<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-----------
OCTOBER 13, 1999
(Date of earliest event reported)
STARNET FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 33-13627 75-2168244
(State or other jurisdiction of (Commission file number ) (I.R.S. employer identification no.)
incorporation or organization)
</TABLE>
17000 PRESTON ROAD, SUITE 350, DALLAS, TEXAS 75248
(Address of principal executive offices)
972-239-2939
(Registrant's telephone number,
including area code)
================================================================================
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 13, 1999, StarNet Financial, Inc., a Delaware corporation
(the "Company") completed the acquisition of Residential Lenders, Inc., a
Florida corporation ("RLI"). RLI is engaged in the business of residential
mortgage lending. Pursuant to a Stock Purchase Agreement, effective as of
October 1, 1999, the Company acquired all of the outstanding capital stock of
RLI. The Company issued 250,000 shares the Company's common stock, $.01 par
value ("Common Stock"), to the stockholders of RLI. The purchase price for the
acquisition was determined by an arm's length negotiation among the parties. The
transaction was accounted for as a purchase.
On October 15, 1999, the Company completed the acquisition of assets of
Occidental Mortgage Corporation, a California corporation ("Occidental").
Occidental is engaged in the business of residential mortgage lending. Pursuant
to an Asset Purchase Agreement, effective as of October 1, 1999, the Company
acquired substantially all of the assets and operating business of Occidental.
As consideration for the acquisition, the Company delivered to Occidental a
promissory note for $365,000 and a five-year option to purchase 300,000 shares
of Common Stock at a purchase price of $1.00 per share. As further
consideration, the Company will cause to be paid to Occidental an amount equal
to 1% of the closed loan volume for November and December 1999 and January 2000.
The amount of consideration was determined by an arm's length negotiation among
the parties. The transaction was accounted for as a purchase.
Taken together, the acquisitions of RLI and Occidental were deemed
"significant." Accordingly, separate historical and pro forma statements will be
filed no later than 75 days after the consummation of the acquisitions.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
Not applicable.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The appropriate financial statements are filed herewith.
(b) Pro Forma Financial Information.
The appropriate pro forma financial information relating to
the acquisitions will be filed with the Securities and
Exchange Commission no later than seventy-five days after the
consummation of the acquisitions.
(c) Exhibits:
2.1 --- Stock Purchase Agreement, dated as of October 1,
1999, by and among StarNet Financial, Inc.,
Residential Lenders, Inc., and all of the
Stockholders of Residential Lenders, Inc.
2.2 --- Asset Purchase Agreement, dated as of October 1,
1999, among StarNet Financial, Inc., Occidental
Mortgage Corporation and the Shareholders
thereof.
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
STARNET FINANCIAL, INC.
Dated: November 16, 1999 By: /s/ Daniel L. Jackson
------------------------------------------
Daniel L. Jackson, Chief Executive Officer
<PAGE> 4
-----------------------------------
RESIDENTIAL LENDERS, INC.
ORLANDO, FLORIDA
FINANCIAL STATEMENTS,
SUPPLEMENTARY SCHEDULE
AND COMPLIANCE SECTION
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
<PAGE> 5
RESIDENTIAL LENDERS, INC.
CONTENTS
--------
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 3
Statement of Income and Retained Earnings 4
Statement of Cash Flows 5
Notes to Financial Statements 6
Supplementary Schedule:
Schedule of Adjusted Net Worth to Determine Compliance
With HUD Net Worth Requirements 10
Compliance Section:
Independent Auditors' Report on Compliance and on Internal
Control Over Financial Reporting Based on an Audit of
Financial Statements Performed in Accordance with
Government Auditing Standards 12
Schedule of Findings and Questioned Costs 14
<PAGE> 6
[AVERETT, WARMUS, DURKEE, BAUDER & THOMPSON LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Residential Lenders, Inc.
Orlando, Florida
We have audited the accompanying balance sheet of Residential Lenders, Inc. as
of December 31, 1998, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Residential Lenders, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued our report
dated March 23, 1999, on our consideration of Residential Lenders, Inc.'s
internal control over financial reporting and our tests of its compliance with
certain provisions of laws, regulations and contracts.
1
<PAGE> 7
To the Board of Directors
Residential Lenders, Inc.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary schedule on page 10
is presented for purposes of additional analysis and is not a required part of
the basic financial statements of Residential Lenders, Inc. Such information has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
/s/ AVERETT, WARMUS, DURKEE, BAUDER & THOMPSON
March 23, 1999
2
<PAGE> 8
RESIDENTIAL LENDERS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 53,319
Short-term investments 14,091
Escrow cash -- restricted 24,439
Accounts receivable 72,094
Prepaid expense 6,887
--------
Total current assets 170,830
--------
Office Furniture and Equipment, net of accumulated
depreciation of $30,470 30,376
--------
Other Assets:
Due from related party 25,389
Organization costs, net of accumulated
amortization of $1,575 175
Deposits 539
--------
Total other assets 26,103
--------
$227,309
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued expenses $ 151
Escrow liability 24,439
Accrued income taxes 4,177
Deferred income taxes -- current 14,446
--------
Total current liabilities 43,213
Deferred Income Taxes -- Noncurrent 6,265
--------
Total liabilities 49,478
--------
Commitments and Contingencies (Note 1)
Stockholders' Equity:
Common stock -- par value $1 per share; 10,000 shares
authorized, issued and outstanding 10,000
Stock subscriptions receivable (10,000)
Retained earnings 177,831
--------
Total stockholders' equity 177,831
--------
$227,309
========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 9
RESIDENTIAL LENDERS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
Mortgage Brokerage Revenue $1,360,781
---------
Operating Expenses:
Personnel 935,433
General and administrative 314,328
Depreciation and amortization 10,308
---------
Total operating expenses 1,260,069
---------
Operating Income 100,712
---------
Other Income (Expenses):
Investment income 1,550
Loss on disposal of fixed asset (209)
---------
Total other income (expenses) 1,341
---------
Income Before Income Taxes 102,053
Income Taxes 19,076
---------
Net Income 82,977
Retained Earnings, Beginning of Year 94,854
---------
Retained Earnings, End of Year $ 177,831
==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 10
RESIDENTIAL LENDERS, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net income $ 82,977
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,308
Loss on disposal of fixed asset 209
(Increase) decrease in:
Accounts receivable (44,043)
Prepaid expenses (5,887)
Increase (decrease) in:
Accrued expenses 131
Accrued income taxes (2,824)
Deferred income taxes 9,792
--------
Net cash provided by operating activities 50,663
--------
Cash Flows From Investing Activities:
Decrease in amount due from related party 4,776
Purchase of fixed assets (11,842)
Purchase of short-term investments (14,091)
--------
Net cash used in investing activities (21,157)
--------
Net Increase in Cash and Cash Equivalents 29,506
Cash and Cash Equivalents, Beginning of Year 23,813
--------
Cash and Cash Equivalents, End of Year $ 53,319
========
Supplementary Cash Flow Information:
Interest paid $ --
========
Income taxes paid $ 11,824
========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 11
RESIDENTIAL LENDERS, INC.
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
1. Summary of Significant Accounting Policies:
Organization and Purpose - Residential Lenders, Inc. (the "Company") was
incorporated in January, 1994. The Company provides mortgage brokerage
services for conventional loans, Department of Housing and Urban
Development ("HUD") loans (as a loan correspondent) and Department of
Veterans Affairs ("VA") loans. The Company began operations in July, 1994.
Basis of Presentation - The Company uses the accrual basis of accounting
which recognizes revenue when earned and expenses when incurred.
Cash and Cash Equivalents - All highly-liquid financial instruments with a
maturity of three months or less when acquired are considered to be cash
equivalents. Restricted cash consists of escrow deposits made by potential
mortgagors for appraisals, credit reports, and fees that are to be
disbursed by the Company. The deposits are maintained in a separate bank
account, and a liability recorded to reflect the fiduciary nature of the
deposits.
Office Furniture and Equipment - Office furniture and equipment is recorded
at cost and depreciated over the estimated useful lives of the assets (5 to
7 years) by the straight-line method. The cost of additions and
improvements which substantially extend the useful life of a particular
asset is capitalized. Repair and maintenance costs are charged to expense.
Upon sale or other disposition, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included
in income.
Organization Costs - Organization costs were deferred and are being
amortized over a five-year period using the straight-line method.
Deferred Income Taxes - Deferred income taxes are provided based on
temporary differences between the carrying amount of assets and liabilities
in the financial statements and their income tax bases. Such differences
are attributable to the use of cash basis accounting and accelerated
depreciation for income tax purposes, as well as marketable securities
being reported at cost for income tax purposes.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Advertising Costs - Non direct-response advertising costs, amounting to
$28,037 in 1998, were expensed as incurred.
6
<PAGE> 12
RESIDENTIAL LENDERS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended December 31, 1998
1. Summary of Significant Accounting Policies - Continued:
Marketable Securities - Management determines the appropriate
classification on investment securities at the time they are acquired and
the appropriateness of such classification at each balance sheet date.
Management has determined that all marketable securities at December 31,
1998 are trading securities. Trading securities are held for resale in
anticipation of short-term (generally ninety days or less) fluctuations
in market price. Trading securities consisting solely of shares in mutual
funds are stated at fair value. Realized and unrealized gains and losses
are included in income.
2. Marketable Equity Securities Available-for-Sale:
Marketable equity securities consist of Chartwell Dividend and Income Fund
shares as follows at December 31, 1998:
<TABLE>
<S> <C>
Trading Securities:
Cost $15,534
Gross unrealized losses (1,443)
-------
Marketable Securities, net $14,091
=======
</TABLE>
3. Related Party Transactions:
At December 31, 1998, the Company has an informal loan receivable of
$25,389 from an officer. The receivable is due on demand and bears interest
at the applicable federal blended rate (5.63% at December 31, 1998).
4. Commitments and Contingencies:
Operating Leases - The Company leases office space, office equipment and an
automobile under operating leases. Total rental expense was $41,252 for the
year ended December 31, 1998.
Future minimum rental commitments are as follows:
<TABLE>
<S> <C>
Year Ended December 31,
1999 $ 59,163
2000 59,165
2001 51,073
2002 45,640
2003 45,639
--------
$260,680
========
</TABLE>
7
<PAGE> 13
RESIDENTIAL LENDERS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Year Ended December 31, 1998
4. Commitments and Contingencies - Continued:
Concentrations of Credit Risk - Accounts receivable potentially expose the
Company to concentrations of credit risk, as defined by Statement of
Financial Accounting Standards No. 105 "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk". The Company's operations involve a
single industry (mortgage brokerage), and the customer base is concentrated
in the Central Florida geographical area. The Company generally does not
require collateral from its customers, but continues an on-going credit
evaluation of its customer base. Credit losses are expected to be minimal.
Loans originated by the Company are sold to loan sponsors approved by HUD.
For the year ended December 31, 1998 the Company sold all of its loans to
fifteen approved loan sponsors.
Year 2000 - The Company has replaced and upgraded certain of its computer
hardware and software systems to enhance efficiency and address "year 2000"
compliance issues which, if not resolved, could adversely impact the
Company's operations. No assurance can presently be given that unforeseen
compliance problems will not arise, or that the Company's suppliers and
vendors have appropriately addressed the issue.
5. Income Taxes:
Income tax expense consists of the following:
<TABLE>
<S> <C>
Current:
Federal $ 6,694
State 2,306
--------
Total current 9,000
--------
Deferred:
Federal 7,050
State 3,026
--------
Total deferred 10,076
--------
$ 19,076
========
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the statutory federal income tax rate of 34% to pre-tax income due
to surtax exemptions.
8
<PAGE> 14
SUPPLEMENTARY SCHEDULE
9
<PAGE> 15
RESIDENTIAL LENDERS, INC.
SCHEDULE OF ADJUSTED NET WORTH TO DETERMINE
COMPLIANCE WITH HUD NET WORTH REQUIREMENTS
December 31, 1998
<TABLE>
<S> <C> <C>
Stockholders' Equity per Balance Sheet $177,831
Less Unacceptable Assets
Due from related party $ 25,389
Organization costs 175
--------
25,564
--------
Adjusted Net Worth for FHA Requirement Purposes $152,267
========
Net Worth Required $ 50,000
========
</TABLE>
10
<PAGE> 16
COMPLIANCE SECTION
11
<PAGE> 17
[AVERETT, WARMUS, DURKEE, BAUDER & THOMPSON LETTERHEAD]
Independent Auditors' Report on
Compliance and on Internal Control Over Financial
Reporting Based on an Audit of Financial
Statements Performed in Accordance with
Government Auditing Standards
To the Board of Directors
Residential Lenders, Inc.
Orlando, Florida
We have audited the financial statements of Residential Lenders, Inc. as of and
for the year ended December 31, 1998, and have issued our report thereon dated
March 23, 1999. We conducted our audit in accordance with generally accepted
auditing standards and the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller General of the
United States.
Compliance
As part of obtaining reasonable assurance about whether Residential Lenders,
Inc.'s financial statements are free of material misstatement, we performed
tests of its compliance with certain provisions of laws, regulations and
contracts, noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing an opinion
on compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests
disclosed one instance of noncompliance that is required to be reported under
Government Auditing Standards which is described in the accompanying Schedule
of Findings and Questioned Costs as item 1.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Residential Lenders, Inc.'s
internal control over financial reporting in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements and not to provide assurance on the internal control over financial
reporting. However, we noted certain matters involving the internal control
over financial reporting and its operation that we consider to be
12
<PAGE> 18
To the Board of Directors
Residential Lenders, Inc.
reportable conditions. Reportable conditions involve matters coming to our
attention relating to significant deficiencies in the design or operation of
the internal control over financial reporting that, in our judgment, could
adversely affect Residential Lenders, Inc.'s ability to record, process,
summarize and report financial data consistent with the assertions of
management in the financial statements.
A material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that misstatements in amounts that would be material in relation
to the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. Our consideration of the internal control over financial reporting
would not necessarily disclose all matters in the internal control that might be
reportable conditions and, accordingly, would not necessarily disclose all
reportable conditions that are also considered to be material weaknesses.
However, we noted the following matter involving the internal control structure
and its operation that we consider to be a reportable condition and a material
weakness as defined above. This condition was considered in determining the
nature, timing, and extent of the procedures to be performed in our audit of the
financial statements of Residential Lenders, Inc. for the year ended December
31, 1998.
We noted that, due to the small size of the entity, there is a lack of
segregation of duties in the accounting, administrative and financial
reporting functions.
This report is intended solely for the information and use of the Board of
Directors and management of Residential Lenders, Inc. and governmental agencies
and is not intended to be, and should not be, used by anyone other than these
specified parties.
/s/ AVERETT, WARMUS, DURKEE, BAUDER & THOMPSON
March 23, 1999
13
<PAGE> 19
RESIDENTIAL LENDERS, INC.
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
For the Year Ended December 31, 1998
I. Findings and Questioned Costs:
<TABLE>
<S> <C> <C>
Finding Questioned
No. Finding Costs
- ------- ---------------------------------------------- ----------
1 Mortgagee Approval Handbook (HUD) 4060.1,
Chapter 3, 3-4(c)1.
A loan correspondent must close all mortgages
which it originates in its own name. We noted
three files in the sample that closed in the
name of the sponsor.
We recommend that the Company ensure that all
mortgages, which it originates as a loan **
correspondent, close in the Company's name.
</TABLE>
II. Status of Prior Year Findings and Questioned Costs:
<TABLE>
<S> <C> <C>
Finding Questioned
No. Finding Costs
- ------- ---------------------------------------------- ----------
1 Mortgagee Approval Handbook (HUD) 4060.1,
Chapter 3, 3-4(c)1.
A loan correspondent must close all mortgages
which it originates in its own name. Noted
was one file in the sample that closed in the
name of the sponsor.
In a few rare instances, in order to close the
loan, the mortgages are closed in the name of
the sponsor. For the most part, this is **
required by the sponsor. The Company makes
every effort to comply with this requirement
when possible.
</TABLE>
** The amount is either not applicable or not ascertainable.
14
<PAGE> 20
[KUSHNER, SMITH, JOANOU, & GREGSON LETTERHEAD]
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
YEARS ENDED DECEMBER 31, 1998 AND 1997
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditor's Report 1
Balance Sheets - December 31, 1998 and 1997 2-3
Statements of Income (Loss) - Years Ended December 31, 1998 and 1997 4
Statements of Stockholders' Equity (Deficit) - Years Ended
December 31, 1998 and 1997 5
Statements of Cash Flows - Years Ended December 31, 1998 and 1997 6-7
Notes to Financial Statements - December 31, 1998 and 1997 8-15
Supplementary Information:
Schedule 1: Computation of Adjusted Net Worth to Determine
Compliance with GNMA Net Worth
Requirements - December 31, 1998 16
Schedule 1a: Computation of Adjusted Net Worth to Determine
Compliance with GNMA Net Worth Requirements
(As Adjusted) - January 29, 1999 17
Schedule 2: Computation of GNMA Required Insurance
Coverage - December 31, 1998 18
Schedule 3: Computation of Adjusted Net Worth to
Determine Compliance with HUD Net Worth
Requirements - December 31, 1998 19
Schedule 3a: Computation of Adjusted Net Worth to
Determine Compliance with HUD Net Worth
Requirements (As Adjusted) - January 29, 1999 20
</TABLE>
<PAGE> 22
[KUSHNER, SMITH, JOANOU & GREGSON LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Occidental Mortgage Corporation
(An S Corporation)
We have audited the accompanying balance sheets of Occidental Mortgage
Corporation (An S Corporation) as of December 31, 1998 and 1997 and the related
statements of income (loss), stockholders' equity (deficit), and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
and Governmental Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Occidental Mortgage Corporation
(An S Corporation) as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedules 1 through 3 is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
<PAGE> 23
INDEPENDENT AUDITOR'S REPORT
(Continued)
In accordance with Government Auditing Standards, we have also issued a report
dated March 29, 1999 on our consideration of Occidental Mortgage Corporation's
internal control structure and a report dated March 29, 1999 on its compliance
with laws and regulations.
/s/ KUSHNER, SMITH, JOANOU & GREGSON, LLP
March 29, 1999
<PAGE> 24
2
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets
Cash $ 104,513 $ 73,360
First trust deed notes receivable held for sale
(Notes 2 and 4) 14,108,297 22,303,900
Notes receivable -- related parties (Note 3) 920,000 --
Prepaid expenses and other current assets 425,948 404,038
Real estate owned - net 51,748 60,662
Due from officer 37,000 --
Deferred income taxes (Note 7) 4,000 20,000
------------ ------------
Total current assets 15,651,506 22,861,960
------------ ------------
Property and equipment (Note 5) 528,744 894,256
Less accumulated depreciation and amortization (313,376) (822,707)
------------ ------------
Net property and equipment 215,368 71,549
------------ ------------
Other assets
Covenants not to compete - net (Note 6) 29,712 59,425
Deposits 28,480 17,276
------------ ------------
Total other assets 58,192 76,701
------------ ------------
$ 15,925,066 $ 23,010,210
============ ============
</TABLE>
(Balance sheets continued on the following page)
<PAGE> 25
3
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
BALANCE SHEETS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities
Notes payable to banks (Note 4) $ 14,925,693 $ 22,130,758
Accounts payable and accrued expenses 465,285 871,849
Income taxes payable (Note 7) 2,200 --
Due to former stockholders (Note 11) 198,318 256,623
Note payable to related party (Note 8) -- 200,000
------------ ------------
Total liabilities 15,591,496 23,459,230
------------ ------------
Lease commitments and contingencies and
subsequent event (Notes 4 and 9)
Stockholders' equity (deficit) (Note 11 and 12)
Common stock, $100 and $1 par value, 1,000,000
and 75,000 shares authorized, 400,000 and 7,920
shares issued and outstanding, respectively 400,000 7,920
Retained earnings (deficit) (66,430) (456,940)
------------ ------------
Total stockholders' equity (deficit) 333,570 (449,020)
------------ ------------
$ 15,925,066 $ 23,010,210
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 26
4
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues
Loan origination fees:
Governmental $ 183,535 $ 233,580
Conventional 1,421,020 1,740,179
Loan processing fees 377,933 1,036,946
Interest income on loans - net 52,919 30,232
Gain on sale of first trust deed notes 4,644,574 2,824,575
Loan servicing fees 6,710 211,580
Other income 115,710 151,622
------------ ------------
Total revenue 6,802,401 6,228,714
------------ ------------
Operating expenses
Salaries and related costs 4,020,683 3,615,122
General and administrative expenses 2,406,576 4,188,490
------------ ------------
Total operating expenses 6,427,259 7,803,612
------------ ------------
Operating income (loss) 375,142 (1,574,898)
------------ ------------
Other income (expense)
Gain on sale of mortgage servicing rights 61,329 462,210
Loss) on sale of property and
equipment (4,564) (678)
Interest (expense) (22,397) (17,603)
------------ ------------
Total other income (expense) 34,368 443,929
------------ ------------
Income (loss) before income taxes 409,510 (1,130,969)
Provision (benefit) for income taxes (Note 7) 19,000 (26,985)
------------ ------------
Net income (loss) $ 390,510 $ (1,103,984)
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 27
5
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
SHARES RETAINED TOTAL
ISSUED AND COMMON EARNINGS STOCKHOLDERS'
OUTSTANDING STOCK (DEFICIT) EQUITY (DEFICIT)
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 7,920 $ 7,920 $ 647,044 $ 654,964
Net (loss) for the year ended
December 31, 1997 -- -- (1,103,984) (1,103,984)
------------ ------------ ------------ ------------
Balance at December 31, 1997 7,920 7,920 (456,940) (449,020)
Stock issuance (Note 12) 392,080 392,080 -- 392,080
Net income for the year ended
December 31, 1998 -- -- 390,510 390,510
------------ ------------ ------------ ------------
Balance at December 31, 1998 400,000 400,000 (66,430) 333,570
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 28
6
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 14,998,004 $ 207,796,278
Cash paid to suppliers and employees (13,983,818) (207,788,434)
Interest paid (22,397) (17,603)
Income taxes paid (800) (800)
------------- -------------
Net cash provided (applied) from operating
activities 990,989 (10,559)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (199,130) (23,739)
Proceeds from sale of property and
equipment 1,190 25
Proceeds from notes received - related parties (920,000) --
Proceeds from sale of mortgage servicing
rights 61,329 462,210
------------- -------------
Net cash provided (applied) from investing
activities (1,056,611) 438,496
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance 192,080 --
Proceeds from due from officer (37,000) --
Repayments of amounts borrowed -- (512,107)
Repayments to former stockholders (58,305) (528,092)
------------- -------------
Net cash provided (applied) from financing
activities 96,775 (1,040,199)
------------- -------------
Net increase (decrease) in cash 31,153 (612,262)
Cash at beginning of year 73,360 685,622
------------- -------------
Cash at end of year $ 104,513 $ 73,360
============= =============
</TABLE>
(Statements of cash flows continued on the following page)
<PAGE> 29
7
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net income (loss) $ 390,510 $ (1,103,984)
Adjustments to reconcile net income (loss) to net
cash provided (applied) from operating activities
Depreciation and amortization 79,270 71,791
(Gain) on sale of mortgage servicing rights (61,329) (462,210)
Loss on sale of property and equipment 4,564 678
Provision (benefit) for deferred taxes 16,000 (24,000)
------------ ------------
429,015 (1,517,725)
------------ ------------
Change in assets and liabilities
(Increase) decrease in assets:
First trust deed notes receivable held for sale 8,195,603 (9,163,324)
Prepaid expenses and other current assets (21,910) (27,172)
Real estate owned - net 8,914 597,084
Other assets -- 29,646
Deposits (11,204) --
Increase (decrease) in liabilities:
Activity on notes payable to banks - net (7,205,065) 9,406,591
Accounts payable and accrued expenses (406,564) 689,702
Income taxes payable 2,200 (15,200)
Deposits -- (10,161)
------------ ------------
561,974 1,507,166
------------ ------------
Net cash provided (applied) from operating activities $ 990,989 $ (10,559)
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1998, the stockholders of the Company assumed
a $200,000 note payable in exchange for 200,000 shares of stock distributed in
proportion to their ownership interests. (Note 12)
See accompanying notes to financial statements
<PAGE> 30
8
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OF THE COMPANY - Occidental Mortgage Corporation (the "Company") is
a California S corporation. The Company was incorporated and commenced business
in March 1967 as a residential mortgage lending institution. It is headquartered
in Irvine, California and has branch offices in San Ramon, California (servicing
Northern California and the Pacific Northwest) and Dallas, Texas (servicing the
central states). Using a network of mortgage brokers and a retail office, the
Company operates in twenty-two states throughout the United States.
