money
security interests or capital lease obligation with respect to equipment used in
the business of MyACD and owned or leased by MyACD, and shall not grant or
transfer to any Person any license, right to acquire, or other interest in or to
any Intellectual Property.
(d) Upon the occurrence of and the continuation of any payment default
under the Xxxxxxx Note or the Xxxxxxxx Note, Buyers agrees that it shall not,
except for the benefit of MyACD, in any way, directly or indirectly, through
affiliates, subsidiaries, employees, agents, or otherwise: (i) manage, profit
from, direct, operate, control, be employed by, associated with, engage in, or
participate in any of the foregoing, or otherwise advise or assist in any way or
be connected with or directly or indirectly own as partner, shareholder (other
than holdings of less than five percent in publicly-traded companies),
proprietor, member, advisor, or consultant or otherwise or have any investment,
interest in or right with respect to any enterprise, entity, or business which
engages, at any location, in the business of offering or selling any product or
service that is the same as, competitive with or similar to Enhanced Services;
(ii) induce or attempt to induce any customers of MyACD or Buyers to terminate
business with MyACD or its affiliates; or (iii) divert or attempt to divert from
MyACD or its affiliates any business with any MyACD customers or Buyers
customers. In the event Xxxxxxx and Xxxxxxxx foreclose upon and take possession
of the MyACD Stock under their respective Security and Pledge Agreements, the
foregoing restrictions will continue through the third anniversary of the date
of the payment default that gives rise to the foreclosure.
(e) Upon the occurrence of and the continuation of any payment default
under the Xxxxxxx Note or the Xxxxxxxx Note, Buyers agrees that it shall not,
directly or indirectly, solicit for the purposes of employment, attempt to
solicit for the purposes of employment, offer employment, hire, employ, or
continue to employ; any person who is; or any person who within the previous two
years has been, employed by MyACD, or one of its affiliates, or to persuade any
such person to leave the employ of MyACD or such affiliates. In the event
Xxxxxxx and Xxxxxxxx foreclose upon and take possession of the MyACD Stock under
their respective Security and Pledge Agreements, the foregoing restrictions will
continue through the third anniversary of the date of the payment default that
gives rise to the foreclosure.
(f) A breach of the covenants of this Section 3 would substantially injure
MyACD in ways that cannot be remedied fully by money damages. Therefore, Buyers'
breach or threatened breach of this Section 3 will entitle Xxxxxxx and Xxxxxxxx
to equitable relief (including orders for specific performance and injunctions),
as well as monetary damages.
Section 4. Transition and Tax Matters
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(a) Upon exercise of the option under Section 1 of this Agreement, Buyers
shall pay to MyACD prior to the Closing all payments under Section 2.3(b) of the
Cooperation and Management Agreement due prior to the date of Closing and a
final prorated payment for the period from the date of the last scheduled
payment under Section 2.3(b) prior to the Closing to the date of Closing.
(b) After the date of Closing, any amount payable under Section 2.3(d)(v)
of the Cooperation and Management Agreement shall be deemed paid as of the date
of Closing and shall be distributed when the payment is calculated to the
stockholders of MyACD immediately prior to the Closing in proportion to their
interest, all so that the payment is treated as income to MyACD as of the date
of Closing and a distribution to its stockholders.
(c) Following exercise of the option and prior to the Closing, the parties
agree and acknowledge that the cash of MyACD shall be applied in the following
priority: (i) first, to payment of MyACD's trade and accounts payable that
become due in accordance with their terms up to the date of Closing; (ii)
second, to payment or reserve of all wages and salaries (including applicable
tax withholdings) accrued in the ordinary course of business up to the date of
Closing; (iii) third, to payment of a pro rata distribution to those persons who
are stockholders of MyACD immediately prior to the Closing of the Estimated Tax
Liability, as defined below, after taking into account the estimated amount
payable to the stockholders under Section 4(b), above; (iv) fourth, to payment
in reduction of the principal amount of the equipment note payable to Xxxxxxx in
the principal amount of approximately $189,000 (the "Xxxxxxx Debt"); and (v)
last, to the stockholders in proportion to their stock ownership in MyACD. For
purposes of this provision, the "Estimated Tax Liability" is the amount of 44.6
percent of the MyACD net income from line 21 on Form 1120S for the short tax
year of MyACD ending on the date of Closing.
(d) At the Closing MyACD shall issue and deliver to Xxxxxxx a note in the
principal amount of the Xxxxxxx Debt that remains unpaid after the payment
contemplated by Section 4(c), above, that bears interest at the rate of eight
percent per annum and is payable in arrears in 12 equal monthly installments
beginning on the date that is one month following the date of the Closing.
