STOCK PURCHASE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 24th day of September, 1999
BETWEEN:
GEMINI LEARNING SYSTEMS, INC. AND ITS RESPECTIVE UNDERSIGNED
SHAREHOLDERS
(hereinafter collectively called the "Sellers")
OF THE FIRST PART
A N D:
SALIENT CYBERTECH, INC.
a corporation incorporated under the laws of the State of Delaware
(hereinafter called the "Purchaser")
OF THE SECOND PART
WHEREAS, the Sellers control and represent all of the authorized issued and
outstanding shares of capital stock (there being no other securities) of the
Gemini Learning Systems, Inc as listed hereinabove, (herein referred to
as the "Corporation"), and;
WHEREAS, the Purchaser desires to acquire all of the outstanding
shares of the Corporation's Common Stock, and;
AND WHEREAS, the parties hereto agree that this transaction is to be
structured and completed in compliance with all requirements of Section 368(a)
(1)(B) of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH THAT, in consideration of
the covenants, agreements, warranties, and payments herein set out and
provided for, the parties hereby respectively covenant and agree as follows.
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ARTICLE 1.00 - DEFINED TERMS
1.1 When used herein or in any amendments hereto, the following terms
shall have the following meanings respectively.
"Agreement" means this agreement and all schedules attached to this agreement.
The term includes each case where it may be supplemented or amended from time
to time. The expressions "hereof", "herein", "hereto", "Hereunder",
"hereby" and similar expressions refer to this agreement, and "Article",
"section" and "subsection" mean and refer to the specified Article, section,
and subsection of this agreement.
"books and records" means the accounting books of original entry including
the general ledger, record of cash receipts and disbursements, purchase
journal and banking records.
"Business" means the business presently and heretofore carried on by the
Corporation, consisting of an internet learning systems company located in
Canada and all operations, customers, accounts, goodwill, knowledge and
anything of tangible value as related to the Corporation.
"Business day" means a day other than a Saturday, Sunday or a day that is a
statutory holiday.
"Closing" means the closing of the transaction for purchase and sale
contemplated herein.
"Closing Date" or "Date of Closing" means September 14, 1999 or such other
date as may be mutually agreed upon in writing by the parties hereto.
"Closing Financial Statements" has the meaning ascribed to it in section
4.1.1.
"Common Shares" means the issued and outstanding common shares in the
capital of the Corporation.
"Corporation" means the companies listed hereinabove as the Sellers.
"EBIT" means net earnings before income taxes, as determined by the auditors,
in accordance with GAAP.
"Exchange Shares" mean the shares payable to Seller in the Purchase Price as
shown in Exhibit "A" attached hereto.
"Financial statements" means, collectively, the Closing Financial Statements
defined hereinabove.
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"Intercompany Transactions" means, collectively, all transactions of any
nature between the Corporation and any Person associated with or related to
the Corporation or otherwise not dealing with the Corporation on an arms-
length basis.
"GAAP" means generally accepted accounting principles in the United States,
as appropriate and as in effect from time to time, consistently applied.
"NASDAQ" means the National Association of Securities Dealers and Quotations.
"Non Arm's Length Person" means any shareholder director, officer, employee,
affiliate, or associate (as defined in the Securities Act of 1933, as amended)
of the Corporation. This term includes any one or more of the Sellers or
any other Person who does not deal at arm's length with the Corporation or any
one or more of the Sellers within the meaning of such concept as used in the
Income Tax Act (USA).
"Person" includes an individual, a corporation, a joint venture, a
partnership, a trust or trustee, any unincorporated organization, an
association, or any other entity (including any governmental, administrative,
or regulatory authority).
"Permitted Liens" means, at any time, such Liens as the Purchaser may agree,
in writing, shall constitute a Permitted Lien for the purpose of this
Agreement.
"Preferred Shares" mean, preferred convertible voting shares in the capital
of the Purchaser, said shares being convertible at a price of $0.01 per
share one year from the effective date of a Registration Statement to be f
filed with the SEC (defined hereinbelow) no later than 60 days from the
Closing Date.
"Purchased Shares" shall have the meaning attributed thereto in section 3.1
hereof.
"Requirements of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational, governing documents of
such Person. This term includes any law, treaty, regulation or rule, or
determination of an arbitrator or a court or other governmental authority
or agency, in each case applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is subject.
"Rule 144" means rule 144 of the United States Securities and Exchange
Commission.
"SEC" means the Securities and Exchange Commission of the United States.
"Sellers" shall mean, specifically for purposes of this agreement and
identifying the parties thereto, all of the shareholders of the Corporation.
"Subsidiary", in relation to any body corporate, means any corporation of
which issued and outstanding securities are held, other than by way of
security only, by such body corporate, and includes any corporation in like
relation to a Subsidiary.
"this agreement", "this agreement", "herein", "hereto", "hereunder", "hereof",
and similar expressions refer to the within agreement and not to any
particular portion thereof, and include the schedules referred to in
Article 2.00.
"Time of Closing" means two o'clock in the afternoon on the Closing Date.
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ARTICLE 2.00 - SCHEDULES
2.1 The following schedules, at time of closing, shall be delivered and
attached to and incorporated in this Agreement by reference and deemed to be
part hereof:
Schedule 4.2.1 - Financial Statements of Corporation
Schedule 4.2.6 - Corporation's Shareholders
Schedule 4.2.22 - Outstanding Obligations of Corporation
Schedule 4.2.23 - Leases of Corporation
Schedule 4.2.26 - Insurance Policies of Corporation
Schedule 4.2.34 - Accounts List of Corporation
Schedule 5.2.1 - Financial Statements of Purchaser
Schedule 5.2.7 - Outstanding Rights to Securities of Purchaser
Schedule 5.2.22 - Outstanding Obligations of Purchaser
Schedule 5.2.33 - Accounts List of Purchaser
Schedule 5.2.37 - Shareholder Credit Facility to Purchaser
Schedule 6.2.4 - Power of Attorney
Schedule 9.9 - Indemnification Agreement
ARTICLE 3.00 - PURCHASE AND SALE
3.1 Subject to the terms and conditions hereof, the Sellers hereby agree to
sell, assign, and transfer to the Purchaser the total number of _____________
common shares of the Corporation (the "Purchased Shares"). The Purchaser
covenants and agrees to purchase from the Sellers the Purchased Shares for
an amount equal in the aggregate to the Purchase Price as set forth in
Exhibit "A".
3.2 The Purchase Price shall be paid in the manner set forth in Exhibit "A"
attached hereto.
3.3 The Sellers hereby represent, warrant, covenant, and acknowledge the
following.
3.3(A) The Purchased Shares is being transferred without registration under
the provisions of Section 5 of the Act.
3.3(B) All of the Purchased Shares will bear legends restricting the
transfer, sale, conveyance, and hypothecation within the jurisdictional
boundaries of the United States. This provision is exclusive of when such
Exchange Shares are registered under the provisions of Section 5 of the act
and under applicable state and provincial securities laws. Moreover, an
opinion of legal counsel may be provided by the Purchaser to certify that
such registration is not required as a result of applicable exemptions
therefrom.