NATURE OF BUSINESS - The Company originates, sells, and services loans secured
by residential real estate. Principal sources of revenue are (i) loan
origination related fees; (ii) net interest income earned on loans held pending
sale; (iii) gain from the sale of loans; (iv) gains from the sale of loan
servicing rights; and (v) loan servicing and related fees.
LOAN ORIGINATION FEES - Loan origination fees, including those charged to
sellers of residential properties, are recorded when processing activities are
completed, and the related loan is funded.
LOAN PROCESSING FEES - These fees represent document processing and other
miscellaneous income collected from the mortgagor which are recorded at the time
the loan is funded.
CONCENTRATIONS OF CREDIT RISKS - The Company originates loan mortgages for
individuals throughout the United States. The Company's revenues are not
materially dependent on a single individual or small group of individuals. The
Company performs ongoing credit evaluations on its customers. The Company
maintains reserves for potential losses and such losses have been within
management's expectations. The Company maintains cash deposits with major banks
and limits the amount of credit exposure to any one financial institution.
The Company maintains bank accounts with major banking institutions in which the
deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up
to $100,000. As of December 31, 1998 and 1997, the Company had approximately
$44,000 and $123,000, respectively in these accounts in excess of the FDIC
insurance limit.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and operating expenses during
the reporting period. Actual results could differ from those estimates.
<PAGE> 31
9
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GAIN ON SALE OF FIRST TRUST DEED NOTES - Gain on the sale of first trust deed
notes, which represents the difference between the sales price and net carrying
amount of the loan, are recorded at the time of sale to permanent investors.
Losses are recorded when the cost of such trust deed notes exceeds their
aggregate market value. Gains are shown net of related commitment fee expense of
none for the years ended December 31, 1998 and 1997.
SERVICING FEES - Servicing fees, which are generally based upon a percentage of
the outstanding principal balances of serviced loans, are recorded as the
installment collections on the related loans are received. At December 31, 1998
and 1997, the Company serviced loans for others totaling $404,187 and $819,537,
respectively.
INTEREST INCOME AND LOANS - NET - Interest on first trust deed notes held for
sale is recorded as revenue when earned, and is shown net of related interest
expense of $1,632,673 and $1,031,912 for the years ended December 31, 1998 and
1997, respectively.
FIRST TRUST DEEDS RECEIVABLE HELD FOR SALE - First trust deeds held for sale are
primarily first trust deed notes secured by single family residences located
throughout the United States and are stated at the lower of cost (net of
purchase discounts) or aggregate market, with market generally being based upon
outstanding investor commitments for the purchase of such notes. Costs of
obtaining commitments are deferred and recognized in operations as the related
loans are sold or when it can be determined that the commitment will expire
unused. As of December 31, 1998 and 1997, the Company had investor commitments
outstanding totaling $14,128,000 and $22,091,000, respectively.
REAL ESTATE OWNED - Real estate owned ("REO") consists of real estate acquired
in satisfaction of debt. Upon acquisition, REO is recorded at the lower of the
related loan's recorded investment or the property's fair value. As all REO is
normally held for sale, a net realizable value calculation is also performed.
Any excess of the recorded investment over the lesser of fair market value or
net realizable value is charged to a valuation allowance. Provisions for
subsequent market value declines and operating income, net of operating
expenses, are included in loan and real estate owned losses in the accompanying
statements of operations. At December 31, 1998 and 1997, valuation allowance on
REO totaled $31,490 and $10,059, respectively.
<PAGE> 32
10
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED) - Maintenance and repairs are charged to
expense as incurred. Renewals and improvements of a major nature are
capitalized. At the time of retirement or other disposition of property and
equipment, the cost and accumulated depreciation are removed from the accounts
and any resulting gains or losses are reflected in income.
INCOME TAXES - The Company has elected S Corporation status for Federal and
state income tax purposes. Under this provision, the Company does not pay
Federal income taxes, and operating income and losses are passed through to the
stockholders. State income taxes are provided for based upon earnings reported
for financial statement purposes, at the S Corporation financial institution
rate of 3.5% for the years ended December 31, 1998 and 1997, respectively.
COVENANTS NOT TO COMPETE - Covenants not to compete represent agreements with
the former stockholders of acquired entity to not compete with the Company over
a stated period of time. Covenants not to compete are amortized on the
straight-line method over the term of the related agreements (Note 6).
PROFIT SHARING AND "401K" SAVINGS PLAN - The Company has a profit sharing and
"401K" savings plan which covers substantially all employees whereby the
employees can defer a percentage of eligible wages and the Company can make
discretionary matching contributions. Employer contributions for the years ended
December 31, 1998 and 1997 were $23,653 and $17,925, respectively.
VACATION EXPENSE - Employees earn credits during the current year for future
vacation benefits. The expense and corresponding liability are accrued when
vacations are earned rather than when vacations are paid.
NOTE 2 - FIRST TRUST DEED NOTES RECEIVABLE HELD FOR SALE
First trust deed notes held for sale at December 31, 1998 and 1997 consist of
the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cost $14,074,100 $22,097,934
Discounts and net deferred fees 34,197 205,966
----------- -----------
Carrying value $14,108,297 $22,303,900
=========== ===========
</TABLE>
<PAGE> 33
11
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
Certain of the notes are insured or guaranteed by Federal government agencies.
The notes are pledged to collateralize certain bank loans (Note 4).
NOTE 3 - NOTES RECEIVABLE - RELATED PARTIES
Notes receivable, totaling $920,000, from related parties consist of a $402,500
note receivable from a related party, bearing interest at 6.9% per annum and a
$517,500 note receivable from an officer, bearing interest at 6.8% per annum.
Both notes are secured by first trust deeds on residential properties with
appraised values totaling $1,180,000.
Subsequent to the balance sheet date, the loans were sold to permanent investors
at a profit.
There were no notes receivable from related parties at December 31, 1997.
NOTE 4 - NOTES PAYABLE TO BANKS AND SUBSEQUENT EVENT
Notes payable to banks at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
MAXIMUM
LINE OF
CREDIT 1998 1997
------- ---- ----
<S> <C> <C> <C>
Warehouse line of credit with a financial institution,
secured by first trust deed notes receivable (1998 --
$14,108,297 1997 -- $22,303,900) and notes receivable from
related parties (1998 -- $920,000). The line bears interest
at a variable-rate which adjusts based on predetermined indices,
approximately 8.25% per annum at December 31, 1998. The line
is renewed every time a confirmation of a transaction is
executed by both parties. $ 25,000,000 $ 14,925,693 $ 21,682,668
Subsequent to the balance sheet date, the Company entered
into an additional warehouse line of credit with a financial
institution.
</TABLE>
<PAGE> 34
12
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 4 - NOTES PAYABLE TO BANKS AND SUBSEQUENT EVENT (Continued)
<TABLE>
<S> <C> <C> <C>
The line bears interest at a variable-rate which adjusts
based on predetermined indices, approximately 8.25% per
annum at December 31, 1998. 15,000,000 -- --
----------- ------------ ------------
40,000,000 14,925,693 21,682,668
Warehouse line of credit repaid and cancelled during 1998 -- -- 448,090
----------- ------------ ------------
$40,000,000 $ 14,925,693 $ 22,130,758
=========== ============ ============
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Furniture and fixtures $ 518,030 $ 886,418
Automobiles -- 7,288
Leasehold improvements 10,714 550
--------- ---------
528,744 894,256
Less accumulated depreciation
and amortization (313,376) (822,707)
--------- ---------
Net property and equipment $ 215,368 $ 71,549
========= =========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1998 and
1997 totaled $49,248 and $42,079, respectively.
NOTE 6 - COVENANTS NOT TO COMPETE
The Company maintains covenants not to compete with certain former stockholders.
The amounts attributed to the covenants not to compete are pursuant to each
contract and are amortized over the contractual life of three years (Note 11).
The carrying value of the covenants not to compete at December 31, 1998 and 1997
is as follows:
<PAGE> 35
13
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 6 - COVENANTS NOT TO COMPETE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Covenants not to compete $ 89,137 $ 89,137
Less accumulated amortization (59,425) (29,712)
----------- -----------
$ 29,712 $ 59,425
=========== ===========
</TABLE>
NOTE 7 - PROVISION (BENEFIT) FOR INCOME TAXES
Deferred income taxes result from the temporary differences arising from the use
of straight-line depreciation for financial statement purposes while accelerated
methods are used for tax purposes and from differences in the recognition of
accrued vacation, foreclosure losses and the state income tax provision for book
and tax reporting purposes.
The provision (benefit) for state income taxes for the years ended December 31,
1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current $ 3,000 $ (2,985)
Deferred 16,000 (24,000)
------------ ------------
$ 19,000 $ (26,985)
============ ============
</TABLE>
NOTE 8 - NOTE PAYABLE TO RELATED PARTY
The $200,000 note payable to a related party at December 31, 1997 was assumed by
the existing stockholders during the year ended December 31, 1998 (Note 12).
<PAGE> 36
14
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 9 - LEASE COMMITMENTS AND CONTINGENCIES
The Company leases branch office facilities under noncancellable operating
leases expiring at various dates from February 1999 to June 2001.
In addition to the above, the Company has entered into a sublease agreement for
the remaining term of its lease obligation of an office facility in Texas. The
sublease expires in March 1999 and calls for monthly rents of $2,225.
The Company also leases various office equipment under noncancellable lease
obligations. The agreements have expiration dates ranging from June 2002 to July
2003 and monthly rents ranging from $185 to $2,013.
The future net minimum rental commitments for the noncancellable operating lease
are as follows:
<TABLE>
<CAPTION>
OFFICE
OFFICE SUBLEASE OFFICE NET LEASE
FACILITIES INCOME EQUIPMENT COMMITMENT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Years ending December 31:
1999 $ 320,382 $ (6,675) $ 48,156 $ 361,863
2000 280,496 -- 48,156 328,652
2001 106,240 -- 48,156 154,396
2002 -- -- 38,152 38,152
2003 -- -- 13,188 13,188
------------ ------------ ------------ ------------
$ 707,118 $ (6,675) $ 195,808 $ 896,251
============ ============ ============ ============
</TABLE>
Net rent expense relating to the above operating leases for the years ended
December 31, 1998 and 1997 amounted to $277,579 and $209,843, respectively.
NOTE 10 - CUSTODIAL FUNDS
The balance sheets as of December 31, 1998 and 1997 do not include escrow trust,
and other custodial funds administered by the Company and for which the Company
has a fiduciary responsibility. The funds are kept in noninterest-bearing bank
accounts until disbursed in accordance with the related agreements and totaled
$56,336 and $28,521 at December 31, 1998 and 1997, respectively.
<PAGE> 37
15
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 11 - STOCK SALE AND REDEMPTION
On September 30, 1996, the Company's stockholders voted a one thousand-for-one
stock split of its common stock. The stockholders then sold 7,920 shares of
their common stock to individuals and the rest of their stock was redeemed by
the Company for $1,848,911. As part of the transaction, the Company purchased
covenants not to compete with the former stockholders for $89,137 (Note 6). At
December 31, 1998 and 1997, the balance owed to the former stockholders for this
redemption was $198,318 and $256,623, respectively.
NOTE 12 - STOCK ISSUANCE
The Company issued 200,000 shares of common stock to existing shareholders in
exchange for assumption of a note payable to an individual (Note 8) during the
year ended December 31, 1998. The Company also issued 192,080 shares of common
stock to the same shareholders in exchange for a receivable of $192,080 which is
included in prepaid expenses and other current assets at December 31, 1998. This
receivable balance was paid to the Company by the Company's shareholders
subsequent to year end. The aforementioned shares were issued in proportion to
existing ownership interests.
<PAGE> 38
SCHEDULE 1 16
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
COMPUTATION OF ADJUSTED NET WORTH TO DETERMINE
COMPLIANCE WITH GNMA NET WORTH REQUIREMENTS
DECEMBER 31, 1998
<TABLE>
<S> <C>
Stockholders' equity per balance sheet at December 31, 1998 $ 333,570
Less unacceptable assets for computation of adjusted
net worth as set forth in the Audit Guide: (229,080)
------------
Adjusted net worth for GNMA requirement purposes $ 104,490*
============
GNMA required net worth:
Unpaid principal balances of securities outstanding $ --
Outstanding balance of commitments issued and
requested --
------------
$ --
============
Computed net worth requirement $ 250,000
============
</TABLE>
* THE ADJUSTED NET WORTH DEFICIENCY ABOVE WAS RECTIFIED ON JANUARY 29, 1999
UPON CONVERSION OF UNACCEPTABLE ASSETS TO CASH. SEE THE FOLLOWING PAGE FOR
REVISED NET WORTH CALCULATION REFLECTING THE AFOREMENTIONED CASH RECEIPTS.
<PAGE> 39
SCHEDULE 1a 17
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
COMPUTATION OF ADJUSTED NET WORTH TO DETERMINE
COMPLIANCE WITH GNMA NET WORTH REQUIREMENTS
JANUARY 29, 1999 (AS RESTATED)
<TABLE>
<S> <C>
Stockholders' equity per balance sheet at January 29, 1999 $333,570
Less unacceptable asset for computation of adjusted
net worth as set forth in the Audit Guide: --
--------
Adjusted net worth for GNMA requirement purposes $333,570
========
GNMA required net worth:
Unpaid principal balances of securities outstanding $ --
Outstanding balance of commitments issued and
requested --
--------
Computed net worth requirement $ --
========
$250,000
========
</TABLE>
<PAGE> 40
SCHEDULE 2 18
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
COMPUTATION OF GNMA REQUIRED
INSURANCE COVERAGE
DECEMBER 31, 1998
<TABLE>
<S> <C>
IDENTIFICATION OF AFFILIATED GNMA ISSUERS
Affiliated GNMA issuers None
Affiliated issuers on same insurance policies None
REQUIRED INSURANCE CALCULATION
Servicing Portfolio:
GNMA $ --
FNMA --
FHLMC --
Other 404,187
-----------
Total servicing portfolio $ 404,187
===========
Required fidelity bond coverage $ 300,000
Required mortgage servicing errors and omissions coverage $ 300,000
VERIFICATION OF INSURANCE COVERAGE
Fidelity bond coverage at end of reporting period $ 300,000
Mortgage servicing errors and omissions coverage at end of
reporting period $ 300,000
EXCESS (DEFICIT) INSURANCE COVERAGE
Fidelity bond coverage $ --
Mortgage servicing errors and omissions coverage $ --
GNMA LOSS PAYABLE ENDORSEMENT
Fidelity bond coverage Yes
Mortgage servicing errors and omissions coverage Yes
</TABLE>
<PAGE> 41
SCHEDULE 3 19
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
COMPUTATION OF ADJUSTED NET WORTH
TO DETERMINE COMPLIANCE WITH HUD
NET WORTH REQUIREMENTS
DECEMBER 31, 1998
<TABLE>
<S> <C>
Calculation of HUD net worth requirement for 1998:
FHA loans serviced at December 31, 1998 $ --
Add: FHA loans originated in fiscal 1998 17,230,226
Less: Principal balance at December 31, 1998 or FHA
Loan originated in fiscal 1998 and serviced at
December 31, 1998 --
-----------
Total FHA volume $17,230,226
===========
Net worth requirement percentage 1%
-----------
Calculated net worth requirement 172,302
Actual net worth requirement(1) 250,000
Stockholders' equity per balance sheet $ 333,570
Less unacceptable assets (229,080)
-----------
Adjusted net worth for HUD requirement purposes 104,490
-----------
Adjusted net worth (below) amount required $ (145,510)*
===========
</TABLE>
(1) Per HUD Handbook 4060.1 REV-1 paragraph 2-4A, mortgagees must maintain a
net worth of not less than $250,000 plus 1% of the volume of insured
mortgages serviced, purchased and originated in excess of $25,000,000
during its prior fiscal year, up to a maximum of $1,000,000.
* THE ADJUSTED NET WORTH DEFICIENCY ABOVE WAS RECTIFIED ON JANUARY 29, 1999
UPON CONVERSION OF UNACCEPTABLE ASSETS TO CASH. SEE FOLLOWING PAGE FOR
REVISED NET WORTH CALCULATION REFLECTING THE AFOREMENTIONED CASH RECEIPTS.
<PAGE> 42
SCHEDULE 3a 20
OCCIDENTAL MORTGAGE CORPORATION
(AN S CORPORATION)
COMPUTATION OF ADJUSTED NET WORTH
TO DETERMINE COMPLIANCE WITH HUD
NET WORTH REQUIREMENTS
JANUARY 29, 1999 (AS RESTATED)
<TABLE>
<S> <C>
Calculation of HUD net worth requirement for 1998:
FHA loans serviced at December 31, 1998 $ --
Add: FHA loans originated in fiscal 1998 17,230,226
Less: Principal balance at December 31, 1998 or FHA
Loan originated in fiscal 1998 and serviced at
December 31, 1998 --
-----------
Total FHA volume $17,230,226
===========
Net worth requirement percentage 1%
-----------
Calculated net worth requirement 172,302
Actual net worth requirement(1) 250,000
Stockholders' equity per balance sheet $ 333,570
Less unacceptable assets --
-----------
Adjusted net worth for HUD requirement purposes 333,570
-----------
Adjusted net worth (above) amount required $ 83,570
===========
</TABLE>
(1) Per HUD Handbook 4060.1 REV-1 paragraph 2-4A, mortgagees must maintain a
net worth of not less than $250,000 plus 1% of the volume of insured
mortgages serviced, purchased and originated in excess of $25,000,000
during its prior fiscal year, up to a maximum of $1,000,000.
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 --- Stock Purchase Agreement, dated as of October 1, 1999, by and among
StarNet Financial, Inc., Residential Lenders, Inc., and all of the
Stockholders of Residential Lenders, Inc.
2.2 --- Asset Purchase Agreement, dated as of October 1, 1999, among StarNet
Financial, Inc., Occidental Mortgage Corporation and the
Shareholders thereof.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
STARNET FINANCIAL, INC.,
RESIDENTIAL LENDERS, INC.
AND ALL OF THE STOCKHOLDERS OF
RESIDENTIAL LENDERS, INC.
