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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000
Commission File Number: 0-17597
ELITE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Texas
(State or other Jurisdiction of 76-0252296
incorporation or organization) (IRS Employer Identification No.)
6991 Peachtree Industrial Blvd.
Suite 320
Norcross Georgia 30096
(Address of principal executive offices) (Zip Code)
(770) 678-969-9146
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes | | No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: | |
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant computed as of May 31, 2000 is $5,754,176.
The number of issued and outstanding shares of the issuer's class of capital
stock as of May 31, 2000, the latest practicable date, is as follows: 34,260,720
shares of Common Stock $.0001 par value.
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<PAGE>
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ELITE TECHNOLOGIES, INC.
May 2000 Annual Report
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7a.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
This Annual Report contains various forward-looking statements that are based on
management's belief as well as assumptions made by management based on
information currently available to management. In some cases, you can identify
forward-looking statements by the use of certain terminology, such as "may,"
"will," "should," "would," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of such terms
or other comparable terminology. Any expectations based on these forward-looking
statements are subject to risks and uncertainties. These risks and uncertainties
could affect the Company's future financial and operating results and cause
actual results to differ materially from expectations based on forward-looking
statements made in this document or elsewhere by or on behalf of the Company.
<PAGE>
PART I
ITEM 1. BUSINESS GENERAL
Elite Technologies, Inc. (referred to herein as "Elite" or the "Company")is
a full service technology company offering information technology ("IT")services
to small, medium and large enterprises. IT services involve the facilitation of
the flow of information within a company or between a company and external
sources. These services typically involve computer hardware, software and
"integration" efforts to allow diverse systems to communicate with one another.
Elite was founded as a Georgia corporation in 1996 under the name Intuitive
Technology Consultants, Inc. ("ITC"). In July, 1998, ITC Acquisition Group, LLP,
consisting of management of ITC, acquired a majority interest, through a reverse
merger, in CONCAP, Inc.. On April 22, 1999, the Company changed its name to
Elite Technologies, Inc. The Company's charter was revoked on February 11, 2000
for the failure to file franchise tax returns in the State of Texas, however the
Company is presently seeking to reinstate its charter.
Although Elite, through its divisions offered a variety of services in
fiscal 2000, Elite has suspended most of its operations following the
acquisition of Ace Manufacturing Group, Ltd. ("AMG") in April 2000. Elite
intends to acquire other companies to fulfill the services of its divisions. As
part of Elite's acquisition strategy, the Company has entered into an agreement
to acquire substantially all of the capital stock of AC Travel, Inc. and
International Electronic Technologies of Georgia, Inc. Elite does not presently
have any other definitive agreements to acquire additional companies and there
can be no assurance that it will do so.
The Company's principal executive offices are located at 6991 Peachtree
Industrial Blvd., Suite 320, Norcross, GA 30092 (Telephone: (678) 969-9146. The
Company's Internet address is www.elitetech-usa.com.
RECENT DEVELOPMENTS
In June, 2000, Elite has signed purchase agreements with AC Travel, Inc.
and International Electronic Technologies of Georgia ("IET"). AC Travel, a
wholesale and retail travel agency, including a website catering to the
international business traveler who is traveling abroad in the U.S., The
purchase price for all the capital stock of AC Travel is 1,500,000 shares of
common stock, and $300,000. IET provides wholesale and retail sales and
distribution of computer related products. The purchase price for IET is
1,200,000 shares of common stock and $300,000.
Elite's objective is to establish itself as a leading provider of internet
connectivity and content solutions. The company intends to utilize acquisitions
to support the growth of AMG's business, such as content and hardware providers.
The Company intends to utilize AMG's content and advertising platform to serve
as a means by which retailers and other connectivity solutions providers can
access a viewer base with quantifiable online purchasing habits.
THE INFORMATION TECHNOLOGY SERVICES INDUSTRY
Many businesses today need ongoing technology improvement. Sole
proprietorships and Fortune 1000 companies alike need to examine their IT
processes regularly in order to maintain growth. The fast pace associated with
the development of new technologies has created increased demand for IT solution
services. Companies are often forced to rely on external experts for direction
with respect to IT solution services and to lower their internal costs of
implementation of new and upgraded systems.
Corporations face increasing pressures to improve the quality of products,
facilitate implementation of their products and reduce the cost in delivering
"end to end" solutions, solutions which ensure the systems in place function
correctly from start to finish. As a result, companies are using value added
integrators to implement solutions that streamline business processes with their
end users and customers, which improves the flow of critical data within the
company, and outside the organization. These trends, with rapid advances in
technology, are driving organizations from traditional "host-based" legacy
computing systems to more flexible and functional technologies, including the
Internet, Web-based user interfaces, Client / Server architectures, distributed
database management systems and the latest networking and communications
technologies.
Companies are increasingly deploying custom designed software / hardware
applications. These custom applications are designed specifically for the
business needs and goals of each company, and may be composed of multiple
operating systems, databases, programming languages and networking protocols
throughout the corporate enterprise.
In addition to the increasing demand for more responsive technologies,
technology vendors are becoming more complex and individual product life-cycles
are shortening at a faster rate. As a result, IT vendors are under increasing
pressure to bring new products and new versions of proven technology to market
faster and simultaneously to ensure that those products are implemented in a
timely fashion. Thus, these software vendors are outsourcing their services to
value added integrators with experience with multiple platform, application,
integration, and networking support. The convergence of these trends has
resulted in (i) an increasing need within the research and development
departments of key technology vendors to outsource to software service firms a
portion of the development, deployment and testing of their existing and new
products and (ii) an increasing movement of companies toward joint projects with
software service firms that have a high level of expertise in market leading
technologies. Since many software vendors are already under-staffed, software
vendors often prefer not to rely on their internal resources for the design and
implementation of enterprise business systems. Accordingly, a growing number of
corporations and IT vendors are seeking the help of value added integrators with
strong technical expertise in critical emerging technologies to implement high
value "end to end" solutions using a successful and cost-effective approach
which utilizes available resources to complete specific technology plans.
Industry Background - Internet Solutions
Internet solutions have been introduced to corporations over the last 10
years. These Internet solutions (Intranet, Extranet and Corporate Web Sites)
have provided organizations with a completely new set of tools to market,
distribute and offer additional value to their end users who use their products
and services. This new set of tools provides customers with more and improved
ways to communicate, transmit critical data from organization to organization or
organization to customer, create better methods for marketing and provide higher
levels of customer service. The Intranet technology allows a company's employees
to access corporate proprietary information more easily, obtain training on
line, access corporate business applications from their own PC, and communicate
via email. The Extranet is an even more powerful tool. The Extranet allows
corporations to securely distribute critical data outside its corporate Intranet
to customers and business partners.
On the consumer side, Web sites offer a total "end to end" solution. Web
sites allow customers to access product and service offerings more easily and
allow businesses to present advertising, market new and improved products and
services, offer products and services for sale on line, process transactions,
complete orders on line, provide customers with rapid, accurate response time to
their most important issues and ultimately, provide customers with a high level
of customer interaction and support via the Web. Additionally, a business has
the ability to increase its sales and marketing via e-commerce solutions on
their Corporate Web Sites, virtually placing a "24 hour" sales ability within
the company.
Industry Background - Internet Connectivity and Content
While the internet provides a variety of benefits to businesses and
consumers alike, having access to the internet in multiple settings is a
prerequisite for its success. This access, or "connectivity", has become an
entire industry within the internet field. Connectivity at home and office is
typically provided by an Internet Service Provider (ISP), which connects some
type of telephone line or cable line to the user's personal computer or server.
In public places such as airports, hotels, gas stations and retail stores,
Internet Kiosks, which are similar to telephone booths with keyboards, screens
and a connection to the web, have been installed. These kiosks initially served
as simple connections to the web, whereas today the kiosks are being used as
advertising media, information centers and entertainment stations. Kiosks are
being installed throughout the United States and internationally, with focus on
useful, demographically sensitive information, presented in a user-friendly and
entertaining platform.
In addition to the connectivity issue, consumers are really accessing the
internet for the information and entertainment provided online. This information
is known as content. Just as a television and cable line connect consumers to
television services, it is the programming that interests the viewer. Content
provision is also a quickly developing industry throughout the internet world.
Industry Background - Internet Kiosks
As a relatively new industry, Internet Kiosks provide a specific product to
a specific marketplace. More than just a leisure activity, the internet has
become a vital link to communications. In many instances, consumers (both
business and residential) have a need to gain access to the internet while not
at a "home computer". Although laptops continue to provide this service, many
instances arise where the convenience of a laptop with a modem connection is not
available. In this case, an Internet Kiosk is the solution to the need. Allowing
a consumer to access the internet, retrieve e-mail, shop, make travel plans, or
even play interactive games online, the kiosk unit provides inexpensive access
to these any many other activities.
Industry Background - Online Travel Services
Travel services have been proven to be a major revenue center online. Much
more than mere ticket provision, online travel services allow consumers to book
travel, hotels, car rentals, compare rates and even take virtual tours of points
of interest around the world. The travel industry has, in the past five years,
reinvented itself as a result of decreasing commissions paid to travel agents by
the major airlines. Travel agencies have redirected their efforts to concentrate
more on providing value added services and leisure travel. The move to online
services is seen as the critical step to achieve growth over the next decade in
the travel industry.
Industry Background - Computer Hardware and Peripherals
Computer hardware sales was, for many years, the core profit center in the
Information Technology industry. The focus was later shifted toward software.
This shift toward software put pressure on smaller manufacturers and
distributors, until such time as only a handful of major manufactures and
wholesalers remained. Medium to large wholesalers and distributors continue to
thrive, especially ones that use hardware provision as an entry into an
organization's IT department to offer additional goods and services.
OUR SERVICES
Elite has offered diverse services with divisions in IT Staffing, Custom
Software Development and Integration, Internet Hosting, Content and Technical
Development, Hardware Sales and Service and Content Delivery Platforms. Elite
suspended these operations in April 2000 in connection with its acquisition of
AMG. The Company also served as an authorized solution provider and application
developer for leading enterprise-level software products. Prior to April, 2000,
the Company marketed its products and services to small, medium and large
enterprises.
Prior to April, 2000, Elite was organized into three divisions: Elite
Integration, Elitetech.com, and Workstream Staffing. Elite Integration served as
the outsource, integration and software Value Added Reseller for clients and
software partners; Elitetech.com offered Internet Development and Internet
Solutions; and Workstream Staffing offered full service IT Staffing services.
AMG
In April 2000, Elite suspended most of its operations, in anticipation of
the acquisition of several companies in the internet kiosk industry. In April
2000, Elite acquired Ace Manufacturing Group, Ltd., ("AMG"). AMG designs, builds
and markets an internet "pay by minute" browser (kiosk) used primarily in
hotels, airports and entertainment establishments. Elite intends to utilize AMG
to acquire additional companies to augment the internet kiosk marketed by AMG,
including companies providing content, hardware and other related sectors of
commerce. Elite purchased all of the capital stock of AMG for 2,000,000 shares
of common stock, and $250,000.00.
AMG sells a variety of internet kiosk units, customizable for their
individual application and environment. The Company markets its kiosks through
direct sales, web promotion and through corporate sponsorship programs. AMG is
also developing a content and advertising platform that provides quick access to
the most frequently used services online, such as travel services, email and
e-commerce. AMG is marketing its kiosks to retailers, airports, municipalities,
gas stations, hotels and other public areas where internet access is needed. The
kiosks not only provide connectivity to the public, but allow advertisers and
retailers to promote their offerings in an interactive format.
AMG specializes in communication implementation of Public Internet pay
stations. The Public Internet pay stations have three separate niche markets:
(1) Automated Business Center, (2) Entertainment Access and (3) Advertising
Kiosk.
The Automated Business Center provides a solution for business travelers.
The Automated Business Center allows business travelers to access E-mail, send
or receive a fax, make color copies, or surf the Internet, in frequently
traveled business locations. The Automated Business Center's are directed
towards hotels, suites, convention centers, and airports. Payment options
include cash, credit cards and optional coupons to make it easy to meet the
versatile needs of today's traveler.
The Automated Business Center's are in phase two of operation. These
features include the following: - Internet Browsing - 2000 Hot Buttons offering
single click access to stock quotes, new publications, search engines,
government sites, etc.
- Send and retrieve E-mail
- Send and receive fax capabilities
- Color copy capabilities
- Full screen display advertising
- Scroll bar advertising with web site links
- Daily usage log of transactions
- Appwatch monitors the Browser software to ensure the application is
always running
- Bootwatch enable the Automated Business Center to automatically
re-boot itself daily
- Fortress allows the operation system to be password protected
The following features are under development:
- Video E-mail
- Video conferencing
- Full screen display advertising with coupon program
- Internet usage destination log
- Microsoft word processing capabilities
- Document editing capabilities
The multi-functional Automated Business Center has enough computing
capabilities for future module add-ons to meet the ever-growing technology of
today's fast advancing electronic revolution. AMG has telephony capabilities in
the research and development process.
The Entertainment Access Internet Terminal caters to restaurants, coffee
shops, turnpike stations, auto service stations, grocery stores, shopping malls,
convenient stores, roller rinks, arcades, movie theaters, and museums. The kiosk
offers over 2000 1-click web sites. The Entertainment Access Internet Terminal
is programmable, enabling custom programming, for the various sites. On-line
sports books, trivia, car manufacturers, classifieds and dating services.
The Advertising Kiosk implemented in the Automated Business Center scenario
offers the business traveler the same functionality-access to e-mail, send and
receive fax, color copies, or surf the Internet. The Advertising Kiosk
implements a coupon program, allowing the hotel to issue each guest $10 dollars
in coupons to be used at the kiosk.
The Advertising Kiosk can be installed in the hotel free of charge to offer
the guest free services via the coupon program-the owner of the Advertising
Kiosk generates revenue from various companies advertising on the kiosk. The
Advertising Kiosk can charge to print out the advertisements which may offer
directions, discounts, phone numbers or the advertisements can be printed out
free of charge. The advertisers vary in range from local to national companies.
Elite Integration, Elitetech.com and Workstream Staffing
The Elite Integration division was the "outsource services group" of Elite
through April, 2000. Elite Integration offered custom software development,
including Client/Server applications, design and development to small, medium
and large enterprises. Elite maintains its partnership as a tier one integrator
for Eastman Software and a premier provider for Hewlett-Packard. Elite expects
to continue participating in these relationships throughout the next year.
Elitetech.com, is capable of providing web development projects and
Internet based server applications. Such services can include web site design,
Internet deployment and strategies, web enabled applications, network solutions,
e-commerce solutions, search engine placement services, and multimedia creation.
Elitetech.com currently includes "Virtualbride.com." The Virtual Bride is
intended to be a full service on-line wedding planner and bridal registry
targeted for deployment in 30 US markets.
Workstream Staffing
Workstream Staffing was the Company's IT staffing augmentation division
which located and offered permanent employees, temporary contractors and
temp-to-perm (try before you hire) employees through April 2000. Workstream has
developed proprietary software, the "RMS" Recruiting Management System, to
manage the client-contractor relationship from pre-screening to renewal. The
result was improved customer service and reduced collection times.
INTEGRATION OF ACQUIRED COMPANIES
Management believes that the market offers acquisition candidates in each
of the three areas of interest to the Company (Integration, Staffing and
Internet). The acquired companies are intended to operate with the standardized
sales and marketing procedures of Elite, with senior level personnel heading an
individual task force for each operations function.
Standardized accounting, business practices and corporate culture will be
implemented throughout the organization. It is also anticipated that, upon
closing of the acquisitions, the respective presidents of each entity will also
be elected to the board of directors of Elite. This is to insure that the proper
level of communication and support exists between Elite and the subsidiaries as
well as between and among the subsidiaries themselves. Since the acquisition
strategy of Elite calls for the purchase of entities that add value to AMG in
terms of content, manufacturing and distribution, the integrated companies will
require standardized business practices and marketing efforts.
SALES AND MARKETING
The Company intends to utilize a consultative approach to the target
market, whereby partnership relationships are preferred over vendor
relationships. Elite sales representatives and those of our software partners
will be encouraged to sell the services of each division of the Company. At such
time as Elite completes the remaining acquisitions scheduled to close in first
quarter of fiscal year 2001, the company intends to create and implement a
specific sales and marketing strategy. Until such time as other acquisitions are
completed the companies will continue to market as per their pre-existing
strategies.
Sales
The Company does not currently have an active sales force. We
anticipate that Elite's sales force will consist of division
vice presidents, regional account executives, inside sales
lead generators, project managers, presales technical support
and executive level management to help assist with the sale of
services and solutions. AMG utilizes the services of
subcontracted Value Added Resellers (VAR) to sell its kiosk
units. AMG allows a VAR to sell its products, giving the VAR a
percentage of the net profit of the sale as compensation. This
allows AMG to extend its market access without hiring
additional workforce on a salaried basis.
Elite's sales force will be responsible for creating
referencable accounts and a high level customer satisfaction.
The sales team will be given the task of uncovering additional
sales opportunities within their assigned accounts. Elite's
account executives will be assigned quarterly revenue quotas,
and will be paid commissions based on the percentage level of
attained quota. Project plans and implementation costs will be
prepared by the project managers and the account executive.
All project pricing will be approved by the divisional vice
president, whose performance and compensation will be based
solely on the division's total generated revenue.
Marketing
Elite intends to outsource its marketing requirements and
collateral material development. These materials and efforts
will be updated periodically to reflect new operations and
acquisitions.
Elite intends to strategically market its products and
services through its executive staff and business partners.
Elite intends to promote its corporate image through the use
of customer testimonials and partner alliances.
STRATEGY
COMPETITION
The information technology services industry is highly competitive with
limited barriers to entry and rapid change. The industry is served by many
national, regional and local companies, including full service agencies and
specialized temporary services agencies. Elite's primary competitors include a
variety of market segments, including:
o medium to large sized hardware manufacturers and distributors
o medium to large sized systems consulting and implementation firms;
o medium to large sized management consulting firms.
Many of Elite's competitors have significantly greater financial, technical
and marketing resources and greater name recognition. In addition, Elite
competes with its clients' internal resources, particularly where such resources
represent a fixed cost to the client. Such competition may impose additional
pricing pressures. Elite expects that the level of competition will remain high
in the future.
INTELLECTUAL PROPERTY RIGHTS
Elite's success in the information technology services business will depend
upon its software deployment and methodology and other proprietary intellectual
property rights. Elite does not hold any patents or registered copyrights.
Instead, Elite intends to rely on a combination of trade secret, nondisclosure
and other contractual arrangements and technical measures, and copyright and
trademark laws, to protect its proprietary rights. Elite generally enters into
confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to and distribution of its proprietary
information, however, no guarantees can be made that infringement will not take
place.
Elite's businesses will include the development of custom software
applications in connection with specific client engagements. Ownership of such
software is typically assigned to the client. In addition, Elite intends to
develop object-oriented software components that can be reused in software
application development and certain foundation and application software
products, or software "tools."
Although Elite believes that its services and products do not infringe on
the intellectual property rights of others, other parties may nevertheless make
infringement claims against the Company in the future.
GOVERNMENT REGULATION
As of May 31, 2000, Elite had a workforce which includes information
technology consultants who are foreign nationals working in the United States
under H-1B permits. That percentage is expected to rise in the coming months and
years. Accordingly, Elite must comply with United States immigration laws. Due
to the limited number of H-1B permits approved each year, Elite may not be able
to recruit or retain enough information technology professionals to meet its
personnel requirements. Furthermore, Congress and administrative agencies with
jurisdiction over immigration matters periodically express concerns over the
levels of legal and illegal immigration into the U.S. These concerns often
result in proposed legislation, rules and regulations aimed at reducing the
number of work permits that may be issued. Any reduction in the number of work
permits that may be issued or change in immigration laws which impede the hiring
or retention of foreign nationals could cause Elite to incur additional
unexpected labor costs and expenses.
EMPLOYEES
As of May 31, 2000, Elite employed 15 full-time employees and
consultants. Elite is not a party to any collective bargaining agreements and
considers its relationships with its employees to be satisfactory. These
employees consist of 8 administrative employees, and 7 technical employees.
RISK FACTORS
The Company's business operations and financial results are subject to
various uncertainties and future developments that cannot be predicted. The
principal risks and uncertainties are identified below.
Changes in Quarterly Operating Results
The Company has experienced fluctuations in its quarterly results. Revenues
and gross margins in a particular quarter will vary depending upon a number of
factors, including:
o general economic conditions;
o the number and requirements of client engagements;
o employee hiring, utilization and turnover rates;
o changes in billing rates;
o the amount of billing days, consultant vacation days and paid time
off;
o the number, terms and size of acquisitions, if any, during a period.
Volatility of Stock Price
The Company's stock price has been volatile. Future revenues, earnings and
stock prices may be subject to wide swings due to variations in operating and
financial results, anticipated revenue and/or earnings growth rates, competitive
pressures, market place conditions and other factors. The Company's stock price
is predominantly based on current expectations of sustainable future revenue and
earnings growth rates. Any failure to meet anticipated revenue and earnings
levels in a period or any negative change in the Company's perceived long-term
growth prospects would likely have a significant adverse effect on the Company's
stock price.
Termination of Client Contracts
Fees from project-based contracts have been a fundamental component of the
Elite Integration division revenues. If client information technology
requirements or budgets were to decrease or their initiatives delayed and/or if
such clients were to seek alternatives to relying upon the Company's current
service offerings, the Company's revenues would be adversely impacted. Many of
the Company's engagements are terminable without client penalty. An
unanticipated termination of a major project can result in an increase in
underutilized employees and a decrease in revenues and profits.
Inability of Company to Retain Qualified Information Technology Consultants
The Company's continued success will depend in large part on its ability to
attract, retain and motivate highly-skilled employees, particularly project
managers and other senior technical personnel. Qualified IT professionals are in
high demand and are likely to remain in demand.
Liability for Employee and Client Actions
The Company may incur liability through its placement of consultants in
client workplaces. Potential liability includes:
o errors and omissions;
o misuse of client proprietary information;
o misappropriation of funds;
o discrimination and harassment;
o theft of client property; or
o other criminal activity.
Although the Company has not experienced any such material claims, it
cannot be certain that it will not experience such claims in the future. To
reduce its exposure, the Company maintains insurance covering general liability
and errors and omissions. However, insurance may not cover all such claims, and
insurance coverage may not continue to be available in an amount adequate to
cover the above liabilities.
Dependence on a Successful Acquisition Strategy
Management expects the future growth of the Company will be based on future
acquisitions. Competition for acquisition candidates may result in fewer
potential acquisitions, as well as less advantageous acquisition terms,
including, but not limited to, less advantageous price terms.
Maintenance of Rapid Growth
The Company cannot guarantee that it will be able to expand and
successfully manage its growth. The Company's ability to grow will depend on a
number of factors, including the following:
o competition;
o availability of capital;
o ability to maintain margins;
o ability to recruit and train additional qualified personnel; and
o management of costs in a changing technological environment.
ITEM 2. PROPERTIES
The Company occupies approximately 3,000 square feet of office space in
Norcross, Georgia under a renewable one year lease, at monthly rate of $4,900.
The current lease is scheduled for renewal in February, 2005.
AMG occupies approximately 11,500 square feet of office and warehouse space
in Doraville, Georgia under a renewable yearly lease at a monthly rate of
$6,000. The current lease is scheduled for renewal December 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not involved in any litigation matters and has
settled all legal matters pending in the year end May 31, 1999.
The Company is, from time to time, a party to routine litigation incidental
to operating a business, including claims of discrimination, wrongful
termination, and other similar claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Elite's Common Stock was traded on the OTC Bulletin Board Market under the
symbol "ETCH" (OTC: BB ETCH). In November, 2000, the company, due to its failure
to comply with NASD Rule 6530, was "delisted" from the OTC and is now traded on
the "Pink Sheets". Upon the company's filings, and compliance with Rule 6530,
the company intends to file application for relisting on the OTC. (Formerly,
under the name CONCAP, Inc., the Company's securities traded under the symbol
"CNCG" on the OTC Bulletin Board Market until May, 1999). The Company's stock
was not traded actively until the Second quarter of the fiscal year ended May
31, 1999. As a result, price information available for the fiscal year ended May
31, 1998 is only available from the third quarter, is incomplete for the periods
for which it is provided and may not reflect all transactions effected in Elite
stock during such period. Such quotations may reflect inter-dealer prices
without retail markup, markdown or commissions and may not necessarily represent
actual transactions.
The following table sets forth the range of the low and high closing prices
of the Common Stock as reported on the OTC Bulletin Board for the last two
fiscal years.
During the 2000 fiscal year, Elite issued 2,439,500 shares without
registering the shares under the Securities Act of 1933 as amended composed of
the following:
In fiscal year 2000 the company issued an aggregate of 2,439,500 shares to
76 investors pursuant to Regulation D. The average purchase price of the common
shares was $0.34 per share.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31, 2000
Quarter Low High
---------------------------- ---------------------- --------------------------
<S> <C> <C>
First 3.25 5.63
Second 0.19 3.38
Third 0.13 1.31
Fourth 0.38 1.75
FISCAL YEAR ENDING MAY 31, 1999
Quarter Low High
---------------------------- ---------------------- --------------------------
First 1.00 5.937
Second 3.00 5.937
Third 6.00 10.25
Fourth 4.75 10.00
</TABLE>
There were 568 holders of record of Common Stock as of September 8, 2000.
The Company has not paid any cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. The decision to pay dividends
will be made at the discretion of the Board of Directors of the Company and will
depend upon the Company's operating results and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial data discussed below were
derived from the Company's consolidated financial statements, which as of May
2000 were audited by Kirschner and Associates.