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3.3(C) The Sellers shall not transfer any of the Exchanged Shares except in
compliance with all applicable laws.
3.3(D) The Sellers are acquiring the Exchanged Shares for their own account,
for investment purposes only and not with a view to further sale or
distribution, except as permitted by law.
3.3(E) The Sellers have made themselves fully and completely familiar with
all aspects of the Purchaser's business, operations, and financial statements,
as filed with the SEC.
3.4 The Purchaser hereby represents, warrants, covenants and acknowledges
the following.
3.4(A) The Exchange Shares are being transferred without Registration under
the provisions of Section 5 of the Securities Exchange Act of 1934, as
amended (the "Act") or Delaware Blue Sky Law.
3.4(B) All of the Exchange Shares will bear legends restricting the transfer,
sale, conveyance, and hypothecation within the jurisdictional boundaries of
the United States. This provision is exclusive of when such Exchange Shares
are registered under the provisions of Section 5 of the act and under
applicable state and provincial securities laws. Moreover, an opinion of
legal counselmay be provided by the Purchaser to certify that such
registration is not required as a result of applicable exemptions therefrom.
3.4(C) The Purchaser shall not transfer any of the Purchased Shares except
in compliance with all applicable laws.
3.4(D) The Purchaser is acquiring the Purchased Shares for its own account,
for investment purposes only and not with a view to further sale or
distribution.
3.4.1 The Purchaser has executed certain certificates and warranties under
separate documents that shall be incorporated herein as if set forth in this
document and which bear the same date as this Agreement. 3.4.2 Except as
described herein, the Purchaser has no other, outstanding securities of any
class or of any kind or character. There are no outstanding subscriptions,
options, warrants, or other agreements or commitments obligating the
Purchaser to issue or sell any additional shares or options or rights with
respect thereto or any securities convertible into any shares of Stock of any
class.
3.5 The Purchase Price shall be paid and satisfied in full by
the delivery of the issued Exchange Shares at the Times of Closing.
3.6 The certificates representing the shares being exchanged
shall each bear the following legend:
"THESE SHARES HAVE NEITHER BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION (OR WITH THE SECURITIES REGULATORY
AUTHORITIES OF ANY STATE, PROVINCE, OR NATIONAL AUTHORITY). CONSEQUENTLY,
THESE SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
THEY ARE FIRST REGISTERED UNDER APPLICABLE STATE, PROVINCIAL AND FEDERAL
SECURITIES LAWS OR THE TRANSACTION'S EXEMPTION THEREFROM IS DEMONSTRATED
TO THE FULL SATISFACTION OF THE CORPORATION'S LEGAL COUNSEL."
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ARTICLE 4.00 - COVENANTS, REPRESENTATIONS, AND WARRANTIES OF AND
THE CORPORATION
4.1 The Shareholders of the Seller hereby covenant, represent, and warrant,
and the Seller, jointly and severally, represent to the best of their
knowledge, as follows:
4.2.1 Delivered at Closing, warranted to be true and correct to the best
knowledge of the Sellers, and made a part hereof as Schedule 4.2.1 are the
following:
(A) unaudited balance sheet of the Corporation to be acquired as of July 31,
1999, with the related statement of operations and unaudited statement of
cash flow for the period ending July 31, 1999 (such balance sheets,
statements of operations, and other statements are referred to herein as the
"Corporation's Financial Statements").
4.2.2 Corporation has been duly incorporated and organized and is validly
subsisting and in good standing under the laws of Canada.
4.2.3 Corporation has the corporate power to own or lease its property and
carry on the Business. The Corporation is duly qualified as a corporation to
do business under the laws of Canada being the only jurisdictions in which
the nature of its business or the property owned or leased by it makes such
qualification necessary.
4.2.4 At Time of Closing, the authorized capital of the Corporation shall
be represented in a separate certificate which shall be incorporated herein
by reference as consistent with all other documents executed on this date.
4.2.5 At Time of Closing, the authorized capital of the said corporation
shall be duly and validly allotted and issued and outstanding as fully paid
and non-assessable and beneficially owned by the Sellers.
4.2.6 All of the Purchased Shares are owned by the shareholders of the
Corporation as the beneficial owners of record as listed at Schedule 4.2.6.
Such listed shareholders have good and marketable title thereto, free and
clear of all mortgages, liens, charges, security interests, adverse claims,
pledges, encumbrances, and demands whatsoever. This provision includes
voting trusts, shareholders' agreements, options, or other agreements of any
kind. The Sellers represent that said listed shareholders have the absolute
right to transfer the Purchased Shares, and they shall be enjoyed by the
Purchaser free from any interruption or disturbance subject only to the
terms and conditions herein.
4.2.7 The Corporation has no subsidiaries and owns no shares in the capital
of any other corporation and has not agreed to acquire any subsidiary or any
shares of the capital of any other corporation or to acquire or lease any
other business operations. 4.2.8 No person, firm, or corporation has any
agreement, option, or any right or privilege (whether by law, pre-emptive,
or contractual) for the purchase, subscription, allotment, or issuance of
either any of theauthorized stock in the capital of the Corporation or of
any securities of the Corporation. This provision includes convertible
securities, warrants, and convertible obligations of any nature.
4.2.9 Except with respect to product warranties provided by the Corporation
in the ordinary course of business, the Corporation is not a party to or
bound to any person, firm, or corporation. This provision includes any
agreement of guarantee, indemnification, assumption, endorsement, or any
other like commitment of obligations or liabilities (contingent or otherwise)
or indebtedness of any person, firm, or corporation.
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4.2.10 There are not now, nor will there be on Closing, any material claims
or potential or contingent claims against the Corporation for product
liability in respect of goods manufactured and/or sold by the Corporation.
4.2.11 The Corporation's Financial Statements have been prepared in
accordance with GAAP and present fairly to include:
4.2.11(A) all the assets, liabilities (whether accrued, absolute,
contingent, or otherwise), and the financial condition of the Corporation as
at the respective dates of the Corporation's Financial Statements; and
4.2.11(B) the sales, earnings, and results of the operations of the
Corporation during the periods covered by the Corporation's Financial
Statements.
4.2.12 The corporate records and minute books of the Corporation contain
complete and accurate minutes of all meetings of and copies of all by-laws
and resolutions passed by the directors and shareholders of the Corporation
since the incorporation of the Corporation. All such meetings have been duly
called and held.The share certificate book with register of shareholders,
register of transfers, register of directors, and other corporate registers
of the Corporation are complete and accurate in all material respects.
4.2.13 The Business has been carried on in the ordinary course since January
1999. Since then, there has been no change in the business operations,
affairs, or condition of the Corporation, financial or otherwise. This
provision includes changes arising as a result of any legislative or
regulatory change, revocation of any license or right to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, or otherwise. This provision excludes changes
occurring in the ordinary course of business, which changes have not
materially aversely affected and will not materially aversely affect the
organization, business, properties, prospects, and financial condition of
the Corporation or the ability of the Corporation to carry on Business.
