STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("Agreement") is made this 8th day of
November 1999, by and among Colonial Direct Financial Group, Inc., a Delaware
corporation, with offices at 0000 X. Xxxxxxxx Xxxx Xxxx, Xxxxx 000, Xxxx Xxxxx,
Xxxxxxx 00000 ("Buyer"), Xxxxxxx X. Xxxx ("Xxxx"), an individual, and Xxxxxxx X.
Xxxxxx ("Waxman"), an individual (Xxxx and Xxxxxx sometimes hereinafter
collectively referred to as "Sellers").
Background
WHEREAS, Sellers are the sole stockholders of KWT Consultants, Inc., a
Florida corporation (the "Company"), which currently operates an employee
benefits consulting business with offices located at 0000 XX Xxxxxxxxx Xxxx.,
Xxxxx 0000, Xxxx Xxxxx, Xxxxxxx 00000-0000 (the "Office") and furnishes certain
employee benefits consulting and administration services, by and through its
employees, agents, third party administrators and other subcontractors.
WHEREAS, Sellers wish to transfer to Buyer all of Sellers' right,
title, and interest in and to all of the outstanding shares of capital stock of
the Company (the "Stock") in exchange solely for Buyer's voting stock, and Buyer
wishes to acquire all of Sellers' right, title, and interest in and to the Stock
subject to and upon the terms and conditions set forth herein; and
WHEREAS, Sellers and Buyer intend that the sale contemplated hereunder
will qualify as a tax free reorganization under Section 354 of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW THEREFORE, in reliance on the representations, warranties and
agreements described herein, and subject to the terms and conditions hereinafter
set forth, the parties hereby agree as follows:
Terms
1. Exchange of Stock. At the Closing (as defined in Section 1.3) and
subject to the terms and conditions of this Agreement, Sellers shall exchange,
transfer, assign, and deliver to Buyer, and Buyer shall accept from Sellers, all
of Sellers' right, title, and interest in and to the Stock, in exchange solely
for voting common stock of the Buyer as provided in Section 2.
1.2. Delivery of Stock. At the Closing, Sellers shall deliver to Buyer a
certificate or certificates representing ownership of the Stock, duly endorsed
for transfer or with proper stock powers therefor, so that the Stock is
negotiable for delivery.
1.3. Closing Date. Subject to satisfaction of all conditions set forth
herein, the closing (the "Closing") of the exchange of stock contemplated
pursuant to the terms of this Agreement shall take place no event later than
November 8, 1999, at the law offices of Xxxxxx & Xxxxxx LLP, 000 X. Xxxxxxxx
Xxxx Xxxx, Xxxxx 000, Xxxx Xxxxx, XX 00000 (the "Closing Date").
1.4. Release by Sellers. Effective on the Closing Date and unless
otherwise disclosed in this Agreement, each Seller hereby releases the Company
from any and all claims of Seller, arising before the Closing Date.
2. Exchange Price. Payment by Buyer for the Stock shall be effected by
Buyer delivering to Sellers 144,444 shares of its voting Common Stock, free and
clear of any liens or encumbrances, which at the time of Closing will represent
3.7% of the issued and outstanding Shares of the Buyer and, after the
transactions set forth on Schedule 1 are consummated, represent no less than
2.7% of the issued and outstanding Shares of the Buyer.
3. Deliveries of Buyer. At the Closing, Buyer shall: (i) cause to be
delivered 144,444 shares of its Common Stock, such Common Stock shall be duly
issued, fully paid for and non-assessable; (ii) Employment Agreement in the form
as attached hereto as Exhibit "A" executed by it; and (iii) together with
Sellers, execute and deliver such other documents as Buyer or Sellers may
reasonably request to effectuate the transactions contemplated by this
Agreement.
4. Deliveries of Sellers. At the Closing, Sellers shall (i) deliver a
duly executed stock powers transferring the Stock to the Buyer; (ii) Employment
Agreement in the form as attached hereto as Exhibit "B" duly executed by Xxxx;
and (iii) together with Buyer, execute and deliver such other documents as Buyer
or Sellers may reasonably request to effectuate the transactions contemplated by
this Agreement.