The selected financial data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
consolidated financial statements, the related notes, and the independent
auditors' report for the years ended May 31, 2000 and 1999, which contains an
explanatory paragraph that states the Company's recurring losses from operations
and net capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern, appearing elsewhere in this Form 10-KSB. The
consolidated financial statements and the selected data do not include any
adjustments that might result from the outcome of that uncertainty.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Company's Consolidated Financial Statements included
elsewhere herein.
INTRODUCTION
From its inception in June of 1988 as CONCAP, a Texas corporation, until
July, 1998, the Company existed primarily as a development stage company created
to seek, investigate, and if warranted, acquire domestic and foreign business
opportunities. The Company intended to seek long-term growth potential as
opposed to short-term earnings. In July of 1998, CONCAP acquired ITC. Following
the transaction, former ITC shareholders held 72 percent of the shares of
CONCAP. Subsequently, ITC merged with Elite Technologies, Inc., a Delaware
corporation distinct from the Company. CONCAP changed its name to Elite
Technologies, Inc. on April 22, 1999. All subsidiaries and holding companies
were then merged into Elite, the Texas corporation.
Through May 31, 2000, the Company completed one acquisition in the IT
sector. All acquisitions have been accounted for as purchases in this filing and
are reflected as such on the Consolidated Financial Statements. This does not
take into account the year to date financial information of these acquisitions,
but only provides for results of operations since the date of acquisition of the
individual companies.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 2000 COMPARED WITH YEAR ENDED MAY 31, 1999
Revenues. Revenues from operations for 2000 decreased 84.6% from 1999. The
decrease in revenues related to (i) the internal restructuring of the business
and (ii) the subsequent decrease in resources available to fund existing
operations during the restructuring.
Two additional acquisitions in fiscal year 2001 were completed. These
acquisitions are consistent with the new acquisition strategy and corporate
focus of Elite as detailed in above "Recent Acquisitions" section.
Salaries, Wages and Benefits. Salaries, Wages and Benefits decreased 73.3%
from 1999. The decrease is due to (i) terminations of staff related to the
restructuring of the company.
It is anticipated that with increased product lines resulting from the
acquisition of AMG and the acquisitions consummated in FY 2001, additional
salaries will be needed for operations.
Management expects the return on salary and benefit expenditures in fiscal
year 2001 to exceed the investment made in fiscal year 2000, although there is
no assurance that it will do so.
Other Operating Expenses. Other Operating Expenses decreased by 13.6% to
$1,429,842 attributed to the reductions in legal and professional costs, and
(ii) restructuring of the business.
Depreciation and Amortization. Elite depreciates its assets, including
goodwill, on a straight-line basis over three to five years. Depreciation and
amortization increased by 73.3% over 1999. This is attributed to the
amortization of goodwill recorded in connection with the acquisitions completed
in 2000.
Stock Based Compensation. Elite recorded $904,125 worth of stock based
compensation during the fiscal year 2000. Management expects to continue with a
stock based compensation bonus plan to attract and retain new talent for the
Company.
Operating Loss. Operating losses increased from $2,888,364 to $4,701,848
representing a 62.8% increase in the loss due to increased levels of stock based
compensation, investment fees and depreciation and amortization.
Other Expenses Net. Other Expenses net decreased 27.0% from $90,624 in 1999
to $66,036 in 2000.
Loss Before Income Taxes (Net Loss). Net Loss increased 38.6% due to
reasons mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have principally related to the
acquisition of businesses, working capital needs and capital expenditures for
growth. These requirements have been met through a combination of private
placements and internally generated funds. Although the Company incurred direct
costs for acquisitions, the Company completed these acquisitions primarily in
stock for stock transactions.
The Company currently lacks the working capital required to continue as a
going concern and to achieve its acquisition program and internal growth
objectives. Management expects to enter into agreements for debt or equity
funding in the first or second quarter of fiscal year 2001 in order to meet the
needs of internal growth and acquisitions. Management believes that such
agreements for debt or equity funding will be sufficient to enable the Company
to continue operating as a going concern. However, there is no assurance that
agreement for such additional funding will be consummated.
Prior to May 31, 2000 the Company completed a private placement of
securities for a total of $841,000. Additional placements and the exercising of
warrants available to private placement investors were completed subsequent to
year-end.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement was effective for the Company beginning June 15,
2000. The new Statement requires all derivatives to be recorded on the balance
sheet at fair value and establishes accounting treatment for three types of
hedges: hedges of the variable cash flows of forecasted transactions; and hedges
of foreign currency exposures of net investments in foreign operations. The
Company has not invested in derivative instruments nor participated in hedging
activities and therefore does not anticipate there was no material impact on the
results of operations or financial position from Statement No. 133.
ITEM 7a. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative
financial instruments or derivative commodity instruments and believes its
exposure to interest rate risk and other relevant market risk is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
KPMG had served as the auditors of the Company's financial statements for
the fiscal years ended May 31, 1998 and 1999. In July 2000, the Company
dismissed KPMG. September 8, 2000, the Company engaged the firm of Feldman,
Scherb & Co., P.C. to audit its fiscal 2000 financial statements. The change to
Feldman, Scherb & Co., P.C. was ratified by the Company's Board of Directors on
June 2, 2000. Feldman, Sherb and Co., P.C. failed to complete the audit as they
were hired to do by the Company, and therefore, were terminated as of October
27, 2000. The company had hired other auditors (On October 20, 2000) having
realized that Feldman, Sherb may not complete their assigned duties. As of
October 27, 2000 the Company officially appointed Kirschner and Associates,
P.C., as auditors, thereby replacing Feldman, Scherb & Co. The Company believes
that in connection with the audits of the Company's financial statements for
each of the two fiscal years ended May 31, 1999 and subsequent hereto, the
Company and KPMG did not have any disagreement on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of KPMG,
would have caused KPMG to make reference to the matter in their reports.
The reports of KPMG on the Company's financial statements for [each of the
past two fiscal] years ended May 31, 1999 did not contain an adverse opinion, a
disclaimer of opinion or qualification or modification as to audit scope or
accounting principles. [The reports did include an explanatory paragraph that
described substantial doubt about the Company's ability to continue as a going
concern.] The Company is indebted to KPMG and KPMG has therefore not consented
to inclusion of the financial statements audited by KPMG in Form 10-K for the
year ended May 31, 1999.
PART III
Items 10. Directors and Officers of the Registrant.
During the fiscal year 2000, there were the following directors, officers
or beneficial owners of more than 10% of the company's equity securities:
Scott Schuster Director, CEO
Jason Kiszonak VP
David Aksoy Director
Randy Ragsdale Director
EXECUTIVE OFFICERS
The following table provides a summary of the Company's executive officers
and directors as of May 31, 2000:
<TABLE>
<CAPTION>
Name Age Position Held
----------------------------------------- ---------- ------------------------------------------
<S> <C> <C>
Scott Schuster 36 Chairman of the Board, CEO and Director
David Aksoy 36 Director
Jason Kiszonak 28 Senior Vice President of Public Relations
Stephen Randy Ragsdale 34 President, AMG and Director
</TABLE>
Scott A. Schuster, age 36, has served as Chairman of the Board, Chief
Executive Officer, President and Director of Elite since its formation. Prior to
the formation of the Company, Mr. Schuster ran an IT consulting practice. Mr.
Schuster has over 12 years experience in the IT industry. He has worked on, or
designed IT solutions for the United States Postal Service, Delta Airlines, the
Southern Company (for the Atlanta Olympic Games of 1996), and many other Fortune
500 companies.
David Aksoy, M.D., age 36, has served as Director at Elite since 1998. Dr.
Aksoy also retains his physician's office where he has served as a general
practitioner for the last seven years.
Jason Kiszonak, age 28, has served as Senior Vice President of Public
Relations since he joined the Company in March of 1999 through the acquisition
of Elevation Strategic Partners. Prior to joining Elite, for the period from
1995 until joining the Company Mr. Kiszonak worked as an independent television
programming consultant in the US and abroad. Mr. Kiszonak is a graduate of
Georgia Tech with a degree in international affairs.
Stephen Randy Ragsdale, serves as President of AMG. Mr. Ragsdale began AMG
in 1995. Prior to joining Elite, he was president of a company marketing
products in the telecommunications industry.
Based solely upon a review of (i) Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e), promulgated under the
Securities and Exchange Act of 1934 (the "Exchange Act"), during the Company's
fiscal year ended May 31, 2000, and (ii) Forms 5 and amendments thereto and/or
written representations furnished to the Company by any director, officer or ten
percent security holder of the Company (collectively, `Reporting Persons")
stating that he or she was not required to file a Form 5 during the Company's
fiscal year ended May 31, 2000, it has been determined that all of the above
Reporting Persons are delinquent with respect to their reporting obligations set
forth in Section 16(a) of the Exchange Act.
ITEM 11. Executive Compensation
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Names and Year Salary($) Bonus ($) Other Annual Restricted Securities LT. Payouts All Other
Principal Compensation Stock Underlying Compensation
Position ($) Award(s) Options ($)
($)
--------------- -------- ------------- -------------- --------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott 2000 250,000* 1.5 Percent 0 0 0*** 0 0
Schuster, CEO of Net**
Jason Kiszonak 2000 150,000 0 0 0 0 0 0
Scott 1999 250,000* 1.5 Percent 0 0 0*** 0 0
Schuster, CEO of Net**
Jason Kiszonak 1999 150,000 0 0 0 0 0 0
Scott 1998 150,000 1.5 Percent 0 0 0 0 0
Schuster, CEO of Net
</TABLE>
* Per Employment Agreement, but substantially waived salary during the year
due to the financial condition of Company
** Per Employment Agreement, but no bonus paid
*** Failed to exercise options during fiscal period
OPTIONS
No options were granted during the fiscal year ended May 31, 2000.
EMPLOYMENT AGREEMENTS
The company currently has employment agreements with Scott Schuster. The
term of the contract is five years with a base salary of $250,000.00 annually
and bonuses equal to 1.5 percent of the net profits of the company. During the
past fiscal year, Schuster has waived a substantial portion of his salary in
view of the company's financial condition. The employment agreements also
provide for termination based on death, disability, voluntary resignation or
material failure in performance and for severance payments upon termination
under certain circumstances. The agreements contain certain provisions that will
preclude each executive from competing with the Company for a period of two
years from the date of termination of employment. The company has no stock
option plans in place at this time.
DIRECTORS COMPENSATION
The company provides for compensation to each Board of Directors member in
the amount 250,000 shares of common stock for each year served.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIAL OWNER
------------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
COMMON Scott Schuster 5,900,000 17.22%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Jason Kiszonak 3,850,000 11.24%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON David Aksoy 2,681,250 7.86%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Steve Kaye 4,500,000 13.13%
3885 Crestwood Pkwy.
Duluth GA 30096
COMMON Randy Ragsdale 1,985,000 5.79%
3885 Crestwood Pkwy.
Duluth GA 30096
All Executive Officers and Directors as a Group: (5 Persons) 18,916,250
</TABLE>
ITEM 13. Certain Relationships and Related Transactions.
The company issued 2,400,000 shares to Scott Schuster as replacement for
shares he placed as collateral on behalf of the company to receive funds pending
certain financing. During the fiscal year 2000, Mr. Schuster exercised his right
to low-interest loans from the Company totaling $73,501.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a)
The following documents are filed as part of this Annual Report or incorporated
by reference:
1. Financial Statements
See the Index to Financial Statements on page F-1 of this Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are included in the
consolidated financial statements or are inapplicable, and therefore have been
omitted.
3. Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
1 Reports on Form 8-K incorporated by reference
2.1 Agreement dated June 24, 1998 by and among CONCAP, Inc., and Intuitive
Technology Consultants, Inc. (Incorporated by Reference) 1
2.2 Purchase Agreement dated November 15, 1998, by and among CONCAP, Inc.,
and Troxtel Holding Company d/b/a Temporary Help Connection
(Incorporated by Reference) 2
2.3 Purchase Agreement dated March 31, 1999 by and between CONCAP, Inc.,
and Elevation Strategic Partners, Inc., (Incorporated by Reference) 3
2.4 Agreement dated November 5, 1998 by and between Scott Schuster and
Scanlan Music, Inc. (Incorporated by Reference)
2.4.1 Assignment Agreement dated November 9, 1998 by and between Scott
Schuster and CONCAP, Inc. 4
2.5 Agreement dated April 1, 1999 by and between CONCAP, Inc. and Virtual
Enterprise, Inc. (Incorporated by Reference) 7
3 Amendment to Articles of Incorporation of CONCAP, inc. dated April
22, 1996
10.1 Purchase Agreement with Ace Manufacturing Group, Inc.
10.2 Purchase Agreement with IET Startek of Georgia
10.3 Purchase Agreement with AC Travel
11 Employment Agreement of Scott Schuster
12 Employment Agreement of Randy Ragsdale
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K dated July 8, 1998
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K dated November 15, 1998
(3) Incorporated by reference from the Registrant's Current Report on Form
8-K dated April 16, 1999
(4) To be filed by amendment
(5) Included on the Signature page of this Annual Report
(6) Incorporated by reference from the Registrant's Current Report on Form
10-K filed September 15, 1999
(7) Incorporated by reference from the Registrant's Current Report on Form
10-KA filed September 29, 1999
Elite Technologies, Inc. will file an amended 10K two weeks from December 11,
2000.
<PAGE>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
May 31, 2000, 1999 and 1998
With Independent Auditors' Report Thereon
Report of Independent Auditors 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-20
PAGE F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Elite Technologies, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheet of Elite
Technologies, Inc. and Subsidiaries (the "Company") as of May 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These consolidated 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 did not audit the
accompanying financial statements of Elite technologies, Inc. and Subsidiaries
as of May 31, 1999 and for the years ended May 31, 1999 and 1998, and the
accounting services for those years and described in Note 13 (c)
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
assistance 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 statments. An audits also includes
accessing the accounting principles used and significant estimates made by
managements as well as evaluting the overall financial statement presentation.
we believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2000 consolidated financial statements referred to
above
present fairly, in all material respects, the financial position of Elite
technologies, Inc. and Subidiaries as of May 31, 2000, and the resluts of their
operations nd their cash flows for the year ended Nay 31, 2000, in conformity
with generally accepted accounting princle.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might results form the outcome of the uncertainty.
/s/ Kirschner & Associates, PC.
Kirschner & Associates, PC.
Marietta, Georgia
November 9, 2000, except for Note: 13(c)
as to which the date is December 8, 2000
2
Cortified Public Accountants
151 Chert Road Suite 201 Marietta, GA 30062
Independent Auditors' Report
The Board of Directors and Stockholders Elite Technologies, Inc., and
Subsidiaries We have audited the accompanying consolidated balance sheet of
Elite Technologies, Inc. and Subsidiaries (the "Company") as of May 31, 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These consolidated 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. The financial
statements of Elite Technologies, Inc. and Subsidiaries as of May 31, 1999, and
for the years ended May 31, 1999 and 1998, were audited by other auditors whose
report dated August 25, 1999, on those statements included an explanatory
paragraph that described the going concern uncertainty discussed in Note I to
the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
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 2000 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Elite
Technologies, Inc. and Subsidiaries as of May 31, 2000, and the results of their
operations and their cash flows for the year ended May 31, 2000, in conformity
with generally accepted accounting principles. The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note I to the consolidated financial
statements, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Marietta, Georgia November 9, 2000
Office 770-590-8969
FAX 770-590-1523
email kircpa(Mbellsouth.net
<PAGE>
<TABLE>
<CAPTION>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 2000 and 1999
Assets Unaudited
Current assets: 2000 1999
---- ----
<S> <C> <C>
Accounts receivable, less allowance for doubtful
accounts of $ 0 and $26,000 at May 31, 2000 and $ -- $ 285,309
May 31, 1999, respectively
Note receivable on convertible debt obligation 527,470 --
Receivable from officer 289,084 215,583
Other current assets 30,000 53,619
----------------- -----------------
----------------- -----------------
Total current assets 846,554 554,511
Property and equipment, net 31,004 66,304
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $487,308 and
$ 87,181 at May 31, 2000, and May 31, 1999, respectively 2,609,609 1,688,415
Other assets 6,789 21,968
----------------- -----------------
----------------- -----------------
$ 3,493,956 $ 2,331,198
================= =================
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdrafts $ 35,106 $ 210,713
Notes payable 112,895 88,504
Accounts payable 523,541 245,811
Accrued expenses 114,292 33,942
Federal payroll taxes payable 931,888 629,415
State payroll taxes payable 321,614 251,177
Payable to factoring company -- 177,124
----------------- -----------------
----------------- -----------------
2,039,336 1,636,686
----------------- -----------------
----------------- -----------------
Long-term liabilities:
Notes payable 100,000 37,399
Deferred rent expense -- 97,496
Convertible note payable 1,035,599 --
----------------- -----------------
----------------- -----------------
Total liabilities 3,174,935 1,771,581
----------------- -----------------
----------------- -----------------
Stockholders' equity:
Common stock, $.0001 par value; 500,000,000 shares
authorized; 34,275,720 and 12,571,670 issued and
outstanding at May 31, 2000 and 1999, respectively 3,427 1,257
Additional paid-in capital 8,479,400 3,995,318
Retained earnings (deficit) (8,163,806) (3,436,958)
----------------- -----------------
----------------- -----------------
319,021 559,617
----------------- -----------------
----------------- -----------------
$ 3,493,956 $ 2,331,198
================= =================
================= =================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended May 31, 2000, 1999 and 1998
Unaudited Unaudited
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues - Net $ 298,230 $ 1,937,317 $ 1,516,088
Salaries, wages and benefits 571,121 2,136,613 1,190,609
Stock based compensation 904,125 827,431 --
Depreciation and amortization 437,622 116,846 27,562
Other operating expenses 1,481,216 1,654,167 681,335
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Operating loss (3,095,854) (2,797,740) (383,418)
Operating expenses 1,481,250 -- --
Interest expense 16,100 -- --
Interest income (13,192) -- --
Settlement on rescinded acquisition 80,800 -- --
Other expenses, net 66,036 90,624 54,704
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Loss before income (4,726,848) (2,888,364) (438,122)
taxes
Income taxes -- -- --
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net loss $ (4,726,848) $ (2,888,364) $ (438,122)
================== ================== ==================
================== ================== ==================
Weighted average shares - basic $ 20,631,704 $ 11,146,073 $ 10,619,170
================== ================== ==================
================== ================== ==================
Basic Loss Per Share $ (0.23) $ (0.26) $ (0.04)
================== ================== ==================
================== ================== ==================
Adjusted weighted
average shares - diluted $ 21,097,724 $ 11,146,073 $ 10,619,170
================== ================== ==================
================== ================== ==================
Diluted Loss Per Share
(antidilutive in 2000) $ (0.23) $ (0.26) $ (0.04)
================== ================== ==================
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended May 31, 2000, 1999 and 1998
Total
Additional Retained stockholders'
Common Stock paid-in earnings equity
Shares Amount capital (deficit) (deficit)
------ ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Unaudited Balances at May 31, 1997 10,619,170 $1,062 $134,938 ($110,472) $25,528
Net loss -- -- -- (438,122) (438,122)
Unaudited Balances at May 31, 1998 10,619,170 1,062 134,938 (548,594) (412,594)
Issuance of common stock in 850,000 85 1,649,915 -- 1,650,000
acquisitions
Stock based compensation -- -- 827,431 -- 827,431
Issuance of common stock in private placements,
net of issuance costs of
approximately 50,000
shares and $352,000 1,102,500 110 852,390 -- 852,500
Commitment to issue common stock for investment
banking services -- -- 126,667 -- 126,667
Contributed capital from -- -- 289,277 -- 289,277
THC
Other capital contributed -- -- 114,700 -- 114,700
Net loss -- -- -- (2,888,364) (2,888,364)
----------- ----------- ------------ ---------- ---------
Unaudited Balances at May 31, 1999 12,571,670 1,257 3,995,318 (3,436,958) 559,617
Issuance of common stock for investment banking 6,962,500 696 1,480,554 -- 1,481,250
services
Issuance of common stock in 2,312,500 231 1,071,090 -- 1,071,321
acquisitions
Issuance of common stock in private placements 840,050 84 840,916 -- 841,000
Stock based compensation 10,339,000 1,034 903,091 -- 904,125
Issuance of common stock in settlement of rescinded acquisition 1,250,000 125 80,675 -- 80,800
Contributed capital from -- -- 107,756 -- 107,756
AMG
Net loss -- -- -- (4,726,848) (4,726,848)
---------- ----------- --------- ---------- ---------
Balances at May 31, 2000 34,275,720 $3,427 $8,479,400 ($8,163,806) $319,021
========== =========== ========= ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2000, 1999 and 1998
Unaudited Unaudited
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows to operating activities:
Net loss $ (4,726,848) $ (2,888,364) (438,122)
Adjustments to reconcile net loss to net
cash used in operating
activities:
Depreciation and amortization 437,622 116,846 27,562
Stock based compensation 904,125 827,431 --
Commitment to issue stock for investment
banking services 1,481,250 126,667 --
Settlement of rescinded acquisition 80,800 -- --
Decrease (increase) in:
Accounts receivable 285,309 (5,975) (247,359)
Unbilled revenues -- -- 66,562
Other assets 38,798 (38,312) (20,480)
Increase (decrease) in:
Accounts payable 277,730 195,327 44,141
Federal payroll taxes payable 302,473 186,842 381,945
State payroll taxes payable 70,437 161,367 89,810
Deferred rent expense (97,496) 55,910 41,586
Accrued expenses and other current liabilities 80,350 33,942 (5,452)
-------------- -------------- ------------
-------------- -------------- ------------
Net cash used in operating activities (865,450) (1,228,319) (59,807)
-------------- -------------- ------------
-------------- -------------- ------------
Cash flows to investing activities:
Purchases of property and equipment -- (7,922) (17,552)
Acquisition of businesses (250,000) (15,000) --
Receivable from officers (73,501) (130,584) (70,602)
-------------- -------------- ------------
-------------- -------------- ------------
Net cash used in investing activities (323,501) (153,506) (88,154)
-------------- -------------- ------------
-------------- -------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 841,000 852,500 --
Proceeds from issuance of long-term debt 608,129 -- --
Repayment of long-term debt (68,000) -- --
Advances from (payments to) factoring company, net (177,124) (43,434) 220,558
Proceeds from (payment on) short-term notes 52,797 -- (101,250)
Other capital contributions -- 114,700 --
Contributed capital 107,756 289,277 --
Increase in cash overdrafts (175,607) 190,855 19,858
Increase (decrease) in related party advances -- (22,073) 2,100
-------------- -------------- ------------
-------------- -------------- ------------
Net cash provided by financing activities 1,188,951 1,381,825 141,266
-------------- -------------- ------------
-------------- -------------- ------------
Net increase (decrease) in cash and cash equivalents 0 0 (6,695)
Cash and cash equivalents at beginning of year -- -- 6,695
-------------- -------------- ------------
-------------- -------------- ------------
Cash and cash equivalents at end of year $ -- -- --
============== ============== ============
============== ============== ============
</TABLE>
See accompanying notes to consolidated financial statements
6
<TABLE>
<CAPTION>
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2000, 1999 and 1998
Unaudited Unaudited
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information cash paid during the year for:
Interest $ -- 34,669 9,280
============== ============== ============
============== ============== ============
Income taxes $ -- -- --
============== ============== ============
============== ============== ============
Acquisition of businesses:
Fair value of assets acquired, including goodwill $ 1,266,215 1,790,903 --
Fair value of liabilities assumed (16,215) (90,903) --
Promissory note issued -- (35,000) --
Fair value of common stock issued (1,000,000) (1,650,000) --
-------------- -------------- ------------
-------------- -------------- ------------
Net cash paid for acquisitions $ 250,000 15,000 --
============== ============== ============
============== ============== ============
Additional debt financing:
Note payable -- stockholder $ 100,000 -- --
Convertible note payable 1,035,599 -- --
less receivable on convertible debt (527,470) -- --
-------------- -------------- ------------
-------------- -------------- ------------
Proceeds from issuance of long-term debt $ 608,129 -- --
============== ============== ============
============== ============== ============
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Description of Business
Prior to April, 2000, Elite Technologies, Inc. offered diverse services in
IT Staffing, Custom Software Development and Integration, Internet Hosting,
Content and Technical Development, Hardware Sales and Service and Content
Delivery Platforms. The Company also served as an authorized solution provider
and application developer for leading enterprise-level software products. These
services were marketed to small, medium and large enterprises.
Elite suspended these operations in April, 2000 in connection with its
acquisition of Ace Manufacturing Group, Ltd. (AMG). The current composition of
core businesses is described in the Business Acquisitions Note to the
Consolidated financial statements.
AMG designs, builds and markets an internet "pay by the minute" browser
(kiosk) used primarily in hotels, airports, and entertainment establishments.
Elite intends to utilize AMG to acquire additional companies to augment the
internet kiosk business as marketed by AMG, including companies providing
content, hardware and other related sectors of commerce.
b) Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Elite
Technologies, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet, income and expenses for the period, and disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Disclosure details emphasize the most recent period presented.