OCTOBER 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS...........................................................................................1
ARTICLE II - SALE OF SHARES AND CLOSING...........................................................................3
2.1 Purchase and Sale of Shares............................................................3
2.2 Purchase Price.........................................................................3
2.3 Closing................................................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND THE COMPANY......................................4
3.1 Organization of the Company............................................................4
3.2 Authority..............................................................................4
3.3 Capital Stock..........................................................................5
3.4 No Conflicts or Violations.............................................................5
3.5 Litigation.............................................................................5
3.6 Financial Statements...................................................................5
3.7 Absence of Changes.....................................................................5
3.8 No Undisclosed Liabilities.............................................................6
3.9 Taxes..................................................................................6
3.10 Compliance With Laws...................................................................6
3.11 Pension and Benefit Plans..............................................................6
3.12 Contracts..............................................................................6
3.13 Licenses and Permits...................................................................6
3.14 Disclosure and Investor Related Issues.................................................6
3.15 Accounts Receivable; Prepaid Expenses and Deposits.....................................6
3.16 Real Property and Leaseholds; Equipment and Personal Property Leases; Liens............7
3.17 Patents, Trademarks/Service Marks, Trade Names; Software Licenses......................7
3.18 Insurance..............................................................................7
3.19 Guarantors.............................................................................7
3.20 Brokers, Finders, Etc. ................................................................7
3.21 Compensation...........................................................................8
3.22 Environmental Matters..................................................................8
3.23 Books and Records......................................................................8
3.24 Bank Accounts..........................................................................8
3.25 Trade Secrets..........................................................................8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASER..........................................................9
4.1 Organization...........................................................................9
4.2 Authority..............................................................................9
4.3 Purchase for Investment................................................................9
</TABLE>
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<TABLE>
<S> <C>
4.4 Disclosure.............................................................................9
4.5 Brokers, Finders, Etc..................................................................9
ARTICLE V - COVENANTS OF SELLERS.................................................................................10
5.1 Investigation by Purchaser............................................................10
5.2 Conduct of Business...................................................................10
5.3 No Charter Amendments.................................................................10
5.4 No Issuance of Securities.............................................................10
5.5 No Dividends..........................................................................10
5.6 Resignations of Officers and Directors...............................................10
5.7 Books and Records.....................................................................10
5.8 Stub Period...........................................................................10
ARTICLE VI - COVENANTS OF PURCHASER..............................................................................11
6.1 Employee Incentives...................................................................11
6.2 Right to "Put" the Purchaser Common Stock.............................................11
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF PURCHASER.............................................................12
7.1 Conditions to Obligations of Purchaser................................................12
7.2 Conditions to Obligations of Sellers..................................................13
ARTICLE VIII - SURVIVAL OF PROVISIONS............................................................................14
8.1 Survival of Representations and Warranties............................................14
ARTICLE IX - INDEMNIFICATION.....................................................................................14
9.1 Sellers' Indemnity....................................................................14
9.2 Indemnity Procedures..................................................................14
9.3 Limitation or Indemnity...............................................................14
ARTICLE X - MISCELLANEOUS........................................................................................15
10.1 Notices...............................................................................15
10.2 Entire Agreement......................................................................16
10.3 Expenses..............................................................................16
10.4 Public Announcement...................................................................16
10.5 Brokers...............................................................................16
10.6 Further Assurance.....................................................................16
10.7 Waiver................................................................................17
10.8 Amendment.............................................................................17
10.9 Counterparts..........................................................................17
10.10 No Third Party Beneficiary............................................................17
10.11 Governing Law.........................................................................17
10.12 Binding Effect........................................................................17
10.13 No Assignment.........................................................................17
10.14 Provisions............................................................................17
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into
effective as of date set forth below, by and among STARNET FINANCIAL, INC., a
Delaware corporation ("Purchaser"), RESIDENTIAL LENDERS, INC., a Florida
corporation ("Company"), and the shareholders of Company set forth on Schedule I
to this Agreement (individually a "Shareholder" and collectively the
"Shareholders"). Company and Shareholders are sometimes collectively referred to
as the "Sellers".
R E C I T A L S:
A. Shareholders own 10,000 shares (the"Shares") of the Common Stock, par
value $1.00 per share, of the Company ("Common Stock"), and the Shares
constitute all the issued and outstanding capital stock of the Company, such
shares being owned as set forth on Schedule I hereto.
B. Shareholders desire to sell the Shares to Purchaser, and Purchaser
desires to purchase the Shares from Shareholders, on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
The capitalized terms used in this Agreement will have the following
meanings:
"Closing" means the closing of the transactions contemplated by this
Agreement as provided in Section 2.3 of this Agreement.
"Closing Date" means the later of (a) the third business day following the
date upon which the last of the conditions set forth in Article VII hereof has
been satisfied or waived, or (b) such other date as Purchaser and Sellers may
agree upon in writing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any written agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy, annuity
or other contract or commitment (whether written or oral).
"Damages" means any and all monetary damages, liabilities, fines, fees,
penalties, interest obligations, deficiencies, losses, and expenses (including,
without limitation, punitive, treble, or other exemplary or other extra
contractual damages amounts paid in settlement, interest, court costs, costs of
investigation, fees and expenses of attorneys, accountants, actuaries, and other
experts).
<PAGE> 5
"Disclosure Documents" means Purchaser's Private Placement Memorandum,
dated June 21, 1999, and relating to the offer of 4,500,000 shares of Purchaser
Common Stock, its Annual Report on Form 10-K for the fiscal year ended March 31,
1999 and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1999.
"Employee Benefit Plans" means any employee benefit plan that is subject to
ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (including, without limitation, any successor act), and the rules and
regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles, consistently applied
throughout the specified period and in the comparable period in the immediately
preceding year.
"IRS" means the United States Internal Revenue Service.
"Initial Cash Payment" means the cash to be paid to the Shareholders at
Closing pursuant to Section 2.2.A.(a) hereof.
"Law" means all laws, statutes, ordinances, and regulations of the United
States of America or any relevant state, commonwealth, city, county or
municipality thereof.
"Material Adverse Effect" means any effect that is materially adverse to
the validity or enforceability of this Agreement, to the ability of Sellers or
Purchaser, as the case may be, to perform their respective obligations under
this Agreement, or to the business or condition of the Company.
"Permitted Lien" means any (a) mechanic's, carrier's, workmen's,
repairmen's, or other similar lien arising or incurred in the ordinary course of
business, aggregating not in excess of $1,000, at any time outstanding, and (b)
other imperfections of title or other encumbrances that do not have a Material
Adverse Effect.
"Purchaser Common Stock" shall mean shares of the common stock, par value
$.01 per share, of StarNet Financial, Inc.
"Shares" shall have the meaning ascribed to them in the Preamble hereof.
"Tax Returns" means Federal Income Tax Returns and State Franchise Tax
Returns and any and all other tax returns required to be filed by the Company
and Sellers.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include each other gender; (b) words using the singular or
plural number also include the plural or singular number, respectively; (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement; (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement; (e) the term "party" means,
on the one hand,
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Purchaser, and on the other hand, Sellers; (f) the phrase "in the ordinary
course of business and consistent with past practice" refers to the business,
operations, affairs, and practices of the Company consistent with past practices
of such business, operations, and affairs; and (g) all references to "dollars"
or "$" refer to currency of the United States of America.
ARTICLE II
SALE OF SHARES AND CLOSING
2.1 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions of
and in reliance upon the representations and warranties set forth in this
Agreement, Shareholders agree to sell the Shares to Purchaser and Purchaser
agrees to purchase the Shares from Shareholders. It is agreed among Purchaser,
Shareholders and the Company that those assets listed on Exhibit A attached
hereto (the "Excluded Assets") are and shall continue to be the separate
property of Shareholders and shall be unaffected by the transactions
contemplated hereby.
2.2 PURCHASE PRICE.
A. The purchase price for the Shares will be calculated and paid to
Shareholders as follows (collectively, the "Purchase Price"):
(a) Purchaser shall deliver to Shareholders (by wire transfer to one
or more accounts designated in writing by Shareholders to
Purchaser prior to the Closing) cash in an amount equal to (i)
aggregate of One Hundred Seventy-Five Thousand Dollars
($175,000), less (ii) the aggregate of all amounts set forth (or
which should be set forth) under the caption "Disbursements" on
Exhibit B attached hereto (the "Company Liabilities") (the net
payment resulting from this subparagraph (a) shall be hereinafter
referred to as the "Initial Cash Payment")
(b) Purchaser shall deliver to Shareholders (as a group) by wire
transfer to one or more accounts and in allocations designated in
writing by Shareholders to Purchaser Fifty Thousand Dollars
($50,000) payable on each November 10, 1999 and December 10, 1999
and January 10, 2000 and February 10, 2000 (the "Installment
Payments"); and
(c) Purchaser shall deliver to Shareholders (as a group), Two Hundred
Fifty Thousand (250,000) shares of Purchaser Common Stock
allocated in accordance with Schedule I.
B. In addition to the Purchase Price, John M. Vickers (and/or his
designees) will be entitled to withdraw $45,900.00 held in the Company's general
account at Closing.
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<PAGE> 7
2.3 CLOSING.
A. The Closing will take place at the offices of Gardere & Wynne,
L.L.P., 3000 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201. at 10:00
a.m., local time on the Closing Date.
B. At the Closing, Purchaser will pay Shareholders the Initial Cash
Payment by wire transfer, plus $700.00 in payment of the Florida documentary
stamp tax on the Note.
C. At the Closing, Purchaser will deliver to Shareholders a
promissory note for the Installment Payments (the "Note") substantially in the
form of Exhibit I attached hereto.
D. At the Closing, Purchaser will deliver to Shareholders
certificates in genuine and unaltered form for the Purchaser Common Stock.
E. At the Closing, Shareholders will deliver to Purchaser
certificates in genuine and unaltered form for the Shares, together with
appropriate stock powers thereto duly endorsed to Purchaser, and such other
documents and instruments required to be delivered under the terms of this
Agreement, all in accordance with the Stock Pledge Agreement of even date
herewith. In this connection, a single share certificate representing 10,000
shares of Company stock will be issued to Purchaser, which share certificate
shall be retained by Shareholders as collateral in connection with payment of
the Note. Purchaser will also deliver a stock power to Shareholders, endorsed in
blank, with regard to such share certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS AND THE COMPANY
Shareholders and Company hereby represent and warrant to Purchaser as
follows:
3.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Florida. The Company is duly qualified or admitted to do business and is in good
standing as a foreign corporation in all jurisdictions in which the ownership,
use, or leasing of its assets or the conduct or nature of its business makes
such qualification or admission necessary, except where the failure to be so
qualified or admitted and in good standing does not have a Material Adverse
Effect. The Company has no subsidiaries.
3.2 AUTHORITY. The execution and delivery of this Agreement by the Company
and the performance by the Company of its obligations under this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of the Company. This Agreement constitutes a legal, valid, and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms, except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
Law now or hereafter in effect
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relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar person or entity before which any proceeding therefor may be
brought.
3.3 CAPITAL STOCK. The Company has authorized capitalization consisting of
10,000 shares of Common Stock, $1.00 par value, of which 10,000 shares are
issued and outstanding. Shareholders own the Shares beneficially and of record,
free and clear of all liens.
3.4 NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by Shareholders and the Company do not, and the performance of the
Shareholders' and Company's obligations under this Agreement will not (a)
violate any term or provision of any Law or any writ, judgment, decree, or
injunction applicable to Sellers; (b) conflict with or result in a violation or
breach of any of the provisions of the articles or certificate of incorporation
or bylaws of the Company; or (c) conflict with or result in a violation or
breach of any Contract to which Sellers are a party.
3.5 LITIGATION. There is no action, suit, or proceeding pending, or to the
knowledge of Sellers threatened, against Sellers, at Law or in equity, in,
before, or by any person or entity. To the knowledge of Sellers, there is no
writ, judgment, decree, injunction, or similar order of any person or entity
outstanding against the Company.
3.6 FINANCIAL STATEMENTS. Sellers have previously delivered to Purchaser
true and complete copies of the audited balance sheets of the Company as of
December 31, 1996, 1997 and 1998 and the related audited statements of
operation, stockholders' equity and cash flows of the Company for each of the
years then ended, together with the notes related thereto and the reports
thereon of Geoffrey Mosher, C.P.A. (for 1996) and Averett, Warmus, Durkee,
Bauder & Thompson, C.P.A.s (for 1997 and 1998)(the "Annual Financial
Statements"), together with the unaudited balance sheets of the Company as of
June 30, 1999 and 1998 and the related statements of operation, stockholders'
equity and cash flows of the Company for the six months periods then ended (the
"Interim Financial Statements"). Each such financial statement was prepared in
accordance with GAAP, is true in all material respects and presents fairly the
financial position of the Company as of the respective dates thereof and for and
during the respective periods covered thereby except as otherwise noted therein
and subject (with respect to the Interim Financial Statements) to year-end
adjustments and the absence of notes.
3.7 ABSENCE OF CHANGES. Since June 30, 1999, the Company has operated in
the ordinary course of business and there has not been or occurred: (a) any
declaration or payment of any dividend or other distribution in respect of
capital stock of the Company or any direct or indirect redemption, purchase or
other acquisition by the Company of any such stock or of any interest in or
right to acquire any such stock; (b)any damage, destruction, or loss (whether or
not covered by insurance) affecting any of the assets or properties of the
Company, except for any such damage, destruction, or loss that does not have a
Material Adverse Effect; or (c) any amendment to the articles or certificate of
incorporation or bylaws of the Company.
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<PAGE> 9
3.8 NO UNDISCLOSED LIABILITIES. All liabilities against, relating to, or
affecting the Company, which are known to (or based on facts known to) the
Company and the Shareholder (after due inquiry), are set forth on Exhibit B
attached hereto. Except as set forth on Exhibit B, the Company shall be debt
free as of the Closing Date.
3.9 TAXES. All Tax Returns required to be filed by or with respect to the
Company have been filed. The Company (i) has duly and timely paid all taxes that
are shown to be due, claimed, or asserted by any taxing authority, or (ii) has
provided for all such taxes on its books and records in accordance with GAAP.
There are no liens with respect to taxes upon any of the assets or properties of
the Company.
3.10 COMPLIANCE WITH LAWS. To the best of their knowledge, the Company is
not in violation of any Law or any writ, judgment, decree, injunction, or
similar order applicable to such entity.
3.11 PENSION AND BENEFIT PLANS. The Company has no Employee Benefit Plans.
3.12 CONTRACTS. The Company has delivered a true and correct copy of each
Contract that is material to the business, operations, or affairs of the
Company.
3.13 LICENSES AND PERMITS. The Company owns or validly holds all licenses,
permits, and approvals that are necessary for the conduct of its business and a
true and correct copy of each such license, permit or approval has been
delivered to Purchaser.
3.14 DISCLOSURE AND INVESTOR RELATED ISSUES. Each of the Shareholders is
taking the Purchaser Common Stock hereunder for investment and without a view
towards the resale or further distribution thereof. Each Shareholder
acknowledges that such shares are being acquired without registration, will
therefore constitute restricted securities pursuant to Rule 144, and may not be
sold, pledged or hypothecated in the future without registration under the
Securities Act of 1933 and any applicable state's securities Laws or an
effective exemption therefrom. Shareholders agree that certificates representing
Purchaser Common Stock will bear an appropriate legend to that effect. Each
Shareholder represents that the responses contained in his or her Shareholder
Questionnaire and Representation Agreement (a completed and executed copy of
which has previously been delivered) are true and correct and will be true and
correct as of the Closing Date. Each Shareholder is a resident of the State of
Florida. Each Shareholder acknowledges receipt of the Disclosure Documents.
3.15 ACCOUNTS RECEIVABLE; PREPAID EXPENSES AND DEPOSITS. The Company has
previously provided Purchaser with a correct and complete list of any accounts
receivable and notes receivable or other rights to receive payment owing to
Company including, but not limited to, all cash and/or other proceeds arising
from the collection of such receivables by Company from and after the Effective
Date. Such Accounts Receivable arose from bona fide transactions in the ordinary
course of Company's business and are collectible in accordance with their terms
without resort to legal proceedings, except for such discounts, allowances and
adjustments as are reflected in Company's reserve for bad debts computed in
accordance with GAAP. The Company has previously
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provided Purchaser with a complete list of all of Company's prepaid expenses,
prepaid insurance, deposits and similar items.
3.16 REAL PROPERTY AND LEASEHOLDS; EQUIPMENT AND PERSONAL PROPERTY LEASES;
LIENS. The Company has previously provided Purchaser with a complete and correct
list of any real properties and interests therein owned or leased by Company,
including, but not limited to, all land (if any), structures, improvements,
parking facilities, leaseholds, rights to occupancy under any leasehold
interests, leasehold improvements and fixtures owned or leased by Company.
Company has good and marketable title to all of the real and all of the tangible
and intangible personal properties owned by Company (including Company's
accounts receivable, inventories, contract rights and other general
intangibles), and valid leasehold interests in all real and tangible personal
property leased by Company, in each case free and clear of all mortgages, liens,
charges, encumbrances, easements, security interests or title imperfections
(collectively, "Liens") except (i) Liens for current taxes not due and payable;
(ii) Liens existing on December 31st of the last calendar year, securing
indebtedness reflected on Company's Recent Financials; and (iii) easements,
rights of way and similar encumbrances on the real estate leased by Company
which do not, individually or in the aggregate, materially and adversely affect
the use and occupancy of the premises subject to said leases. No consent or
other agreement of any other person is required for the transfer and assignment
to Purchaser of the Shares.
3.17. PATENTS, TRADEMARKS/SERVICE MARKS, TRADE NAMES; SOFTWARE LICENSES.
The Company has previously provided Purchaser with a complete list of any
patents, patent applications, trade secrets and processes and proprietary
properties, trade names, trademarks, service marks, customer and supplier lists,
software programs and know-how licenses, service marks and trademark and service
mark applications and other intangible property and rights of Company. Company
owns or possesses adequate rights to use, all such patents, trade names,
trademarks, servicemarks, copyrights, inventions, processes, designs, formulas,
trade secrets, know-how and proprietary interests and rights reasonably
necessary for the conduct of its business, with no known conflict with or
infringement of the asserted rights of others.
3.18. INSURANCE. The Company has previously provided Purchaser with a
complete and correct list as of the date hereof and an accurate summary
description (including premiums, broker and carrier and indicating whether such
insurance is on a claims made or occurrence basis) of any insurance policies
maintained by Company. Company has delivered to Purchaser complete and correct
copies of any such policies together with all riders and amendments thereto. Any
such policies are in full force and effect, all premiums due thereon have been
paid, and Company has complied in all material respects with the provisions of
such policies.
3.19 GUARANTORS. There are no guarantors of any liability or obligation of
Company, and Company has not entered into any guaranty of any liability or
obligation of any other party.
3.20 BROKERS, FINDERS, ETC. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried on without the
intervention of any person acting on behalf of Company and/or Shareholder in
such manner as to give rise to any valid claim against
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Company, Shareholder or Purchaser for any brokerage or finder's commission, fee
or similar compensation.
3.21 COMPENSATION. Company has delivered to Purchaser a true and complete
list of all of its employees engaged in connection with Company as of the
Effective Date, which list states the rate of compensation (including all
employee benefits), accrued vacation and sick leave, the positions held by the
persons listed and the duration of their employment or engagement by Company.
Also set forth on Schedule 3.21 is a list of all employment agreements and
independent contractor agreements to which Company is party.
3.22 ENVIRONMENTAL MATTERS. To the best of Shareholders' knowledge (but
without inquiry or investigation), Company is not in violation of any existing
federal, state or local law, statute or regulation, or any existing decree,
order, arbitration award, or any license or permit issued by any federal, state
or local governmental authority relating to pollution or protection of the
environment (the "Environmental Laws"), including, without limitation,
Environmental Laws relating to (i) treatment, storage, disposal, generation and
transportation of pollutants or contaminants, toxic or hazardous substances, or
solid or hazardous waste regulated under Environmental Laws ("Hazardous
Materials"); (ii) air, water and noise pollution; (iii) ground water
contamination; (iv) the release or threatened release into the environment of
Hazardous Materials; (v) the protection of wildlife, marine sanctuaries and
wetlands; (vi) the protection of natural resources; (vii) storage tanks, vessels
and related equipment; (viii) abandoned or discarded barrels, containers and
other closed receptacles; (ix) health and safety of employees and other persons;
and (x) otherwise relating to the manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of Hazardous Materials.
There are no written notices or written complaints which Company has received in
the last two (2) years of any violation of the Environmental Laws.
3.23 BOOKS AND RECORDS. The corporate records of Company contain accurate
records of all required meetings of, and corporate actions or written consents
by, Shareholder and the Board of Directors of Company. Company does not have any
material records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not, including all means of access thereto and therefrom) which
are not under the exclusive ownership of, and accessible by, Company.
3.24 BANK ACCOUNTS. The Company has previously provided Purchaser with an
accurate and complete list showing the name and address of each bank in which
Company has an account or safe deposit box, the number of any such account or
any such box and the names of all persons authorized to draw thereon or to have
access thereto.
3.25 TRADE SECRETS. No third party has notified Company in writing that any
person employed or otherwise affiliated with Company has, in respect of his, her
or its activities to date, violated any of the terms or conditions of his, her
or its employment contract with any third party, or disclosed or utilized any
trade secrets or proprietary information or documentation of any third party, or
interfered in the employment relationship between any third party and any of its
employees.
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To the best of their knowledge, no person employed by or otherwise affiliated
with Company has employed any trade secrets or any information or documentation
proprietary to any former employer, or violated any confidential relationship
which such person may have had with any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
4.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Delaware and has
full corporate power and authority to enter into this Agreement and to perform
its obligations under this Agreement.
4.2 AUTHORITY. The execution and delivery of this Agreement by Purchaser
and the performance by Purchaser of its obligations under this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of Purchaser. This Agreement constitutes a legal, valid, and binding obligation
of Purchaser and is enforceable against Purchaser in accordance with its terms,
except to the extent that (a) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, or similar Laws now or
hereafter in effect relating to or limiting creditors, rights generally and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court or other similar person or entity before which any proceeding therefor may
be brought.
4.3 PURCHASE FOR INVESTMENT. The Shares will be acquired by Purchaser for
its own account for the purpose of investment. Purchaser will refrain from
transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to violate any registration provision of the
securities Law.
4.4 DISCLOSURE. Purchaser has delivered to Shareholders a copy of the
Disclosure Documents. Purchaser represents to Shareholders that the Disclosure
Documents neither contain, nor on the Closing Date will contain, a misstatement
of a material fact or fail, or on the Closing Date will fail, to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
4.5 BROKERS, FINDERS, ETC. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried on without the
intervention of any person acting on behalf of Purchaser in such manner as to
give rise to any valid claim against Company, Shareholder or Purchaser for any
brokerage or finder's commission, fee or similar compensation.
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ARTICLE V
COVENANTS OF SELLERS
Sellers covenant and agree with Purchaser that, at all times before the
Closing, Sellers will comply with all covenants and provisions of this Article V
except to the extent Purchaser may otherwise consent in writing or to the extent
otherwise required or permitted by this Agreement.