5. Reporting/Books and Records.
a. Company's Books. Sellers have provided Buyer access to the
Company's books and records, and copies as requested of, which Sellers
believe are true and correct to the best of their knowledge in all
material respects, which books and records contain all financial
information necessary to ascertain the revenue generated by the Company
through December 31, 1998, and for the interim period of January 1,
1999 through July 31, 1999, and will, at or prior to Closing Date,
provide to Buyer access to and copies as requested of such updated
books and records up to and including the Closing Date.
b. Buyer's Books. Buyer has provided Sellers access to its and its
subsidiaries books and records which Buyer believes are true and
correct in all material respects to the best of its knowledge,
containing all financial information necessary to ascertain the revenue
generated by the Buyer and its subsidiaries through December 31, 1998,
and for the interim period of January 1, 1999 through July 31, 1999,
and will, at or prior to Closing Date, have provided to Sellers access
to such updated books and records up to and including the Closing Date.
c. Future Revenues. Neither party makes any representation or
guaranty as to future revenues.
6. Representations and Warranties of Seller. Except as provided in
Schedule 2, the Sellers represent, warrant and agree that:
a. Ownership of Business/Absence of Claims. Xxxx and Waxman are the
sole record and beneficial owners of the outstanding Stock of the
Company and such Stock is fully paid for and non-assessable and is free
and clear of any and all liens, pledges, security interests, options,
encumbrances, charges, agreements or claims of any kind.
b. Authority. Sellers, jointly and severally, have the full right,
power and authority to enter into and to perform this Agreement and all
other agreements, certificates and documents executed or delivered, by
Sellers in connection herewith. This Agreement has been duly
authorized, executed and delivered by Sellers, and is a legal, valid
and binding obligation of Sellers, enforceable in accordance with its
terms.
c. Organization and Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Florida. The Company has no subsidiaries nor does it have any
other interest of any kind in any corporation, partnership, joint
venture, association or other entity.
d. Capital Stock. The authorized capital stock of the Company
consists of 200 shares of common stock, of which 20 are issued and
outstanding. No person, firm or corporation has any agreement, option,
right or privilege, whether preemptive or contractual, capable of
becoming an agreement for the purchase or acquisition of any bonds,
debentures, shares or other securities of the Company.
e. Defaults. To the best of Seller's knowledge, the Company is not
in default under or in violation of any contracts, leases, or
agreements to which it is a party. All such contracts, leases, and
agreements are now in full force and effect and neither the Company,
Xxxx nor Xxxxxx is aware of any violation or notice of termination or
intent to terminate, with respect to any contracts, leases or
agreements to which the Company is a party.
f. Litigation. To the best of their knowledge, neither the Company,
Xxxx nor Waxman is subject to any unsatisfied judgment, order, decree,
stipulation, injunction, or charge and neither is a party nor is
threatened to be made a party to any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator.
g. Taxes. The Company has filed all federal, state and local tax
returns required to be filed by it as of the date of this Agreement and
has paid, or made provision for payment, of all (i) taxes due for the
periods covered by such returns, (ii) all payments of estimated taxes
and (iii) all deficiencies assessed as a result of any examination of
such returns. The Company has not been granted any extension of the
limitation period applicable to any claim for taxes or assessments.
h. Compliance with Laws. To the best of the Seller's knowledge, the
Company always has conducted its business in compliance with all
applicable laws and regulations and all orders of any governmental
authority having jurisdiction over it. The Company has all licenses,
permits and authorizations necessary to conduct its business.
i. Status of and Relationship with Clients. The Company has
established oral and/or written relationships with each of the clients
and third party administrators as described in the attached Schedule 3,
each of whom has engaged in business with the Company within the last
twenty four (24) months. To the best of Seller's knowledge, the
Company's relationship with each client remains positive and there is
no impediment to a continued relationship therewith and further,
neither the Company, Xxxx nor Xxxxxx has actual notice of the intention
of any client not to continue its relationship with the Company which
would have a material financial impact on the Company.