(e) As to tax matters, each of Xxxxxxx and Xxxxxxxx represents as of the
date of this Agreement and as of the date of Closing as follows:
(i) MyACD has filed all tax returns that they were required to file
under applicable laws and regulations. All such tax returns were correct
and complete in all respects and have been prepared in substantial
compliance with all applicable laws and regulations. All taxes due and
owing by MyACD, including without limitation, all withholding and
employment taxes have been paid. MyACD is not the beneficiary of any
extension of time within which to file any tax return. There are no liens
for taxes (other than taxes not yet due and payable) upon any of the assets
of MyACD.
(ii) MyACD has withheld and paid all taxes required to have been
withheld and paid in connection with any amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
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(iii) MyACD has been a validly electing S corporation within the
meaning of Section 1361 and 1362 of the Internal Revenue Code of 1986 (the
"Code") at all times during its existence and will be an S corporation
either up to and including the day before the Closing, if no election is
made under Section 4(f), below, or up to and including the day of Closing,
if such election is made.
(f) Upon the mutual consent of Buyers and Xxxxxxx, MyACD and each of
Xxxxxxx and Xxxxxxxx shall join with Buyers in making an election under Code
Section 338(h)(10) (and any corresponding election under state, local, and
foreign tax law) with respect to the purchase and sale of the MyACD Stock
hereunder (collectively, a 338(h)(10) Election"). Xxxxxxx and Xxxxxxxx Sellers
shall include any income, gain, loss, deduction, or other tax item resulting
from the 338(h)(10) Election on their tax returns to the extent required by
applicable law. If the 338(h)(10) Election is made, the parties agree that the
purchase price and the liabilities of MyACD (plus other relevant items) will be
allocated to the assets of MyACD for all purposes (including Tax and financial
accounting) in a manner consistent with Code Sections 338 and 1060 and the
regulations there under. The parties shall file all tax returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such values.
(g) Buyers shall prepare or cause to be prepared and file or cause to be
filed all tax returns for MyACD for all periods ending on or prior to the date
of Closing that are filed after the date of Closing. Buyers shall permit Xxxxxxx
and Xxxxxxxx to review and comment on each such tax return prior to filing.
(h) The parties shall cooperate fully, as and to the extent reasonably
requested by the other parties, in connection with the filing of tax returns and
any audit, litigation, or other proceeding with respect to taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information reasonably relevant to any such audit,
litigation, or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
Section 5. Representations of Buyers
(a) Buyers is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware. Buyers has all necessary
corporate power and authority to carry on its business as now being conducted.
Buyers has the necessary corporate power and authority to execute, deliver, and
perform this Agreement and the transactions contemplated hereby.
(b) Buyers has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the performance by
Buyers and the consummation of the transactions contemplated hereunder have been
duly authorized by the board of directors of Buyers and no other corporate
proceedings on the part of Buyers are necessary to authorize this Agreement and
the transactions contemplated hereunder. No consent of any person not a party to
this Agreement nor consent of or filing with (including any waiting period) any
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governmental entity is required to be obtained or performed on the part of
Buyers to execute, deliver, and perform its obligations hereunder. This
Agreement constitutes the legally valid and binding obligation of Buyers
enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditor's rights generally.
(c) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby (including performance by
Buyers), will (i) violate any constitution, statute, regulation, rule, order,
decree, charge, or other restriction of any governmental entity to which Buyers
is subject or any provision of the charter or bylaws of Buyers or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which Buyers is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any encumbrance upon any of its assets), except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, failure
to give notice, or encumbrance could not reasonably be expected to have a
material adverse effect on Buyers or on the ability of the parties to consummate
the transactions contemplated by this Agreement.
Section 6. Representations of Xxxxxxx and Xxxxxxxx
(a) Xxxxxxx represents and for himself that:
(i) Xxxxxxx holds all right, title, and interest in and to the Xxxxxxx
Stock, free and clear of all liens, claims, interests of others, security
interests, or encumbrances, whatsoever, and delivery of the Xxxxxxx Stock
at the Closing duly endorsed for transfer will transfer and convey good and
marketable title to the Xxxxxxx Stock free and clear of all liens, claims,
interests of others, security interests, or encumbrances, whatsoever;
(ii) Xxxxxxx has full power and authority to execute and deliver this
Agreement and to perform his obligations hereunder, no consent of any
person not a party to this Agreement is required to be obtained on the part
of Xxxxxxx to execute, deliver, and perform his obligations hereunder; and
this Agreement constitutes the legally valid and binding obligation of
Xxxxxxx enforceable against him in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditor's rights generally.