5.1 INVESTIGATION BY PURCHASER. Sellers will provide Purchaser and its
representatives and agents with reasonable access to all facilities, properties,
officers, employees, agents, assets, and books and records of the Company and
will furnish Purchaser and such other persons or entities with all such
information and data concerning the business, operations, and affairs of the
Company as Purchaser or such other persons or entities may reasonably request.
5.2 CONDUCT OF BUSINESS. Shareholders will cause the Company to conduct
its business in the ordinary course.
5.3 NO CHARTER AMENDMENTS. Shareholders will cause the Company to refrain
from amending its articles or certificate of incorporation or bylaws and from
taking any action with respect to any such amendment.
5.4 NO ISSUANCE OF SECURITIES. Shareholders will cause the Company to
refrain from authorizing or issuing any shares of its capital stock or other
equity securities or granting any option or warrant calling for the
authorization or issuance of any such shares.
5.5 NO DIVIDENDS. Shareholders will cause the Company to refrain from
declaring or paying any dividend or other distribution in respect of its capital
stock and from directly or indirectly redeeming or purchasing any of its capital
stock or any interest in or right to acquire any such stock.
5.6 RESIGNATIONS OF OFFICERS AND DIRECTORS. Shareholders will cause the
officers and such members of the boards of directors of the Company as are
designated by Purchaser to tender, effective at the Closing, their resignations
as such officers or from the board of directors.
5.7 BOOKS AND RECORDS. On the Closing Date, Sellers will deliver to
Purchaser or will make available to Purchaser all books and records of the
Company. If (at any time after the Closing) Shareholders discover in their
possession or under their control any other books and records of the Company,
Shareholders will deliver such books and records to Purchaser.
5.8 STUB PERIOD. Shareholders shall be responsible for, and shall timely
complete, as applicable, all "stub period" tax returns/reports for Company, if
any, for the period prior to the Closing Date, including, but not limited to,
quarterly 941s, an annual 940, imputation of income to Shareholders for
forgiveness of debt and include on W-2s, completion and issuance of W-2s,
completion and issuance of W-3s, completion and issuance of 1099s, completion
and filing of all state and federal income tax reports and all tax filings
relative to payroll accounts for employees
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and for independent contractors and termination of all third party payroll
contracts, if any (including preparation of all tax filings relative to such
services).
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Shareholders that it will comply with
the provisions of Article VI except to the extent Shareholders may otherwise
consent in writing.
6.1 EMPLOYEE INCENTIVES. Purchaser will offer Company employee benefits
commensurate with benefits offered generally to Purchaser's employees.
6.2 RIGHT TO "PUT" THE PURCHASER COMMON STOCK.
A. If the Purchaser Common Stock is not listed on a national
securities exchange ((such as the NYSE, the AMEX or the NASDAQ) or quoted on the
NASD Over-the-Counter Bulletin Board), before six (6) months after the Closing
Date (the "Put Date"), then the Shareholders (as a group and not individually)
shall have the right to "put" the Purchaser Common Stock (in its entirety) back
to Purchaser by requiring Purchaser to purchase the Purchaser Common Stock from
the Shareholders as allowed by law (the "Put").
B. The Put shall be exercisable by the Shareholders giving a single
written notice to Purchaser, within ten (10) days after the Put Date (the "Put
Period"), that the Shareholders are rescinding the transfer of the Purchaser
Common Stock and putting such stock back to Purchaser (the "Put Notice").
C. Provided that the Put Notice is made by Shareholders in
accordance with Sections 6.2(A) and 6.2(B) of this Agreement, Purchaser shall
pay the Shareholders an aggregate sum equal to Two Hundred Fifty Thousand
Dollars and No Cents ($250,000.00), payable at the rate of $1.00 per share
reflected in the Put Notice (allocated as Shareholders determine) within thirty
(30) days after Purchaser's receipt of the Put Notice.
D. Upon Purchaser's tender of the payment for the Purchaser Common
Stock in accordance with Section 6.2(C) of this Agreement, the Shareholders
shall immediately deliver the Purchaser Common Stock, endorsed in blank, to
Purchaser free and clear of any liens, claims, encumbrances, liabilities or
security interests.
E. Purchaser's obligations under this Section 6.2 shall survive
Closing. Failure of Purchaser to pay the amount reflected in the Put Notice
shall constitute an "event of default" under this Agreement.
11
<PAGE> 15
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLERS
7.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser hereunder are subject to the fulfillment, at or before the Closing, of
each of the following conditions (all or any of which may be waived in whole or
in part by Purchaser).
A. Representations and Warranties. The representations and
warranties made by Sellers in this Agreement shall be true in all material
respects as of the date hereof and shall be true in all material respects on and
as of the Closing Date as though such representations, warranties and
disclosures were made on and as of the Closing Date.
B. Performance. The Sellers shall have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be so performed or complied with by
Sellers at or before the Closing.
C. Officer's Certificates. Company shall have delivered to
Purchaser a certificate, dated the Closing Date and executed by an executive
officer of the Company, certifying as to the fulfillment of the conditions set
forth herein. In addition, the Company shall have delivered to Purchaser a
certificate, dated the Closing Date and executed by the secretary or any
assistant secretary of the Company, certifying that the Company has duly and
validly taken all corporate action necessary to authorize its execution and
delivery of this Agreement and the performance of its obligations under this
Agreement.
D. No Injunction. There shall not be in effect on the Closing
Date any writ, judgment, injunction, decree, or similar order of any court or
governmental authority restraining, enjoining, or otherwise preventing
consummation of any of the transactions contemplated by this Agreement.
E. No Proceeding or Litigation. There shall not be instituted,
pending, or (to the best knowledge of Sellers) threatened, any action, suit,
investigation, or other proceeding in, before, or by any court or governmental
or regulatory authority to restrain, enjoin, or otherwise prevent consummation
of any of the transactions contemplated by this Agreement.
F. Closing Documents. Any and all documents reasonably required
by Purchaser shall have been executed and delivered to Purchaser by the Sellers.
G. Employment Agreements. John M. VICKERS and Lucas S. Vickers
shall have each executed the relevant employment agreement attached hereto as
Exhibits D and E, respectively.
H. Legal Opinion. Purchaser shall have received the opinion of
Akerman, Senterfill & Edison substantially in the form of Exhibit F attached
hereto.
12
<PAGE> 16
I. Investor Questionnaire. Each of the Shareholders shall have
delivered to Purchaser a duly completed copy of the Shareholder Questionnaire
and Representation Agreement attached hereto as Exhibit G.
7.2 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of Sellers
hereunder are subject to the fulfillment, at or before the Closing, of each of
the following conditions (all or any of which may be waived in whole or in part
by Sellers).
A. Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall be true in all material
respects as of the date hereof and shall be true in all material respects on and
as of the Closing Date as though such representations, warranties and
disclosures were made on and as of the Closing Date.
B. Performance. Purchaser shall have performed and complied in
all material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be so performed or complied with by Purchaser at
or before the Closing.
C. Officer's Certificates. Purchaser shall have delivered to
Sellers a certificate, dated the Closing Date and executed by the secretary or
any assistant secretary of Purchaser, certifying that Purchaser has duly and
validly taken all corporate action necessary to authorize its execution and
delivery of this Agreement and the performance of its obligations under this
Agreement.
D. No Injunction. There shall not be in effect on the Closing
Date any writ, judgment, injunction, decree, or similar order of any court or
governmental authority restraining, enjoining, or otherwise preventing
consummation of any of the transactions contemplated by this Agreement.
E. No Proceeding or Litigation. There shall not be instituted,
pending, or (to the best knowledge of Purchaser) threatened, any action, suit,
investigation, or other proceeding in, before, or by any court or governmental
or regulatory authority to restrain, enjoin, or otherwise prevent consummation
of any of the transactions contemplated by this Agreement.
F. Closing Documents. Any and all documents reasonably required
by Sellers shall have been executed and delivered to Sellers by Purchaser.
G. Employment Agreements. John M. VICKERS and Lucas S. Vickers
shall have each executed the relevant employment agreement attached hereto as
Exhibits D and E, respectively.
H. Legal Opinion. Sellers shall have received the opinion of
Gardere & Wynne, L.L.P., substantially in the form of Exhibit H attached hereto.
13
<PAGE> 17
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements respectively made by Sellers and Purchaser
in this Agreement and in any certificate delivered to Purchaser by Sellers or to
Sellers by Purchaser hereunder will survive the Closing and will remain in full
force and effect for a period of two (2) years after the Closing Date (except
for representations, warranties, covenants and agreements regarding taxes which
shall survive until the expiration of the applicable statute of limitations).
ARTICLE IX
INDEMNIFICATION
9.1 SELLERS' INDEMNITY. Sellers agree to jointly and severally
indemnify and hold Purchaser harmless of and from any and all liabilities,
claims, demands, expenses of any kind or nature, environmental claims, and
environmental expenses, and claims or liabilities for federal income taxes or
state taxes of any kind or nature, arising or accruing prior to the Closing Date
and (i) which are in any way related to the ownership, maintenance, or operation
of the Company or its assets or properties prior to the Closing, (ii) which
Purchaser may incur or sustain by reason of any misrepresentation in this
agreement or in any information, certificate or instrument furnished or to be
furnished by Sellers or at Sellers' request hereunder, (iii) which are a result
of any breach of Sellers' representations or warranties in this Agreement, and
all expenses related thereto including, without limitation, court costs and
attorneys' fees or (iv) which are in any way related to any broker's, finder's
or other fee in connection with the transactions contemplated in this agreement
by any party claiming by, through or under Sellers.
9.2 INDEMNITY PROCEDURES. In the event purchaser receives notice of a
claim or demand against which it is entitled to indemnification pursuant to this
Article IX, Purchaser shall promptly give notice thereof to Sellers. Sellers
shall immediately take such measures as may be reasonably required to properly
and effectively defend such claim, and may defend same with counsel of its own
choosing approved by Purchaser. If Sellers fail to properly and effectively
defend such claim, then purchaser may defend such claim with counsel of its own
choosing at the expense of Sellers.
9.3 LIMITATION OR INDEMNITY. Except for claims by Purchaser against
Sellers in respect of any Company Liabilities, Purchaser shall not be entitled
to assert any claim for indemnification pursuant to the terms hereof and/or
under the terms of the Shareholder Questionnaire and Representation Agreement in
excess of the Purchase Price.
14
<PAGE> 18
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. Any notice or other communication given pursuant to this
Agreement must be in writing and (i) delivered personally, (ii) sent by
telefacsimile or other similar facsimile transmission, (iii) delivered by
overnight express, or (iv) sent by registered or certified mail, postage
prepaid, as follows:
(a) If to Sellers:
c/o Akerman, Senterfitt & Eidson, P.A.
255 South Orange Avenue
P.O. Box 231
Orlando, Florida 32802-0231
Attention: Gloria M. Lockridge
Facsimile number: 407.843.6610
(b) If to Purchaser:
17000 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Mr. Daniel L. Jackson
Facsimile number: 972.239.2939
with a copy to (which shall not constitute notice):
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201-4761
Attention: Lawrence E. Glasgow
Facsimile number: 214.999.3594
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 10.1 will (i) if delivered
personally or by overnight express, be deemed given upon delivery, (ii) if
delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed and (iii) if sent by registered or certified mail,
be deemed given when received. Any party from time to time may change its
address for the purpose of notices to that party by giving a similar notice
specifying a new address, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.
15
<PAGE> 19
10.2 ENTIRE AGREEMENT. Except for documents executed by Sellers and
Purchaser pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
10.3 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party will pay their own costs and expenses, including
attorneys' fees, incurred in connection with this Agreement and the transactions
contemplated hereby.
10.4 PUBLIC ANNOUNCEMENT. At all times at or before the Closing,
Sellers and Purchaser will each consult with the other before issuing or making
any reports, statements, or releases to the public with respect to this
Agreement or the transactions contemplated hereby and will use good faith
efforts to agree on the text of a joint public report, statement, or release or
will use good faith efforts to obtain the other party's approval of the text of
any public report, statement, release to be made solely on behalf of a party. If
Sellers and Purchaser are unable to agree on or approve any such public report,
statement, or release and such report, statement, or release is, in the opinion
of legal counsel to a party, required by Law or appropriate to discharge such
party's, disclosure obligations, then such party may make or issue the legally
required or appropriate report, statement, or release. Any such report,
statement, or release approved or permitted to be made pursuant to this Section
10.4 may be disclosed or otherwise provided by Sellers or Purchaser to any
person or entity, including without limitation to any employee or customer of
either party hereto and to any governmental or regulatory authority.
10.5 BROKERS.
A. The Sellers will indemnify and hold harmless Purchaser in
respect of any and all claims or demands for commission, compensation,
or other Damages by any broker, finder, or other agent (whether or not
a present or former employee or agent of Sellers or the Company)
claiming to have been engaged by Sellers or the Company, in connection
with the transactions contemplated by this Agreement, and Sellers will
bear the cost of the reasonable out-of-pocket expenses incurred by
Purchaser in investigating, defending against, or appealing any such
claim or demand.
B. Purchaser will indemnify and hold harmless the Sellers in
respect of any and all claims or demands for commission, compensation,
or other Damages by any broker, finder, or other agent (whether or not
a present or former employee or agent of Purchaser) claiming to have
been engaged by Purchaser, in connection with the transactions
contemplated by this Agreement, and Purchaser will bear the cost of
the reasonable out-of-pocket expenses incurred by the Sellers in
investigating, defending against, or appealing any such claim or
demand.
10.6 FURTHER ASSURANCE. The Sellers and Purchaser agree that, from
time to time after the Closing, upon the reasonable request of the other, they
will cooperate with each other to effect the orderly transition of the business,
operations, and affairs of the Company.
16
<PAGE> 20
10.7 WAIVER. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof. Such waiver must
be in writing and must be executed by an executive officer of such party. A
waiver on one occasion will not be deemed to be a waiver of the same or any
other breach or nonfulfillment on a future occasion. All remedies, either under
this Agreement, or by Law or otherwise afforded, will be cumulative and not
alternative.
10.8 AMENDMENT. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of Sellers and Purchaser.
10.9 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
10.10 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of Sellers, Purchaser, and their
respective successors and permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other person or
entity.
10.11 GOVERNING LAW. This Agreement will be governed by and construed
and enforced in accordance with the Laws of the State of Texas (without regard
to the principles of conflicts of Law) applicable to a Contract executed and
performable in such state.
10.12 BINDING EFFECT. This Agreement is binding upon and will inure to
the benefit of the parties and their respective successors and permitted
assigns.
10.13 NO ASSIGNMENT. Neither this Agreement nor any right or
obligation hereunder or part hereof may be assigned by any party hereto without
the prior written consent of the other party hereto (and any attempt to do so
will be void), except as otherwise specifically provided herein.
10.14 PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future Law, and if the
rights or obligations under this Agreement of Sellers and Purchaser will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom.
(Signatures begin on next page)
17
<PAGE> 21
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as
of the 1st day of October, 1999, by Shareholders and by the duly authorized
officers of the Company and Purchaser.
SHAREHOLDERS:
-------------
/s/ Michael E. Mollica
-----------------------------------
Michael E. Mollica, individually
/s/ Stephen F. Thaggard
-----------------------------------
Stephen F. Thaggard, individually
/s/ John M. Vickers
-----------------------------------
John M. Vickers, individually
/s/ Lucas S. Vickers
-----------------------------------
Lucas S. Vickers, individually
COMPANY:
--------
RESIDENTIAL LENDERS, INC., a Florida
corporation
By: /s/ Lucas S. Vickers
-------------------------------
Lucas S. Vickers, President
PURCHASER:
----------
STARNET FINANCIAL, INC., a Delaware
corporation
By: /s/ Daniel L. Jackson
-------------------------------
Name: Daniel L. Jackson
Title: President
18
<PAGE> 1
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
dated as of October 1, 1999
among
STARNET FINANCIAL, INC.
and
OCCIDENTAL MORTGAGE CORPORATION
and
THE SHAREHOLDERS THEREOF
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS...............................................................................................1
2. ASSETS....................................................................................................4
2.1 Assets to be Sold...............................................................................4
2.2 Transferred Assets..............................................................................4
2.3 Retained Assets.................................................................................6
2.4 All Assets......................................................................................6
2.5 Liabilities Assumed.............................................................................6
2.6 Liabilities Not Assumed.........................................................................6
3. PRICE AND TERMS...........................................................................................6
3.1 Consideration...................................................................................6
3.2 Documents of Sale and Conveyance................................................................7
3.3 Bulk Sale; Sales and Transfer Taxes.............................................................7
3.4 Closing Date....................................................................................7
3.5 Allocation of Purchase Price....................................................................9
3.6 Employees, Benefit Plans, Etc...................................................................9
3.7 Mail Received After Closing....................................................................10
3.8 Access to Books and Records....................................................................10
3.9 Proration of Lease Payments, Utility Charges and other Payments................................10
3.10 Proration of Taxes.............................................................................10
4. REPRESENTATIONS AND WARRANTIES BY SELLER
AND SHAREHOLDERS.........................................................................................11
4.1 Organization and Good Standing.................................................................11
4.2 Authority......................................................................................11
4.3 No Violation...................................................................................12
4.4 Brokers........................................................................................12
4.5 Financial Statements; Undisclosed Liabilities..................................................12
4.6 No Undisclosed Liabilities.....................................................................12
4.7 Title to Property, Encumbrances................................................................12
4.8 Plant, Machinery, Equipment and Vehicles.......................................................13
4.9 Real Property..................................................................................13
4.10 Compliance with Applicable Law.................................................................13
4.11 Taxes..........................................................................................14
4.12 Employee Benefit Plans; ERISA..................................................................14
4.13 Contracts and Commitments......................................................................16
4.14 Litigation.....................................................................................18
4.15 Insurance......................................................................................18
4.16 Employees......................................................................................18
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
4.17 Permits, Licenses, Etc.........................................................................19
4.18 Assets Necessary to Business...................................................................19
4.19 Inventory......................................................................................19
4.20 Accounts Receivable............................................................................20
4.21 Books and Records..............................................................................20
4.22 Recent Actions.................................................................................20
4.23 Bank Accounts; Powers of Attorney..............................................................22
4.24 Dividends and Other Distributions..............................................................22
4.25 Suppliers and Customers........................................................................22
4.26 Affiliated Transactions........................................................................22
4.27 Consents.......................................................................................22
4.28 Full Disclosure................................................................................22
4.29 Shareholders as Accredited Investors...........................................................23
5. REPRESENTATIONS AND WARRANTIES BY BUYER..................................................................23
5.1 Organization and Good Standing.................................................................23
5.2 Authority......................................................................................23
5.3 Consents.......................................................................................23
5.4 Full Disclosure................................................................................23
5.5 Brokers........................................................................................24
6. AGREEMENTS BY SELLER AND SHAREHOLDERS....................................................................24
6.1 Actions Pending Closing........................................................................24
6.2 Supplying of Information.......................................................................26
6.3 Consents.......................................................................................26
6.4 Other Transactions.............................................................................27
6.5 Supplemental Disclosure........................................................................27
6.6 Discharge of Liens.............................................................................27
6.7 Employees......................................................................................27
6.8 Name Change....................................................................................28
6.9 Shareholder Approval...........................................................................28
6.10 Damage or Destruction..........................................................................28
6.11 Taxes..........................................................................................28
6.12 Employee Benefit Matters.......................................................................28
7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE.................................................28
7.1 Fulfillment of Covenants.......................................................................29
7.2 Corporate Approval.............................................................................29
7.3 Representations and Warranties.................................................................29
7.4 No Proceeding or Litigation....................................................................29
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
7.5 No Injunction..................................................................................29
7.6 Opinion of Seller's Counsel....................................................................29
7.7 Documents......................................................................................29
7.8 Consents and Approvals.........................................................................29
7.9 Liens Discharged...............................................................................30
7.10 Liabilities Other Than Assumed Liabilities.....................................................30
7.11 Certificates...................................................................................30
7.12 Estoppel Certificates..........................................................................30
7.13 No Material Adverse Change.....................................................................30
7.14 Shareholder Questionnaire and Representation Agreement.........................................30
7.15 Other Matters..................................................................................30
8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
AND SHAREHOLDERS TO CLOSE................................................................................30
8.1 Fulfillment of Covenants.......................................................................30
8.2 Corporate Approval.............................................................................31
8.3 Representations and Warranties.................................................................31
8.4 No Injunction..................................................................................31
8.5 Opinion of Buyer's Counsel.....................................................................31
8.6 Other Matters..................................................................................31
9. TERMINATION OF AGREEMENT.................................................................................31
9.1 Termination of Agreement.......................................................................31
9.2 Procedure Upon Termination.....................................................................32
10. INDEMNIFICATION..........................................................................................32
10.1 Survival of Representations....................................................................32
10.2 Statements as Representations..................................................................32
10.3 Seller's Agreement to Indemnify................................................................32
10.4 Buyer's Agreement to Indemnify.................................................................33
10.5 Procedures for Resolution and Payment of Claims for Indemnification..........................33
10.6 Remedies Cumulative............................................................................36
11. MISCELLANEOUS............................................................................................36
11.1 Reformation and Severability...................................................................36
11.2 Relief.........................................................................................36
11.3 Further Assurances.............................................................................36
11.4 Notices........................................................................................36
11.5 Headings.......................................................................................38
11.6 Waiver.........................................................................................38
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
11.7 LAW GOVERNING..................................................................................38
11.8 Counterparts...................................................................................38
11.9 Assignability and Binding Effect...............................................................38
11.10 Amendments.....................................................................................38
11.11 Expenses, Taxes, Etc...........................................................................39
11.12 Third Parties..................................................................................39
11.13 Number and Gender of Words.....................................................................39
11.14 Entire Agreement...............................................................................39
11.15 Noncompetition.................................................................................39
11.16 Nondisclosure of Confidential Information......................................................40
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of October 1,
1999, by and between Occidental Mortgage Corporation, a California corporation
("Seller"), and Kenneth F. Urbanus, Alanna Urbanus, Denise Skoveth and Mary Lee
Hill (referred to collectively hereinafter as "Shareholders"), and StarNet
Financial, Inc., a Delaware corporation ("Buyer").