Business combinations, which have been accounted for under the purchase
method of accounting, include the results of operations of the acquired business
from the date of acquisition. Net assets of the companies acquired are recorded
at their fair value at the date of acquisition.
c) Recognition and Revenue Expense
Prior to the suspension of operations, revenue related to the placement of
temporary and permanent employees was recognized upon the delivery of the
service. Contract revenue from software development and implementation was
recognized under the percentage of completion method. Web site development and
consulting services are generally performed on a time and materials basis and
are recognized as the services are performed. All other revenue and expense is
accrued as incurred. Revenues are reported net of cost of the goods sold. In
settlement of factoring obligations, account receivable amounts as of the
balance sheet date were written off in their entirety.
d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Net cash overdrafts
are included in liabilities section of the Company's balance sheet. Changes in
cash overdrafts are shown in the financing section of the Company's statement of
cash flows.
e) Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance
and repairs that do not significantly extend the useful lives of the assets are
expensed as incurred, while major replacements and betterments are capitalized.
Depreciation is computed principally using the straight-line method over
the estimated useful lives of the assets, generally five years for computer
equipment and furniture and fixtures, and three to five years for purchased
software.
Cost of property sold or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income currently.
f) Excess of Cost Over Net Assets of Business Acquired
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straight-line method over five years. The amortization
period is based on, among other things, the nature of the products and markets,
the competitive position of the acquired companies, and the adaptability of
changing market conditions of the acquired companies. At each balance sheet
date, the Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate equal to the rate
of return that would be required by the Company for a similar investment with
like risks. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
h) Stock Option Plan
The Company currently does not have a stock option plan. The Company would
apply the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations, in accounting for its fixed plan stock options, in lieu
of the fair value approach recommended by the Financial Accounting Standards
Board in its Statement No. 123. Under the intrinsic value method, compensation
expense would generally be recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price.
i) Financial Instruments and Risk
Based on their short maturities and interest rates estimated to be
available to the Company, management has determined that the carrying values of
all financial instruments approximate fair value at May 31, 2000.
Management has evaluated the Company's credit risk. Financial instruments,
which potentially subject the Company to concentrations of credit risk, consist
primarily of temporary cash investments and accounts receivable.
The Company maintains cash balances at several Atlanta, Georgia area banks
for general operations, payroll, and short-term investments. The FDIC insures
cash balances up to $100,000. As no accounts receivable exist at May 31, 2000,
the Company has no exposure to that credit risk on that day.
j) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by theasset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.
k) Comprehensive Income
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. The Company has no "other
comprehensive income" to report for the year ended May 31, 2000.
l) Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common stockholders are
based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common stockholders are based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options and convertible debt.
Options to purchase 4,000,000 shares of common stock at May 31, 2000 and
1999 were excluded from the computation of diluted earnings per share because
they were anti-dilutive. Convertible note payable, if converted, would generate
savings of $82,848 in interest costs. The effect of the pro forma improvement in
net loss exceeds the pro forma increase in the number of the shares.
Accordingly, the loss per share of $.23 rather than $.22 is disclosed on the
face of the Company's statement of operations, since the effect of the
conversion would be antidilutive.
m) Industry Segments
On June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. The Company's only operation with significant activity for the year
ended May 31, 2000 was its staffing operation.
n) Management's Plans
The Company has incurred significant recurring operating losses at May 31,
2000 and carries a working capital and a retained earnings deficit. Management's
business philosophy is to increase market share by virtue of acquiring companies
with inherent symmetry, autonomy and profitability.
Management believes that this philosophy has been evidenced by the current
acquisition of Ace Manufacturing Group. Ltd., as well as the post reporting
acquisitions of International Electronic Technology of Georgia, Inc. and AC
Travel, Inc. Management is actively pursuing new debt and equity financing
arrangements. In addition, controls on operating efficiency and effectiveness
are being considered. Management is continually evaluating capital budgeting
opportunities and the Company's overall profitability. However, any results of
their plans and actions cannot be assured. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2. FORMATION OF THE COMPANY
Intuitive Technology Consultants, Inc. ("ITC") was incorporated on August
9, 1996. On June 2, 1997, Phoenix International Industries, Inc. ("Phoenix")
acquired 100% of the outstanding shares of ITC by issuing 1,500,000 shares of
restricted common stock valued at $320,000. During the period that ITC was owned
by Phoenix, the former owner of ITC agreed to rescind the transactions. As a
result of the rescission, 100% of the common stock of ITC was returned to its
former owner in exchange for the return of 1,413,000 Phoenix common shares, as
cash payment of $60,000 and notes payable of $290,000 to Phoenix. The notes
payable were to reimburse Phoenix for intercompany amounts receivable from the
Company. Under provisions of the rescission agreement, the notes payable have
been reduced to $-0- due to misrepresentations and breaches of contract on the
part of Phoenix. Pushdown accounting has not been applied to the acquisition of
ITC by Phoenix or to the unwinding, because the transactions were not considered
"arms-length" with third parties.
On July 8, 1998, ITC merged with Concap, Inc. ("Concap"). Former ITC
shareholders received 7,200,000 shares of Concap common stock exchange for all
shares of ITC and gained control of Concap. Since ITC was a private operating
company and Concap was a public shell company (i.e., public company with no
operations), the merger was accounted for as if ITC was the acquirer). On April
30, 1999, the Company changed its name to Elite Technologies, Inc.
3. BUSINESS ACQUISITIONS
a) Temporary Help Connection, Inc. ("THC")
Effective November 15, 1998, the Company acquired a one hundred percent
(100%) member interest in Troxtel Holding Company, LLC d/b/a Temporary Help
Connection ("THC"), a Michigan company, in exchange for 1,250,000 shares of the
Company's common stock. In addition, the Company agreed to provide to THC
accounts receivable financing of up to 75% for approved accounts. THC is engaged
in the business of light industrial temporary staffing.
Due to misrepresentations and breaches of provisions of the purchase
agreement on the part of THC, on April 12, 1999, the Company "unwound" the
acquisition of THC as provided for in the purchase agreement. Litigation arising
out of this transaction, which asserted claims against THC's former owner, for
among other things, fraud and breach of contract, has been settled.
Since the acquisition of THC was unwound, no assets, liabilities, or
results of operations of THC are included in the accompanying consolidated
financials. THC's cash receipts, which were remitted to ITC in excess of cash
disbursements, made by ITC on behalf of THC during the period of THC's control
by the Company have been credited to additional paid-in capital.
Stock issued as part of this transaction, which was being held in escrow,
has been liquidated pursuant to a court order. The proceeds of the liquidation
were used to satisfy $80,800 in litigation costs.
b) Scanlan Music, Inc. ("Scanlan")
Effective November 5, 1998, the Chairman of the Company acquired all of the
issued and outstanding shares of Scanlan, a retail seller of musical
instruments, in exchange for a promissory note of $35,000. On November 9, 1998,
the Chairman assigned all rights, titles, and inventory of Scanlan as well as
the promissory note to the Company. The acquisition was treated as being made by
the Company using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value at the
date of acquisition. During the year ended May 31, 2000 management suspended
operations of Scanlon Music pending a review of its place in the Company's
strategic future. At May 31, 2000, no decision had been reached regarding this
matter.
c) Elevation Strategic Partners, Inc. ("Elevation")
Effective March 31, 1999, the Company acquired all of the issued and
outstanding shares of Elevation Strategic Partners, Inc. a Delaware company, in
exchange for approximately 1,062,000 shares of the Company's common stock
(valued at $1.50 per share) and the assumption of debt of approximately $50,000.
The Company delivered 750,000 shares on the date of the transaction and will
deliver the remaining 250,000 shares on the one-year anniversary date of the
acquisition. Elevation is engaged in the business of incubating and growing
technology and Internet based companies. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the net assets acquired have
been recorded at their estimated fair market value at the date of acquisition.
Goodwill of approximately $1.5 million resulted from this transaction.
d) Virtual Enterprises, Inc. ("Virtual")
Effective April 1, 1999, the Company acquired all of the issued and
outstanding shares of Virtual, an internet portal that allows users to plan a
wedding with links to various vendors in the industry, in exchange for 100,000
shares of the Company's common stock (valued at $1.50 per share) and the
assumption of debt of approximately $41,000. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets
acquired have been recorded at their estimated fair market value on the date of
acquisition. Goodwill of approximately $141,000 resulted from this transaction
and is being amortized over a period of five years.
e) Ace Manufacturing Group, Ltd. (AMG)
Effective March 15, 2000 the Company acquired all of the issued and
outstanding shares of AMG, in exchange for 2,000,000 shares of the Company's
common stock (valued at $.50 per share) plus $250,000. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the net
assets acquired have been recorded at their estimated fair market value on the
date of acquisition. Goodwill of approximately $1,165,000 resulted from this
transaction and is being amortized over a period of five years.
f) Pro-Forma Financial Information
The results of operations of the acquired companies have been included in
the Company's consolidated statements of operations beginning on the following
dates: Scanlan - November 5, 1998; Elevation - March 31, 1999; Virtual - April
1, 1999; and AMG - March 15, 2000.
The unaudited pro forma results of operations of the Company for the year
ended May 31, 2000 as if the acquisition of AMG, International Electronic
Technology of Georgia, Inc., and AC Travel, Inc. (See disclosure "Other Events
And Contingencies"), had been effected on June 1, 1999 are summarized as
follows:
Unaudited
-----------------
-----------------
Revenues - net $ 18,703,014
-----------------
-----------------
Net loss applicable to common shareholders $ (4,329,528)
-----------------
-----------------
Basic E.P.S. (loss per share) $ ( .21)
-----------------
-----------------
Diluted E.P.S. (loss per share) $ ( .21)
-----------------
The unaudited pro forma results do not necessarily represent results which
would have occurred if the acquisitions had taken place on the dates indicated
nor are they necessarily indicative of the results of future operations.
4. ACCOUNTS RECEIVABLE
An allowance for doubtful accounts is maintained at a level which
management believes is sufficient to cover all potential credit losses including
potential lossed on receivables sold. The activity in the allowance for doubtful
accounts for the three years ended May 31, 2000, 1999, and 1998 is a follows:
<TABLE>
<CAPTION>
Allowance for Reductions
doubtful Balance at taken against the Balance at
accounts beginning Charged allowance end of
of period to expense period
------------------ ------------------ ---------------- ---------------------- ------------------
------------------ ------------------ ---------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
1998 $ -0- 90,791 (77,791) 13,000
1999 13,000 106,559 (93,559 26,000
2000 26,000 -0- (26,000) $ -0-
</TABLE>
5. PAYROLL TAX LIABILITIES
The amounts shown as due for federal and state payroll taxes payable on the
Company's balance sheet are primarily amounts due from prior years and the first
quarter of the year ended May 31, 2000. Management is meeting current payroll
obligations and is pursuing a plan to fulfill its past obligations to federal
and state governments.
6. DEBT AGREEMENTS
a) Stockholder Financing
The Company's current liabilities include notes payable of $112,895. This
debt was assumed in conjunction with the acquisitions of Elevation and Virtual
Bride and remains unpaid at May 31, 2000. There are no note agreements
establishing terms for repayment of these debts in as much as the debts were
immediately payable pursuant to the relative stock acquisition agreement.
The Company's long-term liabilities include $100,000 payable to a
stockholder in the total amount of $100,000. Interest is being accrued at the
applicable federal rate. The proceeds are payable on demand. Management's
understanding of stockholder intentions is that no demand will be made within
the current year.
b) Other Financing
The Company's long-term liabilities also include $1,035,599 of 8%
convertible debentures. The Company entered into a financing agreement with a
lending source on March 27, 2000. The total financing package included an
authorized issue of $3,000,000 of convertible debentures. Conversion into common
stock is based on a formula of the lesser of $2.00 per share or 75% of market
value.
The original stated maturity date was March 31, 2001, with interest
accruing quarterly. The initial financing phase was to have been for $2,000,000,
out of a total of $3,000,000, and to have been separated into two distinct
parts. The Company received the first part of approximately $508,000 in the
current reporting period. However, the second phase was not properly funded and
escrowed. A notice of default was issued on behalf of the Company.
Management is currently attempting to renegotiate details on the loan for
future favorable financing. Management is optimistic that the debt obligations
will either be forgiven or an extension of debt maturities will exceed one year.
Management is adamant that no amounts will be paid within the next twelve
months. Accordingly, until ultimate disposition of the original obligation is
resolved, the entire amount is classified as non-current on the Company's
balance sheet.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following assets:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Computer equipment $ 74,416 $ 74,416
Purchased software 32,430 32,430
Furniture and fixtures 26,579 26,579
------------- ---------------
------------- ---------------
133,425 133,425
------------- ---------------
Less accumulated depreciation 102,421 67,121
------------- ---------------
------------- ---------------
$ 31,004 $66,304
============= ===============
</TABLE>
8. OPERATING LEASES
The Company leases office space on an informal month-to-month basis. Lease
expense for the year ended May 31, 2000 was $107,360. Occasional equipment is
also leased on a short-term basis.
9. RECEIVABLE FROM OFFICER
The Company has made loans to a certain officer of the Company. These loans
are to be evidenced by an employment agreement payable in not more than sixty
monthly principal and interest installments starting with the first day of the
month following the month in which the loan is made, with interest at the rate
of three percent per year on the unpaid balance of the loan outstanding. In the
event of default of any installment of principal and interest when due, the
entire balance of principal and accrued interest becomes payable on demand.
During the year ended May 31, 2000, the Company has extended additional
borrowings to the officer, and has not yet received collections. Management is
electing to waive the current default restrictions at the present time.
Subsequent to the date of these financial statements, the officer has repaid
over half of the obligation, and management believes the remaining amount will
be collected within one year. Accordingly, the entire receivable of $289,084 is
classified as a current asset on the Company's May 31, 2000 balance sheet.
Interest is accrued on the entire receivable at the applicable federal rate.
10. INCOME TAXES
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
May 31, 2000 and 1999 are estimated and presented as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating loss carry forwards $3,196,911 $ 1,106,238
Other, net 595,899 425,889
---------------- ---------------
---------------- ---------------
Total gross deferred income tax assets 3,792,810 1,532,127
Less valuation allowance 3,787,333 1,528,215
---------------- ---------------
---------------- ---------------
Net deferred income tax assets 5,477 3,912
Deferred income liability- (5,477) (3,912)
---------------- ---------------
---------------- ---------------
Net deferred income tax asset (liability) $ $ --
--
================ ===============
================ ===============
</TABLE>
Deferred income tax assets as of May 31, 2000 have been fully offset by
valuation allowances. The increase in the valuation allowance during the year
ended May 31, 2000 is $2,259,118. The valuation allowances have been established
equal to the full amounts of the deferred tax assets net of deferred tax
liabilities, since the Company is not assured that it is more likely than not
that these benefits will be realized.
At May 31, 2000, the Company had net operating loss carryforwards for
income tax purposes of approximately $3,196,000, which are available to offset
future federal and state taxable income, if any, through 2020. Due to the
separate return limitation year rules of the consolidated return regulations, it
is estimated that the use of approximately $943,000 of loss carry forwards is
restricted. In addition, due to changes in the ownership of various members of
he consolidated group, the use of an additional $468,000 of losses is restricted
by virtue of Internal Revenue Code Section 382 limitations.
11. STOCKHOLDERS' EQUITY
a) Completion of Reverse Merger
As a result of the reverse merger completed on July 8, 1998 (see note 2),
the equity of the Company reflects the historical equity of ITC retroactively
restated to reflect the 7,200,000 Concap shares received in the merger. In
addition, the common stock and additional paid-in capital accounts have been
adjusted to reflect the par value of the outstanding stock of Concap after
giving effect to the shares issued in the merger.
b) Stock Compensation
During the year ended May 31, 2000, employment agreements granting the
option to purchase stock shares at an exercise price of $.10 per share were
forfeited and cancelled. A summary of the status of the Stock Option Plans at
May 31, 2000 and the changes during the year then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Shares Average
Underlying Exercise
Options Price
------------------- ---------------------
------------------- ---------------------
<S> <C> <C>
Outstanding at beginning of year $ 2,250,000 $ .10
Forfeited and cancelled $ 2,250,000
------------------- ---------------------
------------------- ---------------------
Outstanding at end of year -0- $
=================== =====================
</TABLE>
The Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for stock options. The Company recognized
compensation expense of approximately $904,125 in connections with options
granted during the year ended May 31, 2000 as the exercise price was less than
the fair value of the stock on the date of grant.
During the year ended May 31, 2000, the Company entered an agreement to
issue shares of the Company's common stock in exchange for investment banking
services. The Company recorded expense and additional paid-in capital for the
pro rata share of the fair value of the total agreement related to the services
performed in the year ended May 31, 2000. The fair value of the total agreement
was determined based on the fair value of shares of the Company's common stock
committed to be issued as part of the agreement.
12. MAJOR CUSTOMERS
For the year ended May 31, 2000, two customers accounted for approximately
62% and 71% of total revenues and cash collections, respectively.
13. OTHER EVENTS AND CONTINGENCIES
a) Subsequent Investing and Financing Transactions
In June, 2000, the Company sold additional shares of its common stock in
private placement offerings. Approximately 2,000,000 shares of common stock were
sold at $0.25 per share.
On June 27, 2000 the Company entered into an agreement to acquire 100% of
outstanding shares of International Electronic Technology of Georgia, Inc., in
exchange for 1,200,000 shares of the Company's common stock. In August, 2000,
the Company issued the 1,200,00 shares of common stock called for in the
agreement
On June 1, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of AC Travel, Inc. in exchange for 2,000,000 shares of
the Company's common stock and $300,000 in cash. The Company has advanced
$175,000 on the agreement.
b) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. While the ultimate results and outcome cannot be
determined, management does not expect that the ultimate disposition of these
matters will have a material adverse effect on the Company's results of
operations or financial position. Subsequent to the date of these financial
statements, actions involving the Company include the following claims, both of
which the Company intends to pursue vigorously.
On June 26, 2000, a complaint was filed against the Company alleging breach
of contract in the amount of $28,256. Counsel believes it is impossible to
ascertain the likelihood of success of either party on their claims and
defenses.
On October 24, 2000, an action was filed against Intuitive Technology
Consultants, Inc. (ITC), the predecessor to the Company, for breach of contract
by which ITC was sold by plaintiff. Counsel estimates that the amount at issue
is less than $290,000 and believes it is impossible to determine the likelihood
of success of plaintiff.
On July 20 and August 17, 2000, the Company entered into legal actions
against former stockholders and an investment firm for failure to follow Rule
144 in their premature sale of the Company's common stock on the open market.
Management intends to pursue the matter to protect the integrity of market
valuation of its stock and is attempting to recover the value of the stock from
sellers and receive damages from the investment firm.
c) External Accountants
During the fiscal years ended May 31, 2000, 1999, and 1998, management has
engaged the services of several certified public accounting firms for the
purposes of complying with financial reporting requirements as well as
managements advisory services. Details of external auditor associations are
described further in the Company's periodic filings of form 8-K. accordingly,
the independent auditors report is dedicated to the most recent year presented.
Due to the lack of consent on the part independent accountants engaged for
prior years, the financial statements for those years are labeled unaudited.
Management believes consent issues with the previous years auditors will be
resolved favorably in an expeditions manner.
<PAGE>
Stock Purchase Agreement
made as of
JUNE 1, 2000,
Between
Elite technologies, inc.,
buyer,
and
AC TRAVEL, Inc.
ASIF BALAGAMWALA, Individually,
seller(S)
<PAGE>
Table of Contents
Page
1. DEFINITIONS. 1
1.1. "APPLICABLE CONTRACT"
1
1.2. "BREACH"
1
1.3. "BUYER"
1
1.4. "BUYER'S STOCK"
1
1.5. "CLOSING"
1
1.6. "CLOSING DATE"
1
1.8. "CONSENT"
1
1.9. "CONTEMPLATED TRANSACTIONS"
2
1.10. "CONTRACT"
2
1.11. "DAMAGES"
2
1.12. "DISCLOSURE SCHEDULE"
2
1.13. "ENCUMBRANCE"
2
1.14. "ENVIRONMENTAL REQUIREMENTS"
2
1.15. "ERISA"
2
1.16. "FACILITIES"
2
1.17. "GAAP"
3
1.18. "GOVERNMENTAL AUTHORIZATION"
3
1.19. "GOVERNMENTAL BODY"
3
1.20. "IRC"
3
1.21. "IRS"
3
1.22. "KNOWLEDGE"
3
1.23. "LEGAL REQUIREMENT"
3
1.24. "OPERATING INCOME"
3
1.25. "ORDER"
4
1.26. "ORDINARY COURSE OF BUSINESS"
4
1.27. "ORGANIZATIONAL DOCUMENTS"
4
1.28. "PERSON"
4
1.29. "PLAN"
4
1.30. "PROCEEDING"
5
1.31. "RELATED PERSON"
5
1.32. "REPRESENTATIVE"
5
1.33. "SECURITIES ACT"
6
1.34. "SELLER"
6
1.35. "SHARES"
6
1.36. "SUBSIDIARY"
6
1.37. "TAX RETURN"
6
1.38. "THREATENED"
6
2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6
--------------------------------------------------------------------------------
2.1. SHARES.
---- ------
6
2.2. BUYER'S STOCK.
---- -------------
6
2.3. CLOSING.
---- -------
6
2.4. CLOSING OBLIGATIONS.
---- -------------------
7
3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7
3.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
7
3.2. AUTHORITY; NO CONFLICT.
---- ----------------------
8
3.3. CAPITALIZATION.
---- --------------
9
3.4. FINANCIAL STATEMENTS.
---- --------------------
9
3.5. BOOKS AND RECORDS.
---- -----------------
10
3.6. TITLE TO PROPERTIES; ENCUMBRANCES.
---- --------------------------------
10
3.7. NO UNDISCLOSED LIABILITIES.
---- --------------------------
11
3.8. TAXES.
---- ----
11
3.9. NO MATERIAL ADVERSE CHANGE.
---- --------------------------
11
3.10. EMPLOYEE BENEFITS MATTERS.
----- -------------------------
11
3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
----- ---------------------------------------------------------------
12
3.12. LEGAL PROCEEDINGS; ORDERS.
----- -------------------------
14
3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS.
----- -------------------------------------
15
3.14. CONTRACTS; NO DEFAULTS.
----- ----------------------
15
3.15. INSURANCE.
----- ---------
17
3.16. ENVIRONMENTAL MATTERS.
----- --------------------
18
3.17. EMPLOYEE MATTERS.
----- ----------------
18
3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY.
----- -------------------------------------------
18
3.19. CERTAIN PAYMENTS.
----- ----------------
20
3.20. DISCLOSURE.
----- ----------
20
3.21. BROKERS OR FINDERS.
----- ------------------
21
4. REPRESENTATIONS AND WARRANTIES OF BUYER. 21
4.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
21
4.2. AUTHORITY.
---- ---------
21
4.3. INVESTMENT INTENT.
---- -----------------
21
4.4. CERTAIN PROCEEDINGS.
---- -------------------
21
4.5. BROKERS OR FINDERS.
---- ------------------
21
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 22
--------------------------------------------------------------------------------
5.1. ACCESS AND INVESTIGATION.
---- -----------------------
22
5.2. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ----------------------------------------
22
5.3. NEGATIVE COVENANT.
---- -----------------
22
5.4. REQUIRED APPROVALS.
---- ------------------
22
5.5. NOTIFICATION.
---- ------------
23
5.6. NO NEGOTIATION.
---- --------------
23
5.7. CLOSING OF BANK ACCOUNTS.
---- ------------------------
23
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23
--------------------------------------------------------------------------------
6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS.
---- -----------------------------------------------------
23
6.2. ACCESS AND INVESTIGATION.
---- ------------------------
24
6.3. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ----------------------------------------
24
6.4. NOTIFICATION.
---- ------------
24
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24
--------------------------------------------------------------------------------
7.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
24
7.2. SELLER'S PERFORMANCE.
---- --------------------
25
7.3. CONSENTS.
---- --------
25
7.4. ADDITIONAL DOCUMENTS.
---- --------------------
25
7.5. NO PROCEEDINGS.
---- --------------
25
7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.
---- ---------------------------------------------------
25
7.7. NO PROHIBITION.
---- --------------
26
7.8. EMPLOYMENT AGREEMENT.
---- -------------------
26
7.9. REGISTRATION OF SHARES FOR SELLER.
---- ---------------------------------
ERROR! BOOKMARK NOT DEFINED.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 1
--------------------------------------------------------------------------------
8.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
1
8.2. BUYER'S PERFORMANCE.
---- -------------------
1
8.3. CONSENTS.
---- --------
1
8.4. ADDITIONAL DOCUMENTS.
---- --------------------
1
8.5. NO INJUNCTION.
---- -------------
1
9. TERMINATION. 1
9.1. TERMINATION EVENTS.
---- ------------------
1
9.2. EFFECT OF TERMINATION.
---- ---------------------
1
10. INDEMNIFICATION; REMEDIES. 1
--------------------------------------------------------------------------------
10.1. AGREEMENT BY SELLER TO INDEMNIFY.
----- --------------------------------
1
10.2. AGREEMENTS BY BUYER TO INDEMNIFY.
----- --------------------------------
1
10.3. MATTERS INVOLVING THIRD PARTIES.
----- -------------------------------
1
11. POST-CLOSING AGREEMENTS. 1
--------------------------------------------------------------------------------
11.1. CONSISTENCY IN REPORTING.
----- ------------------------
1
12. GENERAL PROVISIONS. 1
--------------------------------------------------------------------------------
12.1. EXPENSES.
----- --------
1
12.2. PUBLIC ANNOUNCEMENTS.
----- --------------------
1
12.3. CONFIDENTIALITY.
----- ---------------
1
12.4. NOTICES.
----- -------
1
12.5. JURISDICTION; SERVICE OF PROCESS.
----- --------------------------------
1
12.6. FURTHER ASSURANCES.
----- ------------------
1
12.7. WAIVER.
----- ------
1
12.8. ENTIRE AGREEMENT AND MODIFICATION.
----- --------------------------------
1
12.9. DISCLOSURE SCHEDULE.
----- -------------------
1
12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS.