4.2.14 The books and records, financial and otherwise, of the Corporation
fairly and correctly set out and disclose, in all material respects, the
financial position and result of operations of the Corporation as at the
date hereof. All material, financial transactions of the Corporation are
accurately recorded in such books and records.
4.2.15 Execution of this Agreement by the Sellers and delivery of the
Agreement by them to the Purchaser and their performance hereunder has been
duly authorized. No further action is necessary on the part of the
Sellers to make this agreement valid and binding in accordance with its
terms upon the Sellers.
4.2.16 The execution and the consummation of this transaction for purchase
and sale contemplated by this Agreement will not result in a breach of any
term or provision of or constitute any default under the constituting
documents, by-laws, or resolutions of the Corporation. This provision
includes any indenture, agreement, instrument, license, permit, or
understanding to which the Corporation or any one or more of the Sellers is
a party or by which any one or more of them is bound. Nor will the
consummation of this transaction accelerate any commitment or obligation of
the Corporation or result in the creation of any lien or encumbrance upon
any of the assets or property of the Corporation.
4.2.17 This agreement and the consummation of the transactions contemplated
hereby will not result in the violation of any law or regulation or any
applicable order of any court, arbitrator, or governmental authority
having jurisdiction over the Corporation, the Sellers, or their respective
properties or businesses.
4.2.18 No consent, authorization, license, franchise, permit, approval, or
order of any court, governmental agency or body, of any lessor, or of any
person is required for the acquisition by the Purchaser of the Purchased
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Shares, including completion of any of the other transactions contemplated
hereby. This provision also includes the continuance of any rights of the
Corporation pursuant to any agreement affecting its assets or the Business
following closing.
4.2.19 The Corporation will not, prior to the Closing Date, hire any new
employees, terminate any employee, or increase the salary or remuneration of
any employee except in the normal course of business.
4.2.20 The aggregate amount of salaries, pension, bonuses, rents, or other
remuneration of any nature paid or payable by the Corporation, subsequent to
the execution of this Agreement and up to the Time of Closing, will be made
only at the regular rates heretofore paid.
4.2.21 No capital expenditures, except in the ordinary course of business,
will be made or authorized by the Corporation after the date hereof and up
to the Time of Closing without the prior written consent of the Purchaser.
4.2.22 Annexed hereto as Schedule 4.2.22 is a complete list of all
outstanding bonds, debentures, mortgages, notes or other evidence of
indebtedness or other security instruments of the Corporation. None of
which are presently in default, and the Corporation is not under any
agreement to and shall not create or issue any bonds, debentures, mortgages,
notes, or other evidence of indebtedness or other security agreements from
the date hereof until Closing without the written consent of the Purchaser.
4.2.23 The Corporation is not a party to any lease or agreement in the
nature of a lease, whether as lessor or lessee, except those leases described
in Schedule 4.2.23 hereto. The schedule specifies the parties to each of
such leases, their dates of execution and expiry dates, any options to
renew, any consents required, the locations of any leased lands and premises,
and the rental payable thereunder. Each of such leases is in good standing
and in full force and effect without amendment thereto, and the Corporation
is not in breach of any of the covenants, conditions, or agreements
contained in each such lease. There are no consents required from or on
behalf of any persons to the transaction contemplated by this Agreement.
4.2.24 The Corporation is not a party to any conditional sales contract,
hire-purchase agreement, or other title retention agreement.
4.2.25 The Corporation is not, and will not be at the Time of Closing, a
party to any agreement to acquire or to acquire any beneficial interest in
any real or immovable property.
4.2.26 The Corporation maintains appropriate policies of insurance, given
the nature of the Business, and such insurance coverage will be continued in
full force and effect to and including the Date of Closing. The Corporation
is not in default with respect to any of the provisions contained in any
such insurance policy, and it has not failed to give any notice or present
any claim under any such insurance policy in due and timely fashion.
Schedule 4.2.26 hereto lists all insurance policies of the Corporation,
specifying the insurance company, insurance agent, policy number, type of
coverage, and amount of coverage.
4.2.27 There are no actions, suits, or proceedings, including product
warranty claims, pending or threatened against or affecting the Corporation,
at law or in equity or before or by any federal, provincial, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign. The Sellers are not aware of any
existing ground on which any such action, suit, or proceeding might be
commenced with any reasonable likelihood of success.
4.2.28 Except for agreements, contracts, and commitments in the ordinary
course of business, the Corporation is not a party to any outstanding
agreement, contract, or commitment, whether written or oral.
4.2.29 All vacation pay, bonuses, commissions, and other emoluments are
accurately reflected and have been accrued in the books of account of the
Corporation.
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4.2.30 The Corporation is and at Closing will be in substantial compliance
in all jurisdictions in which it employs persons, with legislation governing
hours of work, termination and severance pay, vacation pay and similar
employee rights, the Worker's Compensation Act, and all such similar
statutes.
4.2.31 The uses of the real properties owned or leased by the Corporation
referred to in this agreement or the schedules hereto are not in material
breach of any statute, by-law, ordinance, regulation, covenant, restriction,
or official plan.
4.2.32 The Corporation owns, possesses, and has a good and marketable title
to its undertaking, property, and assets, being free and clear of any and
all mortgages, liens, pledges, charges, security interests, encumbrances,
actions, claims, or demands of any nature whatsoever or howsoever arising
except as listed at Schedule 4.2.22; the purchase price is based on and
directly correlates to the net tangible worth (being assets less liabilities)
of the Corporation.
4.2.33 The conduct of the Business does not infringe upon the patents, trade
marks, trade names, or copyrights (domestic or foreign) of any other person,
firm, or corporation.
4.2.34 Annexed hereto as Schedule 4.2.34 is a true and complete list showing
the name of each bank, trust company, or similar institution in which the
Corporation has accounts or safe deposit boxes and the names of all persons
authorized to draw thereon or to have access thereto.
4.2.35 The Corporation is conducting the Business in compliance with all
applicable laws, rules and regulations of each jurisdiction in which the
Business is carried on, is not in breach of any such laws, rules or
regulations, except for breaches which in the aggregate are immaterial.
Also the Corporation is duly licensed, registered, or qualified in each
jurisdiction in which it owns or leases property or carries on the Business.
To enable the business to be carried on as now conducted and its property
and assets to be owned, leased, and operated, all such licenses, registrations
and qualifications are valid and subsisting and in good standing. None of
the same will be canceled or amended by virtue of the transaction for
purchase and sale provided for herein.
4.2.36 All facilities and equipment owned and used by the Corporation in
connection with the Business are in good operating condition and are in a
state of good repair and maintenance.