R E C I T A L S
A. Seller is engaged in the business of originating and selling
residential mortgage loans (being hereinafter referred to as "Seller's
Business"); and
B. Seller is desirous of selling to Buyer and Buyer is desirous of
purchasing substantially all of Seller's assets, including all of Seller's
assets relating to Seller's Business, upon the terms and conditions hereafter
set forth; and
C. Shareholders, who own an aggregate of 400,000 shares of Seller's
common stock, par value $1.00 per share (being all of the issued and outstanding
shares of Seller common stock), desire to induce Buyer to purchase Seller's
assets upon the terms and conditions hereof by offering certain representations
and warranties to Buyer and by joining in certain covenants and indemnifications
of Seller.
ACCORDINGLY, in consideration of the premises and the mutual
agreements, covenants, representations and warranties hereafter set forth, the
parties hereby agree as follows:
1. DEFINITIONS.
Unless the context otherwise requires, the terms defined in this
Section 1 shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined. All accounting terms defined in this Section 1 and those
accounting terms used in this Agreement not defined in this Section 1 shall,
except as otherwise provided for herein, be construed in accordance with
generally accepted accounting principles.
"Agreed Claims" shall have the meaning assigned to it in Section
10.4(c) of this Agreement.
"Annual Financial Statements" shall have the meaning assigned to it in
Section 4.5(a) of this Agreement.
"Assumed Liabilities" shall have the meaning assigned to it in Section
2.5 of this Agreement.
"Basis" shall have the meaning assigned to it in Section 3.5 of this
Agreement.
1
<PAGE> 7
"Benefit Arrangement" shall have the meaning assigned to it in Section
4.12 of this Agreement.
"Bill of Sale" shall have the meaning assigned to it in Section 3.2 of
this Agreement.
"Books and Records" shall mean all books and records of Seller
including all computerized records and other computerized storage media and the
software used in connection therewith.
"Buyer" shall mean StarNet Financial, Inc., a Delaware corporation.
"Buyer Claims" shall have the meaning assigned to it in Section 10.3 of
this Agreement.
"Buyer Common Stock" shall have the meaning assigned to it in Section
3.1(b) of this Agreement.
"Buyer's Disclosure Documents" shall have the meaning assigned to it in
Section 5.4 of this Agreement.
"Buyer Group" shall mean Buyer, its officers, directors, employees,
subsidiaries and affiliates.
"Closing" shall have the meaning assigned to it in Section 3.4 of this
Agreement.
"Closing Date" shall have the meaning assigned to it in Section 3.4 of
this Agreement.
"Cutoff Date" means September 30, 1999.
"Damages" shall mean all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses including, without
limitation, interest, penalties and reasonable attorneys, fees and expenses.
"Documents" shall mean all ancillary documents delivered to Buyer by
Seller hereunder.
"Employee Plan" shall have the meaning assigned to it in Section 4.12
of this Agreement.
"Encumbrances" shall mean any title defects or objections, mortgages,
liens, claims, restrictive covenants, use restrictions, charges, pledges,
security interests or other encumbrances of any nature whatsoever including,
without limitation, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements.
"Excluded Liabilities" shall have the meaning assigned to it in Section
2.6 of this Agreement.
2
<PAGE> 8
"Government Body" shall mean any federal, state, local, foreign or
other governmental agency, department, commission, board, bureau,
instrumentality or body.
"Indemnitee" shall have the meaning assigned to it in Section 10.4(c)
of this Agreement.
"Indemnitee's Certificate" shall have the meaning assigned to it in
Section 10.4(c) of this Agreement.
"Indemnitor" shall have the meaning assigned to it in Section 10.5(a)
of this Agreement.
"Instruments of Assignment" shall have the meaning assigned to it in
Section 3.2 of this Agreement.
"Intangible Assets" shall mean all patents, trademarks, trademark
licenses, trade names, mastheads, brand names, slogans, copyrights, reprint
rights, franchises, licenses, authorizations, inventions, processes, know-how,
formulas, trade secrets and other intangible assets (together with all pending
applications, continuations-in-part and extensions for any of the above).
"Laws" shall mean all applicable laws (whether statutory or otherwise)
rules, regulations, orders, ordinances, judgments, decrees, orders, writs and
injunctions of all governmental authorities (federal, state, local, foreign or
otherwise).
"Leases" shall mean all leases (including all amendments thereof and
modifications thereto) pursuant to which Seller leases real or personal
property.
"Lease Assignments" shall have the meaning assigned to it in Section
3.2 of this Agreement.
"Other Instruments" shall have the meaning assigned to it in Section
3.2 of this Agreement.
"Permits" shall mean all licenses, permits and authorizations issued by
any federal, state, local or foreign governmental authority.
"Plans" shall mean any bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, hospitalization or other
medical, life or other insurance, supplemental unemployment benefit, profit
sharing, pension, or retirement plan, program, agreement or arrangement.
"Pipeline Loans" shall have the meaning assigned to it in Section
2.2(g) of this Agreement.
"Real Property" shall have the meaning assigned to it in Section 2.2(a)
of this Agreement.
"Receivables" shall have the meaning assigned to it in Section 4.20 of
this Agreement.
3
<PAGE> 9
"Related Instruments" shall have the meaning assigned to it in Section
4.2 of this Agreement.
"Retained Assets" shall have the meaning assigned to it in Section 2.3
of this Agreement.
"Seller" shall mean Occidental Mortgage Corporation, a California
corporation.
"Seller's Business" shall have the meaning assigned to it in the
recitals to this Agreement.
"Taxes" shall mean all federal, state and local or foreign income,
payroll, withholding, excise, added value, social security, sales use, real and
personal property, use and occupancy, business and occupation, mercantile, real
estate, capital stock and franchise or other tax (including interest and
penalties thereon and including estimated taxes thereof).
"Transferred Assets" shall have the meaning assigned to it in Section
2.2 of this Agreement.
"Unaudited Financial Statements" shall have the meaning assigned to it
in Section 4.5(b) of this Agreement.
2. ASSETS.
2.1 Assets to be Sold. On the Closing Date, but effective as of October
1, 1999, subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of Seller, the Shareholders and Buyer
contained herein, Seller shall sell and transfer to Buyer and Buyer shall
purchase from Seller the Transferred Assets, free and clear of all liens and
encumbrances, except as otherwise herein expressly provided. Seller shall retain
the Retained Assets.
2.2 Transferred Assets. The term "Transferred Assets" shall mean
substantially all of the assets of Seller as of the Closing Date (except the
Retained Assets) which transferred assets are more specifically identified on
Schedules attached hereto and made a part hereof and include the following:
(a) all real estate leasehold interests (including, but not
limited to, land, plants, buildings, structures, fixtures,
appurtenances and improvements) leased by Seller (the "Real Property")
including, the Real Property listed on Schedule 2.2(a);
(b) all accounts receivable, bills and notes receivable,
commercial paper and acceptances or any other evidences of indebtedness
to Seller including those accounts receivable, bills and notes
receivable listed on Schedule 2.2(b) attached hereto;
(c) all furniture and fixtures of Seller including, but not
limited to, all furniture and fixtures listed on Schedule 2.2(c)
attached hereto;
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(d) all machinery and equipment of Seller including, but not
limited to, all machinery and equipment listed on Schedule 2.2(c)
attached hereto;
(e) all "inventory" of Seller including, without limitation,
all potential mortgage loans which are in process but not closed
("Pipeline Loans") as of September 30, 1999 (the "Cutoff Date") as set
forth on Schedule 2.2(e) attached hereto;
(f) all customer, supplier and circulation lists and records
of Seller including those as set forth in Schedule 2.2(f) attached
hereto;
(g) all leases, contracts, agreements, arrangements,
commitments and understandings (whether written or oral) including, but
not limited to, all franchises, leases, security deposits and options
under leases, supply contracts, purchase contracts, service contracts
and confidentiality agreements, to which Seller is a party including
those listed or referred to on Schedule 2.2(g) attached hereto;
(h) all cash, certificates of deposit, securities (including
interests in mutual funds), investments, money market, savings and
checking accounts, and other accounts with financial institutions
including the items listed on Schedule 2.2(h) attached hereto;
(i) all rights and claims under insurance policies for damage
to Transferred Assets to the extent that any damaged Transferred Assets
have not been repaired or replaced prior to Closing;
(j) all Permits relating to the Transferred Assets and
necessary to Seller's Business, including the Permits listed on
Schedule 2.2(j) attached hereto provided such Permits are transferable;
(k) all prepaid expenses including, but not limited to,
utility deposits and similar monies held by third parties and loans to
employees, including those as set forth in Schedule 2.2(m) attached
hereto;
(l) all Books and Records;
(m) all technical documentation owned by Seller including,
without limitation, operating manuals, source codes, purchasing
specifications, research records, inspection processes and equipment
lists relating to the Transferred Assets;
(n) the sole and exclusive perpetual right to use the name
"Occidental Mortgage Corporation" or any fair derivative therefrom;
and
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2.3 Retained Assets. The term "Retained Assets" shall mean the
specified assets of Seller that are listed on Schedule 2.3 and shall not be
construed to include any assets of Seller not specifically listed on Schedule
2.3.
2.4 All Assets. The Transferred Assets are intended to and shall
constitute substantially all of the business assets of Seller other than the
Retained Assets.
2.5 Liabilities Assumed. As of the Cutoff Date, subject to the terms
and conditions herein set forth, Seller shall assign to Buyer, and Buyer shall
assume from Seller, the liabilities listed on Schedule 2.5 (the "Assumed
Liabilities"). Buyer's assumption of the Assumed Liabilities shall be evidenced
by the documents of assumption and when requested by Seller, which shall be
reasonably satisfactory to Seller in form and substance. Buyer shall pay and
discharge and indemnify Seller and hold it harmless from and against any
liability expressly assumed hereunder.
2.6 Liabilities Not Assumed. Except as and to the extent otherwise
expressly provided in this Agreement, Buyer has not agreed to pay, shall not be
required to assume and shall have no liability or obligation with respect to,
any liability or obligation, direct or indirect, absolute or contingent, of
Seller or Shareholders, any subsidiary or affiliate of Seller or Shareholders or
any other person (all such liabilities herein referred to as the "Excluded
Liabilities"). Excluded Liabilities shall include, without limitation, the
liabilities referenced in Section 3.3, Section 3.6(b), (c), (d) and (e), and
Section 6.12. Seller and Shareholders shall jointly and severally (a) pay and
discharge and (b) indemnify Buyer and hold it harmless from and against any
liability or obligation of Seller not expressly assumed or otherwise attributed
to Buyer as provided hereunder.
3. PRICE AND TERMS.
3.1 Consideration. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties and agreements of
Seller and Shareholders contained herein, and in consideration of the sale,
conveyance, assignment, transfer and delivery of the Transferred Assets and the
Documents, Buyer shall deliver or cause to be delivered in full payment for the
sale, conveyance, assignment, transfer and delivery of the Transferred Assets,
the following:
(a) Promissory Note in the principal amount of $365,000 (the
"Note") substantially in the form of Annex I attached hereto; and
(b) Options to Seller to purchase within 5 years of the
Closing Date up to an aggregate of 300,000 shares of the common stock,
par value $.01 per share, of Buyer ("Buyer Common Stock") at the option
exercise price of $1.00 per share pursuant to an Option Agreement in
the form of Annex II attached hereto; and
(c) On each of November 15 and December 15 of 1999 and each of
January 15 and February 15 of 2000, Buyer will pay to Seller an amount
equal to 1% of
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the aggregate loans closed by Buyer which are attributable to the
business conducted with the Transferred Assets for the calendar month
concluded immediately prior thereto. Such loans to include the Pipeline
Loans and loans arranged on applications taken following the Closing
Date, which are attributable to the business conducted with the
Transferred Assets. Sums payable to Seller under this Section 3.19(c),
shall be used by Seller for the payment and satisfaction of the
Excluded Liabilities.
3.2 Documents of Sale and Conveyance. The sale, conveyance, assignment,
transfer and delivery of the Transferred Assets shall be effected by delivery by
Seller to Buyer of (i) a duly executed bill of sale in substantially the form of
Exhibit A hereto (the "Bill of Sale"), (ii) Lease Assignments with respect to
any real property leases included in the Transferred Assets (collectively, the
"Lease Assignments"), and (iii) such other good and sufficient instruments of
conveyance and transfer as shall be necessary to vest in Buyer good and valid
title to the Transferred Assets (collectively, the "Other Instruments"), free
and clear of all liabilities, obligations, claims, liens and encumbrances
(whether absolute, accrued, contingent or otherwise), except the Assumed
Liabilities and the liens, encumbrances and exceptions expressly permitted by
this Agreement.
3.3 Bulk Sale; Sales and Transfer Taxes. Buyer and Seller have agreed
not to comply with the bulk transfer provisions of Article 6 of the Uniform
Commercial Code of the State of California or with any similar article under the
Uniform Commercial Code enacted in any other jurisdiction in which any of the
Transferred Assets are located. Except for obligations expressly assumed by
Buyer hereunder, if any, there shall be no liability or obligation of Buyer to
Seller, to Seller's creditors or to others, growing out of or arising from the
sale by Seller of the Transferred Assets to Buyer under the provisions of this
Agreement; nor shall there be any liability of Buyer for any federal, state or
local tax liabilities of Seller, including any sales tax or title transfer fee
attributable to the sale of assets contemplated herein. Any sales, use or
similar transfer taxes, and any transfer, recording or similar fees and charges
arising in connection with the transfer of the Transferred Assets from Seller to
Buyer shall be borne by Seller.
3.4 Closing Date. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Gardere &
Wynne, L.L.P., 1601 Elm Street, 3000 Thanksgiving Tower, Dallas, Texas 75201 on
the first business day following the date on which all of the conditions
contained in Articles 7 and 8, to the extent not waived, are satisfied. The
Closing may be postponed to such other date as Buyer and Seller may agree. The
date on which the Closing actually occurs is hereinafter referred to as the
"Closing Date."
(a) Deliveries by Seller. At the Closing, Seller shall deliver
to Buyer (unless delivered previously or expressly waived by Buyer in
writing), the following:
1. the Bill of Sale;
2. the Lease Assignments;
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3. the Instruments of Assignment and the Other
Instruments;
4. the documents evidencing the transfers of the
Permits referred to in Section 2.2(k) hereof;
5. the officers' certificates referred to in Sections
7.1, 7.2 and 7.3 hereof;
6. the opinion of counsel referred to in Section 8.5
hereof;
7. executed counterparts of any consents referred to
in Section 7.8 hereof;
8. all Books and Records of Seller including, without
limitation, all Books and Records relating to employees of, the
purchase of materials, supplies and services for, and dealings with
customers and distributors of Seller, warranty records, sales
literature, licensing records, service and parts records, and including
all other existing records relating to Seller's Business, but not
including the corporate minute books, capital stock books, Retained
Assets records or tax returns of Seller;
9. the estoppel certificates referred to in Section
7.12 hereof;
10. A copy of the Shareholder Questionnaire and
Representation Agreement in the form attached hereto as Annex III duly
completed by each Shareholder; and
11. all other previously undelivered documents,
instruments and writings required to be delivered by Seller and
Shareholders to Buyer at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith.
(b) Deliveries By Buyer. At the Closing, Buyer shall deliver
to Seller (unless delivered previously) the following:
1. the Note;
2. the officer's certificates referred to in Sections
8.1, 8.2 and 8.3 hereof;
3. the opinion of counsel referred to in Section 8.5
hereof;
4. An Option Agreement as contemplated in Section
3.1(b); and
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5. all other previously undelivered documents,
instruments and writings required to be delivered by Buyer to Seller at
or prior to the Closing pursuant to this Agreement or otherwise
required in connection herewith.
3.5 Allocation of Purchase Price. The Purchase Price and the Assumed
Liabilities shall be allocated among the Transferred Assets and the Documents in
accordance with the allocations set forth on Exhibit B hereto (the "Basis").
Such allocation of the Basis shall be conclusive and binding on both Buyer and
Seller for purposes of their federal and, where applicable, state and local
income tax returns, and the parties hereto agree not to take positions on any
tax return inconsistent with such allocation. Buyer and Seller shall prepare and
timely file all such reports and returns as may be required by Section 1060 of
the Code to report such allocation of the Basis.
3.6 Employees, Benefit Plans, Etc.
(a) Employees. On or prior to the Closing Date, Seller shall
terminate or cause to be terminated as of the Closing Date the active
employment of its employees. Seller agrees in this regard to cooperate
with Buyer by permitting Buyer throughout the period prior to the
Closing Date (i) to meet with the employees of Seller at such times as
shall be approved by a representative of Seller (which approval shall
not be unreasonably withheld) and (ii) to distribute to the employees
such forms and other documents setting forth the terms and conditions
upon which employment, if any, by Buyer is offered (there being no
obligation of Buyer to do so) and any other forms and documents
relating to employment after the Closing Date by Buyer as Buyer may
request.
(b) Benefits. Seller and Shareholders agree that, with respect
to all claims by employees of Seller arising from events occurring on
or prior to the Closing Date under employee benefit plans or programs
of Seller, whether insured or otherwise (including, but not limited to,
life insurance, medical and disability programs), Seller and
Shareholders at their own expense shall honor or cause their insurance
carriers to honor such claims, whether made before or after the Closing
Date, in accordance with the terms and conditions of such plans or
programs without regard to the employment by Buyer of any of the
employees after the Closing Date; provided, however, that Buyer shall
permit such claims to be made and honored under Plans and Programs
assigned to Buyer as and when such claims may be made.
(c) Wages. All amounts of all wages, bonuses, commissions and
other compensation (including, without limitation, all vacation and
sick pay) due in respect of all periods ending on or prior to the
Cutoff Date shall be paid by and for the account of Seller and
Shareholders.
(d) Severance Pay. Seller and Shareholders shall be
responsible for and jointly and severally will hold Buyer harmless from
and against all direct and indirect
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costs, expenses and liabilities of any sort whatsoever arising from or
relating to any claims by or on behalf of any present or former
employee of Seller in respect of severance pay and similar obligations
relating to the termination of such employee's employment with Seller
on or prior to the Closing Date.
(e) Benefit Plans. Unless otherwise agreed in writing, Buyer
shall not assume or be responsible for any liability or obligation
whatsoever with respect to any Plans maintained by or contributed to by
Seller. Seller and Shareholders shall jointly and severally indemnify
and hold harmless Buyer from and against any and all liabilities or
obligations accrued by employees of Seller under or pursuant to or in
connection with the Plans. Buyer shall provide such benefits to those
employees of Seller that become employed by Buyer on or after the
Closing Date as Buyer, in its sole discretion, shall determine.
Notwithstanding the forgoing, to the extent any Plan is assigned to
Buyer, Buyer shall permit payment by the Plan of liabilities and
obligations whenever arising.
3.7 Mail Received After Closing. On or after the Closing, Buyer may
receive and open all mail addressed to Seller and deal with the contents thereof
in its discretion to the extent that such mail and the contents thereof relate
to the Transferred Assets, Seller's Business or any of the Assumed Liabilities.
Buyer agrees to deliver or to cause to be delivered to Seller all other mail
received which is addressed to Seller and does not relate to the Transferred
Assets, Seller's Business or the Assumed Liabilities.
3.8 Access to Books and Records. Seller and Buyer agree that on and
after the Closing Date each will permit the other and their respective
representatives (including their counsel, accountants and auditors), during
normal business hours, to have reasonable access to and examine and make copies
(at the expense of the requesting party) of all books and records in their
respective possession or the possession of any of their respective subsidiaries,
if any, which books and records relate to Seller's Business prior to the Closing
Date or to claims, obligations or liabilities for which Seller may be
responsible under this Agreement (including, but not limited to, correspondence,
memoranda, books of account, payroll records and the like).
3.9 Proration of Lease Payments, Utility Charges and other Payments. In
any case where the Closing Date shall fall on a date other than the date on
which payments are due with respect to (i) any leases or (ii) utility or similar
regular periodic charges respecting the Transferred Assets for which a final
billing has not been requested by Seller, any installment of rental payments and
any such utility or similar charge paid or payable with respect to the current
period in which the Closing Date occurs shall be prorated between Seller and
Buyer on the basis of the actual number of days elapsed from the Cutoff Date to
the Closing Date.
3.10 Proration of Taxes. All property taxes and special assessments
payable but not yet due or paid but not yet fully accrued with respect to any of
the Transferred Assets shall be prorated between Seller and Buyer on the basis
of actual days elapsed between the commencement of the
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current fiscal tax year and the Cutoff Date, based on a 365-day year; provided,
however, that all such assessments which Seller has agreed to pay on an
installment basis shall be paid in full to the extent accrued at or prior to the
Cutoff Date. In connection with such proration of taxes, in the event that
actual tax figures for the year of Closing are not available at the Closing
Date, an estimated, provisional proration of taxes shall be made using tax
figures from the preceding year. When actual tax figures for the year of Closing
become available, a corrected and definitive proration of taxes shall be
promptly made. In the event that taxes for the year of Closing exceed the amount
estimated in such provisional proration, Seller and Shareholders shall pay Buyer
Seller's pro rata share of the amount by which the actual taxes exceeded the
estimated taxes. Similarly, in the event that taxes from the year of Closing are
less than the amount estimated in such provisional proration, Buyer shall pay
Shareholders Seller's pro rata share of the amount by which the estimated taxes
exceeded the actual taxes.