j. Maintenance of the Business. Sellers represent and warrant that
from and after the execution of the Letter of Intent on August 4, 1999
to the present, the Company has operated its business consistently and
substantially in accordance with the operation thereof prior to such
date and from August 4, 1999 to the present there have been no material
changes thereto.
k. Certain Obligations. Sellers represent that the Company
currently has a sublease with Xxxx and Waxman, P.A. attached hereto as
Exhibit "B", an existing obligation to Xxxx X. Xxxx pursuant to the
agreement attached hereto as Exhibit "C", which obligations together
with those disclosed or otherwise incurred in the ordinary course will
be the continuing obligations of the Company.
7. Representations and Warranties of Buyer. Buyer represents, warrants
and agrees that:
a. Authority. Buyer has the full right, power and authority to
enter into and perform under and pursuant to this Agreement. This
Agreement has been duly executed and delivered by Buyer and is a legal,
valid and binding obligation of Buyer enforceable in accordance with
its terms. Buyer has taken all the requisite corporate action necessary
to effectuate the terms of this Agreement.
b. Organization and Standing. The Buyer and each of its
subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws in which it was incorporated. Except as
provided on Schedule 4, the Buyer has no other subsidiary corporations
nor does it have any other interest of any kind in any corporation,
partnership, joint venture, association or other entity.
c. Defaults. To the best of Buyer's knowledge, neither the Buyer
nor any of its subsidiaries is in default under or in violation of any
contracts, leases, agreements to which any of them is a party. All such
contracts, leases and agreements are now in full and effect and neither
the Buyer nor any of its subsidiaries is aware of any violation or
notice of termination or intent to terminate, with respect to any
contracts, leases or agreements to which the Buyer or any of its
subsidiaries is a party.
d. Access to the Company by Buyer. Buyer has had free and full
access during normal business hours to the Company's assets, premises,
books and records, clients and key employees, and have had the
opportunity to ask questions and receive answers about the past
performance and current and future prospects of the Company's business
and assets.
e. Litigation. Other than as disclosed in Schedule 5, neither Buyer
nor any of its subsidiaries is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge and, to the best of
Buyer's knowledge is not a party nor is threatened to be made a party
to any charge, complaint, action, suit, proceeding, hearing, or
investigation of or in any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before
any arbitrator.
f. Taxes. The Buyer and each of its subsidiaries have filed all
federal, state and local tax returns required to be filed by each of
them as of the date of this Agreement, and has paid, or made provision
for payment, of all (i) taxes due for the periods covered by such
returns, (ii) all payments of estimated taxes, and (iii) all
deficiencies assessed as a result of any examination of such returns.
Neither the Buyer nor any of its subsidiaries has been granted any
extension of the limitation period applicable to any claim for taxes or
assessments.
g. Compliance With the Laws. To the best of Buyer's knowledge, the
Buyer and each of its subsidiaries has always conducted their
respective businesses in compliance with all applicable laws and
regulations, and all orders of any governmental authority having
jurisdiction over any of them. The Buyer and each of its subsidiaries
have all licenses, permits and authorizations necessary to conduct its
business.
h. Maintenance of the Business. Buyer represents and warrants that
from and after the execution of the letter of intent on August 4, 1999
to the present, the Buyer and each of its subsidiaries have operated
their respective businesses consistently and substantially in
accordance with the operation thereof prior to such date and from
August 4, 1999 to the present there have been no material changes
thereto.
8. Condition Subsequent/Completion of Initial Public Offering. As a
condition subsequent, Buyer shall complete an initial public offering ("IPO") of
its Common Stock in an amount not less than $10,000,000 within eighteen months
of the Closing Date; provided, however that in the event an IPO is not completed
prior to such eighteen month period, Buyer shall at Sellers option (exercised
within a reasonable period of time), promptly unwind this exchange, and all of
the shares exchanged hereby shall be returned to the original owners, as
appropriate and all confidential information relative to the Company shall be
returned to the Company shall not be used by the Buyer for any purpose except
with the written consent of the Sellers.