(b) Xxxxxxxx represents and for himself that:
(i) Xxxxxxxx holds all right, title, and interest in and to the
Xxxxxxxx Stock, free and clear of all liens, claims, interests of others,
security interests, or encumbrances, whatsoever, and delivery of the
Xxxxxxxx Stock at the Closing duly endorsed for transfer will transfer and
convey good and marketable title to the Xxxxxxxx Stock free and clear of
all liens, claims, interests of others, security interests, or
encumbrances, whatsoever;
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(ii) Xxxxxxxx has full power and authority to execute and deliver this
Agreement and to perform his obligations hereunder, no consent of any
person not a party to this Agreement is required to be obtained on the part
of Xxxxxxxx to execute, deliver, and perform his obligations hereunder; and
this Agreement constitutes the legally valid and binding obligation of
Xxxxxxxx enforceable against him in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditor's rights generally.
Section 7. Restriction on Transfer. Prior to the termination of this
Agreement, each of Xxxxxxx and Xxxxxxxx agrees for himself that he will not
sell, transfer, assign, or in any way alienate any of the MyACD Stock, whether
now owned or hereafter acquired, or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, without the prior
written consent of Buyers. In the event of any disposition of the MyACD Stock by
reason of the death of either Xxxxxxx or Xxxxxxxx prior to the termination of
this Agreement, each of them covenants and agrees that his estate and any
beneficiary taking there under shall be bound by the terms and conditions of
this Agreement. Any purported transfer in violation of any provision of this
Agreement shall be void and ineffectual, and shall not operate to transfer any
interest or title to the purported transferee. The certificate or certificates
representing the MyACD Stock subject to this Agreement shall not be assigned or
otherwise disposed of during the continuance of this Agreement except as herein
provided. The stock certificates for the MyACD Stock shall contain a legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST SALE AND TRANSFER SET FORTH IN A PURCHASE OPTION
AGREEMENT DATED OCTOBER 1, 2003, AND NO SALE, TRANSFER, OR ENCUMBRANCE
OF THE SHARES SHALL BE EFFECTIVE UNLESS MADE IN ACCORDANCE WITH THE
TERMS OF SAID AGREEMENT. A COPY OF THE PURCHASE OPTION AGREEMENT MAY
BE EXAMINED AT THE PRINCIPAL OFFICES OF THE COMPANY.
Section 8. Miscellaneous.
(a) This Agreement shall be governed by, enforced, and construed under and
in accordance with the laws of the state of Utah.
(b) In the event that any party institutes any action or suit to enforce
this Agreement or to secure relief from any default hereunder or breach hereof,
the non-prevailing party shall reimburse the prevailing party for all costs,
including reasonable attorneys' fees, incurred in connection therewith and in
enforcing or collecting any judgment rendered therein.
(d) This Agreement, including the exhibits hereto, represents the entire
agreement between the Parties relating to the subject matter hereof. There are
no other courses of dealing, understandings, agreements, representations, or
warranties, written or oral, except as set forth herein.
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(e) This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which taken together shall be but a
single instrument.
(f) Every right and remedy provided herein shall be cumulative with every
other right and remedy, whether conferred herein, at law, or in equity, and may
be enforced concurrently herewith, and no waiver by any party of the performance
of any obligation by the other party shall be construed as a waiver of the same
or any other default then, theretofore, or thereafter occurring or existing. Due
to the unique nature of the relationship between the parties and the rights
conferred hereunder, either party is entitled to seek and obtain as a remedy for
any breach or threatened breach hereof specific performance, in addition to any
other remedy available at law or in equity. At any time prior to the Closing
this Agreement may be amended by a writing signed by all parties hereto with
respect to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance hereof may be extended by a
writing signed by the party for whose benefit the provision is intended.
(g) All notices, requests, demands, and other communications made in
connection with this Agreement shall be in writing and shall be deemed to have
been duly given on the date of delivery if delivered by hand, or twelve (12)
hours after facsimile transmission to the persons identified below, or five days
after mailing if mailed by certified or registered mail postage prepaid return
receipt requested addressed as follows:
To Buyers at: Buyers United, Inc.
13751 So. Xxxxxxxxx Xxxx Xxxxx,
Xxxxx 000
Xxxxxx, Xxxx 00000
Attention: Xxxx Xxxxxx
Fax: (000) 000-0000
With a copy to: Cohne, Xxxxxxxxx & Xxxxx, P.C.
525 East 000 Xxxxx, 0xx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
To Xxxxxxx at: 0000 Xxxxx Xxxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (801) _____________
To Xxxxxxxx at: ________________________________
_____________________, Utah ______
Fax: (801) _____________
Either party may change its address for notices by notice duly given pursuant to
this Section 7(g).
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above set forth.
Buyers United Inc.
By: /s/ Xxxx Xxxxxx, President
Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxxx
/s/ Xxxxx X. Xxxxxxxx
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