4. REPRESENTATIONS AND WARRANTIES BY SELLER AND SHAREHOLDERS.
Except as is otherwise provided or noted in the disclosures and
schedules attached hereto, Seller and Shareholders hereby jointly and severally
represent and warrant the following:
4.1 Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
California. Seller is duly qualified or licensed as a foreign corporation in
each jurisdiction in which the properties owned or leased by Seller or the
nature of the business of Seller makes such qualification or licensing
necessary, except those jurisdictions wherein the failure to so qualify could
not have a materially adverse effect on Seller. Each state wherein Seller is
qualified or licensed as a foreign corporation are set forth on Schedule 4.1
attached hereto. Seller has delivered to Buyer true and complete copies of
Seller's Articles of Incorporation and all amendments thereto, certified by the
Secretary of State of California and the Bylaws of Seller as presently in
effect, certified as true and correct by Seller's Secretary.
4.2 Authority. Seller has all requisite corporate power and authority
to own its property, to conduct its business, to execute and deliver this
Agreement and any instruments and agreements contemplated herein required to be
executed and delivered by it pursuant to this Agreement including, without
limitation, the Bill of Sale, the Lease Assignments, Instruments of Assignment,
and the Other Instruments (collectively the "Related Instruments") and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly authorized, executed and delivered by Seller, and no other corporate
act or proceeding on the part of Seller is necessary to authorize this Agreement
or any of the Related Instruments or the transactions contemplated hereby or
thereby. This Agreement is, and each of the Related Instruments, when executed
and delivered to Buyer by Seller at the Closing, will be, a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors' rights
generally. The consummation of the transactions contemplated by this Agreement
and the
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Related Instruments will not violate, breach or constitute a default under the
Articles of Incorporation or Bylaws of Seller.
4.3 No Violation. Neither the execution and delivery by Seller of this
Agreement or any of the Related Instruments, nor the consummation by Seller of
the transactions contemplated hereby or thereby, will violate any provision of
the California Corporations Code, the Articles of Incorporation or Bylaws of
Seller, or, except as set forth in Schedule 4.3 attached hereto, violate, or be
in conflict with, or constitute a default (or an event or condition which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of any liability or obligation pursuant to, or
result in the creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the Transferred Assets under, any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which Seller is a party or by which Seller may be bound or affected or to which
any of the Transferred Assets may be subject, or violate any statute or law or
any judgment, decree, order, writ, injunction, regulation or rule of any court
or governmental authority.
4.4 Brokers. Seller has not employed any broker, agent or finder in
connection with the purchase and sale transactions contemplated by this
Agreement.
4.5 Financial Statements; Undisclosed Liabilities.
(a) Seller has previously delivered to Buyer (i) the audited
balance sheets of Seller as of December 31, 1997 and 1998, and the
related statements of income and changes in financial position for the
year then ended (such financial statements being collectively called
the "Annual Financial Statements"). The Annual Financial Statements
were prepared in accordance with the books and records of Seller and
its subsidiaries and with generally accepted accounting principles
applied on a consistent basis throughout the periods involved. The
Annual Financial Statements fairly present the financial position of
Seller as of December 31, 1997 and 1998 and the results of operations
and changes in financial position of Seller for the years ended
December 31, 1997 and 1998. The Annual Financial Statements have been
audited by Averett, Warmus, Durkee, Bauder & Thompson, independent
public accountants.
4.6 No Undisclosed Liabilities. There are no liabilities or obligations
of Seller, whether accrued, absolute, contingent or otherwise, which are
material to Seller, except (i) those specifically described in the Schedules
attached hereto including Schedule 4.6 hereof, and (ii) those arising in the
ordinary course of business since January 1, 1999.
4.7 Title to Property, Encumbrances. Seller has good and marketable
title to all Transferred Assets (except the Leases, the Accounts Receivable and
other Transferred Assets as specifically noted in Schedules) which it purports
to own. Except as set forth in Schedule 4.7
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attached hereto, all property and assets constituting Transferred Assets are
free and clear of all Encumbrances, except liens for current taxes not yet due
which have arisen only in the ordinary course of business and consistent with
past practice.
4.8 Plant, Machinery, Equipment and Vehicles. To the best of Seller's
actual knowledge, set forth on Schedules 2.2(d), 2.2(e) and 2.2(f) are lists of
each item of machinery, equipment, furniture and fixtures owned by Seller having
a net cash value in excess of $1,000.00, indicating for each such item a
description thereof. Except as set forth in Schedule 4.8 attached hereto,
neither Seller nor any of its affiliates has received any notification from any
Government body within the last three years that Seller is in violation of the
applicable health, sanitation, fire, environmental, safety, zoning, building or
other laws, ordinances or regulations in respect of its real property, plants,
structures, properties, machinery, equipment, vehicles or operations, and, to
the best knowledge of Seller and Shareholders, no such violation exists.
4.9 Real Property. Schedule 2.2(a) contains an accurate description of
all Real Property owned by Seller which is to be transferred to Buyer or leased
by Seller under leases to which the Seller is a party which are to be assigned
to Buyer, including the address of each property, together with a summary
description of the buildings and improvements thereon, the name and address of
each landlord where Seller is a tenant and of each tenant where Seller is a
landlord, the expiration date of each lease, the monthly rent and additional
rent payable under such lease and whether the consent of any other party to the
lease is required to consummate the transaction contemplated hereby. True and
complete copies of such leases and any amendments thereto have been furnished to
Buyer prior to the date of this Agreement. Seller is not in default under any
such lease and there is not, under any such lease, any event which, with notice
and/or lapse of time would constitute a default by any party to any such lease.
Seller is the owner of or is the tenant in good standing under a valid and
effective lease with respect to all Real Property used by Seller in the
operation of Seller's Business which is to be transferred or assigned to Buyer.
To the best of Seller's actual knowledge, the Real Property is properly zoned
for its present use by Seller under applicable zoning ordinances, and Seller has
no knowledge of any pending or threatened action or proceeding which could
result in a modification or termination of such zoning. Seller grants the
leasehold estates free and clear of all mortgages, liens, claims, charges,
security interests, encumbrances or other restrictions made or suffered by
Seller which would materially affect the use for which they are held by Seller
(other than any unperfected landlord's lien). Seller has not received notice
that any of the Real Property is subject to any governmental decree or order to
be sold or is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the best of
Seller's knowledge, has any such condemnation, expiration or taking been
proposed.
4.10 Compliance with Applicable Law. Except as set forth in Schedule
4.10 attached hereto: (a) Seller is presently complying in all material respects
with respect to its operations, practices, real property, plants, structures,
machinery, equipment, vehicles and other property, and all other aspects of its
business, with all applicable laws including, but not limited to, all Laws
relating to the safe conduct of business, environmental protection and
conservation, antitrust, taxes, consumer protection, currency exchange, equal
opportunity, health, sanitation, fire, zoning, building,
occupational safety, pension, securities, trademark and copyright; and (b)
neither Seller nor any of
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its affiliates has received notification in the last three years of any asserted
present or past failure to so comply. Except as described in Schedule 4.10,
there has been no storage, generation, manufacture, refinement, transportation,
production, treatment or disposal of solid wastes, toxic wastes or hazardous
wastes or substances by Seller (or any of its predecessors in interest) at the
real properties described on Schedule 2.2(a) attached hereto in violation of any
applicable Law or Permit or which would require significant remedial action
under any applicable Law or Permit. Except as described on Schedule 4.10, there
has been no spill, discharge, leak, emission, injection, escape, dumping or any
other release by Seller of any kind onto the real properties described on
Schedule 2.2(a) attached hereto or from such real properties into the
environment surrounding such real properties of any solid wastes, toxic wastes
or hazardous wastes or substances as such terms are defined under any Law.
4.11 Taxes. Except as set forth in Schedule 4.11.
(a) Seller has (i) timely filed all returns required to be
filed by it with respect of all Taxes, (ii) paid all Taxes shown to
have become due pursuant to such returns and (iii) paid all other Taxes
for which a notice of assessment or demand for payment has been
received.
(b) All Tax returns filed by or on behalf of Seller have been
prepared in accordance with all applicable laws and requirements and
accurately reflect the taxable income (or other measure of Tax) of the
corporation filing the return.
(c) There are no Tax liens upon any of the Transferred Assets,
except liens with respect to real property taxes not yet due, and
Seller is not aware of any audit or other proceeding or investigation,
or of any position taken on a Tax return of Seller which could give
rise to a Tax lien upon any Transferred Assets.
(d) There are no agreements,, waivers or other arrangements
providing for an extension of time with respect to the assessment of
any tax or deficiency against Seller, nor are there any actions, suits,
proceedings, investigations or claims now pending against Seller
regarding any tax or assessment, or any matters under discussion with
any federal, state, local or foreign authority relating to any taxes or
assessments, or any claims for additional taxes or assessments asserted
by any such authority, and there is no basis for the assertion of any
additional taxes or assessments against Seller.
(e) The consummation of the transactions contemplated by this
Agreement will not result in the imposition of any additional taxes or
assessments against Seller or its properties.
4.12 Employee Benefit Plans; ERISA. Except as set forth on Schedule
4.12, Seller does not maintain, administer or otherwise contribute to any
"employee benefit plan", as defined in
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section 3(3) of ERISA, which is subject to any provisions of ERISA and covers
any employee, whether active or retired, (any such plan, copies of all of which,
including all amendments thereto, have been heretofore made available to Buyer,
being herein referred to as an "Employee Plan"). None of the Employee Plans is a
"multi-employer plan" as defined in section 3(37) of ERISA, and Seller has not
been obligated to make a contribution to any such Employee Plan within the past
five years on behalf of any employee. Except as set forth on Schedule 4.12 and
exclusive of any Employee Plan, Seller does not maintain any form of current or
deferred compensation (other than base salary and base wages), bonus, incentive,
compensation, profit sharing, stock option, stock appreciation right, separation
pay, retirement, pension, salary continuation, group or individual health,
dental, medical, life insurance, survivor benefit or similar plan, policy or
arrangement for the benefit of any employee, whether active or retired, any
class or classes of such employees (any such plan or arrangement, copies of all
of which have been heretofore made available to Buyer, being herein referred to
as a "Benefit Arrangement"). Except as set forth in Schedule 4.12, with respect
to all Employee Plans and Benefit Arrangements, Seller is in compliance in all
material respects with the terms of such plan or arrangement and with the
requirements prescribed by any and all Laws currently in effect including, but
not limited to, ERISA and the Code, applicable to such plans or arrangements.
Each Employee Plan and each Benefit Arrangement may be terminated by the Seller
at any time without any liability, cost or expense, other than costs and
expenses that are customary in connection with the termination of such a plan or
arrangement. Each Employee Plan intended to be qualified under section 401(a) of
the Code has been determined by the Internal Revenue Service ("IRS") to be so
qualified, or if not so qualified each such Employee Plan may still be amended
within the remedial amendment period to cure any qualification defect to the
extent permitted by applicable law, and each trust created thereunder which is
intended to be exempt from federal income tax under the provisions of section
501(a) of the Code has been determined by the IRS to be so exempt and no fact or
event has occurred since the date of such determination by the IRS to adversely
effect the qualified status of any Employee Plan or the exempt status of any
such trust. Buyer will incur no liability, cost or expense arising from, or with
respect to, any Employee Plan or any Benefit Arrangement maintained, or
contributed to, by the Seller. Except as set forth in Schedule 4.12, Seller has
not failed to make any contribution to, or pay any amount due and owing as
required by applicable law or by the terms of, any Employee Plan or Benefit
Arrangement. Except as disclosed in Schedule 4.12, there is no pending or, to
the knowledge of Seller and Shareholders, threatened legal action, proceeding or
investigation against Seller or any Employee Plan or Benefit Arrangement with
respect to the Employees, other than routine claims for benefits, which could
result in liability to such plans or Seller. Except as disclosed in Schedule
4.12, the execution of this Agreement and the consummation of the transactions
contemplated hereby will not result in any payment (whether of separation pay or
otherwise) becoming due from Seller to any current or former consultant or
employee or result in the vesting, acceleration of payment or increase in the
amount of any benefit payable to or in respect of any such current or former
consultant or employee of Seller.
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4.13 Contracts and Commitments.
(a) Except as set forth in Schedule 2.2(i) or in other
Schedules attached hereto:
(i) Seller is not a party to or bound by any
agreements, contracts or commitments which are material to the
business, operations, condition (financial or otherwise),
liabilities, assets, earnings, working capital or prospects of
Seller other than (A) the Leases listed in Schedule 2.2(a) and
(B) the Plans listed in Schedule 4.12;
(ii) Subject to obtaining any requisite consents of
third parties, the enforceability of the agreements, contracts
and commitments referred to in subsection (a) of this Section
4.13 will not be affected in any manner by the execution and
delivery of this Agreement or the consummation of the
transactions contemplated hereby;
(iii) No contracts or commitments of Seller relating
to its business are in excess of the normal, ordinary and
usual requirements of its business or were entered into at any
excessive price.
(iv) Neither Seller nor any affiliate of Seller is a
party to or bound by any outstanding agreements, arrangements
or contracts with any of their respective officers, employees,
agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that (A) are not
cancellable by it on notice of not longer than 30 days and
without liability, penalty or premium, (B) provide for the
payment of any bonus or commission based on sales or earnings,
or (C) provide for any bonus or other payment based on the
sale of the' Transferred Assets or any portion thereof other
than (1) the Leases listed on Schedule 2.2(a) and (2) the
Plans listed on Schedule 4.12;
(v) Seller is not a party to or bound by any
employment agreement, consulting agreement or any other
agreement that contains any severance or termination pay
liabilities or obligations;
(vi) Seller is not in default under or in violation
of, nor, to the best knowledge of Seller and Shareholders,
after due inquiry, is there any basis for any valid claim of
default under or violation of, any material contract,
agreement or commitment made or obligation and Seller has not
knowingly waived any rights under any such
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contract, commitment or agreement so as to adversely affect
the business or property of Seller;
(vii) Seller does not have (A) any indebtedness for
borrowed money or the deferred purchase price for property,
including guarantees of, or agreements to acquire, any such
indebtedness of others, or (B) any contract, commitment or
arrangement for the borrowing of money or for a line of
credit;
(viii) Neither Seller nor any of its officers,
directors, stockholders, affiliates or associates is a party
to or bound by any agreement or arrangement for the sale of
any of the Transferred Assets (other than in the ordinary
course of business and consistent with past practice) or for
the grant of any preferential rights to purchase any of the
Transferred Assets;
(ix) Seller is not a party to or bound by any
contract, understanding or commitment, whether in the ordinary
course of business or not, involving a present or future
obligation to purchase or deliver goods or services of an
amount or value in excess of $5,000.00 each or for a term in
excess of one year;
(x) Seller is not a party to or bound by any
collective bargaining agreement or other contract or
commitment to or with any labor union, employee representative
or group of employees;
(xi) Seller is not a party to or bound by any
contract, agreement or commitment which restricts the ability
of Seller to carry on its business anywhere in the United
States; and
(xii) Seller is not a party to or bound by any joint
venture or partnership agreement.
(b) With respect to each contract and agreement listed on
Schedule 2.2(i) attached hereto, except as set forth therein or in
other Schedules, (A) each of such contracts and agreements is valid,
binding and in full force and effect and is enforceable by Seller in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors, rights generally; (B) there have been no
cancellations or threatened cancellations thereof nor outstanding
material disputes thereunder; (C) neither Seller, nor, to the best
knowledge of Seller and Shareholders, after due inquiry, any other
party is in breach of any material provision thereof; and (D) there
does not exist any material default under, or, to the best knowledge of
Seller and Shareholders, any
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event or condition which with the giving of notice or passage of time
or both would become a breach or default under, the terms of any such
contract or agreement on the part of Seller or on the part of any other
party thereto.
4.14 Litigation. Except as set forth on Schedule 4.15 attached hereto,
there are no suits, arbitrations, claims, actions, proceedings, investigations
or inquiries in progress, pending, or, to the knowledge of Seller and
Shareholders, threatened against or affecting Seller, the Transferred Assets or
the transactions contemplated hereby in any court or before any arbitration
panel of any kind or before or by any Government Body; nor, to the knowledge of
Seller and Shareholders, is there any valid basis for any such arbitration,
claim, action, suit, proceeding, inquiry or investigation. Except as set forth
in Schedule 4.15 attached hereto, no claim, action, suit, proceeding, inquiry or
investigation set forth in Schedule 4.15 would, if adversely decided, have a
material adverse effect on the business, operations, condition (financial or
otherwise), liabilities, assets, earnings, working capital or prospects of
Seller's Business. Seller is not subject to any judgment, order or decree
entered in any lawsuit or proceeding which has had or may have a significant
adverse effect on Seller's Business or on its ability to acquire any property
for the use or benefit of Seller's Business or conduct Seller's Business.
4.15 Insurance. Seller now has and has had for at least the past three
years in full force and effect fire, liability, workers' compensation, personal
injury, property damage to third parties and other insurance as set forth in
Schedule 4.16 attached hereto, in amounts and against such losses and risks as
are therein set out, and valid policies for such insurance as is shown to be in
effect on the date of this Agreement will be outstanding and duly in force on
the Closing Date. Such policies are sufficient for compliance with all
requirements of law and of all agreements with respect to the operation of
Seller's Business as of the Closing Date; are valid, outstanding and enforceable
policies as of the Closing Date; provide adequate insurance coverage for the
Transferred Assets and the operations of Seller's Business as of the Closing
Date; and the coverage provided thereby, with respect to any act or event
occurring on or prior to the Closing Date, will not in any way be affected by or
terminate or lapse by reason of the transactions contemplated by this Agreement;
provided Buyer complies with all such policies on and after the Closing Date.
True and complete copies of all policies of insurance now in effect have been
furnished to Buyer.
4.16 Employees. Part I of Schedule 4.17 attached hereto lists all
employees of Seller, together with their job titles, dates of employment,
amounts of compensation paid within six months of Closing (including fringe
benefits and federal and state income tax withholding) and all contracts with,
and compensation practices regarding, such employees including, but not limited
to (i) all salary, bonus, incentive compensation, profit sharing, pension,
vacation, group insurance or employee welfare plans of any nature whatsoever,
and (ii) all collective bargaining agreements and other contracts to or with any
labor union, employee representative or group of employees. Except as set forth
in Part B of Schedule 4.17, (a) Seller has for the past three years complied and
is presently complying in all material respects with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor practice
or unlawful employment practice; (b) there is no unfair labor
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practice charge or complaint against Seller pending or, to the best knowledge of
Seller and Shareholders, threatened before the National Labor Relations Board
nor is there any grievance nor any arbitration proceeding arising out of or
under any collective bargaining agreement pending and, to the best knowledge of
Seller and Shareholders, no basis for any such charge, complaint or grievance
exists; (c) there is no labor strike, slowdown or work stoppage actually pending
or, to the best knowledge of Seller and Shareholders, threatened against Seller;
(d) Seller has not experienced any significant work stoppages or been a party to
any proceedings before the National Labor Relations Board involving any
significant issues for the past three years or been a party to any arbitration
proceeding arising out of or under any collective bargaining agreement for the
past three years; and (e) there is no charge or complaint actually pending or,
to the best knowledge of Seller and Shareholders, threatened against Seller
before the Equal Employment Opportunity Commission or the Department of Labor or
any state or local agency of similar jurisdiction. Employment of all persons
employed by Seller is terminable at will without any penalty or severance
obligation of any kind on the part of Seller. All sums due for employee
compensation and benefits and all vacation time owing to any employee of Seller
has been duly and adequately accrued on the accounting records of Seller. All
employees of Seller are either United States citizens or resident aliens
specifically authorized to engage in employment in the United States in
accordance with all applicable laws.
4.17 Permits, Licenses, Etc. There are no permits, licenses,
franchises, orders, certificates, consents, authorizations or approvals of
governmental or administrative authorities required to permit Seller to carry on
Seller's Business as presently conducted (including, without limitation, those
required under federal, state or local laws or regulations relating to pollution
or protection of the environment) other than the Permits which are described in
Schedule 2.2(1). Schedule 2.2(1) indicates those Permits listed thereon which
are assignable to Buyer without the consent of the issuers thereof. To the
knowledge of Seller and Shareholders, the conduct by Seller of Seller's Business
does not violate or, infringe, and does not cause a default under, any of the
Permits, and Seller has not received any written notification of any threatened
suspension or cancellation of any of the Permits which might be reasonably
expected to have a material adverse effect on Seller's Business.
4.18 Assets Necessary to Business. The Transferred Assets constitute
substantially all of the assets, properties, licenses and other agreements which
are presently being used or are reasonably related to the business and
operations of Seller's Business as presently conducted and include all assets,
properties, licenses and other agreements reasonably necessary to permit the
conduct of Seller's Business in the same manner as such business has been
conducted prior to the date hereof.
4.19 Inventory. Seller's inventory of Pipeline Loans on the Closing
Date shall consist of substantially the same types of inventory as that
reflected on Schedule 2.2(g) attached hereto and shall vary from that reflected
on Schedule 2.2(g) only by variances typical in the ordinary course of Seller's
Business. The inventory of Seller as reflected on Schedule 2.2(g), and the
inventory as the same shall exist on the Cutoff Date, consisted, and will
consist, of Pipeline Loans, substantially all of which were and will be of the
usual quality and quantity necessary for the normal conduct of
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Seller's Business and such quantity thereof will be reasonably expected to be
closed within a reasonable period of time in the ordinary course of Seller's
Business consistent with the business experience of Seller during the past 24
months. Seller's credit policy, underwriting standards, and procedures with
respect to Pipeline Loans is attached hereto as Schedule 4.19. Seller represents
and warrants that the Pipeline Loans have and are being underwritten and
processed in accordance with such credit policy and underwriting standards.
4.20 Accounts Receivable. Other than those accounts receivable listed
on Schedule 2.2(c) attached hereto, all accounts receivable of Seller included
in the Transferred Assets, represent receivables created in the ordinary course
of business, are not subject to any defense or offset, and are current and
collectible net of any reserves shown in Schedule 2.2(c) ("Receivables"). To the
best knowledge of Seller and Shareholders, each of the accounts receivable
either has been collected in full or will be collected in full, without any
setoff within 160 days of the due date thereof.