------ ------------------------------------------------
1
12.11. SEVERABILITY.
------ ------------
1
12.12. SECTION HEADINGS; CONSTRUCTION.
------ ------------------------------
1
12.13. TIME OF ESSENCE.
------ ---------------
1
12.14. GOVERNING LAW.
------ -------------
1
12.15. COUNTERPARTS.
------ ------------
1
<PAGE>
Stock Purchase Agreement
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of April 28, 2000,
by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and Al-Hamdd, Inc.,
d/b/a/ AC Travel, Inc., a Georgia Corporation, Asif Balagamwala, individually
and collectively hereinafter referred to as ("Seller").
RECITALS:
Seller desire to sell, and Buyer desires to purchase, all of the issued and
outstanding shares (the "Shares") of capital stock of AC Travel, Inc. for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.:
1.1. "Applicable Contract" - any Contract (i) under which Seller or
Company has or may acquire any rights; (ii) under which Seller or Company has or
may become subject to any obligation or liability or (iii) by which Seller or
Company or any of the assets owned or used by it is or may become bound.
1.2. "Breach" - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (i) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision or
(ii) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence or circumstance.
1.3. "Buyer" - as defined in the first paragraph of this Agreement.
1.4. "Buyer's Stock" - 2,000,000 restricted shares of Seller's
capital stock.
1.5. "Closing" - as defined in Section 2.4.
1.6. "Closing Date" - the date and time as of which the Closing
actually takes place.
1.7 "Company" - AC Travel, Inc.
1.7. "Consent" - any approval, consent, ratification, waiver, or
other authorization (including any Governmental
Authorization).
1.9. "Contemplated Transactions" - all of the transactions
contemplated by this Agreement, including:
A. The transfer of the Shares by Seller to Buyer;
B. The execution, delivery, and performance of the Closing
Obligations set forth in Section 2.5;
C. The performance by Buyer and Seller of t heir respective
covenants and obligations under this Agreement;
D. Buyer's acquisition and ownership of the Shares and exercise
of control over the Company; and
E. The transfer of Buyer's Stock to Seller; and
F. Payment by Buyer to Seller of the Reimbursement Amount.
1.10. "Contract" - any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
1.11. "Damages" - any loss, liability, claim, damages (including,
without limitation, incidental and consequential damages), expense (including,
without limitation, costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third party.
1.12. "Disclosure Schedule" - the disclosure schedule delivered by
Seller to Buyer concurrently with the execution and delivery of this Agreement.
1.13. "Encumbrance" - any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
1.14. "Environmental Requirements" - means federal, state and local
laws relating to pollution or protection of the environment, including laws or
provisions relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes.
1.15. "ERISA" - the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
1.16. "Facilities" - any real property, leaseholds, or other interests
currently or formerly owned or operated by Seller and any buildings, plants,
structures, or equipment (including motor vehicles) currently or formerly owned
or operated by Seller.
1.17. "GAAP" - generally accepted United States accounting
principles, applied on a basis consistent with the basis on which the financial
statements referred to in Section 3.4. were prepared.
1.18. "Governmental Authorization" - any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
1.19. "Governmental Body" - any:
A. Nation, state, county, city, town, village, district,
or other jurisdiction of any nature;
B. Federal, state, local, municipal, foreign, or other
government;
C. Governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department,
official, or entity and any court or other tribunal);
D. Multi-national organization or body; or
E. Body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
1.20. "IRC" - the Internal Revenue Code of 1986 or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
1.21. "IRS" - the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
1.22. "Knowledge" - an individual will be deemed to have "Knowledge"
of a particular fact or other matter if:
A. Such individual is actually aware of such fact or other matter; or
B. A prudent individual given his position with the Company could be
reasonably expected to discover
or otherwise become aware of such fact or other matter.
1.23. "Legal Requirement" - any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
1.24. "Operating Income" - means the net income of the Company
determined in accordance with GAAP before income taxes and after all other
charges except:
A. Unless otherwise approved by Buyer, any general and administrative
expense (i.e., allocation of the Company's general corporate overhead)
attributable to the Company and all subsidiaries of the Company that is not
directly related to the operation of the Company in the Ordinary Course of
Business; provided, however, Operating Income shall include reimbursement by
Seller of expenses at a fair market price mutually agreed to by Buyer and Seller
for expenses previously incurred by Seller, but that have for administrative
convenience or efficiency reasons been centralized with Buyer; and
B. Any amortization of goodwill of the Company and all Subsidiaries of
the Company.
C. In the event that certain expenses incurred by the Seller are for
the principal or partial benefit of the Company or other subsidiaries of the
Company, then the parties hereto shall endeavor to track and determine in a fair
and equitable manner that portion of such expenses that should fairly and
reasonably be allocated to the Company or such other subsidiaries of the
Company, and therefore not included in arriving at Operating Income for purposes
of this Agreement.
1.25. "Order" - any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
1.26. "Ordinary Course of Business" - an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" only if:
A. Such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
B. Such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
C. Such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
1.27. "Organizational Documents" - (i) the Articles or Certificate of
Incorporation and the Bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person and (iii) any amendment to any of the foregoing.
1.28. "Person" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
1.29. "Plan" - as defined in Section 3.10.1.
1.30. "Proceeding" - any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
1.31. "Related Person" - with respect to a particular individual:
A. Each other member of such individual's Family;
B. Any Person that is directly or indirectly controlled by such
individual or one (1) or more members of such individual's Family;
C. Any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
D. Any Person with respect to which such individual or one (1) or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
A. Any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
B. Any Person that holds a Material Interest in such specified Person;
C. Each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
D. Any Person in which such specified Person holds a Material
Interest;
E. Any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity); and
Any Related Person of any individual described in clause B. or C.
For purposes of this definition, (i) the "Family" of an individual includes
(1) the individual; (2) the individual's spouse and former spouses; (3) any
other natural person who is related to the individual or the individual's spouse
within the second degree and (4) any other natural person who resides with such
individual and (2) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least [five
percent (5%)] of the outstanding voting power of a Person or equity securities
or other equity interests representing at least [five percent (5%)] of the
outstanding equity securities or equity interests in a Person.
1.32. "Representative" - with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
1.33. "Securities Act" - the Securities Act of 1933 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
1.34. "Seller" -as defined in the first paragraph of this Agreement.
1.35. "Shares" - as defined in the Recitals of this Agreement.
1.36. "Subsidiary" - with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one (1) or more of its
Subsidiaries; [when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Company].
1.37. "Tax Return" - any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
1.38. "Threatened" - a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING.
2.1. Shares. In exchange for the transfer of Buyer's Stock, as
------
set forth in Section 2.2, and subject to the terms and conditions of this
Agreement, at the Closing, Seller will transfer the Shares to Buyer.
2.2. Buyer's Stock. In exchange for the transfer of Shares as
--------------
set forth in Section 2.1, and subject to the terms and conditions of this
Agreement, at the Closing, Buyer shall transfer to Seller the Buyer's Stock.
2.3. Closing. The purchase and sale (the "Closing") provided for
-------
in this Agreement will take place at the offices of Morris, Manning & Martin,
L.L.P., at 1600 Atlanta Financial Center, 3343 Peachtree Road, N.E.,
Atlanta, Georgia 30326, at 10:00 a.m. (local time) on May 28, 2000, or at such
other time and place as the parties may agree. Except as otherwise provided in
Section 9., failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.3. will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
2.4. Closing Obligations. At the Closing:
-------------------
A. Seller will deliver to Buyer:
(i) Certificates. Certificates representing the
------------
Shares, duly endorsed (or accompanied by duly executed stock powers) for
transfer to Buyer;
(ii) Good Standing Certificate. Seller shall have
--------------------------
delivered to Buyer a certificate evidencing the good standing of the Company as
of a recent practicable date;
(iii) Certificate. A certificate substantially in
-----------
the form of Exhibit A hereto, executed by Seller representing and warranting
---------
to Buyer that each of Seller's representations and warranties in this Agreement
was accurate in all respects as of the date of this Agreement and is accurate
in all respects as of the Closing Date as if made on the Closing Date (giving
full effect to any supplements to the Disclosure Schedule that were delivered
by Seller to Buyer prior to the Closing Date in accordance with Section 5.5.);
and
(iv) Mutual Release. Seller shall have delivered
--------------
to Buyer a mutual release, executed by Seller, substantially in the form of
Exhibit B to be attached at closing
-----------------------------------
(v) All Corporate records, organzational
documents, minutes of Board of Director and Shareholder meetings and corporate
seal.
B. Buyer will deliver to Seller:
(i) Certificates. Certificates representing
------------
Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers)
for transfer to Seller, or a Board of Directors resolution signifying the order
of the transfer of shares to Seller to be effectuated immediately, without
delay;
(ii) Certificate. A certificate in the form of
-----------
Exhibit C hereto executed by Buyer to the effect that, except as otherwise
---------
stated in such certificate, each of Buyer's representations and warranties
in this Agreement was accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if made on the Closing
Date; and
(iii) Mutual Release. Buyer shall have delivered
--------------
to Seller a Mutual Release, executed by Buyer, substantially in the form of
Exhibit B to be attached at closing.
-----------------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
3.1. Organization and Good Standing.
------------------------------
A. Schedule 3.1 of the Disclosure Schedule contains a complete
and accurate list of the Company's name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each stockholder and the number of
shares held by each).
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of Georgia, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts.
Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
B. Seller has made available to Buyer copies of the
Organizational Documents of the Company, as currently in effect.
3.2. Authority; No Conflict.
----------------------
A. This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
Upon the execution and delivery by Seller of the closing documents set forth in
Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's
Closing Documents will constitute the legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms.
Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Seller's
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents.
B. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) Contravene, conflict with, or result in a
violation of (1) any provision of the Organizational Documents of the Company
or (2) any resolution adopted by the board of directors or the
stockholders of the Company;
(ii) Contravene, conflict with, or result in
a violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which Seller
or the Company, or any of the assets owned or used by Seller, may be subject;
(iii) Contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by Seller or that otherwise relates to
the business of, or any of the assets owned or used by, the Company;
(iv) Cause Buyer or Seller to become subject to,
or to become liable for the payment of, any Tax;
(v) Contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable Contract;
or
(vi) Result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Seller.
Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller
nor the Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.3. Capitalization. The authorized equity securities of the
--------------
Company consist of 1000 shares of common stock, .01 par value per share, of
which 1000 shares are issued and outstanding and constitute the Shares.
Seller is and will be on the Closing Date the record and beneficial owners
and holders of the Shares, free and clear of all Encumbrances.
With the exception of the Shares (which are owned by Seller), all of the
outstanding equity securities and other securities of the Company are owned of
record and beneficially by Seller, free and clear of all Encumbrances. No legend
or other reference to any purported Encumbrance appears upon any certificate
representing equity securities of the Company.
All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of the Company, including, but not limited to, stock
options, warrants, convertible securities, redemption rights, registration
rights and the like.
None of the outstanding equity securities or other securities of the
Company was issued in violation of the Securities Act or any other Legal
Requirement.
3.4. Financial Statements. Seller shall deliver to Buyer, at
---------------------
closing date to be attached as Schedule 3.4:
---------
A. Unaudited balance sheets of Seller as of August, 1999, and
as of, together with the related statements of income, changes in stockholder
equity and cash flow (collectively, the "Financial Statements") for the periods
referred to in such financial statements.
B. The Financial Statements were prepared in accordance with
this Agreement and with GAAP consistently applied.
The Financial Statements and notes, if any, fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such Financial Statements, all in accordance with GAAP, subject,
in the case of interim Financial Statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes.
3.5. Books and Records. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices.
The minute books of the Company contain accurate and complete records of
all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Company,
and no meeting of any such stockholders, Board of Directors, or committee has
been held for and no material action has been taken at any meeting for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of Seller.
3.6. Title to Properties; Encumbrances. Seller owns (with good and
marketable title in the case of real property, subject only to the Encumbrances
permitted by this Section) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that they purport to own
located in the facilities owned or operated by Seller or reflected as owned in
the books and records of the Company, including all of the properties and assets
reflected in the Closing Date Financial Statements (except for assets held under
capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of
the Disclosure Schedule which shall be attached to this Agreement as Schedule
3.6 at the closing date.).
All material properties and assets reflected in the Closing Date Financial
Statements are free and clear of all Encumbrances and are not, in the case of
real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets:
A. Mortgages or security interests shown on the Closing
Date Financial Statements as securing specified liabilities or obligations,
both, would constitute a default) exists;
B. Liens for current taxes not yet due; and
C. With respect to real property:
(i) Minor imperfections of title, if any, none
of which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company; and
(ii) Zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject
thereto.
All buildings, plants, and structures owned by Seller lie wholly within the
boundaries of the real property owned by Seller and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person. All property and assets of the the Company shall be in the possession
and control of Seller at Closing, including but not limited to, all Facilities.
3.7. No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of
the Disclosure Schedule, Seller has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Closing Date Financial Statements and current liabilities incurred in the
Ordinary Course of Business since the respective dates thereof.
3.8. Taxes. Except as set forth on Schedule 3.8 to the Disclosure
Schedule, Seller has timely filed all tax returns and reports required to be
filed by it, including, without limitation, all federal, state and local tax
returns, and has paid in full or made adequate provision by the establishment of
reserves for all taxes and other charges which have become due or which are
attributable to the conduct of Seller's business prior to Closing. Seller will
continue to make adequate provision for all such taxes and other charges for all
periods through the Closing Date.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller
shall have no Knowledge of any tax deficiency proposed or threatened against
Seller. There are no tax liens upon any property or assets of the Company.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has
made all payments of estimated taxes when due in amounts sufficient to avoid the
imposition of any penalty.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, all taxes
and other assessments and levies which Seller was required by law to withhold or
to collect have been duly withheld and collected, and have been paid over to the
proper governmental entity.
Except as set forth in Schedule 3.8 to the Disclosure Schedule, the federal
and state income tax returns and local returns, if any, of Seller have never
been audited by the income tax authorities, nor are any such audits in process.
Except as set forth in Schedule 3.8, to the Disclosure Schedule there are no
outstanding agreements or waivers extending the statute of limitations
applicable to any federal or state income tax returns of the Company for any
period.
3.9. No Material Adverse Change. Since January, 1996 there has
---------------------------
not been any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and no event has occurred
or circumstance exists that may result in such a material adverse change.
3.10. Employee Benefits Matters.
-------------------------
3.10.1 Schedule 3.10.1 lists all plans, programs, and similar
agreements, commitments or arrangements, whether oral or written, maintained by
or on behalf of Seller or any other party that provide benefits or compensation
to, or for the benefit of, current or former employees of the Company ("Plan" or
"Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only
current and former employees of the Company participate in the Plans. Copies of
all Plans and, to the extent applicable, all related trust agreements, actuarial
reports, and valuations for the most recent year, all summary plan descriptions,
prospectuses, Annual Report Form 5500s or similar forms (and attachments
thereto) for the most recent year, all Internal Revenue Service determination
letters, and any related documents requested by Buyer, including all amendments,
modifications and supplements thereto, have been delivered to Buyer, and all of
the same are or will be true, correct and complete.
3.10.2 With respect to each Plan to the extent applicable:
A. No litigation or administrative or other
proceeding is pending or threatened involving such Plan;
B. To the Knowledge of Seller, such Plan has
been administered and operated in substantial compliance with, and has been
amended to comply with all applicable laws, rules, and regulations, including,
without limitation, ERISA, the Internal Revenue Code, and the regulations issued
under ERISA and the Internal Revenue Code;
C. Seller and its predecessors, if any, have
made and as of the Closing Date will have made or accrued, all payments and
contributions required, or reasonably expected to be required, to be made
under the provisions of such Plan or required to be made under applicable
laws, rules and regulations, with respect to any period following, such amounts
to be determined using the ongoing actuarial and funding assumptions of the
Plan;
D. Such Plan is fully funded in an amount
sufficient to pay all liabilities accrued (including liabilities and
obligations for health care, life insurance and other benefits after
termination of employment) and claims incurred to the date hereof;
E. On the Closing Date such Plan will be fully
funded in an amount sufficient to pay all liabilities accrued (including
liabilities and obligations for health care, life insurance and other benefits
after termination of employment) and claims incurred to the Closing Date, or
adequate reserves will be set up on the Company's books and records, or paid-up
insurance will be provided, therefor; and
F. Such Plan has been administrated and
operated only in the ordinary and usual course and in accordance with its
terms, and there has not been in the year prior hereto any increase in the
liabilities of such Plan beyond increases typically experienced by employers
similar to the Company.
3.11. Compliance With Legal Requirements; Governmental Authorizations.
---------------------------------------------------------------
A. Except as set forth in Schedule 3.11 of the Disclosure
-------------
Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) No event has occurred or circumstance
exists that (with or without notice or lapse of time) (1) may constitute or
result in a violation by Seller of, or a failure on the part of Seller to
comply with, any Legal Requirement or (2) may give rise to any obligation on
the part of Seller to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (1) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement or (2) any actual, alleged, possible, or potential
obligation on the part of Seller to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature.
B. Schedule 3.11 Except as set forth in Schedule 3.11 of
------------- -------------
the Disclosure Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with all of the terms and
requirements of any applicable Governmental Authorization;
(ii) No event has occurred or circumstance exists
that may (with or without notice or lapse of time) (1) constitute or result
directly or indirectly in a violation of or a failure to comply with any term
or requirement of any applicable Governmental Authorization or (2) result
directly or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any applicable
Governmental Authorization;
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (1) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization or (2) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) All applications required to have been
filed for the renewal of the Governmental Authorizations have been duly
filed on a timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Seller has obtained any Governmental Authorizations necessary to permit
the Company to lawfully conduct and operate their businesses in the manner they
currently conduct and operate such businesses and to permit the Company to own
and use their assets in the manner in which they currently own and use such
assets.
3.12. Legal Proceedings; Orders.
-------------------------
A. Except as set forth in Schedule 3.12 of the Disclosure
--------------
Schedule, there is no pending Proceeding:
(i) That has been commenced by or against Seller
or that otherwise relates to or may affect the business of, or any of the
assets owned or used by, Seller; or
(ii) That challenges, or that may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions.
To the Knowledge of Seller, (i) no such Proceeding has been Threatened
and (ii) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. Seller shall have
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule.
The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have
a material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
B. Except as set forth in Schedule 3.12 of the Disclosure
-------------
Schedule:
(i) There is no Order to which any of Seller, or
any of the assets owned or used by the Company, is subject;
(ii) Seller is not subject to any Order that
relates to the business of, or any of the assets owned or used by, the Company;
and
(iii) No officer, director, agent, or employee of
the Company is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
C. Except as set forth in Schedule 3.12 of the Disclosure
-------------
Schedule:
(i) Seller is, and at all times since January,
1996, has been, in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) No event has occurred or circumstance exists
that may constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which Seller, or any of the assets owned or used by Seller, is subject; and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication whether oral or written) from
any Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
3.13. Absence of Certain Changes and Events. Except as set forth
--------------------------------------
in Schedule 3.13 of the Disclosure Schedule, since January, 1996, the Company
--------------
has conducted its business only in the Ordinary Course of Business and there has
not been any:
A. Change in the Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock; grant of
any registration rights; purchase, redemption, retirement, or other acquisition
by the Company of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of shares of
capital stock;
B. Amendment to the Organizational Documents of the Company;
C. Payment or increase by Seller of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except in
the Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
D. Adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees
of the Company;
E. Damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects
of the Company, taken as a whole;
F. Entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement or (ii) any Contract or transaction
involving a total remaining commitment by or to the Company of at least Five
Thousand and No/100 Dollars ($5,000.00);
G. Sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Software and Intangibles;
H. Cancellation or waiver of any claims or rights with
a value to the Company in excess of Five Thousand and No/100 Dollars
($5,000.00);
I. Material change in the accounting ethods used by the
Company; or
J. Agreement, whether oral or written, by Seller to do any of
the foregoing.
3.14. Contracts; No Defaults.
----------------------
A. Except as set forth in Schedule 3.17(A) of the Disclosure
----------------
Schedule:
(i) Other than as set forth or provided for
on the Financial Statements, the Company has not or may not acquire any rights
under, and the Company has not or may not become subject to any obligation or
liability under, any Contract under which the Company is obligated to make
payments totaling, or services having a value equal to, $5,000 or more ; and
(ii) To the Knowledge of Seller, no officer,
director, agent, employee, consultant, or contractor of the Company is bound by
any Contract that purports to limit the ability of such officer, director,
agent, employee, consultant, or contractor to (1) engage in or continue any
conduct, activity, or practice relating to the business of the Company or (2)
assign to the Company or to any other Person any rights to any invention,
improvement, or discovery.
B. Except as set forth in Schedule 3.17(B) of the
-----------------
Disclosure Schedule, each material Contract is in full force and effect and
is valid and enforceable in accordance with its terms.
C. Except as set forth in Schedule 3.17(C) of the Disclosure
----------------
Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with all applicable terms and
requirements of each Contract under which such Seller has or had any obligation
or liability or by which such Seller or any of the assets owned or used by the
Company is or was bound;
(ii) Each other Person that has or had any
obligation or liability under any Contract under which the Company has
or had any rights is, and at all times since January, 1996, has been, in full
compliance with all applicable terms and requirements of such Contract;
(iii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give Seller or other Person the right
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable Contract;
and
(iv) Seller has not given to or received from any
other Person, at any time since January, 1996, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
F. There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to Seller
under current or completed Contracts with any Person and no such Person has made
written demand for such renegotiation.
G. The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.15. Insurance.
---------
A. Seller have delivered to Buyer:
(i) True and complete copies of all policies
of insurance to which the Company or Seller is a party or under which the
Company, or any director of the Company, is or has been covered at any time
within the two (2) years preceding the date of this Agreement;
(ii) True and complete copies of all pending
applications for policies of insurance; and
(iii) Any statement by the auditor of the
Company's financial statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
B. Except as set forth on Schedule 3.15(B) of the
----------------
Disclosure Schedule:
(i) All policies to which Seller is a party or
that provide coverage to Seller, the Company, or any director or officer of an
the Company:
(1) Are valid, outstanding, and enforceable;
(2) Taken together in the reasonable
judgment of Seller, provide adequate insurance coverage for the assets and
the operations of the Company for all risks to which the Company are
normally exposed;
(3) Are sufficient for compliance with all
Legal Requirements and Contracts to which Seller is a party or by which it is
bound;
(4) Will continue in full force and effect
following the consummation of the Contemplated Transactions; and
(5) Do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of Seller.
(ii) Neither Seller nor the Company has received
(1) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights or (2) any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations thereunder.
(iii) Seller has paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy
to which Seller is a party or that provides coverage to the Company or director
thereof.
(iv) Seller has given notice to the insurer of
all claims that may be insured
thereby.
3.16. Environmental Matters. Except as set forth in Schedule 3.16
---------------------- -------------
of the Disclosure Schedule, at all times since January, 1996, Seller has
obtained and is in compliance with all permits, licenses and other
authorizations required to do business by Environmental Requirements.
3.17. Employee Matters.
----------------
Except as set forth on Schedule 3.17, at all times since January, 1996,
Seller has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health and plant closing.
Except as set forth on Schedule 3.17, Seller is not liable for the
payment of any compensation, Damages, taxes, fines, penalties, or other amounts,
however, designated, for failure to comply with any of the foregoing Legal
Requirements.
3.18. Intellectual Property Rights of the Company.
-------------------------------------------
A. Definitions. As used in this Agreement, and in addition
-----------
to any other terms fined in this Agreement, the following terms shall have the
following meanings.
(i) "Software" means any computer program, operating
--------
system, applications system, firmware or software of any nature, whether
operational, under development or inactive, including all object code, source
code, technical manuals, compilation procedures, execution procedures, flow
charts, programmers notes, user manuals and other documentation thereof, whether
in machine-readable form, programming language or any other language or symbols
and whether stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature.
(ii) "Owned Software" means all Software owned
---------------
by the Company, whether purchase from a third party, developed by or on behalf
of the Company, currently under development or otherwise.
(iii) "Customer Software" means all Software, other
-----------------
than the Owned Software, that is, directly or through Distributors, either (x)
offered or provided to customers of the Company or (y) used by the Company to
provide information or services to customers of the Company for a fee.
(iv) "Seller Software" means the Owned Software
---------------
and the Customer Software.
(v) "Other Software" means all Software, other
--------------
than the Company's Software, that is licensed by the Company from third parties
or otherwise used by the Company for any purpose whatsoever.
(vi) "Intangible" means:
----------
(1) Patents, patent applications, patent
disclosures, all re-issues, divisions, continuations, renewals, extensions and
continuation-in-parts thereof and improvements thereto;
(2) Trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for Registration thereof and all goodwill associated therewith;
(3) Copyrights, Registrations thereof
and applications for Registration thereof;
(4) Maskworks, Registrations thereof and
applications for Registration thereof;
(5) Trade secrets and confidential
business information (including ideas, formulas, compositions, inventions,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, drawings, flow charts, processes, ideas,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information);
(6) Other proprietary rights;
(7) All income, royalties, Damages and
payments due at Closing or thereafter with respect to the Owned Software,
Customer Software, Other Software, or other Intangibles and all other rights
thereunder including, without limitation, Damages and payments for past,
present or future infringements or misappropriations thereof, the right to
sue and recover for past, present or future infringements or misappropriations
thereof;
(8) All rights to use all of the
foregoing forever; and
(9) All other rights in, to, and under
the foregoing in all countries.