In order to facilitate an unwinding if required, after the Closing Date
until said condition subsequent is satisfied or waived by the Sellers, the Buyer
agrees to maintain the Company as a separate subsidiary entity and will maintain
in it all assets required with respect to business operations, including all
intangible such as names (i.e. "KWT Consultants") and phone numbers, and
otherwise operate the business as historically operated. The Buyer shall,
however, be permitted to use its name in connection with the Company during this
time period.
In the event the Sellers elect to unwind the transaction, all
Agreements between the parties, including the Employment Agreement between Xxxx
and the Buyer, including all restrictive covenants, shall be of no further force
and effect as to the Sellers, it being the intention of the parties to put
Sellers and the Company in their original positions.
During the pre-IPO period, each of the Sellers, as stockholders of the
Buyer, shall be entitled to registration rights or otherwise cause their shares
in Buyer to be registered on substantially the same basis (but adjusted for
relative stock holdings) as afforded any other stockholder of the Buyer.
9. Survival of Representations and Warranties. All representations and
warranties made herein shall be true and correct at and as of the Closing and
shall survive the consummation of the transactions provided for in this
Agreement.
10. Employment Agreement. Xxxx shall enter into an Employment Agreement
with the Buyer, in substantially the form attached hereto at Exhibit "B".
11. Non-Compete Agreement. Provided Buyer timely tenders all payments
due hereunder each of the Sellers agrees that from and after the Closing and for
a period ending three (3) years after the Closing Date, the Sellers shall not
(i) directly or indirectly, individually or through family members, or as a
partner, employee or shareholder of any person or entity engage in the employee
benefits consulting and administration business ("Business") within the area of
100 miles of Boca Raton; (ii) solicit, serve, direct or disseminate information
concerning the Business; (iii) solicit, encourage or advise clients of the
Company who were clients during the two (2) year period prior to the Closing
Date, to cease doing business therewith or otherwise engage in such Business
with any other individual or entity; (iv) induce or attempt to induce any other
employee of the Company or any other person to refrain from doing business with
the Buyer or with any entity operated by Buyer; or (v) solicit, encourage or
advise any employees of Buyer to terminate employment with Buyer for any reason
whatsoever. The Sellers recognize and agree that the limitations set forth
herein are reasonable and necessary for the protection of the goodwill of the
business of Buyer. Notwithstanding the foregoing, the Sellers reserve the right
to provide services defined in the Business to the clients set forth on Schedule
6. In the event Buyer materially breaches this Agreement, including specifically
the failure to timely complete a public offering as provided in Section 8, or
the Employment Agreement (including a termination without cause) Sellers shall
not be subject to this Non-Compete Agreement.
Notwithstanding anything set forth herein to the contrary, the Buyer
acknowledges that each of the Sellers is engaged and will continue to engage in
the practice of law, including in the employee benefits area, and nothing in
this Agreement or the Employment Agreement shall be construed to limit or
restrict service within the scope that legal practice as reasonably determined
by the Sellers which services may include incidental benefit services not
exclusively within the practice of law. Furthermore, nothing herein shall
require either of Sellers to take or fail to take any action which violates any
rule applicable to them as attorneys, including rules regarding fee splitting,
exclusive referrals, and/or referrals to an entity in which Sellers' have an
economic interest.
12. Brokers. Each of the parties acknowledges that he or it has not
dealt with a broker or any other person entitled to a fee or commission with
respect to the transaction contemplated by this Agreement. In the event either
party breaches this Section, said party shall satisfy that obligation or
otherwise indemnify and hold harmless the other party(ies) for any liability to
said person.
13. Further Assurances. The parties shall cooperate and take such
actions, and execute such documents, as either may reasonably request in order
to carry out the provisions or purposes of this Agreement.
14. Assignment and Delegation. Neither of the parties may assign this
Agreement or any of their rights and obligations hereunder.