4.2.37 There are not now any loans or other indebtedness outstanding
between the Corporation and the Sellers or either any current or former
directors, officers, shareholders, or employees of the Corporation or any
Non Arms Length Persons. This provision is exclusive of normal salaries,
bonuses, fringe benefits, and the obligation to reimburse for expense
incurred on behalf of the Corporation in the normal course of business
or otherwise disclosed in the Corporation's Financial Statements.
4.2.38 To the best of the Sellers' knowledge, there are no liabilities of
the Corporation of any kind whatsoever, whether or not accrued and whether
or not determined or determinable, in respect of which the Corporation
or the Purchaser may become liable before, on, or after the Closing. This
provision is exclusive of liabilities disclosed on, reflected in, or provided
for in the Financial Statements or incurred in the ordinary course of
business. This provision is also exclusive of those liabilities attributable
to the period from the Corporation's Financial Statements to the actual time
of Closing and are not materially adverse, individually or in the aggregate,
to the Business, operations, affairs or financial condition of the Corporation.
4.2.39 There is not now nor will there be at the Time of Closing any
application pending for the issuance of articles of amendment to the
originating documents of the Corporation.
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4.2.40 The Corporation is not in default in the filing of any corporate
return or report that may be required under any federal, provincial and/or
municipal law or regulation.
4.2.41 The Corporation has duly and timely filed all tax returns required
and has paid all taxes and installments of taxes which are due and payable.
This provision includes all assessments, reassessments, and all other
taxes, governmental charges, penalties, interest, and fines due and payable
by it on or before the date hereof. The income tax liability of the
corporation has been not reviewed or determined by the IRS or the applicable
State for all fiscal years up to and including the fiscal year to date.
Adequate provision has been made for taxes payable for the current period of
which tax returns are not yet required to be filed. There are no agreements,
waivers, or other arrangements providing for an extension of time with
respect to the filing of any tax return by, or payment of any tax,
governmental charge, or deficiency against the Corporation in respect of
taxes, governmental charges, or assessments, asserted by such authority.
The Corporation has withheld from each payment made to any of its officers,
directors, employees, former directors, officers, and employees the amount of
all taxes, including but not limited to income tax, and other deductions
required to be withheld therefrom. The Corporation has paid the same to the
proper tax or other receiving officers within the time required under the
applicable tax legislation.
4.2.42 The Sellers have no information or knowledge of any facts relating to
the Sellers, the Business, the Corporation, or the Purchased Shares which, if
known to the Purchaser, might reasonably be expected to deter the Purchaser
from completing the transaction of purchase and sale herein contemplated.
4.2.43 The Corporation shall prepare and file all documents necessary to
achieve regulatory approval from all regulatory agencies by which it is
subject.
ARTICLE 5.00 - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.1 The Purchaser covenants, represents, and warrants as follows and
acknowledges that the Sellers are relying upon such covenants,
representations, warranties, and covenants in connection with the sale by
the Sellers of the Purchased Shares.
5.2.1 Delivered at Closing, warranted to be true and correct to the best
knowledge of the Purchaser, and made a part hereof as Schedule 5.2.1 are the
following: All 10K's and 10Q's as filed with the SEC (such balance sheets,
statements of operations, and other statements are referred to herein as the
"Purchaser's Financial Statements").
5.2.2 Purchaser has been duly incorporated and organized and is validly
subsisting and in good standing under the laws of Delaware.
5.2.3 Purchaser has the corporate power to own or lease its property and
carry on the Business. The Corporation is duly qualified as a corporation
to do business under the laws of Delaware, being the only jurisdiction in
which the nature of its business or the property owned or leased by it makes
such qualification necessary.
5.2.4 At time of Closing, the authorized capital of the Purchaser shall
consist of that represented in its most recently filed 10Q as on file with
the SEC.
5.2.5 At time of Closing, the authorized issued capital of the Purchaser
shall be duly and validly allotted and issued and outstanding as fully
paid and non-assessable and beneficially owned by the Purchaser.
5.2.6 The Purchaser has no subsidiaries and owns no shares in the capital of
any other corporation and has not agreed to acquire any subsidiary or any
shares of the capital of any other corporation or to acquire or lease
any other business operations other than has already been disclosed to the
public.
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5.2.7 Except as listed at Schedule 5.2.7, no person, firm, or corporation
has any agreement, option, or any right or privilege (whether by law, pre-
emptive, or contractual) for the purchase, subscription, allotment, or
issuance of either any of the authorized stock in the capital or any
securities of the Purchaser other than as disclosed in filings with the SEC.
5.2.8 The Purchaser is not a party to or bound to any person, firm, or
corporation. This provision includes any agreement of guarantee,
indemnification, assumption, endorsement, or any other like commitment of
obligations or liabilities (contingent or otherwise) or indebtedness of any
person, firm, or corporation, other than as set forth in filings with the SEC.
5.2.9 There are not now, nor will there be on Closing, any material claims or
potential or contingent claims against the Purchaser for product liability.
5.2.10 The Purchaser's Financial Statements have been prepared in accordance
with GAAP and present fairly to include:
(A) all the assets, liabilities (whether accrued, absolute, contingent, or
otherwise), and the financial condition of the Purchaser as at the respective
dates of the Purchaser's Financial Statements, and;
(B) the sales, earnings, and results of operations during the periods covered
by the Corporation's Financial Statements.
5.2.11 The corporate records and minute books of the Purchaser contain
complete and accurate minutes of all meetings of and copies of all by-laws
and resolutions passed by the directors and shareholders of the Purchaser
since the incorporation of the Purchaser. All such meetings have been duly
called and held. The share certificate book with register of shareholders,
register of transfers, register of directors, and other corporate registers
of the Purchaser are complete and accurate in all material respects and have
been made available to Seller.
5.2.12 The Purchaser does not have an active business or operations other
than as disclosed in filings with the SEC.
5.2.13 The Purchaser has no inventory other than as disclosed in filings
with the SEC.
5.2.14 The books and records, financial and otherwise, of the Purchaser
fairly and correctly set out and disclose, in all material respects, the
financial position and result of operations of the Purchaser as at the date
hereof. All material, financial transactions of the Purchaser are accurately
recorded in such books and records.
5.2.15 The execution and delivery of this Agreement by the Purchaser as well
as the performance by the Purchaser hereunder have been duly authorized. No
further action will be necessary on the part of the Purchaser to make this
Agreement valid and binding in accordance with its terms upon the Purchaser.
5.2.16 The execution and the consummation of this transaction for purchase
and sale contemplated by this Agreement will not result in a breach of any
term or provision of or constitute any default under the constituting
documents, by-laws, or resolutions of the Purchaser. This provision includes
any indenture, agreement, instrument, license, permit, or understanding to
which the Purchaser is a party or by which any one or more of them is bound.
Nor will the consummation of this transaction accelerate any commitment or
obligation of the Purchaser or result in the creation of any lien or
encumbrance upon any of the assets or property of the Purchaser.
5.2.17 This agreement and the consummation of the transactions contemplated
hereby will not result in the violation of any law or regulation or any
applicable order of any court, arbitrator, or governmental authority
having jurisdiction over the Purchaser.