B. Ownership and Right to License.
------------------------------
(i) Except as set forth in Schedule 3.18
--------------
of the Disclosure Schedule, to the Knowledge of the Seller, at all times
since January, 1996, Seller has good and marketable title to the Owned Software
and Intangibles attributable to the Owned Software, and have the full right to
use all of the Customer Software and Other Software, and Intangibles
attributable thereto, as used or required to operate Seller's businesses as
currently conducted and as contemplated in the future in accordance with
Seller's written business plans, free and clear of any liens, claims, charges or
encumbrances which would affect the use of such Software in connection with the
operation of Seller's business as currently conducted and as contemplated in the
future in accordance with Seller's written business plans.
(ii) To the Knowledge of Seller, no rights
of any third party not previously obtained are necessary to market,
license, sell, modify, update, and/or create derivative works for any Software
as to which Seller take any such action in their respective businesses as
currently conducted and as contemplated in the future in accordance with
Seller's written business plans.
(iii) To the Knowledge of Seller, none of the
Software or Intangibles or their respective past or current uses by or
through Seller have violated or infringed upon, or is violating or infringing
upon, any Software, patent, copyright, trade secret or other Intangible of any
Person. To the knowledge of Seller, Seller has adequately maintained all trade
secrets and copyrights with respect to such Software.
To the Knowledge of Seller, Seller has performed all obligations
imposed upon them with regard to the Customer Software and Other Software which
are required to be performed by them on or prior to the date hereof, and Seller
nor, to the Knowledge of Seller, any other party, is in breach of or default
thereunder in any respect, nor to the Seller's Knowledge is there any event
which with notice or lapse of time or both would constitute a default
thereunder.
3.19. Certain Payments. Since January, 1996, neither Seller nor
-----------------
any director, officer, agent, or employee of the Company, nor to Seller's
Knowledge any other Person associated with or acting for or on behalf of Seller,
has directly or indirectly:
A. Made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business; (ii) to pay for favorable treatment
for business secured; (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Copmany or any affiliate
of the Company or (iv) in violation of any Legal Requirement.
B. Established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
3.20. Disclosure.
----------
A. No representation or warranty of Seller in this Agreement
and no statement in the Disclosure Schedule omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
B. No notice given pursuant to Section 5.5. will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
C. There is no fact known to Seller that has specific
application to Seller or the Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as Seller can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Company (on a consolidated
basis) that has not been set forth in this Agreement or the Disclosure Schedule.
3.21. Brokers or Finders. Seller and its agents have incurred no
------------------
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other imilar payment in connection with
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
4.1. Organization and Good Standing. Buyer is a Texas corporation.
------------------------------
4.2. Authority. This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of the closing documents set
forth in Section 2.5.B (collectively, the "Buyer's Closing Documents"), the
Buyer's Closing Documents will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement and the Buyer's
Closing Documents.
4.3. Investment Intent. Buyer is acquiring the Shares for its
------------------
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
4.4. Certain Proceedings. There is no pending Proceeding that
--------------------
has been commenced against Buyer and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding
has been Threatened.
4.5. Brokers or Finders. Buyer and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
4.6. Full Disclosure. To the best knowledge of Buyer, it's officers,
directors or agents, no representation, warranty or covenant of Buyer contained
in this Agreement or in any other written statement or certificate delivered by
Buyer pursuant to this Agreement or in connection with the transactions
contemplated herein or in any SEC filing contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading. To
the best knowledge of Buyer, it's officers, directors or agents, there is no
fact which adversely affects, or in the future may adversely affect, the
business, operations, cash flows, affairs, prospects, properties or assets or
the condition, financial or otherwise of the Buyer which has not been disclosed
in this Agreement, or in the documents, certificates and written statements
furnished to Seller for use in connection with the transactions contemplated
hereby or in any SEC filing.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE.
5.1. Access and Investigation. Between the date of this Agreement
-------------------------
and the Closing Date, Seller will, and will cause the Company and its
Representatives to:
A. Afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, "Buyer's Advisors") full
and free access to the Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data;
B. Furnish Buyer and Buyer's Advisors with copies of all
such contracts, book s and records, and other existing documents and data as
Buyer may reasonably request; and
C. Furnish Buyer and Buyer's Advisors with such
additional financial, operating, and other data and information as Buyer may
reasonably request.
5.2. Operation of the Business of the Company. Between the date
-------------------------------------------
of this Agreement and the Closing Date, Seller will:
A. Conduct the business of the Company only in the
Ordinary Course of Business;
B. Use its commercially reasonable efforts to preserve intact
the current business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company or
Seller;
C. Confer with Buyer concerning operational matters of a
material nature; and
D. Otherwise report periodically to Buyer concerning
the status of the business, operations, and finances of the Company.
5.3. Negative Covenant. Except as otherwise expressly permitted
-----------------
by this Agreement, between the date of this Agreement and the Closing Date,
Seller will not without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control, as
a result of which any of the changes or events listed in Section 3.13. is likely
to occur.
5.4. Required Approvals. As promptly as practicable after the date of
this Agreement, Seller will, and will cause the Company to, make all filings
required by Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Seller will, and will cause the Company to:
A. Cooperate with Buyer with respect to all filings that
Buyer reasonably elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions; and
B. Cooperate with Buyer in obtaining all required
Consents.
5.5. Notification. Between the date of this Agreement and the Closing
Date, Seller will promptly notify Buyer in writing if Seller becomes aware of
any fact or condition that causes or constitutes a Breach of any of Seller's
representations and warranties as of the date of this Agreement, or if Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
Should any such fact or condition require any change in the Disclosure
Schedule if the Disclosure Schedule were dated the date of the occurrence or
discovery of any such fact or condition, Seller will promptly deliver to Buyer a
supplement to the Disclosure Schedule specifying such change. During the same
period, each Seller will promptly notify Buyer of the occurrence of any Breach
of any covenant of Seller in this Section 5. or of the occurrence of any event
that may make the satisfaction of the conditions in Section 7. impossible or
unlikely.
5.6. No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9., Seller will not, and will cause its
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of the Company, or any of the capital stock of the Company, or any
merger, consolidation, business combination, or similar transaction involving
Seller.
5.7. Closing of Bank Accounts. Seller shall cause the closing of
-------------------------
all Company bank accounts for which Seller, or its officers and directors, have
ole signature authority.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
6.1. Approvals of Governmental Bodies/Third Party Consents. As promptly
as practicable after the date of this Agreement, Buyer will, and will cause each
of its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will,
and will cause each Related Person to:
A. Cooperate with Seller with respect to all filings
that Seller is required by Legal Requirements to make in connection with the
Contemplated Transactions; and
B. Cooperate with Seller in obtaining all consents identified
in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will
not require Buyer to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
6.2. Access and Investigation. Between the date of this Agreement
-------------------------
and the Closing Date, Buyer will, and will cause its Representatives to:
A. Afford Seller and its Representatives and prospective
lenders and their Representatives (collectively, "Seller's Advisors") full
and free access to Buyer's personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data;
B. Furnish Seller and Seller's Advisors with copies
of all such contracts, books and records, and other existing documents and data
as Seller may reasonably request; and
C. Furnish Seller and Seller's Advisors with such
additional financial, operating, and other data and information as Seller may
reasonably request.
6.3. Operation of the Business of the Company. Between the date
-------------------------------------------
of this Agreement and the Closing Date, Buyer will:
A. Conduct the business of Buyer only in the Ordinary Course
of Business;
B. Use commercially reasonable efforts to preserve intact
the current business organization of Buyer; and
A. Confer with Seller concerning operational matters of a material nature.
6.4. Notification. Between the date of this Agreement and the
------------
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or
if Buyer becomes aware of theoccurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1. Accuracy of Representations.
---------------------------
A. All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Schedule.
B. Each of Seller's representations and warranties in Article
3. must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure
Schedule.
7.2. Seller's Performance.
--------------------
A. All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
B. Each document required to be delivered pursuant to Section
2.4. must have been delivered by closing, and each of the other covenants and
obligations in Section 5. must have been performed and complied with in all
respects.
C. The results of any investigation performed by Buyer in
connection with Section 5.1. shall be satisfactory to Buyer in its sole
discretion.
7.3. Consents. Each of the Consents identified in Schedule 3.2 of
-------- ------------
the Disclosure Schedule must have been obtained and must be in full force and
effect.
7.4. Additional Documents. Seller shall deliver such other
---------------------
documents as Buyer may reasonably request for the purpose of (i) evidencing
the accuracy of any of Seller's representations and warranties; (ii) evidencing
the performance by Seller of, or the compliance by Seller with, any covenant or
obligation required to be performed or complied with by such Seller; (iii)
evidencing the satisfaction of any condition referred to in this Section 7. or
(iv) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5. No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking
Damages or other relief in connection with, any of the Contemplated Transactions
or (ii) that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions.
7.6. No Claim Regarding Stock Ownership or Sale Proceeds. There must
not have been made or Threatened by any Person any claim asserting that such
Person (i) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any stock of, or any other voting, equity,
or ownership interest in, any of Seller or (ii) is entitled to all or any
portion of the Purchase Price payable for the Shares, except as has been orally
disclosed to Buyer.
7.7. No Prohibition. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (i) any applicable Legal
Requirement or Order or (ii) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
7.8. Employment Agreement.On or before the Closing Date, Seller(s)
---------------------
shall have entered into an employment agreement with Buyer.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
8.1. Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2. Buyer's Performance.
-------------------
A. All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
B. Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.5.
8.3. Consents. Each of the Consents identified in Schedule 3.2 of
-------- ------------
the Disclosure Schedule must have been obtained and must be in full force and
effect.
8.4. Additional Documents. Buyer must have caused the following
---------------------
ocuments to be delivered to Seller such other documents as Seller may
reasonably request for the purpose of (i) evidencing the accuracy of any
representation or warranty of Buyer; (ii) evidencing the performance by Buyer
of, or the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer; (iii) evidencing the satisfaction of any
condition referred to in this Section 8. or (iv) otherwise facilitating the
consummation of any of the Contemplated Transactions.
8.5. No Injunction. There must not be in effect any Legal
--------------
Requirement or any injunction or other Order that (i) prohibits the sale of
the Shares by Seller to Buyer and (ii) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement. 8.6.
8.6 Employment Agreements. Buyer and
-----------------------
Asif Balagamwala shall enter into an Employment Agreement, in a form to be
mutually agreed by the parties.
9. TERMINATION.
9.1. Termination Events.
------------------
This Agreement may, by notice given prior to or at the Closing, be
terminated:
A. By either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
B. (i) By Buyer if any of the conditions in
Section 7. have not been satisfied as of the Closing Date or if satisfaction
of such a condition is or becomes impossible (other than through the failure
of Buyer to comply with its obligations under this Agreement) and Buyer has not
waived such condition on or before the Closing Date;
(ii) By Seller, if any of the conditions in
Section 7. have not been satisfied of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has
not waived such condition on or before the Closing Date; or
C. By mutual consent of Buyer and Seller; or
D. By either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before March
31, 2000, or such later date as the parties may agree upon.
9.2. Effect of Termination. Each party's right of termination
----------------------
under Section 9.1. is in addition to any other rights it may have under
this Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to Section
9.1., all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 12.1. and 12.3. will survive;
provided, however, that if this Agreement is terminated by a party because of
the Breach of the Agreement by the other party or because one (1) or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION;
REMEDIES.
10.1. Agreement by Seller to Indemnify. Seller (the "Seller
---------------------------------
Indemnifying Party"), agrees that they will indemnify and hold Buyer harmless
in respect of the aggregate of all indemnifiable Damages of Buyer.
For this purpose, "indemnifiable Damages" of Buyer means the aggregate
of all Damages incurred or suffered by Buyer resulting from:
A. Any inaccurate representation or warranty made
by Seller in or pursuant to this Agreement;
B. Any default in the performance of any of the
covenants or agreements made by Seller in this Agreement; or
C. The failure of any Seller to pay, discharge or
perform any liability or obligation of Seller or of Seller resulting from the
operation of Seller's business prior to the Closing Date.
With respect to the measurement of "Indemnifiable Damages", Buyer shall
have the right to be put in the same financial position as it would have been
had each of the representations and warranties of Seller been true and correct
and had each of the covenants of Seller been performed in full.
The amount of any indemnifiable Damages otherwise payable to Buyer
hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will
provide Buyer with income tax deductions or credits. The amount of the reduction
shall be the amount of the actual cash tax savings realized by Buyer as a result
of such deductions or credits, discounted to its present value as of the date of
the payment of the indemnifiable Damages from the date such indemnifiable
Damages were incurred by Buyer at the rate of interest charged on such date by
the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Seller Indemnifying Party to indemnify
Buyer shall be subject to each of the following principles or qualifications:
1. Each of the representations and warranties made by Seller
in this Agreement or pursuant hereto, shall survive for a period of one (1) year
after the Closing; provided, however, that the representations and warranties
made by Seller to the extent they relate to Seller's title to the Shares shall
survive forever and that the representations and warranties made by Seller and
Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until
the first (1st) anniversary of the later of:
A. The date on which applicable period of
limitation on assessment or refund of tax has expired; or
B. The date on which the applicable taxable
year (or portion thereof) has been closed.
No claim for the recovery of indemnifiable Damages may be asserted by
Buyer against Seller Indemnifying Party or their successors in interest after
such representations and warranties shall be thus extinguished; provided,
however, that claims first asserted in writing within the applicable period
shall not thereafter be barred.
10.2. Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying
Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party")
harmless in respect of the aggregate of all indemnifiable Damages of any of
Seller Indemnified Parties.
For this purpose, "indemnifiable Damages" of the of Seller Indemnified
Party means the aggregate of all Damages incurred or suffered by the Seller
Indemnified Party resulting from:
A. Any inaccurate representation or warranty made by
Buyer or pursuant to this Agreement; or
B. Any default in the performance of any of the
covenants or agreements made by Buyer in this Agreement.
With respect to the measurement of "Indemnifiable Damages", the Seller
Indemnified Party shall have the right to be put in the same financial position
as they would have been had each of the representations and warranties of Buyer
Indemnifying Party been true and correct and had each of the covenants of Buyer
Indemnifying Party been performed in full.
The amount of any indemnifiable Damages otherwise payable to any Seller
Indemnified Party hereunder shall be reduced if the indemnifiable Damages
incurred by Seller Indemnified Party will provide such Party with income tax
deductions or credits. The amount of the reduction shall be the amount of the
actual cash tax savings realized by Seller Indemnified Party as a result of such
deductions or credits discounted to its present value as of the date of the
payment of the indemnifiable Damages from the date such indemnifiable Damages
were incurred by Seller Indemnified Party at the rate of interest charged on
such date by the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Buyer Indemnifying Party to indemnify
Seller Indemnified Party shall be subject to each of the following principles or
qualifications:
10.2.1 Each of the representations and warranties made by
Buyer in Article 4 of this Agreement shall survive for a period of one (1) year
after the Closing Date, and thereafter all such representations and warranties
shall be extinguished.
No claim for the recovery of indemnifiable Damages pursuant to clause
(i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer
Indemnifying Party or its successors in interest after such representations and
warranties shall be thus extinguished; provided, however, that claims first
asserted in writing within the applicable period shall not thereafter be barred.
10.3. Matters Involving Third Parties. If any third party shall notify
Buyer or Seller (the "Indemnified Party") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 10., then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent that) the Indemnifying Party thereby is
Damaged.
If any Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then:
A. The Indemnifying Party will defend the Indemnified
Party against the matter with counsel of its choice satisfactory to the
Indemnified Party;
B. The Indemnified Party may retain separate co-counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the fees and expenses of the separate co-counsel to the extent the
Indemnified Party concludes that the counsel the Indemnifying Party has selected
has a conflict of interest);
C. The Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the matter
without the written consent of the Indemnifying Party (not to be withheld or
delayed unreasonably); and
D. The Indemnifying Party will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld or delayed unreasonably).
If no Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then the Indemnified Party
may defend against, or enter into any settlement with respect to, the matter in
any manner it may deem appropriate.
10.4. Limitations on Indemnification. Notwithstanding the provisions of
Sections 10.1 or 10.2 hereof, neither party shall have any liability to
indemnify the other until and to the extent that the aggregate amount of
indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any
indemnification claims hereunder shall in no event exceed an amount equal to one
half of the value of Buyer's Stock transferred hereunder valued as of the
Closing Date.
11. POST-CLOSING AGREEMENTS.
11.1. Consistency in Reporting. Each party hereto agrees that:
--------------------------
(i) the transaction is intended to qualify as a tax-free transaction under
the I.R.C.; (ii) the transaction shall be reported for Federal income tax
purposes as a tax-free transaction; (iii) for purposes of all financial
statements, tax returns and reports, and communications with third parties, the
transactions contemplated in this agreement and ancillary or collateral
transactions will be treated as a tax-free transaction; and (iv) if the
characterization of any transaction contemplated in this agreement or any
ancillary or collateral transaction is challenged, each party hereto will
testify, affirm and ratify that the characterization contemplated in such
agreement was with the characterization intended by the party; provided,
however, that nothing herein shall be construed as giving rise to any obligation
if the reporting position is determined to be incorrect by final decision of a
court of competent jurisdiction. 12. GENERAL PROVISIONS.
12.1. Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants.
Seller will cause the Company not to incur any out-of-pocket expenses
in connection with the Contemplated Transactions. In the event of termination of
this Agreement, the obligation of each party to pay its own expenses will be
subject to any rights of such party arising from a breach of this Agreement by
another party.
12.2. Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer determines.
Unless consented to by Buyer in advance or required by Legal Requirements, prior
to the Closing, Seller shall, and shall cause the Company to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by
which the Company's employees, customers, and suppliers and others having
dealings with Seller will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
12.3. Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, and not use to the detriment of another party or the
Company any written, oral, or other information obtained in confidence from
another party or an Seller in connection with this Agreement or the Contemplated
Transactions, unless:
A. Such information is already known to such party
or to others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party;
B. The use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval
required for the consummation of the Contemplated Transactions; or
C. The furnishing or use of such information is
equired by or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause Seller to waive, any cause of action, right, or
claim arising out of the access of Buyer or its representatives to any trade
secrets or other confidential information of the Company.
12.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (i) delivered by hand (with written confirmation of receipt); (ii)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested or (iii) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
AC Travel, Inc.
822 Concord Road, Suite 110
Smyrna, GA 30080
Attn: Asif Balagamwala
With a copy to:
Michael Smith, Esq.
Buyer: Elite Technologies, Inc.
3700 Crestwood Parkway
Suite 1000
Duluth, GA 30096
With a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1044
Attention: Bryan G. Harrison, Esq.
Telecopy No.: (404) 365-9532
12.5. Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Georgia, County of Gwinnett, or, if it has or can acquire jurisdiction, in
the United States District Court for the Northern District of Georgia, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
12.6. Further Assurances. The parties agree (i) to furnish upon request
to each other such further information; (ii) to execute and deliver to each
other such other documents and (iii) to do such other acts and things, all as
the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.7. Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable law:
A. No claim or right arising out of this Agreement or
the documents referred to in this Agreement can be discharged by one (1)
party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party;
B. No waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and
C. No notice to or demand on one (1) party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
12.8. Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer and Seller) and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
12.9. Disclosure Schedule.
-------------------
A. The disclosures in the Disclosure Schedule, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
B. In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Schedule (other than an
exception expressly set forth as such in the Disclosure Schedule with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
12.10. Assignments, Successors and No Third-Party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld, except that Buyer
may assign any of its rights under this Agreement to any Subsidiary of Buyer.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
12.11. Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.12. Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12.13. Time of Essence. With regard to all dates and time periods
----------------
set forth or referred to in this Agreement, time is of the essence.
12.14. Governing Law. This Agreement will begoverned by the laws
--------------
of the State of Georgia without regard to conflicts of laws principles.
12.15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
<PAGE>
stock purchase agreement
made as of
June 27, 2000,
Between
Elite technologies, inc.,
buyer,
and
International electronic technology of georgia , Inc.
d/b/a iet startek, inc.
Frank Noori, Individually,
seller(S)
<PAGE>
-iii-
table of contents
Page
1. DEFINITIONS. 1
1.1. "APPLICABLE CONTRACT"
1
1.2. "BREACH"
1
1.3. "BUYER"
1
1.4. "BUYER'S STOCK"
1
1.5. "CLOSING"
1
1.6. "CLOSING DATE"
1
1.8. "CONSENT"
1
1.9. "CONTEMPLATED TRANSACTIONS"
2
1.10. "CONTRACT"
2
1.11. "DAMAGES"
2
1.12. "DISCLOSURE SCHEDULE"
2
1.13. "ENCUMBRANCE"
2
1.14. "ENVIRONMENTAL REQUIREMENTS"
2
1.15. "ERISA"
2
1.16. "FACILITIES"
2
1.17. "GAAP"
3
1.18. "GOVERNMENTAL AUTHORIZATION"
3
1.19. "GOVERNMENTAL BODY"
3
1.20. "IRC"
3
1.21. "IRS"
3
1.22. "KNOWLEDGE"
3
1.23. "LEGAL REQUIREMENT"
3
1.24. "OPERATING INCOME"
3
1.25. "ORDER"
4
1.26. "ORDINARY COURSE OF BUSINESS"
4
1.27. "ORGANIZATIONAL DOCUMENTS"
4
1.28. "PERSON"
4
1.29. "PLAN"
4
1.30. "PROCEEDING"
4
1.31. "RELATED PERSON"
5
1.32. "REPRESENTATIVE"
5
1.33. "SECURITIES ACT"
5
1.34. "SELLER"
5
1.35. "SHARES"
6
1.36. "SUBSIDIARY"
6
1.37. "TAX RETURN"
6
1.38. "THREATENED"
6
2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6
--------------------------------------------------------------------------------
2.1. SHARES.
---- ------
6
2.2. BUYER'S STOCK.
---- -------------
6
2.3. CLOSING.
---- -------
6
2.4. CLOSING OBLIGATIONS.
---- -------------------
6
3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7
3.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
7
3.2. AUTHORITY; NO CONFLICT.
---- ----------------------
8
3.3. CAPITALIZATION.
---- --------------
9
3.4. FINANCIAL STATEMENTS.
---- --------------------
9
3.5. BOOKS AND RECORDS.
---- -----------------
10
3.6. TITLE TO PROPERTIES; ENCUMBRANCES.
---- ---------------------------------
10
3.7. NO UNDISCLOSED LIABILITIES.
---- --------------------------
11
3.8. TAXES.
---- -----
11
3.9. NO MATERIAL ADVERSE CHANGE.
---- --------------------------
11
3.10. EMPLOYEE BENEFITS MATTERS.
----- -------------------------
11
3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
----- ---------------------------------------------------------------
12
3.12. LEGAL PROCEEDINGS; ORDERS.
----- -------------------------
13
3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS.
----- -------------------------------------
15
3.14. CONTRACTS; NO DEFAULTS.
----- ----------------------
15
3.15. INSURANCE.
----- ---------
17
3.16. ENVIRONMENTAL MATTERS.
----- ---------------------
18
3.17. EMPLOYEE MATTERS.
----- ---------------
18
3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY.
----- -------------------------------------------
18
3.19. CERTAIN PAYMENTS.
----- ----------------
20
3.20. DISCLOSURE.
----- ----------
20
3.21. BROKERS OR FINDERS.
----- ------------------
21
4. REPRESENTATIONS AND WARRANTIES OF BUYER. 21
4.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
21
4.2. AUTHORITY.
---- --------
21
4.3. INVESTMENT INTENT.
---- -----------------
21
4.4. CERTAIN PROCEEDINGS.
---- -------------------
21
4.5. BROKERS OR FINDERS.
---- ------------------
21
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 22
--------------------------------------------------------------------------------
5.1. ACCESS AND INVESTIGATION.
---- ------------------------
22
5.2. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ----------------------------------------
22
5.3. NEGATIVE COVENANT.
---- -----------------
22
5.4. REQUIRED APPROVALS.
---- ------------------
22
5.5. NOTIFICATION.
---- ------------
23
5.6. NO NEGOTIATION.
---- --------------
23
5.7. CLOSING OF BANK ACCOUNTS.
---- -----------------------
23
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23
--------------------------------------------------------------------------------
6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS.
---- -----------------------------------------------------
23
6.2. ACCESS AND INVESTIGATION.
---- ------------------------
24
6.3. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ---------------------------------------
24
6.4. NOTIFICATION.
---- ------------
24
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24
--------------------------------------------------------------------------------
7.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
24
7.2. SELLER'S PERFORMANCE.
---- --------------------
25
7.3. CONSENTS.
---- --------
25
7.4. ADDITIONAL DOCUMENTS.
---- --------------------
25
7.5. NO PROCEEDINGS.
---- --------------
25
7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.