4.21 Books and Records. For all periods preceding December 31, 1998,
Seller maintains its books, records and accounts (including, but not limited to,
those kept for financial reporting purposes and for tax purposes) in accordance
with good business practice and in sufficient detail to reflect accurately and
fairly the transactions and dispositions of its assets, liabilities and
equities.
4.22 Recent Actions. Except as and to the extent set forth in Schedule
4.23 attached hereto, since September 22, 1999:
(a) no material adverse change has occurred in the business,
operations, prospects or condition (financial or otherwise) of Seller
or in the prospects or condition of the Transferred Assets or Seller's
Business nor has there occurred any event which has had or reasonably
could be expected to have a material adverse effect on any of the
foregoing;
(b) Seller has not experienced any material decrease in any of
the Transferred Assets;
*(c) Seller has not incurred any liabilities or obligations of
any nature (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except nonmaterial items incurred in the
ordinary course of business and consistent with past practice, none of
which exceeds $1,000.00 (counting liabilities or obligations arising
from one transaction or a series of similar transactions, and all
periodic installments or payments under any lease or other agreement
providing for periodic installments or payments, as a single obligation
or liability), or increased, or experienced any change in any
assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves;
(d) Seller has not paid, discharged or satisfied any claims,
encumbrances, liabilities or obligations (whether absolute, accrued,
contingent or otherwise and
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whether due or to become due) other than the payment, discharge or
satisfaction in the ordinary course of its business and consistent with
its past practice;
(e) Seller has not permitted, allowed or suffered any of its
property or assets (tangible or intangible) to be subjected to any
mortgage, pledge, lien, encumbrance, restriction or charge of any kind,
other than liens or encumbrances specifically permitted pursuant to
Section 4.7 hereof;
(f) Seller has not written down or written up the value of any
inventory (including write-downs by reason of shrinkage or markdowns),
determined as collectible any notes or accounts receivable or any
portion thereof which were previously considered uncollectible, or
written off as uncollectible any notes or accounts receivable or any
portion thereof, except for immaterial write-downs and write-ups in the
ordinary course of business, consistent with past practice, in
accordance with generally accepted accounting principles consistently
applied;
(g) Seller has not canceled any material indebtedness
(individually or in the aggregate) owing to it or waived any claims or
rights of substantial value;
(h) Seller has not sold, transferred or otherwise disposed of
any of its property or assets (tangible or intangible) except in the
ordinary course of business and consistent with past practice;
(i) Seller has not disposed of or permitted to lapse any right
to the use of any patent, trademark, assumed name, service mark, trade
name, copyright, license or application therefor;
(j) Seller has not granted any general increase in the
compensation of officers or employees (including, without limitation,
any increase or change pursuant to any bonus, pension, profit-sharing
retirement or other plan or commitment) or any increase in any
compensation payable to or to become payable to any officer or employee
(other than any increases resulting from employee promotions), and no
such increase is customary on a periodic basis or required by any
agreement or understanding;
(k) Seller has not provided for any distribution, loan or
advance of any nature whatsoever to any affiliate of Seller;
(l) Seller has not entered into any collective bargaining or
labor agreement, or experienced any material labor dispute or
difficulty;
*(m) Seller has not made any single capital expenditure or
commitment in excess of $5,000.00 for additions to property, plant,
equipment or for any other
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purpose or made aggregate capital expenditures or commitments in excess
of $5,000.00 for additions to property, plant, equipment, or for any
other purpose;
(n) Seller has not made any change in any method of accounting
or accounting practice or policy;
*(o) Seller has not suffered any casualty loss in excess of
$5,000.00 (whether or not insured against) or suffered aggregate
casualty losses in excess of $5,000.00 (whether or not insured
against); or
(p) except as contemplated by this Agreement all actions of
Seller with respect to the Transferred Assets have been taken in the
ordinary course of business consistent with prior practice.
4.23 Bank Accounts; Powers of Attorney. Each checking or other draft
account maintained by Seller with any bank or other financial institution has a
positive cash balance.
4.24 Dividends and Other Distributions. Since June 30, 1999, Seller has
not declared or paid any dividends on, purchased or made any payment on account
of, or set apart assets for a sinking or other analogous fund for the purchase,
redemption, retirement or other acquisition of, any shares of any class of
capital stock of Seller, or made any other distribution in respect thereof,
either directly or indirectly, whether in cash, property or obligations of
Seller.
4.25 Suppliers and Customers. To the best knowledge of Seller, the
relationships of Seller with its suppliers and customers are satisfactory. No
material customer or supplier has canceled or otherwise terminated, or
threatened to cancel or otherwise terminate, its relationship with Seller, or to
materially decrease its services to Seller or its usage of the services of
Seller.
4.26 Affiliated Transactions. Since June 30, 1999, Seller has not paid,
loaned or advanced any amount to, or sold, transferred or leased any properties
or assets (tangible or intangible) to, or entered into any agreement or
arrangement with, any of the officers, directors or stockholders of Seller or
any of its affiliates, except for compensation to officers at rates not
exceeding the rates of compensation paid during the fiscal year ended December
31, 1998, and routine travel advances to officers and employees.
4.27 Consents. No consent, approval, license, permit or authorization
or order of or with any court, governmental body or other person is required
in connection with the execution and delivery of this Agreement by Seller or the
consummation of the transactions contemplated herein.
4.28 Full Disclosure. As of the Closing Date, no representation or
warranty of Seller and Shareholders made in this Agreement, nor any written
statement furnished to Buyer pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact which adversely affects the Transferred Assets or Seller's
title to the
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Transferred Assets or omits or will omit to state a material fact necessary to
make the statements or facts contained herein or therein not misleading. Each of
the schedules attached hereto is a true, complete and accurate list or
description, as appropriate, of the items purported to be listed or described
thereon. Seller and Shareholders have not withheld, and Seller and Shareholders
will not withhold, from Buyer knowledge of any events, conditions or facts which
may affect the Transferred Assets, this Agreement or the transactions
contemplated hereby.
4.29 Shareholders as Accredited Investors. Each Shareholder is an
"accredited investor" as that term is defined in Regulation D adopted pursuant
to the Securities Act of 1933, as amended.
5. REPRESENTATIONS AND WARRANTIES BY BUYER.
Buyer hereby represents and warrants the following:
5.1 Organization and Good Standing. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State
Delaware. Buyer is duly qualified or licensed as a foreign corporation in each
jurisdiction in which the properties owned or leased by Buyer or the nature of
the business of Buyer makes such qualification or licensing necessary, except
those jurisdictions wherein the failure to so qualify could not have a
materially adverse effect on Buyer.
5.2 Authority. Buyer has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally. The consummation of
the transactions contemplated by this Agreement will not violate, breach or
constitute a default under, any provisions of the Certificate of Incorporation
or Bylaws of Buyer.
5.3 Consents. No consent, approval, license, permit or authorization or
order of or with any court, governmental body or other person is required in
connection with the execution and delivery of this Agreement by Buyer or the
consummation of the transactions contemplated herein.
5.4 Full Disclosure. No representation or warranty of Buyer made in
this Agreement, nor any written statement furnished to Seller pursuant hereto or
in connection with the transactions contemplated hereby (including, without
limitation, Buyer's Confidential Private Placement Memorandum, dated June 21,
1999, offering up to 4,500,000 shares of Buyer Common Stock for cash Supplement
Number One thereto, dated September ___, 1999,), Buyer's Annual Report on Form
10-K for the fiscal year ended March 31, 1999, and Buyer's Quarterly Report on
Form 10-Q for the period ended June 30, 1999 (together, "Buyer's Disclosure
Documents"), copies of which have heretofore been delivered by Buyer to Seller
and Shareholders) contains or will contain any untrue statement of a material
fact which affects the business or financial condition of Buyer, or
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omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.
5.5 Brokers. Buyer has not employed any broker, agent or finder in
connection with any transaction contemplated by this Agreement.
6. AGREEMENTS BY SELLER AND SHAREHOLDERS.
6.1 Actions Pending Closing. Except to the extent consented to in
writing by Buyer, Seller and Shareholders agree that pending the Closing, Seller
will conduct its business, operations, activities and practices only in the
ordinary course of business, and consistent with past practice. Without limiting
the generality of the foregoing, from the date hereof to the Closing, Seller
shall not:
(a) fail to maintain its corporate existence nor institute
proceedings for its merger, consolidation or dissolution;
(b) other than in the ordinary course of business, incur any
liabilities or obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due) except
nonmaterial items incurred in the ordinary course of business and
consistent with past practice, none of which shall exceed $1,000.00
(counting liabilities or obligations arising from one transaction or a
series of similar transactions, and all periodic installments or
payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), or
increase or change any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(c) other than in the ordinary course of business, permit,
allow or suffer any of its properties or assets (tangible or
intangible) to be subjected to any mortgage, pledge, lien, encumbrance,
restriction or charge of any kind, other than liens or encumbrances
specifically referred to or permitted under Section 4.7 hereof;
(d) other than in the ordinary course of business, write down
or write up the value of any inventory (including write-downs by reason
of shrinkage), determine as collectible any notes or accounts
receivable or any portion thereof which was previously considered
uncollectible, or write off as uncollectible any notes or accounts
receivable or any portion thereof, except for immaterial write-downs
and write-ups in the ordinary course of business, consistent with past
practice, in accordance with generally accepted accounting principles
consistently applied;
(e) cancel any debts or waive any claims or rights of
substantial value;
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(f) sell, transfer or otherwise dispose of any of its property
or assets (tangible or intangible) except in the ordinary course of
business and consistent with past practice;
(g) grant any general increase in the compensation of officers
or employees (including, without limitation, any increase or change
pursuant to any bonus, pension, profit-sharing, retirement or other
plan or commitment), or any increase in any compensation payable or to
become payable to any officer or employee, except for increases for
employees (other than officers and other management employees) in the
ordinary course of business and consistent with past practice;
(h) other than in the ordinary course of business, pay, loan
or advance any amount to, or sell, transfer or lease any properties or
assets (tangible or intangible) to, or enter into any agreement or
arrangements with, any of the officers, directors or stockholders of
Seller, or any of their respective affiliates, except for routine
travel advances to officers and employees;
(i) provide for any distribution, loan or advance of any
nature whatsoever to any affiliate or stockholder of Seller;
(j) enter into any collective bargaining or labor agreement;
(k) make any single capital expenditure or commitment in
excess of $5,000.00 for additions to property, plant, equipment or
intangible capital assets or for any other purpose (other than
commitments for Pipeline Loans in the ordinary course of business) or
make aggregate capital expenditures or excluding loan commitments in
excess of $5,000.00 for additions to property, plant, equipment or for
any other purpose;
(l) make any change in any method of accounting or accounting
practice or policy;
(m) other than in the ordinary course of business, enter into
any agreement, contract or commitment of the type required to be
disclosed pursuant to Section 4.13 hereof;
(n) other than in the ordinary course of business, terminate
or amend in any material respect any contract, lease, license, or other
agreement to which it is a party;
(o) permit any option to renew any lease or any option to
purchase any property to expire or exercise any such option;
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(p) omit to do any act, or permit any act or omission to act,
which may cause a material breach of any contract, commitment or
obligation, or any breach of any representation, warranty, covenant or
agreement made by Seller or Shareholders herein;
(q) fail to maintain the insurance policies or coverage
relating to the Transferred Assets;
(r) fail to use such efforts as are consistent with prior
practices to keep the business and business organization of Seller
intact, to maintain, preserve and protect the property used to conduct
the business of Seller, to keep available the services of their
employees, and to preserve the good will of suppliers, customers,
creditors and others having business relations with Seller;
(s) fail to promptly notify Buyer of any lawsuits, claims,
proceedings or investigations which are threatened or commenced against
Seller, or any employee of Seller between the date of this Agreement
and the Closing Date which may affect the Transferred Assets;
(t) except in the ordinary course of business, incur any bank
or institutional indebtedness;
(u) make any dividend, bonus payments, loans, distributions,
or other extraordinary payments of any kind, including special payments
to pay personal indebtedness of Seller's officers, director or their
affiliates, except for current salaries; or
(v) agree, whether in writing or otherwise, to do any of the
foregoing.
6.2 Supplying of Information. Seller and Shareholders shall promptly
furnish to Buyer or its representatives, from time to time as reasonably
requested by Buyer, complete and accurate information in cooperation with any
audit, review, investigation or examination of the books and records, accounts,
contracts, properties, assets, operations and facilities of Seller. In
connection therewith, Seller shall direct and authorize its accountants to make
available to Buyer and its accountants all working papers reasonably requested
by Buyer. Prior to Closing, Seller and Shareholders shall supply to Buyer full
and adequate information and data as reasonably requested by Buyer in order to
be assured that Seller has the right and power to transfer the Transferred
Assets to Buyer, free and clear of any liens, claims, encumbrances or judgments.
Any Schedule which is not attached hereto at the time that Buyer executes this
Agreement shall not be subsequently attached hereto or incorporated herein
unless such Schedule is acceptable to Buyer.
6.3 Consents. Seller and Shareholders shall use their best efforts to
obtain prior to the Closing all consents necessary or advisable, in the opinion
of Buyer and its counsel, in connection
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with the consummation of the transactions contemplated hereby including, without
limitation, (a) the consent of each lessor of real or personal property leased
by Seller included in the Transferred Assets to the assignment of Seller's
interest under the Leases to Buyer at the Closing in consideration of the
assumption of Seller's liability thereunder by Buyer; (b) each of the leases,
contracts, agreements, arrangements, commitments and understandings (whether
written or oral) including, but not limited to, all franchises, leases, security
deposits and options under leases, supply contracts, purchase contracts, service
contracts and confidentiality agreements, to which Seller is a party including,
but not limited to, those listed or referred to on Schedule 2.2(i), and (c) each
of the other consents, approvals, licenses, permits and authorizations (and the
declarations, filings and registrations) listed or referred to on Schedule
2.2(l). All such consents shall be in writing and in form and substance
satisfactory to Buyer and Buyer's counsel and executed counterparts thereof
shall be delivered to Buyer promptly after receipt thereof by Seller but in no
event later than the Closing. Buyer agrees to assist and cooperate with Seller
in obtaining such consents including, without limitation, by way of furnishing
financial and other information as may reasonably be requested by Seller or any
lessor or other third party.
6.4 Other Transactions. Prior to the Closing, neither Seller nor
Shareholders shall, or shall Seller permit any of its officers, directors,
stockholders or other representatives to, (i) directly or indirectly, encourage,
solicit, initiate or participate in discussions or negotiations with, or provide
any information or assistance to, any corporation, partnership, person, or other
entity or group (other than Buyer and its representatives) concerning any
merger, sale of securities, sale of substantial assets, investment proposals or
similar transaction involving Seller, (ii) entertain or discuss any acquisition
or investment proposals arising either from parties who previously expressed an
interest in Seller or from any unsolicited sources, (iii) disclose to any third
party any non-published information concerning Seller, Seller's Business or its
financial condition, or (iv) withdraw Seller's intention to sell the Transferred
Assets to Buyer.
6.5 Supplemental Disclosure. Seller and Shareholders shall have the
continuing obligation to promptly supplement or amend all Schedules with respect
to any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
such Schedules; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless so agreed to in writing by Buyer.
6.6 Discharge of Liens. Seller shall cause all mortgages, liens,
security interests, claims, charges and other encumbrances on any real or
personal property owned or leased by Seller which is included in the Transferred
Assets (other than those permitted by Section 4.7 hereof or those expressly
assumed by Buyer hereunder) to be terminated or otherwise discharged at or prior
to the Closing.
6.7 Employees. Prior to the Closing, Seller will not terminate without
good business reasons, lay off or transfer any of its employees without the
written consent of Buyer. Seller shall
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take all necessary action to terminate its employment relationship with each of
its employees effective as of the Closing Date. However, Seller shall use its
reasonable efforts to preserve intact the availability of the employees so as to
permit Buyer the opportunity to hire such of those employees as Buyer desires,
effective upon the Closing Date. Seller will do nothing to dissuade any of the
employees from accepting employment with Buyer after the Closing.
6.8 Name Change. On the Closing Date, Seller will change its their
corporate name so that it is not similar to its current corporate name and will
terminate all of its assumed name filings.
6.9 Shareholder Approval. Seller shall submit a proposal to
Shareholders to approve and authorize the sale to Buyer of the Transferred
Assets as herein provided and the amendment of the Articles of Incorporation of
Seller to change its name in accordance with Section 6.9 hereof. Seller will do
all things necessary and proper to obtain the approval and authorization of this
Agreement and the carrying out of the provisions hereof.
6.10 Damage or Destruction. If a material amount of the Transferred
Assets shall be damaged or destroyed by fire or other cause prior to the time of
Closing, Seller shall immediately notify Buyer and furnish to Buyer a written
statement of the amount of insurance, if any, payable on account thereof. In the
event of such damage or destruction, Buyer may elect (i) to require that Seller
restore or replace the Transferred Assets to their condition on the date of this
Agreement, or (ii) to cancel, without liability to Buyer or Seller, the
transactions contemplated hereby.
6.11 Taxes. Seller shall be responsible for and shall promptly cause to
be paid when due the following taxes and interest and penalties thereon:
(a) All federal, state and local taxes (including, but not
limited to, any reserve for Taxes accrued on Seller's books)
attributable to income or other gain accrued, earned or otherwise
generated by Seller for all time periods up to and including the Cutoff
Date;
(b) All real and personal property taxes accrued and allocable
to the Transferred Assets for all time periods up to and including the
Cutoff Date.
6.12 Employee Benefit Matters. Seller shall take appropriate action to
terminate the 401(k) Plan (the "Plan") prior to the Closing Date and shall
submit the Plan to the Internal Revenue Service as soon as administratively
practicable thereafter, but in no event later than 90 days after the Closing
Date for the purpose of requesting a favorable determination regarding the tax
qualified status of the Plan in connection with its termination.
7. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE.
The obligation of Buyer to close shall be subject to the following
conditions precedent:
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7.1 Fulfillment of Covenants. Seller and Shareholders shall have
performed and complied in all material respects with all covenants, obligations
and agreements required by this Agreement to be so performed or complied with by
it or them at or prior to the Closing, and Seller shall deliver to Buyer a
certificate dated as of the Closing Date executed by the President or any Vice
President of Seller so stating.
7.2 Corporate Approval. Buyer shall have received a certified copy of
the resolutions of the Shareholders and Board of Directors of Seller, certified
by its Secretary or an Assistant Secretary, authorizing the execution of this
Agreement and the consummation of the transactions contemplated hereby.
7.3 Representations and Warranties. The representations and warranties
of Seller and Shareholders contained in this Agreement shall be complete and
accurate on the date when made and shall also be accurate in all such respects
on the Closing Date to the same extent as if made on such date, except for any
changes expressly permitted by the terms of this Agreement. Seller shall deliver
to Buyer a certificate dated as of the Closing Date executed by the President or
any Vice President of Seller stating that such representations and warranties
are true, correct and accurate to the same extent as if made on the Closing
Date, except for any changes expressly permitted by the terms of this Agreement,
and that all conditions precedent to Closing to be performed by Seller shall
have been performed.
7.4 No Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment or decree which (a) restrains or prohibits the consummation of the
transactions contemplated hereby, (b) might have a material adverse effect on
Buyer's ability to exercise control over or manage Seller's Business after the
Closing, (c) might have a material adverse effect on Buyer or any of its
affiliates or (d) might have a material adverse effect on the Transferred Assets
or on the business, operations, condition (financial or otherwise), liabilities,
assets, earnings or prospects of Seller's Business.
7.5 No Injunction. On the Closing Date there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction restraining or prohibiting the
consummation of the transactions contemplated hereby.
7.6 Opinion of Seller's Counsel. Buyer shall have received an opinion
of Charles T. Collett, APC, counsel to Seller, dated the Closing Date, in
substantially the form of Exhibit C hereto.
7.7 Documents. The Related Instruments and all other documents to be
delivered by Seller to Buyer at the Closing shall be in form and substance
satisfactory to Buyer.
7.8 Consents and Approvals. All licenses, permits, consents, approvals
and authorizations of all third parties and governmental bodies and agencies
shall have been obtained
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which are necessary, in the opinion of counsel to Buyer, in connection with (a)
the execution and delivery by Seller of this Agreement or the Related
Instruments, (b) the consummation by Seller of the transactions contemplated
hereby or thereby, (c) the ownership or leasing and operation by Buyer of the
Transferred Assets or (d) the conduct by Buyer of Seller's Business as
previously conducted on the date hereof.
7.9 Liens Discharged. The mortgages, liens, security interests, claims,
charges and other encumbrances referred to in Section 6.7 hereof shall have been
terminated or otherwise discharged.
7.10 Liabilities Other Than Assumed Liabilities. Seller shall have paid
or shall have made provision in form and substance satisfactory to Buyer for the
payment of all liabilities of Seller not constituting Assumed Liabilities.
7.11 Certificates. Buyer shall have received such certificates of
officers of Seller and public officials as Buyer may reasonably request to
assure itself that the representations and warranties of Seller contained herein
are true at and as of the Closing Date and that the other conditions to Buyer's
obligations hereunder have been satisfied.
7.12 Estoppel Certificates. Seller shall have delivered to Buyer
Estoppel Certificates in the form of Exhibit E hereto from lessor under each of
the real property leases listed on Schedule 2.2(a).
7.13 No Material Adverse Change. From the date of this Agreement
through the Closing Date, no material adverse change in Seller's business,
prospects, financial results or financial condition shall have occurred.
7.14 Shareholder Questionnaire and Representation Agreement. Buyer
shall have received a duly completed copy of the Shareholder Questionnaire and
Representation Agreement attached hereto as Annex III verifying that each
Shareholder is an accredited investor under Regulation D adopted pursuant to the
Securities Act of 1933.
7.15 Other Matters. Buyer shall have received copies of such other
documents, certificates, approvals, opinions, surveys, waivers and amendments as
Buyer and its counsel may reasonably require.
8. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER AND SHAREHOLDERS TO
CLOSE.