46
5.2.18 No consent, authorization, license, franchise, permit, approval, or
order of any court, governmental agency or body, of any lessor, or of any
person is required for the acquisition by the Purchaser of the Purchased
Shares, including completion of any of the other transactions contemplated
hereby. This provision also includes the continuance of any rights of the
Purchaser pursuant to any agreement affecting its assets or the Business
following closing.
5.2.19 The Purchaser will not, prior to the Closing Date, hire any new
employees, terminate any employee, or increase the salary or remuneration of
any employee except in the normal course of business.
5.2.20 The aggregate amount of salaries, pension, bonuses, rents, or other
remuneration of any nature paid or payable by the Purchaser, subsequent to
the execution of this Agreement and up to the Time of Closing, will be made
only at the regular rates heretofore paid.
5.2.21 No capital expenditures, except in the ordinary course of business,
will be made or authorized by the Purchaser after the date hereof and up to
the Time of Closing without the prior written consent of the Seller.
5.2.22 Annexed hereto as Schedule 5.2.22 is a complete list of all outstanding
bonds, debentures, mortgages, notes or other evidence of indebtedness or
other security instruments of the Purchaser. None of which are presently in
default, and the Purchaser is not under any agreement to and shall not
create or issue any bonds, debentures, mortgages, notes, or other evidence of
indebtedness or other security agreements from the date hereof until Closing
without the written consent of the Seller.
5.2.23 The Purchaser is not a party to any lease or agreement in the nature
of a lease, whether as lessor or lessee, except as disclosed as filings with
the SEC.
5.2.24 The Purchaser is not a party to any conditional sales contract, hire-
purchase agreement, or other title retention agreement.
5.2.25 The Purchaser is not, and will not be at the Time of Closing, a party
to any agreement to acquire or to acquire any beneficial interest in any real
or immovable property.
5.2.26 The Purchaser does not maintain any insurance policies, except
Directors and Officers Liability, and Products and Professional Liability,
except as provided in SEC filings.
5.2.27 There are no actions, suits, or proceedings, including product
warranty claims, pending or threatened against or affecting the Purchaser, at
law or in equity or before or by any federal, provincial, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign. The Purchaser is not aware of any
existing ground on which any such action, suit, or proceeding might be
commenced with any reasonable likelihood of success.
5.2.28 Except for agreements, contracts, and commitments in the ordinary
course of business.
5.2.29 All vacation pay, bonuses, commissions, and other emoluments are
accurately reflected and have been accrued in the books of account of the
Purchaser.
5.2.30 The Purchaser is and at Closing will be in substantial compliance in
all jurisdictions in which it employs persons, with legislation governing
hours of work, termination and severance pay, vacation pay and similar
employee rights, the Worker's Compensation Act, and all such similar
statutes.
5.2.31 The Purchaser does not lease any real properties other than as
disclosed in its filings with the SEC.
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5.2.32 The Purchaser owns, possesses, and has a good and marketable title to
its undertaking, property, and assets, being free and clear of any and all
mortgages, liens, pledges, charges, security interests, encumbrances,
actions, claims, or demands of any nature whatsoever or howsoever arising.
5.2.33 The conduct of business does not infringe upon the patents, trade
marks, trade names, or copyrights (domestic or foreign) of any other person,
firm, or corporation.
5.2.34 Annexed hereto as Schedule 5.2.33 is a true and complete list showing
the name of each bank, trust company, or similar institution in which the
Purchaser has accounts or safe deposit boxes and the names of all persons
authorized to draw thereon or to have access thereto or in the alternative
that information has been made available for Seller to review.
5.2.35 The Purchaser exists in compliance with all applicable laws, rules
and regulations of each jurisdiction in which the Business is carried on, is
not in breach of any such laws, rules or regulations, except for breaches
in the aggregate are immaterial. Also the Purchaser is duly licensed,
registered, or qualified in each jurisdiction in which it owns or leases
property or carries on the Business. To enable the business to be
carried on as now conducted and its property and assets to be owned, leased,
and operated, all such licenses, registrations and qualifications are valid
and subsisting and in good standing. None of the same will be canceled or
amended by virtue of the transaction for purchase and sale provided for
herein.
5.2.36 All facilities and equipment owned or used by the Purchaser are in
good operating condition and are in a state of good repair and maintenance.
5.2.37 Except as specified at Schedule 5.2.37, there are not any loans or
other indebtedness outstanding between the Purchaser and either the Sellers
or either any current or former directors, officers, shareholders, or
employees of the Purchaser or any Non Arms Length Persons. This provision
is exclusive of normal salaries, bonuses, fringe benefits, and the
obligation to reimburse for expense incurred on behalf of the Purchaser in
the normal course of business.
5.2.38 There are no liabilities of the Purchaser of any kind whatsoever,
whether or not accrued and whether or not determined or determinable, in
respect of which the Purchaser may become liable before, on, or after the
Closing. This provision is exclusive of liabilities disclosed on, reflected
in, or provided for in the Financial Statements or incurred in the ordinary
course of business. This provision is also exclusive of those liabilities
attributable to the period from the Purchaser's Financial Statements to the
actual time of Closing and are not materially adverse, individually or in
the aggregate, to the Business, operations, affairs or financial condition of
the Purchaser.
5.2.39 There is not now nor will there be at the time of Closing any
application pending for the issuance of articles of amendment to the
originating documents of the Purchaser.
5.2.40 The Purchaser is not in default in the filing of any corporate return
or report that may be required under any federal, provincial and/or
municipal law or regulation.
5.2.41 The Purchaser has duly and timely filed or has pending all tax returns
required and has paid all taxes and installments of taxes which are due and
payable. This provision includes all assessments, reassessments, and all
other taxes, governmental charges, penalties, interest, and fines due and
payable by it on or before the date hereof. The income tax liability of the
Purchaser has been not reviewed or determined by the IRS or the applicable
State for all fiscal years up to and including the fiscal year to date.
5.2.42 The Purchaser has no information or knowledge of any facts relating to
the Purchaser which if known to the Sellers might reasonably be expected to
deter the Sellers from completing the transaction and sale herein
contemplated.
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ARTICLE 6.00 - COVENANTS OF THE SELLERS
6.1 The Sellers covenant and agree with the Purchaser that on or before
the Closing Date they will do or cause to be done the following.
6.2.1 Take all necessary steps and proceedings required for all of the
Purchased Shares to be duly and regularly transferred to the Purchaser.
6.2.2 Until the time of Closing, continue to operate the business of the
Corporation prudently and in such a manner as to preserve and maintain the
goodwill of the Corporation.
6.2.3 All necessary corporate actions and proceedings by the Purchaser shall
have been taken to permit the due execution and delivery of this Agreement
and the valid transfer of the Purchased Shares to the Purchaser.
ARTICLE 7.00 - COVENANTS OF THE PURCHASER
7.1 The Purchaser covenants and agrees with the Sellers that, on or before
the Closing Date, it will do or cause to be done the following.