---- ---------------------------------------------------
25
7.7. NO PROHIBITION.
---- --------------
25
7.8. EMPLOYMENT AGREEMENT.
---- --------------------
26
7.9. REGISTRATION OF SHARES FOR SELLER.
---- ---------------------------------
26
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 26
--------------------------------------------------------------------------------
8.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
26
8.2. BUYER'S PERFORMANCE.
---- -------------------
26
8.3. CONSENTS.
---- --------
26
8.4. ADDITIONAL DOCUMENTS.
---- --------------------
26
8.5. NO INJUNCTION.
---- -------------
26
9. TERMINATION. 27
9.1. TERMINATION EVENTS.
---- ------------------
27
9.2. EFFECT OF TERMINATION.
---- ---------------------
27
10. INDEMNIFICATION; REMEDIES. 27
--------------------------------------------------------------------------------
10.1. AGREEMENT BY SELLER TO INDEMNIFY.
----- --------------------------------
27
10.2. AGREEMENTS BY BUYER TO INDEMNIFY.
----- --------------------------------
29
10.3. MATTERS INVOLVING THIRD PARTIES.
----- -------------------------------
29
11. POST-CLOSING AGREEMENTS. 30
--------------------------------------------------------------------------------
11.1. CONSISTENCY IN REPORTING.
----- ------------------------
30
12. GENERAL PROVISIONS. 31
--------------------------------------------------------------------------------
12.1. EXPENSES.
----- --------
31
12.2. PUBLIC ANNOUNCEMENTS.
----- --------------------
31
12.3. CONFIDENTIALITY.
----- ---------------
31
12.4. NOTICES.
----- -------
32
12.5. JURISDICTION; SERVICE OF PROCESS.
----- --------------------------------
32
12.6. FURTHER ASSURANCES.
----- ------------------
32
12.7. WAIVER.
----- ------
33
12.8. ENTIRE AGREEMENT AND MODIFICATION.
----- ---------------------------------
33
12.9. DISCLOSURE SCHEDULE.
----- -------------------
33
12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS.
------ -------------------------------------------------
33
12.11. SEVERABILITY.
------ ------------
34
12.12. SECTION HEADINGS; CONSTRUCTION.
------ ------------------------------
34
12.13. TIME OF ESSENCE.
------ ---------------
34
12.14. GOVERNING LAW.
------ -------------
34
12.15. COUNTERPARTS.
------ ------------
34
<PAGE>
Stock Purchase Agreement
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of April 28,
2000, by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and
International Electronic Technology of Georgia, Inc., d/b/a IET Startek, a
Georgia Corporation, Frank Noori, individually and collectively hereinafter
referred to as ("Seller").
RECITALS:
Seller desire to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Shares") of capital stock of IET Startek, Inc. for
the consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.:
1.1. "Applicable Contract" - any Contract (i) under which Seller or
Company has or may acquire any rights; (ii) under which Seller or Company has or
may become subject to any obligation or liability or (iii) by which Seller or
Company or any of the assets owned or used by it is or may become bound.
1.2. "Breach" - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (i) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision or
(ii) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence or circumstance.
1.3. "Buyer" - as defined in the first paragraph of this Agreement.
1.4. "Buyer's Stock" - 1,200,000 restricted shares of Seller's
capital stock.
1.5. "Closing" - as defined in Section 2.4.
1.6. "Closing Date" - the date and time as of which the Closing
actually takes place.
1.7 "Company" - AC Travel, Inc.
1.7. "Consent" - any approval, consent, ratification, waiver, or
other authorization (including any Governmental
Authorization).
1.9. "Contemplated Transactions" - all of the transactions
contemplated by this Agreement, including:
A. The transfer of the Shares by Seller to Buyer;
B. The execution, delivery, and performance of the Closing
Obligations set forth in Section 2.5;
C. The performance by Buyer and Seller of their respective
covenants and obligations under this Agreement;
D. Buyer's acquisition and ownership of the Shares and exercise
of control over the Company; and
E. The transfer of Buyer's Stock to Seller; and
F. Payment by Buyer to Seller of the Reimbursement Amount.
1.10. "Contract" - any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
1.11. "Damages" - any loss, liability, claim, damages (including,
without limitation, incidental and consequential damages), expense (including,
without limitation, costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third party.
1.12. "Disclosure Schedule" - the disclosure schedule delivered by
Seller to Buyer concurrently with the execution and delivery of this Agreement.
1.13. "Encumbrance" - any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
1.14. "Environmental Requirements" - means federal, state and local
laws relating to pollution or protection of the environment, including laws or
provisions relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes.
1.15. "ERISA" - the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
1.16. "Facilities" - any real property, leaseholds, or other interests
currently or formerly owned or operated by Seller and any buildings, plants,
structures, or equipment (including motor vehicles) currently or formerly owned
or operated by Seller.
1.17. "GAAP" - generally accepted United States accounting
principles, applied on a basis consistent with the basis on which the financial
statements referred to in Section 3.4. were prepared.
1.18. "Governmental Authorization" - any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
1.19. "Governmental Body" - any:
A. Nation, state, county, city, town, village, district,
or other jurisdiction of any nature;
B. Federal, state, local, municipal, foreign, or other
government;
C. Governmental or quasi-governmental authority of any
nature (including any governmental agency, branch,
department, official, or entity and any court or
other tribunal);
D. Multi-national organization or body; or
E. Body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of
any nature.
1.20. "IRC" - the Internal Revenue Code of 1986 or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
1.21. "IRS" - the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
1.22. "Knowledge" - an individual will be deemed to have "Knowledge"
of a particular fact or other matter if:
A. Such individual is actually aware of such fact or other
matter; or
B. A prudent individual given his position with the Company could
be reasonably expected to discover or otherwise become aware
of such fact or other matter.
1.23. "Legal Requirement" - any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
1.24. "Operating Income" - means the net income of the Company
determined in accordance with GAAP before income taxes and after all other
charges except:
A. Unless otherwise approved by Buyer, any general and administrative
expense (i.e., allocation of the Company's general corporate overhead)
attributable to the Company and all subsidiaries of the Company that is not
directly related to the operation of the Company in the Ordinary Course of
Business; provided, however, Operating Income shall include reimbursement by
Seller of expenses at a fair market price mutually agreed to by Buyer and Seller
for expenses previously incurred by Seller, but that have for administrative
convenience or efficiency reasons been centralized with Buyer; and
B. Any amortization of goodwill of the Company and all Subsidiaries of
the Company.
C. In the event that certain expenses incurred by the Seller are for
the principal or partial benefit of the Company or other subsidiaries of the
Company, then the parties hereto shall endeavor to track and determine in a fair
and equitable manner that portion of such expenses that should fairly and
reasonably be allocated to the Company or such other subsidiaries of the
Company, and therefore not included in arriving at Operating Income for purposes
of this Agreement.
1.25. "Order" - any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
1.26. "Ordinary Course of Business" - an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" only if:
A. Such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
B. Such action is not required to be authorized by the board of
directors of such Person (or by any
Person or group of Persons exercising similar authority); and
C. Such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
1.27. "Organizational Documents" - (i) the Articles or Certificate of
Incorporation and the Bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person and (iii) any amendment to any of the foregoing.
1.28. "Person" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
1.29. "Plan" - as defined in Section 3.10.1.
1.30. "Proceeding" - any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
1.31. "Related Person" - with respect to a particular individual:
A. Each other member of such individual's Family;
B. Any Person that is directly or indirectly controlled by such
individual or one (1) or more members of such individual's Family;
C. Any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
D. Any Person with respect to which such individual or one (1) or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
A. Any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
B. Any Person that holds a Material Interest in such specified Person;
C. Each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
D. Any Person in which such specified Person holds a Material Interest;
E. Any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
Any Related Person of any individual described in clause B. or C.
For purposes of this definition, (i) the "Family" of an individual
includes (1) the individual; (2) the individual's spouse and former spouses; (3)
any other natural person who is related to the individual or the individual's
spouse within the second degree and (4) any other natural person who resides
with such individual and (2) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least
[five percent (5%)] of the outstanding voting power of a Person or equity
securities or other equity interests representing at least [five percent (5%)]
of the outstanding equity securities or equity interests in a Person.
1.32. "Representative" - with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
1.33. "Securities Act" - the Securities Act of 1933 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
1.34. "Seller" - as defined in the first paragraph of this Agreement.
1.35. "Shares" - as defined in the Recitals of this Agreement.
1.36. "Subsidiary" - with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one (1) or more of its
Subsidiaries; [when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Company].
1.37. "Tax Return" - any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
1.38. "Threatened" - a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING.
2.1. Shares. In exchange for the transfer of Buyer's Stock, as set
------
forth in Section 2.2, and subject to the terms and conditions of this Agreement,
at the Closing, Seller will transfer the Shares to Buyer.
2.2. Buyer's Stock. In exchange for the transfer of Shares as
--------------
set forth in Section 2.1, and subject to the terms and conditions of this
Agreement, at the Closing, Buyer shall transfer to Seller the Buyer's Stock.
2.3. Closing. The purchase and sale (the "Closing") provided for
-------
in this Agreement will take place at the offices of Morris, Manning & Martin,
L.L.P., at 1600 Atlanta Financial Center, 3343 Peachtree Road, N.E.,
Atlanta, Georgia 30326, at 10:00 a.m. (local time) on June 28, 2000, or
at such other time and place as the parties may agree. Except as otherwise
provided in Section 9., failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 2.3. will not result in the termination of this
Agreement and will not relieve any party of any obligation under this
Agreement.
2.4. Closing Obligations. At the Closing:
-------------------
A. Seller will deliver to Buyer:
(i) Certificates. Certificates representing
------------
the Shares, duly endorsed (or accompanied by duly executed stock powers)
for transfer to Buyer;
(ii) Good Standing Certificate. Seller shall have
--------------------------
delivered to Buyer a certificate evidencing the good standing of the Company as
of a recent practicable date;
(iii) Certificate. A certificate substantially
-----------
in the form of Exhibit A hereto, executed by Seller representing and
---------
warranting to Buyer that each of Seller's representations and warranties in this
Agreement was accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the Closing Date
(giving full effect to any supplements to the Disclosure Schedule that were
delivered by Seller to Buyer prior to the Closing Date in accordance with
Section 5.5.); and
(iv) Mutual Release. Seller shall have delivered
--------------
to Buyer a mutual release, executed by Seller, substantially in the form of
Exhibit B to be attached at closing
-----------------------------------
(v) All Corporate records, organzational
documents, minutes of Board of Director and Shareholder meetings and corporate
seal.
B. Buyer will deliver to Seller:
(i) Certificates. Certificates representing
------------
Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers)
for transfer to Seller, or a Board of Directors resolution signifying the order
of the transfer of shares to Seller to be effectuated immediately, without
delay;
(ii) Certificate. A certificate in the form of
-----------
Exhibit C hereto executed by Buyer to the effect that, except as otherwise
---------
stated in such certificate, each of Buyer's representations and warranties
in this Agreement was accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if made on the Closing
Date; and
(iii) Mutual Release. Buyer shall have delivered
--------------
to Seller a Mutual Release, executed by Buyer, substantially in the form of
Exhibit B to be attached at closing.
-----------------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
3.1. Organization and Good Standing.
------------------------------
A. Schedule 3.1 of the Disclosure Schedule contains a complete
and accurate list of the Company's name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each stockholder and the number of
shares held by each).
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of Georgia, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts.
Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
B. Seller has made available to Buyer copies of the
Organizational Documents of the Company, as currently in effect.
3.2. Authority; No Conflict.
----------------------
A. This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
Upon the execution and delivery by Seller of the closing documents set forth in
Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's
Closing Documents will constitute the legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms.
Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Seller's
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents.
B. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) Contravene, conflict with, or result in a
violation of (1) any provision of the Organizational Documents of the Company
or (2) any resolution adopted by the board of directors or the
stockholders of the Company;
(ii) Contravene, conflict with, or result in
a violation of, or give any
Governmental Body or other Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Seller or the Company, or any of the assets
owned or used by Seller, may be subject;
(iii) Contravene, conflict with, or result in
a violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by Seller or that otherwise relates
to the business of, or any of the assets owned or used by, the Company;
(iv) Cause Buyer or Seller to become subject to,
or to become liable for the payment of, any Tax;
(v) Contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract; or
(vi) Result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Seller.
Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller
nor the Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.3. Capitalization. The authorized equity securities of the
--------------
Company consist of 1,000,000 shares of common stock, .01 par value per share,
of which 1,000,000 shares are issued and outstanding and constitute the
Shares.
Seller is and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances.
With the exception of the Shares (which are owned by Seller), all of
the outstanding equity securities and other securities of the Company are owned
of record and beneficially by Seller, free and clear of all Encumbrances. No
legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of the Company.
All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of the Company, including, but not limited to, stock
options, warrants, convertible securities, redemption rights, registration
rights and the like.
None of the outstanding equity securities or other securities of the
Company was issued in violation of the Securities Act or any other Legal
Requirement.
3.4. Financial Statements. Seller shall deliver to Buyer, at
---------------------
closing date to be attached as Schedule 3.4:
---------
A. Unaudited balance sheets of Seller as of May, 2000, and as
of, together with the related statements of income, changes in stockholder
equity and cash flow (collectively, the "Financial Statements") for the periods
referred to in such financial statements.
B. The Financial Statements were prepared in accordance
with this Agreement and with GAAP consistently applied.
The Financial Statements and notes, if any, fairly present the
financial condition and the results of operations, changes in stockholders'
equity, and cash flow of the Company as at the respective dates of and for the
periods referred to in such Financial Statements, all in accordance with GAAP,
subject, in the case of interim Financial Statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes.
3.5. Books and Records. The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices.
The minute books of the Company contain accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Company,
and no meeting of any such stockholders, Board of Directors, or committee has
been held for and no material action has been taken at any meeting for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of Seller.
3.6. Title to Properties; Encumbrances. Seller owns (with good and
marketable title in the case of real property, subject only to the Encumbrances
permitted by this Section) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that they purport to own
located in the facilities owned or operated by Seller or reflected as owned in
the books and records of the Company, including all of the properties and assets
reflected in the Closing Date Financial Statements (except for assets held under
capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of
the Disclosure Schedule which shall be attached to this Agreement as Schedule
3.6 at the closing date.).
All material properties and assets reflected in the Closing Date
Financial Statements are free and clear of all Encumbrances and are not, in the
case of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets:
A. Mortgages or security interests shown on the Closing
Date Financial Statements as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists;
B. Liens for current taxes not yet due; and
C. With respect to real property:
(i) Minor imperfections of title, if any, none
of which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company; and
(ii) Zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject
thereto.
All buildings, plants, and structures owned by Seller lie wholly within
the boundaries of the real property owned by Seller and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person. All property and assets of the the Company shall be in the possession
and control of Seller at Closing, including but not limited to, all Facilities.
3.7. No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of
the Disclosure Schedule, Seller has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Closing Date Financial Statements and current liabilities incurred in the
Ordinary Course of Business since the respective dates thereof.
3.8. Taxes. Except as set forth on Schedule 3.8 to the Disclosure
Schedule, Seller has timely filed all tax returns and reports required to be
filed by it, including, without limitation, all federal, state and local tax
returns, and has paid in full or made adequate provision by the establishment of
reserves for all taxes and other charges which have become due or which are
attributable to the conduct of Seller's business prior to Closing. Seller will
continue to make adequate provision for all such taxes and other charges for all
periods through the Closing Date.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller
shall have no Knowledge of any tax deficiency proposed or threatened against
Seller. There are no tax liens upon any property or assets of the Company.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller
has made all payments of estimated taxes when due in amounts sufficient to avoid
the imposition of any penalty.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, all
taxes and other assessments and levies which Seller was required by law to
withhold or to collect have been duly withheld and collected, and have been paid
over to the proper governmental entity.
Except as set forth in Schedule 3.8 to the Disclosure Schedule, the
federal and state income tax returns and local returns, if any, of Seller have
never been audited by the income tax authorities, nor are any such audits in
process. Except as set forth in Schedule 3.8, to the Disclosure Schedule there
are no outstanding agreements or waivers extending the statute of limitations
applicable to any federal or state income tax returns of the Company for any
period.
3.9. No Material Adverse Change. Since January, 1996 there has not
---------------------------
been any material adverse c hange in the business, operations, properties,
prospects, assets, or condition of the Company, and no event has occurred or
circumstance exists that may result in such a material adverse change.
3.10. Employee Benefits Matters.
-------------------------
3.10.1 Schedule 3.10.1 lists all plans, programs, and similar
agreements, commitments or arrangements, whether oral or written, maintained by
or on behalf of Seller or any other party that provide benefits or compensation
to, or for the benefit of, current or former employees of the Company ("Plan" or
"Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only
current and former employees of the Company participate in the Plans. Copies of
all Plans and, to the extent applicable, all related trust agreements, actuarial
reports, and valuations for the most recent year, all summary plan descriptions,
prospectuses, Annual Report Form 5500s or similar forms (and attachments
thereto) for the most recent year, all Internal Revenue Service determination
letters, and any related documents requested by Buyer, including all amendments,
modifications and supplements thereto, have been delivered to Buyer, and all of
the same are or will be true, correct and complete.
3.10.2 With respect to each Plan to the extent applicable:
A. No litigation or administrative or other
proceeding is pending or threatened involving such Plan;
B. To the Knowledge of Seller, such Plan has
been administered and operated in substantial compliance with, and has been
amended to comply with all applicable laws, rules, and regulations, including,
without limitation, ERISA, the Internal Revenue Code, and the regulations issued
under ERISA and the Internal Revenue Code;
C. Seller and its predecessors, if any, have
made and as of the Closing Date will have made or accrued, all payments and
contributions required, or reasonably expected to be required, to be made
under the provisions of such Plan or required to be made under applicable
laws, rules and regulations, with respect to any period following, such amounts
to be determined using the ongoing actuarial and funding assumptions of the
Plan;
D. Such Plan is fully funded in an amount
sufficient to pay all liabilities accrued (including liabilities and
obligations for health care, life insurance
and other benefits after termination of employment) and claims incurred to the
date hereof;
E. On the Closing Date such Plan will be fully
funded in an amount sufficient to pay all liabilities accrued (including
liabilities and obligations for health care, life insurance and other benefits
after termination of employment) and claims incurred to the Closing Date, or
adequate reserves will be set up on the Company's books and records, or paid-up
insurance will be provided, therefor; and
F. Such Plan has been administrated and operated
only in the ordinary and usual course and in accordance with its terms, and
there has not been in the year prior hereto any increase in the liabilities
of such Plan beyond increases typically experienced by employers similar to
the Company.
3.11. Compliance With Legal Requirements; Governmental Authorizations.
---------------------------------------------------------------
A. Except as set forth in Schedule 3.11 of the
-------------
Disclosure Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) (1) may constitute or result
in a violation by Seller of, or a failure on the part of Seller to comply with,
any Legal Requirement or (2) may give rise to any obligation on the part of
Seller to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding (1) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement or (2) any actual, alleged, possible, or potential obligation on
the part of Seller to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature.
B. Schedule 3.11 Except as set forth in Schedule 3.11 of
------------- -------------
the Disclosure Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with all of the terms and
requirements of any applicable Governmental Authorization;
(ii) No event has occurred or circumstance exists
that may (with or without notice or lapse of time) (1) constitute or result
directly or indirectly in a violation of or a failure to comply with any
term or requirement of any applicable Governmental Authorization or (2) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any applicable Governmental
Authorization;
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (1) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization or (2) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) All applications required to have been
filed for the renewal of the Governmental Authorizations have been duly
filed on a timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Seller has obtained any Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate their businesses in the
manner they currently conduct and operate such businesses and to permit the
Company to own and use their assets in the manner in which they currently own
and use such assets.
3.12. Legal Proceedings; Orders.
-------------------------
A. Except as set forth in Schedule 3.12 of the
--------------
Disclosure Schedule, there is no pending Proceeding:
(i) That has been commenced by or against Seller
or that otherwise relates to or may affect the business of, or any of the assets
owned or used by, Seller; or
(ii) That challenges, or that may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions.
To the Knowledge of Seller, (i) no such Proceeding has been Threatened
and (ii) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. Seller shall have
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule.
The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have
a material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
B. Except as set forth in Schedule 3.12 of the
-------------
Disclosure Schedule:
(i) There is no Order to which any of Seller,
or any of the assets owned or used by the Company, is subject;
(ii) Seller is not subject to any Order that
relates to the business of, or any of the assets owned or used by, the Company;
and
(iii) No officer, director, agent, or employee of
the Company is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
C. Except as set forth in Schedule 3.12 of the
-------------
Disclosure Schedule:
(i) Seller is, and at all times since January,
1996, has been, in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or
has been subject;
(ii) No event has occurred or circumstance
exists that may constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or requirement of any
Order to which Seller, or any of the assets owned or used by Seller, is subject;
and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned
or used by the Company, is or has been subject.
3.13. Absence of Certain Changes and Events. Except as set forth in
--------------------------------------
Schedule 3.13 of the Disclosure Schedule, since January, 1996, the Company
--------------
has conducted its business only in the Ordinary Course of Business and there has
not been any:
A. Change in the Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock; grant of
any registration rights; purchase, redemption, retirement, or other acquisition
by the Company of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of shares of
capital stock;
B. Amendment to the Organizational Documents of the Company;
C. Payment or increase by Seller of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except
in the Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
D. Adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees
of the Company;
E. Damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects
of the Company, taken as a whole;
F. Entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement or (ii) any Contract or transaction
involving a total remaining commitment by or to the Company of at least Five
Thousand and No/100 Dollars ($5,000.00);
G. Sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Software and Intangibles;
H. Cancellation or waiver of any claims or rights with a value
to the Company in excess of Five Thousand and No/100 Dollars ($5,000.00);
I. Material change in the accounting methods used by the
Company; or
J. Agreement, whether oral or written, by Seller to do any of
the foregoing.
3.14. Contracts; No Defaults.
----------------------
A. Except as set forth in Schedule 3.17(A) of the Disclosure
----------------
Schedule:
(i) Other than as set forth or provided for
on the Financial Statements, the Company has not or may not acquire any rights
under, and the Company has not or may not become subject to any obligation or
liability under, any Contract under which the Company is obligated to make
payments totaling, or services having a value equal to, $5,000 or more ; and
(ii) To the Knowledge of Seller, no officer,
director, agent, employee, consultant, or contractor of the Company is bound by
any Contract that purports to limit the ability of such officer, director,
agent, employee, consultant, or contractor to (1) engage in or continue any
conduct, activity, or practice relating to the business of the Company or (2)
assign to the Company or to any other Person any rights to any invention,
improvement, or discovery.
B. Except as set forth in Schedule 3.17(B) of the Disclosure
-----------------
Schedule, each material Contract is in full force and effect and is valid and
enforceable in accordance with its terms.
C. Except as set forth in Schedule 3.17(C) of the Disclosure
----------------
Schedule:
(i) The Company is, and at all times since January,
1996, has been, in full compliance with all applicable terms and requirements
of each Contract under which such Seller has or had any obligation or liability
or by which such Seller or any of the assets owned or used by the Company is or
was bound;
(ii) Each other Person that has or had any obligation
or liability under any Contract under which the Company has or had any
rights is, and at all times since January, 1996, has been, in full compliance
with all applicable terms and requirements of such Contract;
(iii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give Seller or other Person the right
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable Contract;
and
(iv) Seller has not given to or received from any
other Person, at any time since January, 1996, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
F. There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to Seller
under current or completed Contracts with any Person and no such Person has made
written demand for such renegotiation.
G. The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.15. Insurance.
---------
A. Seller have delivered to Buyer:
(i) True and complete copies of all policies of
insurance to which the Company or Seller is a party or under which the Company,
or any director of the Company, is or has been covered at any time within the
two (2) years preceding the date of this Agreement;
(ii) True and complete copies of all pending
applications for policies of insurance; and
(iii) Any statement by the auditor of the Company's
financial statements with regard to the adequacy of such entity's coverage or
of the reserves for claims.
B. Except as set forth on Schedule 3.15(B) of the Disclosure
----------------
Schedule:
(i) All policies to which Seller is a party or that
provide coverage to Seller, the Company, or any director or officer of an the
Company:
(1) Are valid, outstanding, and
enforceable;
(2) Taken together in the reasonable
judgment of Seller, provide adequate insurance coverage for the assets and
the operations of the Company for all risks to which the Company are normally
exposed;
(3) Are sufficient for compliance with
all Legal Requirements and Contracts to which Seller is a party or by which it
is bound;
(4) Will continue in full force and
effect following the consummation of the Contemplated Transactions; and
(5) Do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of Seller.
(ii) Neither Seller nor the Company has received
(1) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights or (2) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or effect or
will not be renewed or that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) Seller has paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy
to which Seller is a party or that provides coverage to the Company or director
thereof.
(iv) Seller has given notice to the insurer
of all claims that may be insured thereby.
3.16. Environmental Matters. Except as set forth in Schedule 3.16
----------------------
of the Disclosure Schedule, at all times since January, 1996, Seller has
obtained and is in compliance with all permits, licenses and other
authorizations required to do business by Environmental Requirements.
3.17. Employee Matters.
----------------
Except as set forth on Schedule 3.17, at all times since January, 1996,
Seller has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health and plant closing.
Except as set forth on Schedule 3.17, Seller is not liable for the
payment of any compensation, Damages, taxes, fines, penalties, or other amounts,
however, designated, for failure to comply with any of the foregoing Legal
Requirements.
3.18. Intellectual Property Rights of the Company.
-------------------------------------------
A. Definitions. As used in this Agreement, and in
-----------
addition to any other terms defined in this Agreement, the following terms shall
have the following meanings.
(i) "Software" means any computer program,
--------
operating system, applications system, firmware or software of any nature,
whether operational, under development or inactive, including all object code,
source code, technical manuals, compilation procedures, execution procedures,
flow charts, programmers notes, user manuals and other documentation thereof,
whether in machine-readable form, programming language or any other language or
symbols and whether stored, encoded, recorded or written on disk, tape, film,
memory device, paper or other media of any nature.
(ii) "Owned Software" means all Software owned
---------------
by the Company, whether purchased from a third party, developed by or on behalf
of the Company, currently under development or otherwise.
(iii) "Customer Software" means all Software,
-----------------
other than the Owned Software, that is, directly or through Distributors, either
(x) offered or provided to customers of the Company or (y) used by the Company
to provide information or services to customers of the Company for a fee.