15. Notices. All notices or other communications provided for herein
and all legal process in regard hereto shall be in writing and shall be deemed
to have been duly given: the second business day after being sent via a
nationally recognized overnight delivery service, to the addresses set forth
above, or such other address as any party hereto may from time to time designate
in a writing delivered pursuant hereto.
16. Entire Agreement/Integration. This Agreement sets forth the
parties' final and entire agreement with respect to its subject matter and
supersedes any and all prior understandings and agreements. This Agreement can
be amended, supplemented or changed, and any provision hereof may be waived,
only by a written instrument making specific reference to this Agreement signed
by the party against whom enforcement of any such amendment, supplement, change
or waiver is sought.
17. Company Property. On the Closing Date of this transaction, Sellers
shall provide to Buyer all documents, books, records, inventory, materials, keys
and personal property in Sellers' possession used in the operation of the
Business.
18. Use of Corporate Name. Subject to an unwinding as provided in
Section 8, it is expressly understood and agreed that from and after the Closing
hereof, Buyer shall have the absolute right to use and ownership of the name
"KWT Consultants".
19. Mutual Indemnity. The Buyer on the one hand and the Sellers on the
other hereto hereby mutually agree to indemnify, defend and hold the other
harmless from and against (i) in the case of the Sellers, any and all costs,
losses, claims, demands and liabilities, including reasonable attorneys' fees
and costs, which arise out of or relate to any breach by the other of any of the
terms or conditions of this Agreement; or any other act of the other not
authorized under the terms of this Agreement which arose prior to the Closing
Date unless disclosed to Buyer or which occurred in the ordinary course of
business, and (ii) in the case of the Buyer, any and all costs, losses, claims,
demands and liabilities, including reasonable attorneys' fees and costs, which
arise out of or relate to any breach by Buyer of any of the terms or conditions
of this Agreement; or any other act of the other not authorized under the terms
of this Agreement whether any such act of the other is in connection with
Buyer's or any of its subsidiaries' business, or is not so connected, which
arose prior to the Closing Date, but as to the Company as it relates to the
period after the Closing Date. The terms and conditions of this Section 19 shall
survive termination of this Agreement. At the option of Sellers, if
indemnification is required by either of them under this Agreement, said
obligation may be satisfied in Buyer's Common Stock received by the Sellers
hereunder at a value of no less than $9.00 per Share and the Sellers shall not
be subject to indemnification for an amount greater than the number of Buyer's
Common Stock received by each of them hereunder.
20. Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the internal law of the State of Florida,
without reference to its rules as to conflicts of law.
21. Jurisdiction and Venue. The parties acknowledge that a substantial
portion of negotiations, anticipated performance and execution of this Agreement
occurred or shall occur in Palm Beach County, Florida, and that therefore,
without limiting the jurisdiction or venue of any other federal or state courts,
each of the parties irrevocably and unconditionally (a) agree that any suit,
action or legal proceeding arising out of or relating to this Agreement may be
brought in the courts of record of the State of Florida or the District Court of
the United States, Southern District of Florida; (b) consents to the
jurisdiction of each such court in any suit, action or proceeding; (c) waives
any objection which it may have to the laying of venue of any such suit, action
or proceeding in any of such courts; and (d) agrees that service of any court
paper may be effected on such party by mail, as provided in this Agreement, or
in such other manner as may be provided under applicable law or court rules in
said state.
22. Expenses. Unless provided herein to the contrary, each party is
responsible for its or his own expenses, including attorneys' fees and costs,
associated with this transaction.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
[signature page to follow]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date set forth above.
BUYER:
COLONIAL DIRECT FINANCIAL
GROUP, INC., a Delaware corporation
By: /s/ Xxxxxx X. Xxxxx
---------------------------
Name: Xxxxxx X. Xxxxx
Title: President
SELLERS:
/s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx
/s/ Xxxxxxx X. Xxxxxx
----------------------------------
Xxxxxxx X. Xxxxxx