7.2.1 All necessary corporate actions and proceedings by the Purchaser shall
have been taken to permit the due execution and delivery of this Agreement
and the valid transfer of the Exchange Shares to the Sellers.
7.2.2 Provide the Sellers, at least four (4) days prior to the Closing Date,
all documents necessary to be attached to the closing certificates previously
forwarded to Seller with said documents numbered and appended to the closing
certificates in a manner to permanently memorialize all documents provided
to Purchaser by Seller.
7.2.3 Cause such board of director seat to be made available to Seller as
specified in Exhibit "A".
7.2.4 Up to the Time of Closing, continue to operate the businesses of the
Purchaser prudently and in such a manner as to preserve and maintain the
goodwill of the Purchaser.
49
ARTICLE 8.00 - SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
8.1 The covenants, representations, and warranties of the Sellers contained
in this Agreement and contained in any document or certificate given pursuant
hereto shall survive the Closing herein. Notwithstanding Closing, this
survival is inclusive of any investigation made by or on behalf of the
Purchaser and shall continue in full force and effect for the benefit of the
Purchaser following the Closing Date.
8.2 The covenants, representations and warranties of the Purchaser contained
in this Agreement and contained in any document or certificate given pursuant
hereto shall survive the Closing herein. Notwithstanding Closing, this
survival is inclusive of any investigation made by or on behalf of the
Sellers and shall continue in full force and effect for the benefit of the
Sellers following the Closing Date.
ARTICLE 9.00 - CONDITIONS OF CLOSING
9.1 The sale and purchase of the Purchase Shares is subject to the following
terms and conditions, each of which is hereby declared to be for the
exclusive benefit of the Purchaser to be fulfilled and performed at or prior
to the time of Closing.
9.2 The covenants, representations, and warranties of the Sellers contained
in this Agreement or any schedule hereto or certificate or other document
delivered or given to the Purchaser pursuant to this Agreement, including
without limitation the representations and warranties contained in Article
4.00, shall be true and correct on and as of the Closing Date with the same
force and effect as if they had been made as of the date hereof, each and
every one of which is hereby deemed to be a condition.
9.3 The Sellers shall provide at the time of Closing a certificate, dated
the Closing Date, to the effect that the covenants, representations, and
warranties of the Sellers contained herein are true and correct on and as
of the Closing Date, with the same force and effect as though made on and as
of such date, provided that the acceptance of such certificate and the
closing of the transaction herein provided for shall not be a waiver of
the said covenants, representations, and warranties, which shall continue in
full force and effect as provided herein.
9.4 The Sellers shall have complied with all covenants and agreements herein
agreed to be performed or caused to be performed by them.
9.5 At the Closing Date, there shall have been no material adverse change in
the affairs, assets, liabilities, financial condition, or business of the
Corporation from that shown on or reflected in the Financial Statements.
9.6 Any consent, authorization, licence, franchise, permit, approval, or
order of any court or governmental agency or regulatory body required for the
acquisition by the Purchaser of the Purchased Shares shall have been
obtained.
9.7 The Purchaser shall provide at the time of Closing a certificate, dated
the Closing Date, to the effect that the covenants, representations, and
warranties of the Purchaser contained herein are true and correct on and as
of the Closing Date. This certificate shall have the same force and effect
as though made on and as of such date provided that the acceptance of such
certificate and the closing of the transaction herein provided for shall not
be a waiver of the said covenants, representations, and warranties which shall
continue in full force and effect as provided herein.
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9.8 The Purchaser shall have complied with all covenants and agreements
herein agreed to be performed or caused to be performed by it.
9.9 The parties shall execute and deliver an indemnification agreement to be
annexed hereto as Schedule 9.9.
9.10 The parties shall not close and complete this transaction unless both
Sellers and Purchaser have signed a written acknowledgement that the exchange
of shares between them does not create a taxable event for either party.
9.11 The parties hereby agree that the scheduled closing shall be conditional
upon shareholder approval by the shareholders of both companies.
ARTICLE 10.00-CLOSING ARRANGEMENTS
10.1 The closing is scheduled to take place on September 14, 1999 and at the
Time of Closing at such offices as are agreed to in writing among the parties
hereto at least 24 hours prior to the said Closing.
10.2 At the Time of Closing and upon fulfillment of all the conditions set
out in this Agreement, which have not been waived in writing by the Sellers or
the Purchaser, the Sellers shall deliver to the Purchaser proper certificates
for all the Purchased Shares.
ARTICLE 11.00-NOTICE
11.1 Any notice or other document to be given by any party hereto to any
other party shall be in writing and may be given by personal delivery or by
registered mail. Any notice directed to any party shall be addressed to it
as follows:
To the Purchaser:
Salient Cybertech, Inc.
X/X Xxxxxxxx & Xxx, Xxxxxxxxx at Law
0000 XXX Xxxx. Xxx 000
Xxxx Xxxxx Xxxxxxx, Xxxxxxx 00000
To the Sellers and the Corporation:
Xxxxx Xxxxxx, Esq.
00 Xxxxx Xxxx Xxxx
Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxx 00000
11.2 Any notice or other document aforesaid, if delivered, shall be deemed
to have been given or made on the date on which it was delivered or, if
mailed, shall be deemed to have been given and received on the fourth (4th)
business day following the date on which it was mailed. Provided that if
there exists at the time of mailing of a notice hereunder or within four (4)
business days thereafter a labor dispute or other event which would affect
the normal delivery of the notice by an express or postal service, then
such notice will only be effective if actually delivered.
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11.3 The parties hereto may change any address for notices hereunder, from
time to time, by notice given in accordance with the foregoing.
ARTICLE 12.00 - GENERAL
12.1 Time shall be of the essence of this Agreement.
12.2 This Agreement may be executed in one or more counterparts, each of
which when so executed shall constitute an original, and all of which
together shall constitute one and the same agreement.
12.3 This Agreement, including the schedules hereto, constitutes the entire
agreement between the parties hereto. There are not and shall not be any
verbal statements, representations, warranties, undertakings, or agreements
between the parties, and this Agreement may not be amended or modified in
any respect except by written instrument signed by the parties hereto.
12.4 This Agreement shall be construed and enforced in accordance with and
the rights of the parties shall be governed by the laws of the State of
Florida. Any and all disputes arising under this Agreement, whether as to
interpretation, performance or otherwise, shall be subject to the exclusive
jurisdiction of the Courts of the State of Florida. Each of the parties
hereto irrevocably submit to the jurisdiction of the Courts of the State of
Florida, Palm Beach County.
12.5 The headings used herein are inserted for convenience of reference
only and shall not affect the construction of or interpretation of this
Agreement.
12.6 Except as otherwise set out in this Agreement, each of the parties
hereto shall pay all of its own costs and expenses of the transaction of
purchase and sale, including all fees and expenses of its accountants,
counsel, and officers.