(iv) "Seller Software" means the Owned Software
---------------
and the Customer Software.
(v) "Other Software" means all Software, other
--------------
than the Company's Software, that is licensed by the Company from third parties
or otherwise used by the Company for any purpose whatsoever.
(vi) "Intangible" means:
----------
(1) Patents, patent applications, patent
disclosures, all re-issues, divisions, continuations, renewals, extensions and
continuation-in-parts thereof and improvements thereto;
(2) Trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for Registration thereof and all goodwill associated therewith;
(3) Copyrights, Registrations thereof
and applications for Registration thereof;
(4) Maskworks, Registrations thereof
and applications for Registration thereof;
(5) Trade secrets and confidential
business information (including ideas, formulas, compositions, inventions,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, drawings, flow charts, processes, ideas,specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing, and business data, pricing and cost information, business and
marketing plans, and customer and supplier lists and information);
(6) Other proprietary rights;
(7) All income, royalties, Damages and
payments due at Closing or thereafter with respect to the Owned Software,
Customer Software, Other Software, or other Intangibles and all other rights
thereunder including, without limitation, Damages and payments for past,
present or future infringements or misappropriations thereof, the right to
sue and recover for past, present or future infringements or misappropriations
thereof;
(8) All rights to use all of the
foregoing forever; and
(9) All other rights in, to, and under
the foregoing in all countries.
B. Ownership and Right to License.
------------------------------
(i) Except as setforth in Schedule 3.18 of the
--------------
Disclosure Schedule, to the Knowledge of the Seller, at all times since
January, 1996, Seller has good and marketable title to the Owned Software and
Intangibles attributable to the Owned Software, and have the full right to use
all of the Customer Software and Other Software, and Intangibles attributable
thereto, as used or required to operate Seller's businesses as currently
conducted and as contemplated in the future in accordance with Seller's written
business plans, free and clear of any liens, claims, charges or encumbrances
which would affect the use of such Software in connection with the operation of
Seller's business as currently conducted and as contemplated in the future in
accordance with Seller's written business plans.
(ii) To the Knowledge of Seller, no rights
of any third party not previously obtained are necessary to market,
license, sell, modify, update, and/or create derivative works for any Software
as to which Seller take any such action in their respective businesses as
currently conducted and as contemplated in the future in accordance with
Seller's written business plans.
(iii) To the Knowledge of Seller, none of the
Software or Intangibles or their respective past or current uses by or
through Seller have violated or infringed upon, or is violating or infringing
upon, any Software, patent, copyright, trade secret or other Intangible of any
Person. To the knowledge of Seller, Seller has adequately maintained all trade
secrets and copyrights with respect to such Software.
To the Knowledge of Seller, Seller has performed all obligations
imposed upon them with regard to the Customer Software and Other Software which
are required to be performed by them on or prior to the date hereof, and Seller
nor, to the Knowledge of Seller, any other party, is in breach of or default
thereunder in any respect, nor to the Seller's Knowledge is there any event
which with notice or lapse of time or both would constitute a default
thereunder.
3.19. Certain Payments. Since January, 1996, neither Seller nor
-----------------
any director, officer, agent, or employee of the Company, nor to Seller's
Knowledge any other Person associated with or acting for or on behalf of Seller,
has directly or indirectly:
A. Made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business; (ii) to pay for favorable treatment
for business secured; (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Copmany or any affiliate
of the Company or (iv) in violation of any Legal Requirement.
B. Established or maintained any fund or asset that has not
been recorded in the books and records of the Company.
3.20. Disclosure.
----------
A. No representation or warranty of Seller in this Agreement
and no statement in the Disclosure Schedule omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
B. No notice given pursuant to Section 5.5. will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
C. There is no fact known to Seller that has specific
application to Seller or the Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as Seller can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Company (on a consolidated
basis) that has not been set forth in this Agreement or the Disclosure Schedule.
3.21. Brokers or Finders. Seller and its agents have incurred no
------------------
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
4.1. Organization and Good Standing. Buyer is a Texas corporation.
------------------------------
4.2. Authority. This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of the closing documents set
forth in Section 2.5.B (collectively, the "Buyer's Closing Documents"), the
Buyer's Closing Documents will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms. Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Buyer's Closing
Documents and to perform its obligations under this Agreement and the Buyer's
Closing Documents.
4.3. Investment Intent. Buyer is acquiring the Shares for its
------------------
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
4.4. Certain Proceedings. There is no pending Proceeding that
--------------------
has been commenced against Buyer and that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding
has been Threatened.
4.5. Brokers or Finders. Buyer and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
4.6. Full Disclosure. To the best knowledge of Buyer, it's officers,
directors or agents, no representation, warranty or covenant of Buyer contained
in this Agreement or in any other written statement or certificate delivered by
Buyer pursuant to this Agreement or in connection with the transactions
contemplated herein or in any SEC filing contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading. To
the best knowledge of Buyer, it's officers, directors or agents, there is no
fact which adversely affects, or in the future may adversely affect, the
business, operations, cash flows, affairs, prospects, properties or assets or
the condition, financial or otherwise of the Buyer which has not been disclosed
in this Agreement, or in the documents, certificates and written statements
furnished to Seller for use in connection with the transactions contemplated
hereby or in any SEC filing.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE.
5.1. Access and Investigation. Between the date of this Agreement
-------------------------
and the Closing Date, Seller will, and will cause the Company and its
Representatives to:
A. Afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, "Buyer's Advisors") full and
free access to the Company's personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data;
B. Furnish Buyer and Buyer's Advisors with copies of all such
contracts, books and records, and other existing documents and data as Buyer
may reasonably request; and
C. Furnish Buyer and Buyer's Advisors with such additional
financial, operating, and other data and information as Buyer may reasonably
request.
5.2. Operation of the Business of the Company. Between the date
-------------------------------------------
of this Agreement and the Closing Date, Seller will:
A. Conduct the business of the Company only in the Ordinary
Course of Business;
B. Use its commercially reasonable efforts to preserve intact
the current business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company or
Seller;
C. Confer with Buyer concerning operational matters of a
material nature; and
D. Otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of the Company.
5.3. Negative Covenant. Except as otherwise expressly permitted
-----------------
by this Agreement, between the date of this Agreement and the Closing Date,
Seller will not without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control, as
a result of which any of the changes or events listed in Section 3.13. is likely
to occur.
5.4. Required Approvals. As promptly as practicable after the date of
this Agreement, Seller will, and will cause the Company to, make all filings
required by Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Seller will, and will cause the Company to:
A. Cooperate with Buyer with respect to all filings that Buyer
reasonably elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions; and
B. Cooperate with Buyer in obtaining all required Consents.
5.5. Notification. Between the date of this Agreement and the Closing
Date, Seller will promptly notify Buyer in writing if Seller becomes aware of
any fact or condition that causes or constitutes a Breach of any of Seller's
representations and warranties as of the date of this Agreement, or if Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
Should any such fact or condition require any change in the Disclosure
Schedule if the Disclosure Schedule were dated the date of the occurrence or
discovery of any such fact or condition, Seller will promptly deliver to Buyer a
supplement to the Disclosure Schedule specifying such change. During the same
period, each Seller will promptly notify Buyer of the occurrence of any Breach
of any covenant of Seller in this Section 5. or of the occurrence of any event
that may make the satisfaction of the conditions in Section 7. impossible or
unlikely.
5.6. No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9., Seller will not, and will cause its
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of the Company, or any of the capital stock of the Company, or any
merger, consolidation, business combination, or similar transaction involving
Seller.
5.7. Closing of Bank Accounts. Seller shall cause the closing of
-------------------------
all Company bank accounts for which Seller, or its officers and directors, have
sole signature authority.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
6.1. Approvals of Governmental Bodies/Third Party Consents. As promptly
as practicable after the date of this Agreement, Buyer will, and will cause each
of its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will,
and will cause each Related Person to:
A. Cooperate with Seller with respect to all filings that
Seller is required by Legal Requirements to make in connection with the
Contemplated Transactions; and
B. Cooperate with Seller in obtaining all consents identified
in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will
not require Buyer to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
6.2. Access and Investigation. Between the date of this Agreement
-------------------------
and the Closing Date, Buyer will, and will cause its Representatives to:
A. Afford Seller and its Representatives and prospective
lenders and their Representatives (collectively, "Seller's Advisors") full and
free access to Buyer's personnel, properties (including subsurface testing),
contracts, books and records, and other documents and data;
B. Furnish Seller and Seller's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Seller may reasonably request; and
C. Furnish Seller and Seller's Advisors with such additional
financial, operating, and other data and information as Seller may reasonably
request.
6.3. Operation of the Business of the Company. Between the date
-------------------------------------------
of this Agreement and the Closing Date, Buyer will:
A. Conduct the business of Buyer only in the Ordinary Course
of Business;
B. Use commercially reasonable efforts to preserve intact the
current business organization of Buyer; and
A. Confer with Seller concerning operational matters of a material nature.
6.4. Notification. Between the date of this Agreement and the
------------
Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Buyer's representations and warranties as of the date of this Agreement, or
if Buyer becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1. Accuracy of Representations.
---------------------------
A. All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Schedule.
B. Each of Seller's representations and warranties in Article
3. must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure
Schedule.
7.2. Seller's Performance.
--------------------
A. All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
B. Each document required to be delivered pursuant to Section
2.4. must have been delivered by closing, and each of the other covenants and
obligations in Section 5. must have been performed and complied with in all
respects.
C. The results of any investigation performed by Buyer in
connection with Section 5.1. shall be satisfactory to Buyer in its sole
discretion.
7.3. Consents. Each of the Consents identified in Schedule 3.2 of
-------- ------------
the Disclosure Schedule must have been obtained and must be in full force and
effect.
7.4. Additional Documents. Seller shall deliver such other
---------------------
documents as Buyer may reasonably request for the purpose of (i) evidencing
the accuracy of any of Seller's representations and warranties; (ii) evidencing
the performance by Seller of, or the compliance by Seller with, any covenant or
obligation required to be performed or complied with by such Seller; (iii)
evidencing the satisfaction of any condition referred to in this Section 7. or
(iv) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5. No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking
Damages or other relief in connection with, any of the Contemplated Transactions
or (ii) that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions.
7.6. No Claim Regarding Stock Ownership or Sale Proceeds. There must
not have been made or Threatened by any Person any claim asserting that such
Person (i) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any stock of, or any other voting, equity,
or ownership interest in, any of Seller or (ii) is entitled to all or any
portion of the Purchase Price payable for the Shares, except as has been orally
disclosed to Buyer.
7.7. No Prohibition. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (i) any applicable Legal
Requirement or Order or (ii) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
7.8. Employment Agreement. On or before the Closing Date, Seller(s)
---------------------
shall have entered into an employment agreement with Buyer.
7.9. Registration of Shares for Seller. Buyer hereby certifies that it
intends to file a registration statement under exception rule SB-2, for a block
of Buyers common stock. Buyer agrees to allow Seller "piggyback" registration
rights of Buyers common stock in an amount so that Seller shall receive a
benefit of three hundred thousand dollars ($300,000.00), with half, or $150,000
payable at closing and the remaining $150,000 payable within 90 days after
closing. Seller agrees to sell the registered shares through Buyers Investment
Banker only, and only in an amount of shares (as deemed by the Investment Banker
of Buyer) as not to cause any adverse effect on stock price of Buyer.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
8.1. Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2. Buyer's Performance.
-------------------
A. All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
B. Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.5.
8.3. Consents. Each of the Consents identified in Schedule 3.2 of
-------- ------------
the Disclosure Schedule must have been obtained and must be in full force and
effect.
8.4. Additional Documents. Buyer must have caused the following
---------------------
documents to be delivered to Seller such other documents as Seller may
reasonably request for the purpose of (i) evidencing the accuracy of any
representation or warranty of Buyer; (ii) evidencing the performance by Buyer
of, or the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer; (iii) evidencing the satisfaction of any
condition referred to in this Section 8. or (iv) otherwise facilitating the
consummation of any of the Contemplated Transactions.
8.5. No Injunction. There must not be in effect any Legal
--------------
Requirement or any injunction or other Order that (i) prohibits the sale of
the Shares by Seller to Buyer and (ii) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement. 8.6. 8.6
Employment Agreements. Buyer and Frank Noori shall enter into an Employment
-----------------------
Agreement, in a form to be mutually agreed by the parties.
9. TERMINATION.
9.1. Termination Events.
------------------
This Agreement may, by notice given prior to or at the Closing, be
terminated:
A. By either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
B. (i) By Buyer if any of the conditions in Section
7. have not been satisfied as of the Closing Date or if satisfaction of such
a condition is or becomes impossible (other than through the failure of Buyer
to comply with its obligations under this Agreement) and Buyer has not waived
such condition on or before
the Closing Date;
(ii) By Seller, if any of the conditions in
Section 7. have not been satisfied of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has not
waived such condition on or before the Closing Date; or
C. By mutual consent of Buyer and Seller; or
D. By either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before June 29,
2000, or such later date as the parties may agree upon.
9.2. Effect of Termination. Each party's right of termination under
Section 9.1. is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1., all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 12.1. and 12.3. will survive; provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one (1) or more of the conditions
to the terminating party's obligations under this Agreement is not satisfied as
a result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
10.1. Agreement by Seller to Indemnify. Seller (the "Seller
---------------------------------
Indemnifying Party"), agrees that they will indemnify and hold Buyer harmless
in respect of the aggregate of all indemnifiable Damages of Buyer.
For this purpose, "indemnifiable Damages" of Buyer means the aggregate
of all Damages incurred or suffered by Buyer resulting from:
A. Any inaccurate representation or warranty made by Seller
in or pursuant to this Agreement;
B. Any default in the performance of any of the covenants or
agreements made by Seller in this Agreement; or
C. The failure of any Seller to pay, discharge or perform any
liability or obligation of Seller or of Seller resulting from the operation of
Seller's business prior to the Closing Date.
With respect to the measurement of "Indemnifiable Damages", Buyer shall
have the right to be put in the same financial position as it would have been
had each of the representations and warranties of Seller been true and correct
and had each of the covenants of Seller been performed in full.
The amount of any indemnifiable Damages otherwise payable to Buyer
hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will
provide Buyer with income tax deductions or credits. The amount of the reduction
shall be the amount of the actual cash tax savings realized by Buyer as a result
of such deductions or credits, discounted to its present value as of the date of
the payment of the indemnifiable Damages from the date such indemnifiable
Damages were incurred by Buyer at the rate of interest charged on such date by
the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Seller Indemnifying Party to indemnify
Buyer shall be subject to each of the following principles or qualifications:
2. Each of the representations and warranties made by Seller
in this Agreement or pursuant hereto, shall survive for a period of one (1) year
after the Closing; provided, however, that the representations and warranties
made by Seller to the extent they relate to Seller's title to the Shares shall
survive forever and that the representations and warranties made by Seller and
Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until
the first (1st) anniversary of the later of:
A. The date on which applicable period of limitation
on assessment or refund of tax has expired; or
B. The date on which the applicable taxable year (or
portion thereof) has been closed.
No claim for the recovery of indemnifiable Damages may be asserted by
Buyer against Seller Indemnifying Party or their successors in interest after
such representations and warranties shall be thus extinguished; provided,
however, that claims first asserted in writing within the applicable period
shall not thereafter be barred.
10.2. Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying
Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party")
harmless in respect of the aggregate of all indemnifiable Damages of any of
Seller Indemnified Parties.
For this purpose, "indemnifiable Damages" of the of Seller Indemnified
Party means the aggregate of all Damages incurred or suffered by the Seller
Indemnified Party resulting from:
A. Any inaccurate representation or warranty made by Buyer or
pursuant to this Agreement; or
B. Any default in the performance of any of the covenants or
agreements made by Buyer in this Agreement.
With respect to the measurement of "Indemnifiable Damages", the Seller
Indemnified Party shall have the right to be put in the same financial position
as they would have been had each of the representations and warranties of Buyer
Indemnifying Party been true and correct and had each of the covenants of Buyer
Indemnifying Party been performed in full.
The amount of any indemnifiable Damages otherwise payable to any Seller
Indemnified Party hereunder shall be reduced if the indemnifiable Damages
incurred by Seller Indemnified Party will provide such Party with income tax
deductions or credits. The amount of the reduction shall be the amount of the
actual cash tax savings realized by Seller Indemnified Party as a result of such
deductions or credits discounted to its present value as of the date of the
payment of the indemnifiable Damages from the date such indemnifiable Damages
were incurred by Seller Indemnified Party at the rate of interest charged on
such date by the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Buyer Indemnifying Party to indemnify
Seller Indemnified Party shall be subject to each of the following principles or
qualifications:
10.2.1 Each of the representations and warranties made by
Buyer in Article 4 of this Agreement shall survive for a period of one (1) year
after the Closing Date, and thereafter all such representations and warranties
shall be extinguished.
No claim for the recovery of indemnifiable Damages pursuant to clause
(i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer
Indemnifying Party or its successors in interest after such representations and
warranties shall be thus extinguished; provided, however, that claims first
asserted in writing within the applicable period shall not thereafter be barred.
10.3. Matters Involving Third Parties. If any third party shall notify
Buyer or Seller (the "Indemnified Party") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 10., then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent that) the Indemnifying Party thereby is
Damaged.
If any Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then:
A. The Indemnifying Party will defend the Indemnified Party
against the matter with counsel of its choice satisfactory to the Indemnified
Party;
B. The Indemnified Party may retain separate co-counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the fees and expenses of the separate co-counsel to the extent the
Indemnified Party concludes that the counsel the Indemnifying Party has selected
has a conflict of interest);
C.The Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld or delayed
unreasonably); and
D. The Indemnifying Party will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld or delayed unreasonably).
If no Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then the Indemnified Party
may defend against, or enter into any settlement with respect to, the matter in
any manner it may deem appropriate.
10.4. Limitations on Indemnification. Notwithstanding the provisions of
Sections 10.1 or 10.2 hereof, neither party shall have any liability to
indemnify the other until and to the extent that the aggregate amount of
indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any
indemnification claims hereunder shall in no event exceed an amount equal to one
half of the value of Buyer's Stock transferred hereunder valued as of the
Closing Date.
11. POST-CLOSING AGREEMENTS.
11.1. Consistency in Reporting. Each party hereto agrees that:
--------------------------
(i) the transaction is intended to qualify as a tax-free transaction under
the I.R.C.; (ii) the transaction shall be reported for Federal income tax
purposes as a tax-free transaction; (iii) for purposes of all financial
statements, tax returns and reports, and communications with third parties, the
transactions contemplated in this agreement and ancillary or collateral
transactions will be treated as a tax-free transaction; and (iv) if the
characterization of any transaction contemplated in this agreement or any
ancillary or collateral transaction is challenged, each party hereto will
testify, affirm and ratify that the characterization contemplated in such
agreement was with the characterization intended by the party; provided,
however, that nothing herein shall be construed as giving rise to any obligation
if the reporting position is determined to be incorrect by final decision of a
court of competent jurisdiction. 12. GENERAL PROVISIONS.
12.1. Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants.
Seller will cause the Company not to incur any out-of-pocket expenses
in connection with the Contemplated Transactions. In the event of termination of
this Agreement, the obligation of each party to pay its own expenses will be
subject to any rights of such party arising from a breach of this Agreement by
another party.
12.2. Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer determines.
Unless consented to by Buyer in advance or required by Legal Requirements, prior
to the Closing, Seller shall, and shall cause the Company to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by
which the Company's employees, customers, and suppliers and others having
dealings with Seller will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
12.3. Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, and not use to the detriment of another party or the
Company any written, oral, or other information obtained in confidence from
another party or an Seller in connection with this Agreement or the Contemplated
Transactions, unless:
A. Such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party;
B. The use of such information is necessary or appropriate
in making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions; or
C. The furnishing or use of such information is required by
or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause Seller to waive, any cause of action, right, or
claim arising out of the access of Buyer or its representatives to any trade
secrets or other confidential information of the Company.
12.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (i) delivered by hand (with written confirmation of receipt); (ii)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested or (iii) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
IET Startek, Inc.
5050 Oakbrook Parkway, Suite 100
Norcross, GA 30093
Attn: Frank Noori
With a copy to:
Bill Nesbitt, Esq.
Buyer: Elite Technologies, Inc.
6991 Peachtree Industrial Blvd.
Suite 320
Norcross, GA 30092
With a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1044
Attention: Bryan G. Harrison, Esq.
Telecopy No.: (404) 365-9532
12.5. Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Georgia, County of Gwinnett, or, if it has or can acquire jurisdiction, in
the United States District Court for the Northern District of Georgia, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
12.6. Further Assurances. The parties agree (i) to furnish upon request
to each other such further information; (ii) to execute and deliver to each
other such other documents and (iii) to do such other acts and things, all as
the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
12.7. Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable law:
A. No claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one (1) party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party;
B. No waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and
C. No notice to or demand on one (1) party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
12.8. Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer and Seller) and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
12.9. Disclosure Schedule.
-------------------
A. The disclosures in the Disclosure Schedule, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
B. In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Schedule (other than an
exception expressly set forth as such in the Disclosure Schedule with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
12.10. Assignments, Successors and No Third-Party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld, except that Buyer
may assign any of its rights under this Agreement to any Subsidiary of Buyer.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
12.11. Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.12. Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12.13. Time of Essence. With regard to all dates and time periods
----------------
set forth or referred to in this Agreement, time is of the essence.
12.14. Governing Law. This Agreement will be governed by the laws
--------------
of the State of Georgia without regard to conflicts of laws principles.
12.15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
<PAGE>
Stock Purchase Agreement
Made as of
March 15, 2000,
Between
Elite Technologies, Inc.,
Buyer,
and
Ace Manufacturing Group, Ltd.
S. Randy Ragsdale, Individually,
Seller(S)
<PAGE>
Table of Contents
Page
1. DEFINITIONS. 1
1.1. "APPLICABLE CONTRACT"
1
1.2. "BREACH"
1
1.3. "BUYER"
1
1.4. "BUYER'S STOCK"
1
1.5. "CLOSING"
1
1.6. "CLOSING DATE"
1
1.8. "CONSENT"
1
1.9. "CONTEMPLATED TRANSACTIONS"
2
1.10. "CONTRACT"
2
1.11. "DAMAGES"
2
1.12. "DISCLOSURE SCHEDULE"
2
1.13. "ENCUMBRANCE"
2
1.14. "ENVIRONMENTAL REQUIREMENTS"
2
1.15. "ERISA"
2
1.16. "FACILITIES"
2
1.17. "GAAP"
3
1.18. "GOVERNMENTAL AUTHORIZATION"
3
1.19. "GOVERNMENTAL BODY"
3
1.20. "IRC"
3
1.21. "IRS"
3
1.22. "KNOWLEDGE"
3
1.23. "LEGAL REQUIREMENT"
3
1.24. "OPERATING INCOME"
3
1.25. "ORDER"
4
1.26. "ORDINARY COURSE OF BUSINESS"
4
1.27. "ORGANIZATIONAL DOCUMENTS"
4
1.28. "PERSON"
4
1.29. "PLAN"
4
1.30. "PROCEEDING"
4
1.31. "RELATED PERSON"
4
1.32. "REPRESENTATIVE"
5
1.33. "SECURITIES ACT"
5
1.34. "SELLER"
5
1.35. "SHARES"
5
1.36. "SUBSIDIARY"
6
1.37. "TAX RETURN"
6
1.38. "THREATENED"
6
2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6
--------------------------------------------------------------------------------
2.1. SHARES.
---- ------
6
2.2. BUYER'S STOCK.
---- -------------
6
2.3. CLOSING.
---- -------
6
2.4. CLOSING OBLIGATIONS.
---- -------------------
6
3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7
3.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
7
3.2. AUTHORITY; NO CONFLICT.
---- ----------------------
8
3.3. CAPITALIZATION.
---- --------------
9
3.4. FINANCIAL STATEMENTS.
---- --------------------
9
3.5. BOOKS AND RECORDS.
---- -----------------
9
3.6. TITLE TO PROPERTIES; ENCUMBRANCES.
---- ---------------------------------
10
3.7. NO UNDISCLOSED LIABILITIES.
---- --------------------------
10
3.8. TAXES.
---- -----
11
3.9. NO MATERIAL ADVERSE CHANGE.
---- --------------------------
11
3.10. EMPLOYEE BENEFITS MATTERS.
----- -------------------------
11
3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
----- ---------------------------------------------------------------
12
3.12. LEGAL PROCEEDINGS; ORDERS.
----- -------------------------
13
3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS.
----- -------------------------------------
14
3.14. CONTRACTS; NO DEFAULTS.
----- ----------------------
15
3.15. INSURANCE.
----- ---------
16
3.16. ENVIRONMENTAL MATTERS.
----- ---------------------
17
3.17. EMPLOYEE MATTERS.
----- ----------------
17
3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY.
----- -------------------------------------------
17
3.19. CERTAIN PAYMENTS.
----- ----------------
19
3.20. DISCLOSURE.
----- ----------
20
3.21. BROKERS OR FINDERS.
----- ------------------
20
4. REPRESENTATIONS AND WARRANTIES OF BUYER. 20
4.1. ORGANIZATION AND GOOD STANDING.
---- ------------------------------
20
4.2. AUTHORITY.
---- ---------
20
4.3. INVESTMENT INTENT.
---- -----------------
20
4.4. CERTAIN PROCEEDINGS.
---- -------------------
21
4.5. BROKERS OR FINDERS.
---- ------------------
21
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 21
--------------------------------------------------------------------------------
5.1. ACCESS AND INVESTIGATION.
---- ------------------------
21
5.2. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ----------------------------------------
21
5.3. NEGATIVE COVENANT.
---- -----------------
22
5.4. REQUIRED APPROVALS.
---- ------------------
22
5.5. NOTIFICATION.
---- ------------
22
5.6. NO NEGOTIATION.
---- --------------
22
5.7. CLOSING OF BANK ACCOUNTS.
---- ------------------------
23
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23
--------------------------------------------------------------------------------
6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS.