The obligation of Seller and Shareholders to close shall be subject to
the following conditions precedent:
8.1 Fulfillment of Covenants. Buyer shall have performed and complied
in all material respects with all of its covenants, obligations and agreements
required by this Agreement to be so
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performed or complied with by it at or prior to Closing, and Buyer shall deliver
to Seller a certificate dated as of the Closing Date executed by the President
or any Vice President of Buyer so stating.
8.2 Corporate Approval. Seller shall have received a certified copy of
the resolutions of the Board of Directors of Buyer, certified by its Secretary
or an Assistant Secretary, authorizing the execution of this Agreement and the
consummation of the transactions contemplated hereby.
8.3 Representations and Warranties. The representations and warranties
of Buyer contained in this Agreement shall be true, correct and accurate on the
date when made and shall also be accurate in such respects on the Closing Date
to the same extent as if made on such date, except for any changes expressly
permitted by the terms of this Agreement. Buyer shall deliver to Seller a
certificate dated as of the Closing Date executed by the President or any Vice
President of Buyer stating that such representations and warranties are true,
correct and accurate to the same extent and as if made on the Closing Date,
except for any changes expressly permitted by the terms of this Agreement, and
that all conditions precedent to Closing to be performed by Buyer shall have
been performed.
8.4 No Injunction. On the Closing Date there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as so provided.
8.5 Opinion of Buyer's Counsel. Seller shall have received an opinion
from Gardere & Wynne, L.L.P., counsel to Buyer, dated the Closing Date, in
substantially the form of Exhibit F hereto.
8.6 Other Matters. Seller shall have received copies of such other
documents, certificates, approvals, opinions, waivers and amendments a s Seller
and its counsel may reasonably require.
9. TERMINATION OF AGREEMENT
9.1 Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual agreement of Seller and Buyer;
(b) by Buyer, if any of the conditions provided for in Article
7 of this Agreement shall not have been met and shall not been waived
in writing by Buyer prior to such date;
(c) by Buyer, if any event contemplated by Section 6.11
(Damage or Destruction provisions) hereof shall have occurred; or
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(d) by Seller, if any of the conditions provided for in
Article 8 of this Agreement have not been met and have not been waived
in writing by Seller prior to such date.
9.2 Procedure Upon Termination. In the event of termination by Seller
or Buyer, or by Seller and Buyer, pursuant to Section 9.1 hereof, written notice
thereof shall forthwith be given to the other party or parties and the
transactions contemplated by this Agreement shall be terminated, without further
action by either party or parties. If the transactions contemplated by this
Agreement are terminated as provided herein:
(a) Each of Seller and Buyer shall return all documents, work
papers and other material of any other party relating to the
transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the party furnishing the same; and
(b) such termination shall not in any way limit or restrict
the rights and remedies of any party hereto against any other party
which has willfully breached any of the agreements or other provisions
of this Agreement prior to termination hereof.
10. INDEMNIFICATION. Need to discuss basket to exclude payroll, 401-k,
title, etc.
10.1 Survival of Representations. All representations, warranties,
covenants and agreements made by any party to this Agreement or pursuant hereto
shall be true, complete and correct as of the date hereof and at and as of the
Closing Date as though such representations, warranties, covenants and
agreements were made at and as of the Closing Date. Each representation,
warranty covenant and agreement shall survive the Closing hereunder and any
investigation made by or on behalf of any party hereto.
10.2 Statements as Representations. All financial statements contained
herein and the financial statements referred to in Section 4.5 hereof, the
Schedules and all officers' certificates delivered pursuant to this Agreement
shall be deemed representations and warranties within the meaning of Sections
4.29, 7.3, 8.3 and 10.1 hereof.
10.3 Seller's Agreement to Indemnify. Subject to the terms and
conditions of this Article 10, Seller and Shareholders agree, jointly and
severally, to indemnify, defend and hold harmless the Buyer Group, at any time
after consummation of the Closing, from and against all Damages, asserted
against, resulting to, imposed upon or incurred by the Buyer Group or any member
thereof, directly or indirectly, by reason of or resulting from (a) liabilities,
obligations or claims of or against Seller or any affiliate or subsidiary of
Seller (whether absolute, accrued, contingent or otherwise) existing as of the
Closing Date or arising out of facts, conditions or circumstances occurring at
or prior thereto (excluding the Assumed Liabilities), whether or not such
liabilities, obligations or claims were known at the time of the Closing; (b) a
breach of any representation, warranty or agreement of Seller or Shareholders
contained in or made pursuant to this Agreement or any facts or circumstances
constituting such a breach; (c) any Taxes or related claim asserted against
Buyer
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Group or any member thereof relating to the operations or properties of Seller's
Business or the Transferred Assets with respect to any period ending on or prior
to or including the Closing Date; (d) any actual or alleged pollution or threat
to the environment relating to Seller's Business to the extent that such actual
or alleged pollution or threat to the environment is related in any way to
facts, conditions or circumstances that occurred or existed on or prior to the
Closing Date including, but not limited to, (i) Damages resulting from any
noncompliance with the environmental Laws, (ii) any action to bring Seller's
Business into such compliance or (iii) any other Damages imposed pursuant the
environmental Laws; (e) any real property transfer or gains Taxes and all other
Taxes which may be due as a result of the sale contemplated by this Agreement
(including, but not limited to, Taxes payable by Seller, the Shareholders or any
affiliate pursuant to Section 1445 of the Code); (f) any failure to comply with
any "bulk sales" laws applicable to the transactions contemplated hereby (except
any liability arising solely from Buyer's failure to pay or discharge any
Assumed Liability); and (g) any claims or liability for brokerage commissions or
finder's fees received by reason of any action taken by Seller (collectively,
"Buyer Claims"); provided, however, Seller shall have no liability to indemnify
Buyer for Damages until the extent of such damages is determined to be in excess
of $50,000.00 on a cumulative basis and then only to the extent of such excess;
and provided further, however, that said threshold shall not apply in respect to
any of the liabilities disclosed in Section 4.6 hereof.
10.4 Buyer's Agreement to Indemnify. Subject to the terms and
conditions of this Article 10, Buyer agrees, to indemnify, defend and hold
harmless Seller and Shareholders, at any time after consummation of the Closing,
from and against all Damages, asserted against, resulting to, imposed upon or
incurred by Seller or Shareholders, directly or indirectly, by reason of or
resulting from (a) the Assumed Liabilities (whether absolute, accrued,
contingent or otherwise); (b) acts of omissions of Buyer in respect to the
Transferred Assets or business conducted in respect to the Transferred Assets
following the Cutoff Date, (c) a breach of any representation, warranty or
agreement of Buyer contained in or made pursuant to this Agreement or any facts
or circumstances constituting such a breach; (d) any Taxes or related claim
asserted against Seller or Shareholders relating to the operations or properties
of the Transferred Assets with respect to any period ending after Closing Date;
or (e) any claims or liability for brokerage commissions or finder's fees
received by reason of any action taken by Buyer (collectively, "Seller Claims").
10.5 Procedures for Resolution and Payment of Claims for
Indemnification.
(a) If a person or entity entitled to be indemnified under
this Article 10 (the "Indemnitee") shall incur any Damages or determine
that it is likely to incur any Damages including, without limitation,
claims by third parties described in Section 10.4(d) hereof, and
believes that it is entitled to be indemnified against such Damages by
a party hereunder (the "Indemnitor"), such Indemnitee shall deliver to
the Indemnitor a certificate (an "Indemnitee's Certificate") signed by
the Indemnitee, which Indemnitee's Certificate shall:
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(i) state that the Indemnitee has paid or properly
accrued damages, or anticipates that it will incur liability
for Damages for which such Indemnitee is entitled to
indemnification pursuant to this Agreement; and
(ii) specify in reasonable detail each individual item of
Damages included in the amount so stated, the date such item
was paid or properly accrued, the basis for any anticipated
liability and basis upon which the claim for indemnification
is being made and the computation of the amount to which such
Indemnitee claims to be entitled hereunder.
In addition thereto, the Indemnitee shall make available to
the Indemnitor, all documents, writings, records and other information
reasonably available to the Indemnitee pertaining to the matter giving rise to
the Damages.
(b) In case the Indemnitor shall object to the indemnification
of an Indemnitee in respect of any claim or claims specified in any
Indemnitee's Certificate, the Indemnitor shall within 30 days after
receipt by the Indemnitor of such Indemnitee's Certificate deliver to
the Indemnitee a written notice to such effect and the Indemnitor and
the Indemnitee shall, within the 30-day period beginning on the date of
receipt by the Indemnitee of such written objection, attempt in good
faith to agree upon the rights of the respective parties with respect
to each of such claims to which the Indemnitor shall have so objected.
If the Indemnitee and the Indemnitor shall succeed in reaching
agreement on their respective rights with respect to any of such
claims, the Indemnitee and the Indemnitor shall promptly prepare and
sign a memorandum setting forth such agreement. Should Indemnitee and
Indemnitor be unable to agree as to any particular item or items or
amount or amounts, then Indemnitee and the Indemnitor shall select a
mutually agreeably arbitrator to settle such disputed item or claims
and the amounts thereof and the decision of the arbitrator shall be
binding on Indemnitee and the Indemnitor. In the event that an
arbitrator cannot be mutually agreed upon, such arbitrator shall be
selected in accordance with the rules of the American Arbitration
Association. Venue for any such proceeding shall be in Dallas, Texas.
The opinion of the arbitrator shall be made in writing and mailed to
Indemnitee and to the Indemnitor. The arbitrator so selected shall
proceed in accordance with the rules of the American Arbitration
Association and the costs of such arbitration, including the fees of
the arbitrator, shall be paid in accordance with the decision of the
arbitrator, provided that the arbitrator shall assess all costs against
any party if he finds such party did not act in good faith.
(c) Claims for Damages specified in any Indemnitee's
Certificate to which an Indemnitor shall not object in writing, claims
for Damages covered by a memorandum of agreement of the nature
described in Section 10.4(b), claims for Damages the validity and
amount of which have been the subject of arbitration as described in
Section 10.4(b) and claims for Damages the validity and amount of which
shall have been the subject of a final judicial determination are
hereinafter referred to, collectively, as "Agreed Claims".
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(d) Promptly after the assertion by any third party of any
claim against any Indemnitee that, in the judgment of such Indemnitee,
may result in the incurrence by such Indemnitee of Damages for which
such Indemnitee would be entitled to indemnification pursuant to this
Agreement, such Indemnitee shall deliver to the Indemnitor a written
notice describing in reasonable detail such claim and such Indemnitor
may, at its option, assume the defense of the Indemnitee against such
claim (including the employment of counsel, who shall be satisfactory
to such Indemnitee, and the payment of expenses). Failure to receive
notice from Indemnitee shall not relieve Indemnitor of any liability
which it might otherwise have to Indemnitee under Section 10.3 hereof,
unless such notice was not sent by the Indemnitee and the lack of such
notice results in prejudice to the Indemnitor. Any Indemnitee shall
have the right to employ separate counsel in any such action or claim
and to participate in the defense thereto, but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor unless (i)
the Indemnitor shall have failed, within a reasonable time after having
been notified by the Indemnitee of the existence of such claim as
provided in the preceding sentence, to assume the defense of such
claim, (ii) the employment of such counsel has been specifically
authorized by the Indemnitor, or (iii) the named parties to any such
action (including any impleaded parties) include both such Indemnitee
and Indemnitor and such Indemnitee shall have been advised in writing
by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to
Indemnitor. If the Indemnitor, within a reasonable time after notice of
any such third party claim, fails to defend the Indemnitee against
which such claim has been asserted, the Indemnitee shall (upon further
notice to Indemnitor) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account
and risk of the Indemnitor subject to the right of the Indemnitor to
assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof. Except as otherwise herein
provided, no Indemnitor shall be liable to indemnify any Indemnitee for
any settlement of any such action or claim effected without the consent
of the Indemnitor but if settled with the written consent of the
Indemnitor, or if there be a final judgment for the plaintiff or
claimant in any such action, the Indemnitor shall indemnify and hold
harmless each Indemnitee from and against any loss or liability by
reason of such settlement or judgment.
(e) Anything in this Section 10.4 to the contrary
notwithstanding, (i) if there is a reasonable probability that a third
party claim may materially and adversely affect the Indemnitee other
than as a result of money damages or other money payments, the
Indemnitee shall have the right, at its own cost and expense, to
defend, compromise or settle such claim; provided, however, that if
such claim is settled without the Indemnitor's consent (which consent
shall not be unreasonably withheld), the Indemnitee shall be deemed to
have waived all rights hereunder against the Indemnitor for money
damages arising out of such claim, and (ii) the Indemnitor shall not,
without the written consent of the Indemnitee, settle or compromise any
claim or consent to the entry of any judgment which does not include as
an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnitee a release from all liability in respect to
such claim.
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(f) At Buyer's option, any or all of the amount of any Agreed
Claims owing to Buyer by Seller may be recovered by an offset by Buyer
against amounts owing to Seller under Section 3.1(c) hereof; provided,
however, nothing herein is intended to limit Seller's liability with
respect to such Agreed Claims and Buyer may collect such amounts from
Seller instead of exercising its option to offset. Upon the election by
Buyer to recover any amount of an Agreed Claim by offset, Buyer shall
so notify Seller in writing. The use or failure to use the procedures
provided for in this Section 10.4(f) shall not preclude or waive any
other remedy available to Buyer.
10.6 Remedies Cumulative. Except as herein expressly provided, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against any other party hereto.
11. MISCELLANEOUS.
11.1 Reformation and Severability. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof:
(a) in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
enforceable; and
(b) the legality, validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
11.2 Relief. Seller acknowledges and agrees that in view of the
uniqueness of Seller's Business damages at law would be insufficient for breach
of any of their covenants in this Agreement. Accordingly, Seller agrees that in
the event of a breach or threatened breach by Seller of any such provisions,
Buyer shall be entitled to equitable relief in the form of an injunction to
prevent irreparable injury. Nothing herein shall be construed as prohibiting
Buyer from pursuing any remedies, including damages, for breach or threatened
breach of this Agreement.
11.3 Further Assurances. Each party hereto shall, from time to time
after the Closing, at the request of any other party hereto and without further
consideration, execute and deliver such other instruments of conveyance,
assignments, transfer and assumption, and take such other actions, as such other
party may reasonably request to more effectively consummate the transactions
contemplated by this Agreement.
11.4 Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be sent by certified mail,
return receipt requested (or by the most nearly comparable method if mailed from
or to a location outside of the United States), or by cable, telex, telegram or
facsimile transmission, or delivered by hand or by overnight or similar
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delivery service, fees prepaid, to the party to whom it is to be given at the
address of such party set forth below or to such other address for notice as
such party shall provide in accordance with the terms of this section. Except as
otherwise specifically provided in this Agreement, notice so given shall, in the
case of notice given by certified mail (or by such comparable method) be deemed
to be given and received three business days after the time of certification
thereof (or comparable act), in the case of notice so given by overnight
delivery service, on the date of actual delivery, and, in the case of notice so
given by cable, telegram, facsimile transmission, telex or personal delivery, on
the date of actual transmission or, as the case may be, personal delivery.
If to Buyer: StarNet Financial, Inc.
17000 Preston Road
Suite 350
Dallas, Texas 75248
Attention: Daniel L. Jackson
Facsimile number: 972-239-2939
With a copy which shall
not constitute notice to: Gardere & Wynne, L.L.P.
1601 Elm Street
3000 Thanksgiving Tower
Dallas, Texas 75201
Attention: I. Bobby Majumder
Facsimile number: 214-999-4667
If to Kenneth F. Urbanus: Kenneth F. Urbanus
17320 Red Hill Avenue, Suite 250
Irvine, California 92614
If to Alanna Urbanus: Alanna Urbanus
38 Bridgeport
Newport Coast, California 92657
If to Denise Skoveth: Denise Skoveth
3620 Nelson Place
Fullerton, California 92635
If to Mary Lee Hill: Mary Lee Hill
30352 Via Festivo
San Juan Capistrano, California 92675
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With a copy which shall
not constitute notice to: Attorneys, Address
If to Seller: Occidental Mortgage Corporation
17320 Red Hill Avenue, Suite 250
Irvine, California 92614-5644
Attention: Kenneth F. Urbanus
Facsimile: 949-475-6054
With a copy which shall
not constitute notice to: Charles T. Collett, APC
4675 MacArthur Court, Suite 1200
Newport Beach, California 92660
Attention: Charles T. Collett
Facsimile: 714-553-0904
11.5 Headings. The headings of sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
11.6 Waiver. The failure of any party to insist, in any one or more
instances, upon performance of any of the terms, covenants or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right or
claim granted or arising hereunder or of the future performance of any such
term, covenant, or condition, and such failure shall in no way affect the
validity of this Agreement or the rights and obligations of the parties hereto.
11.7 LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS RULES OR CHOICE OF LAWS RULES THEREOF.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument notwithstanding that all
parties are not signatories to each counterpart.
11.9 Assignability and Binding Effect. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and obligations
hereunder may not be assigned by Seller or prior to the Closing Date shall not
be assignable without the express written consent of all parties hereto.
11.10 Amendments. This Agreement may not be modified, amended or
supplemented except by an agreement in writing signed by all of the parties
hereto.
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11.11 Expenses, Taxes, Etc. Except as otherwise provided herein, each
of the parties hereto shall pay all fees and expenses incurred by it or any of
its affiliates or subsidiaries in connection with this Agreement; provided,
however, that Seller shall pay all sales taxes in connection with the
transactions contemplated hereby, and all transfer, gains, stamp, documentary
and similar Taxes and recording fees in connection with the transfer and
delivery of all real and personal property (including capital stock) included in
the Transferred Assets.
11.12 Third Parties. Except with respect to indemnification under
Article 10, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person other than the parties hereto and
their successors or permitted assigns, any rights or remedies under or by reason
of this Agreement.
11.13 Number and Gender of Words. When the context so requires in this
Agreement, words of gender shall include either or both genders and the singular
number shall include the plural.
11.14 Entire Agreement. This Agreement and the executed documents, the
forms of which are attached hereto as Exhibits or referred to herein, together
with the Schedules and Exhibits hereto and thereto, shall constitute the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and shall supersede all prior negotiations, understandings
and agreements.
11.15 Noncompetition. For no additional consideration, the Seller and
Shareholders will not for five years following the Closing Date (the "Noncompete
Term"), directly or indirectly, for or on behalf of or in conjunction with any
other person, company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial or advisory capacity,
whether as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any competitive business within 150
miles of (A) where any of the Buyer or any subsidiary of the Buyer
conducts business, or has conducted business within the past three
years (such areas being herein referred to as the "Territory");
(b) call upon any person, who is, at that time, an employee or
consultant of Buyer, for the purpose or with the intent or effect of
enticing such employee or consultant away from or out of the employ or
contract with Buyer; or
(c) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of Buyer
the Territory for the purpose of soliciting or selling services or
products in a competitive business within the Territory.
Because of the difficulty of measuring economic losses to Buyer as a result of a
breach of the foregoing covenant, because a breach of such covenant would
diminish the value of the assets and
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business of Buyer being sold pursuant to this Agreement, and because of the
immediate and irreparable damage that could be caused to Buyer for which it
would have no other adequate remedy, Seller and each Shareholder agrees that the
foregoing covenant may be enforced against such individual by injunctions,
restraining orders and other equitable actions. It is agreed by the parties
hereto that the foregoing covenants in this Section 11.15 are necessary in terms
of time, activity and territory to protect Buyer's interest in the assets and
business being acquired pursuant to the terms of this Agreement and impose a
reasonable restraint on Seller and each Shareholder in light of the activities
and businesses of the Buyer on the date of the execution of this Agreement and
the current plans of the Buyer. The covenants in this Section 11.15 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this Section 11.15 are
unreasonable and therefore unenforceable, then it is the intention of the
parties that such restrictions be enforced to the fullest extent which the court
deems reasonable and this Agreement shall thereby be reformed. Seller and each
Shareholder acknowledges that the agreements and the covenants set forth in this
Section 11.15 are material conditions to Buyer's agreements to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and that Buyer would not have entered into this Agreement without such
covenants. All of the covenants in this Section 11.15 shall be construed as an
agreement independent of any other provision in this Agreement.
11.16 Nondisclosure of Confidential Information. Seller and each
Shareholder recognizes and acknowledges that it had in the past, currently has,
and in the future will have, access to certain confidential information relating
to the businesses of the Seller, such as lists of customers, operational
policies, and pricing and cost policies that are, and following the Closing will
be, valuable, special and unique assets of Buyer. Seller and each Shareholder
agrees that it will not use or disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose
whatsoever, except as is required in the course of performing its duties, if
any, to Buyer, unless (a) such information becomes known to the public generally
through no fault of Seller of such Stockholder, or (b) disclosure is required by
Law, provided that prior to disclosing any information pursuant to this clause
(b) Seller or such Shareholder shall, if possible, give prior written notice
thereof to Buyer and provide Buyer with the opportunity to contest such
disclosure. In the event of a breach or threatened breach by the Seller and
Shareholders of the provisions of this Section 11.16, Buyer shall be entitled to
an injunction restraining Seller or such Stockholder from disclosing, in whole
or in part, such confidential information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SELLER:
OCCIDENTAL MORTGAGE CORPORATION
By: /s/ Kenneth F. Urbanus
-----------------------------------
Name: Kenneth F. Urbanus
----------------------------------
Title: President
---------------------------------
SHAREHOLDERS:
/s/ Kenneth F. Urbanus
---------------------------------------
Kenneth F. Urbanus, Individually
/s/ Alanna Urbanus
---------------------------------------
Alanna Urbanus, Individually
/s/ Denise Skoveth
---------------------------------------
Denise Skoveth
/s/ Mary Lee Hill
---------------------------------------
Mary Lee Hill, Individually
BUYER:
STARNET FINANCIAL, INC.
By: /s/ Daniel L. Jackson
-----------------------------------
Name: Daniel L. Jackson
---------------------------------
Title: President
--------------------------------