12.7 In the event that any Article or section of this Agreement is held to
be invalid or unenforceable by a court of competent jurisdiction, such
invalidity or unenforceability shall not affect the remainder of the
provisions hereof. Any such part shall be fully severable, and this
Agreement shall be construed and enforced as if such invalid or unenforceable
part had not been inserted herein. The parties hereby agree that they would
have signed this Agreement without such invalid or unenforceable part
included herein.
12.8 In this Agreement, words importing the singular number only include
the plural and vice versa; words importing the masculine gender include the
feminine and vice versa.
12.9 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors, and permitted assigns.
12.10 Where the date either for the expiration of any time period or for
the closing of anything hereunder expires or falls upon a day which is not a
Business Day, the time so limited extends to and the thing shall be done
on the day next following that is a Business Day.
12.11 The parties hereto agree that no disclosure or public announcement
with respect to this Agreement, or any of the transactions contemplated by
this Agreement, shall be made by any party hereto without the prior
written consent of the other parties hereto.
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12.12 An Exhibit "B" shall be annexed hereto as if set forth herein and
said exhibit shall contain terms regarding covenants not to compete,
operations of the Sellers Business and buy back/spin out rights.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first
above written.
SIGNED, SEALED AND DELIVERED )
in the presence of )__________________________
)
) __________________________
) SELLERS
)
)
) __________________________
) BUYER
)
53
Exhibit "A"
The Purchase Compensation for the Seller shall be 20,000,000 (twenty million)
shares of common stock in the Purchaser, to be paid at closing. An
additional 50,000 shares of stock which shall not be subject to any stock
split, shall be made available for Xxx Xxxxxxx to reward key employees of
the Business at her sole and absolute discretion so long as said shares are
issued in conformance with Purchaser's existing non-qualified stock option
plan.
In the event the Business earns three million dollars in gross sales for the
fiscal year ended September 30, 2000 then Seller shall be entitled to an
additional 9,230,000 (nine million two hundred thirty thousand) shares of
common stock ( hereinafter the "First Earn Out Shares") in the Purchaser.
If the Business has gross sales for the fiscal year ended September 30, 2000
which are at least double the Business' gross sales for the fiscal year ended
September 30, 1999 but less than three million dollars then the Seller shall
be entitled to a percentage of the First Earn Out Shares (hereinafter the
"Percentage First Earn Out Shares"). The Percentage First Earn Out Shares
shall be calculated as follows:
1. Gross Sales for fiscal year ended 9/30/99 subtracted from the Gross Sales
for fiscal year ended 9/31/00 = "The Sales Difference"
2. The Sales Difference divided by three million (3,000,000) = "The Base
Sales Difference"
3. The Base Sales Difference shall be multiplied the First Earnout Shares =
Percentage First Earn Out Shares
In the event the Business earns ten million dollars in gross sales for the
fiscal year ended September 30, 2001 then Seller shall be entitled to an
additional 30,730,000 (thirty million seven hundred thirty thousand) shares
of common stock ( hereinafter the "Second Earn Out Shares") in the Purchaser.
If the Business has gross sales for the fiscal year ended September 30, 2001
which are at least double the Business' gross sales for the fiscal year ended
September 30, 2000 and at least quadruple the Business' gross sales for the
fiscal year ended September 30, 1999 but less than ten million dollars then
the Seller shall be entitled to a percentage of the Second Earn Out Shares
(hereinafter the "Percentage Second Earn Out Shares"). The Percentage Second
Earn Out Shares shall be calculated as follows:
1. Gross Sales for fiscal year ended 9/30/00 subtracted from the Gross
Sales for fiscal year ended 9/30/01 ="The Sales Difference"
2. The Sales Difference divided by ten million (10,000,000) = "The Base Sales
Difference"
3. The Base Sales Difference shall be multiplied by the Second Earnout Shares
= Percentage Second Earn Out Shares
Notwithstanding the preceding methods for the Seller to achieve the above
referenced earn outs, the Seller may, instead of the above mentioned formulas,
but not in addition to the above mentioned formulas, obtain earn outs
as follows:
1. If as of September 30, 2000 the prior five trading days average
closing price of the Purchaser's stock is greater than or equal to three
dollars per share (the "First Target Price"), which shall be correspondingly
increased or decreased with any stock split, and the gross revenue of the
Business is at least eighty percent of the total preceding calendar year
revenues of Purchaser, the Seller shall be entitled to the First Earn Out
Shares. However, if the First Target Price is achieved but the Business is
less than eighty percent of the total preceding calendar year revenues of
Purchaser, then earn out will be calculated by proration (the "Proration").
The Proration shall be calculated by reducing the First Earn Out Shares by
the same percentage by which the Business failed to account for eighty
percent of the total preceding calendar year revenues of Purchaser.
54
2. If as of September 30, 2001 the prior five trading days average closing
price of the Purchaser's stock is greater than or equal to five dollars per
share (the "Second Target Price"), which shall be correspondingly increased
or decreased with any stock split, and the gross revenue of the Business is
at least eighty percent of the total preceding calendar year revenues of
Purchaser, the Seller shall be entitled to the Second Earn Out Shares.
However, if the Second Target Price is achieved but the Business is less
than eighty percent of the total preceding calendar year revenues of
Purchaser, then earn out will be calculated by modified proration (the
"Modified Proration"). The Modified Proration shall be calculated by reducing
the Second Earn Out Shares by the same percentage by which the Business
failed to account for eighty percent of the total preceding calendar year
revenues of Purchaser.
As further consideration for the transaction contemplated herein, the Seller
shall be entitled to the appointment of two board of directors positions to
the board of directors of the Purchaser upon the closing of this transaction,
however, in the event the Seller is not able to obtain the President of
Netscape Canada to be a Board Member to fill one of the two board of director
positions which Seller may appoint, then Seller shall only be entitled
to appoint one board of director position to the board of directors of the
Purchaser upon the closing of this transaction. Seller shall have a minimum
representation equal to 20% of the Board. All values herein are based on the
United States Dollar.
In addition, the Purchaser shall provide seven hundred and fifty thousand
dollars of working capital to the Seller as specified in that certain
Addendum to Letter of Intent entered into between the Purchaser and Seller
on or about August 6, 1999. Said monies shall be provided through the use of
a registration statement or private placement. In the event the Purchaser
does not provide the Seller with seven hundred and fifty thousand dollars
of working capital then the Seller shall have the right to request to have
its business spun out as a separately traded public entity, with the
purchaser retaining a 5% interest in the Seller, said interest to be given,
by way of dividend, to the holder of stock as of September 15, 1999, said
dividend to be issued on a parri passu basis.
In the event the Seller elects to be spun out, all shares in the Purchaser
owned by the Seller after the closing herein, along with any cash received
by the Business or Seller from the Purchaser and any sums realized from the
sale of shares, shall be returned to the Purchaser.
The parties hereto agree that no further acquisitions shall be made by the
Purchaser without the unamous consent of all the directors of the Purchaser.
In addition, an amendment to the By-Laws of the Purchaser shall be presented
at the next annual meeting to reflect the same.
55
EXHIBIT "B"
A. Seller's and Shareholder's Covenant Not to Compete. In order to
induce the Purchaser to purchase the shares of the Business, the Seller and
Shareholders hereby agrees that until the second anniversary of the closing
under this Agreement, they will not, individually or together with any one
or more other persons or entities, directly or indirectly, engage in or have
any ownership interest in any person, firm, corporation, partnership,
association, agency or business (whether as principal, agent, holder of any
equity security or other instrument convertible into an equity security,
employee, consultant or otherwise) that engages in a business similar to or
competitive with the business currently conducted by the Business or
Purchaser and which is located or operated within the same state as
any current location of the Business. The Sellers and Shareholders agree
that the period provided for and the area encompassed in this Section are
necessary and reasonable in order to protect the Purchaser and the Business
in the conduct of the Business' operation and are also as consideration for
the Purchaser's agreements in Section B. For the period set forth in this
Section, the Sellers and the Shareholders, and each of them, hereby further
agree not to divulge, communicate, or use to the detriment of the Business or
the Purchaser, in any way, any confidential information or trade secrets of
the Business, including, without limitation, personnel information, secret
processes, know-how, customer lists, costs information and technical data.
The Seller and Shareholders acknowledge that the restrictions contained
herein are reasonable and necessary to protect the business and interest
which the Purchaser is acquiring pursuant to this Agreement and are also as
consideration for the Purchaser's agreements in Section B, and that any
violation of these restrictions will cause substantial irreparable injury to
the Business and the Purchaser. The Seller and Shareholders therefore
hereby agree that the Business, the Purchaser, or any one or more of them,
are entitled, in addition to any and all other remedies, to preliminary and
permanent injunctive relief, without posting a bond, to prevent a breach or
contemplated breach of this Section. The existence or any claim or cause of
action against the Business or the Purchaser, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Business or the Buyer of the restrictions contained in this Section.
B. Purchaser's Covenant Not to Compete. In order to induce the Seller
and Shareholders to sell the shares of the Business, and in consideration of
the Sellers' and Shareholders' agreements in Section A, the Purchaser hereby
agree that until the second anniversary of the closing under this Agreement,
they will not, individually or acting together or with one or more other
persons or entities, directly or indirectly, engage in or have any ownership
interest in any person, firm, corporation, partnership, association, agency
or business (whether as principal, agent, holder of any equity security or
other instrument convertible into an equity security, employee, consultant or
otherwise) that engages in a business similar to that currently engaged in
by the Business. The Buyer agrees that the period provided for, and the
areas encompassed, in this Section are necessary and reasonable in order to
induce the Sellers to sell the shares of and to protect the Sellers' and
Shareholders interest following the sale and are also as consideration for
the Sellers' agreements in Section A. For the period of the covenant set
forth in this Section, the Purchaser hereby further agrees not to divulge,
communicate, or use to the detriment of the Sellers in any way, any
confidential information or trade secrets, including, without limitation,
personnel information, secret processes, know-how, customer lists, cost
information and technical data.
The Purchaser acknowledges that the restrictions contained herein are
reasonable and necessary to protect the business and interest of the Sellers
following the sale of the Business' shares to the Purchaser pursuant to
this Agreement and are also as consideration for the Sellers' agreements in
Section A, and that any violation of these restrictions will cause substantial
irreparable injury to the Sellers. The Purchaser therefore hereby agrees
that the Sellers or any one or more of them, are entitled, in addition to
any and all other remedies, to preliminary and permanent injunctive relief
to prevent a breach or contemplated breach of this Section. The existence
of any claim or cause of action against the Sellers, whether predicated upon
this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Sellers of the restrictions contained in this Section.
C. Operation of the Business. The Purchaser and Seller agree that after
the execution of this Agreement, Seller, shall maintain all daily operations
of the Business which shall include but not be limited to the following: (1)
56
hiring and firing decisions regarding the Business (2) payment of all bills
regarding the Business (3) determining the acquisition candidates for the
Business (4) determining the salaries of employees of the Business (5)
determining all employment contracts for the Business. In the event that
Seller determines that there is an acquisition candidate for the Business to
acquire, the decision with regards to the appropriate acquisition targets of
the Business shall be in the discretion of Seller provided all lawful board
approval is obtained from the Purchaser, said approval not to be unreasonably
withheld.Purchaser further agrees that all profits of the Business, unless
otherwise provided for herein, shall be retained in the business, so long as
the business does not deviate substantially from its annual budget (to be
unanimously agreed to by the Board of Directors of the Purchaser). The said
funds, within the constraints mentioned herein, may be used as the Sellers
shall direct for a three year period commencing on date of the filing of the
Registration Statement on Form SB2 or the Report on Form 8K, which ever is
sooner. It is further agreed that the Purchaser shall in no way interfere
with the running of the business for a three year period except as provided
herein, provided such running of the business is done in a lawful manner.
D. The Seller shall be responsible for paying to the Purchaser fifty
thousand dollars (the "First Fiscal Expenses") within thirty days of the
expiration of September 30, 2000 to represent Seller's portion of the
expenses of Purchaser for the first fiscal year of the Business being owned
by Purchaser. Seller shall be responsible for paying to the Purchaser
seventy five thousand dollars (the "Second Fiscal Expenses") within thirty
days of the expiration of September 30, 2001 to represent Seller's portion
of the expenses of Purchaser for the second fiscal year of the Business being
owned by Purchaser. In the event the gross revenues of the Business exceed
three million five hundred thousand dollars during the time period of
September 30, 1999 to September 30, 2000 then the Second Fiscal Expenses
shall be increased from seventy five thousand dollars to one hundred and
twenty five thousand dollars.
E. Buy Back Rights and Stock Dividend Rights. If the Business obtains a
five times growth in calendar year annual revenues within a period of two
calendar years from the date of closing then, the Seller shall have the
right to present a resolution to the Board of Directors of Purchasers to vote
for the approval of the Business being spun out as a separately traded
public company. If the Business fails to obtain one million two hundred
thousand dollars in calendar year annual revenues within a period of two
calendar years from the date of closing, then Purchaser shall have the right
to the return of all of the Purchase Compensation provided to Business and
eighty-five percent of all capital stock of the Business shall be returned
to Seller from Purchaser. The rights granted to the Purchaser and
Seller in this paragraph letter E shall only be valid for a period of two
calendar years from the date of execution of this Agreement.
It is further agreed that for a three year period, except as otherwise
provided herein, Seller shall have the right to 2 seats on the Business'
Board of Directors, and that the by-laws of the Business shall be amended
such that a 90% majority of Board's votes shall be required to pass any
resolution with respect to the acquisition of further assets, or
the raising of monies by the Business, or with respect to any matter which
materially impacts upon the Business. It is further agreed that the Seller
shall have a 20% representation on the Purchaser's Board of Directors.
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