---- -----------------------------------------------------
23
6.2. ACCESS AND INVESTIGATION.
---- ------------------------
23
6.3. OPERATION OF THE BUSINESS OF THE COMPANY.
---- ----------------------------------------
23
6.4. NOTIFICATION.
---- ------------
24
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24
--------------------------------------------------------------------------------
7.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
24
7.2. SELLER'S PERFORMANCE.
---- --------------------
24
7.3. CONSENTS.
---- --------
24
7.4. ADDITIONAL DOCUMENTS.
---- --------------------
24
7.5. NO PROCEEDINGS.
---- --------------
25
7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.
---- ---------------------------------------------------
25
7.7. NO PROHIBITION.
---- --------------
25
7.8. EMPLOYMENT AGREEMENT.
---- --------------------
25
7.9. REGISTRATION OF SHARES FOR SELLER.
---- ---------------------------------
25
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 25
--------------------------------------------------------------------------------
8.1. ACCURACY OF REPRESENTATIONS.
---- ---------------------------
25
8.2. BUYER'S PERFORMANCE.
---- -------------------
25
8.3. CONSENTS.
---- --------
26
8.4. ADDITIONAL DOCUMENTS.
---- --------------------
26
8.5. NO INJUNCTION.
---- -------------
26
9. TERMINATION. 26
9.1. TERMINATION EVENTS.
---- ------------------
26
9.2. EFFECT OF TERMINATION.
---- ---------------------
27
10. INDEMNIFICATION; REMEDIES. 27
--------------------------------------------------------------------------------
10.1. AGREEMENT BY SELLER TO INDEMNIFY.
----- --------------------------------
27
10.2. AGREEMENTS BY BUYER TO INDEMNIFY.
----- --------------------------------
28
10.3. MATTERS INVOLVING THIRD PARTIES.
----- -------------------------------
29
11. POST-CLOSING AGREEMENTS. 30
--------------------------------------------------------------------------------
11.1. CONSISTENCY IN REPORTING.
----- ------------------------
30
12. GENERAL PROVISIONS. 30
--------------------------------------------------------------------------------
12.1. EXPENSES.
----- --------
30
12.2. PUBLIC ANNOUNCEMENTS.
----- --------------------
30
12.3. CONFIDENTIALITY.
----- ---------------
30
12.4. NOTICES.
----- -------
31
12.5. JURISDICTION; SERVICE OF PROCESS.
----- --------------------------------
32
12.6. FURTHER ASSURANCES.
----- ------------------
32
12.7. WAIVER.
----- ------
32
12.8. ENTIRE AGREEMENT AND MODIFICATION.
----- ---------------------------------
32
12.9. DISCLOSURE SCHEDULE.
----- -------------------
33
12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS.
------ -------------------------------------------------
33
12.11. SEVERABILITY.
------ ------------
33
12.12. SECTION HEADINGS; CONSTRUCTION.
------ ------------------------------
33
12.13. TIME OF ESSENCE.
------ ---------------
33
12.14. GOVERNING LAW.
------ -------------
33
12.15. COUNTERPARTS.
------ ------------
33
<PAGE>
Stock Purchase Agreement
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of March 15,
2000, by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and AMG,
LTD., a Georgia Corporation, Stephen Randy Ragsdale, individually and
collectively hereinafter referred to as ("Seller").
RECITALS:
Seller desire to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Shares") of capital stock of Ace Manufacturing
Group, LTD. for the consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.:
"Applicable Contract" - any Contract (i) under which Seller or Company
has or may acquire any rights; (ii) under which Seller or Company has or may
become subject to any obligation or liability or (iii) by which Seller or
Company or any of the assets owned or used by it is or may become bound.
"Breach" - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (i) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision or
(ii) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence or circumstance.
"Buyer" - as defined in the first paragraph of this Agreement.
"Buyer's Stock" - 500,000 restricted shares of Seller's capital stock.
"Closing" - as defined in Section 2.4.
"Closing Date" - the date and time as of which the Closing actually
takes place.
1.7 "Company" - Ace Manufacturing Group, Ltd.
"Consent" - any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" - all of the transactions contemplated by
this Agreement, including:
A. The transfer of the Shares by Seller to Buyer;
B. The execution, delivery, and performance of the Closing
Obligations set forth in Section 2.5;
C. The performance by Buyer and Seller of their respective
covenants and obligations under this Agreement;
D. Buyer's acquisition and ownership of the Shares and exercise
of control over the Company; and
E. The transfer of Buyer's Stock to Seller; and
F. Payment by Buyer to Seller of the Reimbursement Amount.
"Contract" - any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" - any loss, liability, claim, damages (including, without
limitation, incidental and consequential damages), expense (including, without
limitation, costs of investigation and defense and reasonable attorneys' fees)
or diminution of value, whether or not involving a third party.
"Disclosure Schedule" - the disclosure schedule delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"Encumbrance" - any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environmental Requirements" - means federal, state and local laws
relating to pollution or protection of the environment, including laws or
provisions relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes.
"ERISA" - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" - any real property, leaseholds, or other interests
currently or formerly owned or operated by Seller and any buildings, plants,
structures, or equipment (including motor vehicles) currently or formerly owned
or operated by Seller.
"GAAP" - generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the financial statements
referred to in Section 3.4. were prepared.
"Governmental Authorization" - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" - any:
A. Nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
B. Federal, state, local, municipal, foreign, or other
government;
C. Governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
D. Multi-national organization or body; or
E. Body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"IRC" - the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" - the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
A. Such individual is actually aware of such fact or other
matter; or
B. A prudent individual given his position with the Company could
be reasonably expected to discover or otherwise become aware of such fact or
other matter.
"Legal Requirement" - any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Operating Income" - means the net income of the Company determined in
accordance with GAAP before income taxes and after all other charges except:
A. Unless otherwise approved by Buyer, any general and administrative
expense (i.e., allocation of the Company's general corporate overhead)
attributable to the Company and all subsidiaries of the Company that is not
directly related to the operation of the Company in the Ordinary Course of
Business; provided, however, Operating Income shall include reimbursement by
Seller of expenses at a fair market price mutually agreed to by Buyer and Seller
for expenses previously incurred by Seller, but that have for administrative
convenience or efficiency reasons been centralized with Buyer; and
B. Any amortization of goodwill of the Company and all Subsidiaries of
the Company.
C. In the event that certain expenses incurred by the Seller are for
the principal or partial benefit of the Company or other subsidiaries of the
Company, then the parties hereto shall endeavor to track and determine in a fair
and equitable manner that portion of such expenses that should fairly and
reasonably be allocated to the Company or such other subsidiaries of the
Company, and therefore not included in arriving at Operating Income for purposes
of this Agreement.
"Order" - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" - an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
A. Such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
B. Such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
C. Such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"Organizational Documents" - (i) the Articles or Certificate of
Incorporation and the Bylaws of a corporation; (ii) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person and (iii) any amendment to any of the foregoing.
"Person" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" - as defined in Section 3.10.1.
"Proceeding" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person" - with respect to a particular individual:
A.Each other member of such individual's Family;
B.Any Person that is directly or indirectly controlled by such
individual or one (1) or more members of such individual's Family;
C.Any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
D. Any Person with respect to which such individual or one (1) or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
A. Any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
B. Any Person that holds a Material Interest in such specified Person;
C. Each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
D. Any Person in which such specified Person holds a Material Interest;
E. Any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
Any Related Person of any individual described in clause B. or C.
For purposes of this definition, (i) the "Family" of an individual
includes (1) the individual; (2) the individual's spouse and former spouses; (3)
any other natural person who is related to the individual or the individual's
spouse within the second degree and (4) any other natural person who resides
with such individual and (2) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least
[five percent (5%)] of the outstanding voting power of a Person or equity
securities or other equity interests representing at least [five percent (5%)]
of the outstanding equity securities or equity interests in a Person.
"Representative" - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Seller" - as defined in the first paragraph of this Agreement.
"Shares" - as defined in the Recitals of this Agreement.
"Subsidiary" - with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one (1) or more of its
Subsidiaries; [when used without reference to a particular Person, "Subsidiary"
means a Subsidiary of the Company].
"Tax Return" - any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threatened" - a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT;
CLOSING.
Shares. In exchange for the transfer of Buyer's Stock, as set forth in
Section 2.2, and subject to the terms and conditions of this Agreement, at the
Closing, Seller will transfer the Shares to Buyer.
Buyer's Stock. In exchange for the transfer of Shares as set forth in
Section 2.1, and subject to the terms and conditions of this Agreement, at the
Closing, Buyer shall transfer to Seller the Buyer's Stock.
Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Morris, Manning & Martin, L.L.P., at
1600 Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia
30326, at 10:00 a.m. (local time) on March 31, 2000, or at such other time and
place as the parties may agree. Except as otherwise provided in Section 9.,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3. will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
Closing Obligations. At the Closing:
-------------------
A. Seller will deliver to Buyer:
(i) Certificates. Certificates representing
------------
the Shares, duly endorsed (or accompanied by duly executed stock powers) for
transfer to Buyer;
(ii) Good Standing Certificate. Seller shall have
--------------------------
delivered to Buyer a certificate evidencing the good standing of the Company as
of a recent practicable date;
(iii) Certificate. A certificate substantially in
-----------
the form of Exhibit A hereto, executed by Seller representing and warranting
---------
to Buyer that each of Seller's representations and warranties in this
Agreement was accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the Closing Date
(giving full effect to any supplements to the Disclosure Schedule that were
delivered by Seller to Buyer prior to the Closing Date in accordance with
Section 5.5.); and
(iv) Mutual Release. Seller shall have delivered
--------------
to Buyer a mutual release, executed by Seller, substantially in the form of
Exhibit B to be attached at closing
-----------------------------------
(v) All Corporate records, organzational
documents, minutes of Board of Director and Shareholder meetings and corporate
seal.
B. Buyer will deliver to Seller:
(i) Certificates. Certificates representing
------------
Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers)
for transfer to Seller, or a Board of Directors resolution signifying the order
of the transfer of shares to Seller to be effectuated immediately, withou
delay;
(ii) Certificate. A certificate in the form of
-----------
Exhibit C hereto executed by Buyer to the effect that, except as otherwise
---------
stated in such certificate, each of Buyer's representations and warranties
in this Agreement was accurate in all respects as of the date of this Agreement
and is accurate in all respects as of the Closing Date as if made on the Closing
Date; and
(iii) Mutual Release. Buyer shall have delivered
--------------
to Seller a Mutual Release, executed by Buyer, substantially in the form of
Exhibit B to be attached at closing.
-----------------------------------
REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
Organization and Good Standing.
------------------------------
A. Schedule 3.1 of the Disclosure Schedule contains a complete
and accurate list of the Company's name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each stockholder and the number of
shares held by each).
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of Georgia, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts.
Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
B. Seller has made available to Buyer copies of the
Organizational Documents of the Company, as currently in effect.
Authority; No Conflict.
----------------------
A. This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
Upon the execution and delivery by Seller of the closing documents set forth in
Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's
Closing Documents will constitute the legal, valid, and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms.
Seller has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Seller's
Closing Documents and to perform his obligations under this Agreement and the
Seller's Closing Documents.
B. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) Contravene, conflict with, or result in a
violation of (1) any provision of the Organizational Documents of the Company
or (2) any resolution adopted by the board of directors or the stockholders of
the Company;
(ii) Contravene, conflict with, or result in
a violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which Seller or
the Company, or any of the assets owned or used by Seller, may be subject;
(iii) Contravene, conflict with, or result in
a violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by Seller or that otherwise relates
to the business of, or any of the assets owned or used by, the Company;
(iv) Cause Buyer or Seller to become subject to,
or to become liable for the payment of, any Tax;
(v) Contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate,
or modify, any Applicable Contract; or
(vi) Result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by Seller.
Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller
nor the Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
Capitalization. The authorized equity securities of the Company consist
of 1000 shares of common stock, .01 par value per share, of which 1000 shares
are issued and outstanding and constitute the Shares.
Seller is and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances.
With the exception of the Shares (which are owned by Seller), all of
the outstanding equity securities and other securities of the Company are owned
of record and beneficially by Seller, free and clear of all Encumbrances. No
legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of the Company.
All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity securities
or other securities of the Company, including, but not limited to, stock
options, warrants, convertible securities, redemption rights, registration
rights and the like.
None of the outstanding equity securities or other securities of the
Company was issued in violation of the Securities Act or any other Legal
Requirement.
Financial Statements. Seller shall deliver to Buyer, at closing date to
--------------------
be attached as Schedule 3.4:
------------
A. Unaudited balance sheets of Seller as of August, 1999, and
as of, together with the related statements of income, changes in stockholder
equity and cash flow (collectively, the "Financial Statements") for the periods
referred to in such financial statements.
B. The Financial Statements were prepared in accordance with
this Agreement and with GAAP consistently applied.
The Financial Statements and notes, if any, fairly present the
financial condition and the results of operations, changes in stockholders'
equity, and cash flow of the Company as at the respective dates of and for the
periods referred to in such Financial Statements, all in accordance with GAAP,
subject, in the case of interim Financial Statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes.
Books and Records. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct and have been maintained in accordance with
sound business practices.
The minute books of the Company contain accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Company,
and no meeting of any such stockholders, Board of Directors, or committee has
been held for and no material action has been taken at any meeting for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of Seller.
Title to Properties; Encumbrances. Seller owns (with good and
marketable title in the case of real property, subject only to the Encumbrances
permitted by this Section) all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that they purport to own
located in the facilities owned or operated by Seller or reflected as owned in
the books and records of the Company, including all of the properties and assets
reflected in the Closing Date Financial Statements (except for assets held under
capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of
the Disclosure Schedule which shall be attached to this Agreement as Schedule
3.6 at the closing date.).
All material properties and assets reflected in the Closing Date
Financial Statements are free and clear of all Encumbrances and are not, in the
case of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets:
A. Mortgages or security interests shown on the Closing
Date Financial Statements as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists;
B. Liens for current taxes not yet due; and
C. With respect to real property:
(i) Minor imperfections of title, if any, none
of which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company; and
(ii) Zoning laws and other land use restrictions
that do not impair the present or anticipated use of the property subject
thereto.
All buildings, plants, and structures owned by Seller lie wholly within
the boundaries of the real property owned by Seller and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person. All property and assets of the the Company shall be in the possession
and control of Seller at Closing, including but not limited to, all Facilities.
No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of the
Disclosure Schedule, Seller has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Closing Date Financial Statements and current liabilities incurred in the
Ordinary Course of Business since the respective dates thereof.
Taxes. Except as set forth on Schedule 3.8 to the Disclosure Schedule,
Seller has timely filed all tax returns and reports required to be filed by it,
including, without limitation, all federal, state and local tax returns, and has
paid in full or made adequate provision by the establishment of reserves for all
taxes and other charges which have become due or which are attributable to the
conduct of Seller's business prior to Closing. Seller will continue to make
adequate provision for all such taxes and other charges for all periods through
the Closing Date.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller
shall have no Knowledge of any tax deficiency proposed or threatened against
Seller. There are no tax liens upon any property or assets of the Company.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller
has made all payments of estimated taxes when due in amounts sufficient to avoid
the imposition of any penalty.
Except as set forth on Schedule 3.8 to the Disclosure Schedule, all
taxes and other assessments and levies which Seller was required by law to
withhold or to collect have been duly withheld and collected, and have been paid
over to the proper governmental entity.
Except as set forth in Schedule 3.8 to the Disclosure Schedule, the
federal and state income tax returns and local returns, if any, of Seller have
never been audited by the income tax authorities, nor are any such audits in
process. Except as set forth in Schedule 3.8, to the Disclosure Schedule there
are no outstanding agreements or waivers extending the statute of limitations
applicable to any federal or state income tax returns of the Company for any
period.
No Material Adverse Change. Since January, 1996 there has not been any
material adverse change in the business, operations, properties, prospects,
assets, or condition of the Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
Employee Benefits Matters.
-------------------------
3.10.1 Schedule 3.10.1 lists all plans, programs, and similar
agreements, commitments or arrangements, whether oral or written, maintained by
or on behalf of Seller or any other party that provide benefits or compensation
to, or for the benefit of, current or former employees of the Company ("Plan" or
"Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only
current and former employees of the Company participate in the Plans. Copies of
all Plans and, to the extent applicable, all related trust agreements, actuarial
reports, and valuations for the most recent year, all summary plan descriptions,
prospectuses, Annual Report Form 5500s or similar forms (and attachments
thereto) for the most recent year, all Internal Revenue Service determination
letters, and any related documents requested by Buyer, including all amendments,
modifications and supplements thereto, have been delivered to Buyer, and all of
the same are or will be true, correct and complete.
3.10.2 With respect to each Plan to the extent applicable:
A. No litigation or administrative or other
proceeding is pending or threatened involving such Plan;
B. To the Knowledge of Seller, such Plan has been
administered and operated in substantial compliance with, and has been amended
to comply with all applicable laws, rules, and regulations, including, without
limitation, ERISA, the Internal Revenue Code, and the regulations issued under
ERISA and the Internal Revenue Code;
C.Seller and its predecessors, if any, have made and
as of the Closing Date will have made or accrued, all payments and contributions
required, or reasonably expected to be required, to be made under the
provisions of such Plan or required to be made under applicable laws, rules
and regulations, with respect to any period following, such amounts to be
determined using the ongoing actuarial and funding assumptions of the Plan;
D. Such Plan is fully funded in an amount sufficient
to pay all liabilities accrued (including liabilities and obligations for
health care, life insurance and other benefits after termination of employment)
and claims incurred to the date hereof;
E. On the Closing Date such Plan will be fully funded
in an amount sufficient to pay all liabilities accrued (including
liabilities and obligations for health care, life insurance and other benefits
after termination of employment) and claims incurred to the Closing Date, or
adequate reserves will be set up on the Company's books and records, or paid-up
insurance will be provided, therefor; and
F. Such Plan has been administrated and operated only
in the ordinary and usual course and in accordance with its terms, and
there has not been in the year prior hereto any increase in the liabilities of
such Plan beyond increases typically experienced by employers similar to the
Company.
Compliance With Legal Requirements; Governmental Authorizations.
---------------------------------------------------------------
A. Except as set forth in Schedule 3.11 of the Disclosure
-------------
Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its assets;
(ii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) (1) may constitute or result
in a violation by Seller of, or a failure on the part of Seller to comply with,
any Legal Requirement or (2) may give rise to any obligation on the part of
Seller to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (1) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal equirement or (2) any actual, alleged, possible, or potential obligation
on the part of Seller to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature.
B. Schedule 3.11 Except as set forth in Schedule 3.11 of the
------------- ------------
Disclosure Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with all of the terms and
requirements of any applicable Governmental Authorization;
(ii) No event has occurred or circumstance exists
that may with or without notice or lapse of time) (1) constitute or result
directly or indirectly in a violation of or a failure to comply with any term
or requirement of any applicable Governmental Authorization or (2) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or any modification to, any applicable Governmental
Authorization;
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (1) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization or (2) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) All applications required to have been
filed for the renewal of the Governmental Authorizations have been duly
filed on a timely basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Seller has obtained any Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate their businesses in the
manner they currently conduct and operate such businesses and to permit the
Company to own and use their assets in the manner in which they currently own
and use such assets.
Legal Proceedings; Orders.
-------------------------
A. Except as set forth in Schedule 3.12 of the Disclosure
--------------
Schedule, there is no pending Proceeding:
(i) That has been commenced by or against Seller
or that otherwise relates to or may affect the business of, or any of the assets
owned or used by, Seller; or
(ii) That challenges, or that may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions.
To the Knowledge of Seller, (i) no such Proceeding has been Threatened
and (ii) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. Seller shall have
delivered to Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule.
The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have
a material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
B. Except as set forth in Schedule 3.12 of the Disclosure
-------------
Schedule:
(i) There is no Order to which any of Seller, or
any of the assets owned or used by the Company, is subject;
(ii) Seller is not subject to any Order that
relates to the business of, or any of the assets owned or used by, the Company;
and
(iii) No officer, director, agent, or employee of
the Company is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
C. Except as set forth in Schedule 3.12 of the Disclosure
-------------
Schedule:
(i) Seller is, and at all times since January,
1996, has been, in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) No event has occurred or circumstance exists
that may constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which Seller, or any of the assets owned or used by Seller, is subject; and
(iii) Seller has not received, at any time since
January, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
Absence of Certain Changes and Events. Except as set forth in Schedule
3.13 of the Disclosure Schedule, since January, 1996, the Company has conducted
its business only in the Ordinary Course of Business and there has not been any:
A. Change in the Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of the
Company; issuance of any security convertible into such capital stock; grant of
any registration rights; purchase, redemption, retirement, or other acquisition
by the Company of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of shares of
capital stock;
B. Amendment to the Organizational Documents of the Company;
C. Payment or increase by Seller of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except in
the Ordinary Course of Business) employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
D. Adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of the Company;
E. Damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
F. Entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement or (ii) any Contract or transaction
involving a total remaining commitment by or to the Company of at least Five
Thousand and No/100 Dollars ($5,000.00);
G. Sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Software and Intangibles;
H. Cancellation or waiver of any claims or rights with a value
to the Company in excess of Five Thousand and No/100 Dollars ($5,000.00);
I. Material change in the accounting methods used by the
Company; or
J. Agreement, whether oral or written, by Seller to do any of
the foregoing.
Contracts; No Defaults.
----------------------
A. Except as set forth in Schedule 3.17(A) of the Disclosure
----------------
Schedule:
(i) Other than as set forth or provided for
on the Financial Statements, the Company has not or may not acquire any
rights under, and the Company has not or may not become subject to any
obligation or liability under, any Contract under which the Company is obligated
to make payments totaling, or services having a value equal to, $5,000 or more ;
and
(ii) To the Knowledge of Seller, no officer,
director, agent, employee, consultant, or contractor of the Company is
bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (1) engage in or
continue any conduct, activity, or practice relating to the business of the
Company or (2) assign to the Company or to any other Person any rights to any
invention, improvement, or discovery.
B. Except as set forth in Schedule 3.17 (B) of the
-----------------
Disclosure Schedule, each material Contract is in full force and effect and
is valid and enforceable in accordance with its terms.
C. Except as set forth in Schedule 3.17(C) of the Disclosure
----------------
Schedule:
(i) The Company is, and at all times since
January, 1996, has been, in full compliance with all applicable terms and
requirements of each Contract under which such Seller has or had any obligation
or liability or by which such Seller or any of the assets owned or used by the
Company is or was bound;
(ii) Each other Person that has or had any
obligation or liability under any Contract under which the Company has or
had any rights is, and at all times since January, 1996, has been, in full
compliance with all applicable terms and requirements of such Contract;
(iii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give Seller or other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(iv) Seller has not given to or received from
any other Person, at any time since January, 1996, any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract.
F. There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to Seller
under current or completed Contracts with any Person and no such Person has made
written demand for such renegotiation.
G. The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
Insurance.
---------
A. Seller have delivered to Buyer:
(i) True and complete copies of all policies
of insurance to which the Company or Seller is a party or under which the
Company, or any director of the Company, is or has been covered at any time
within the two (2) years preceding the date of this Agreement;
(ii) True and complete copies of all pending
applications for policies of insurance; and
(iii) Any statement by the auditor of the
Company's financial statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
B. Except as set forth on Schedule 3.15(B) of the Disclosure
----------------
Schedule:
(i) All policies to which Seller is a party or
that provide coverage to Seller, the Company, or any director or officer of an
the Company:
(1) Are valid, outstanding, and
enforceable;
(2) Taken together in the reasonable
judgment of Seller, provide adequate insurance coverage for the assets and
the operations of the Company for all risks to which the Company are normally
exposed;
(3) Are sufficient for compliance with
all Legal Requirements and Contracts to which Seller is a party or by which it
is bound;
(4) Will continue in full force and
effect following the consummation of the Contemplated Transactions; and
(5) Do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of Seller.
(ii) Neither Seller nor the Company has received
(1) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights or (2) any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations thereunder.
(iii) Seller has paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy
to which Seller is a party or that provides coverage to the Company or director
thereof.
(iv) Seller has given notice to the insurer of
all claims that may be insured thereby.
Environmental Matters. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, at all times since January, 1996, Seller has obtained and
is in compliance with all permits, licenses and other authorizations required to
do business by Environmental Requirements.
Employee Matters.
----------------
Except as set forth on Schedule 3.17, at all times since January, 1996,
Seller has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health and plant closing.
Except as set forth on Schedule 3.17, Seller is not liable for the
payment of any compensation, Damages, taxes, fines, penalties, or other amounts,
however, designated, for failure to comply with any of the foregoing Legal
Requirements.
Intellectual Property Rights of the Company.
-------------------------------------------
A. Definitions. As used in this Agreement, and in addition
-----------
to any other terms defined in this Agreement, the following terms shall have the
following meanings.
(i) "Software" means any computer program,
--------
operating system, applications system, firmware or software of any nature,
whether operational, under development or inactive, including all object code,
source code, technical manuals, compilation procedures, execution procedures,
flow charts, programmers notes, user manuals and other documentation thereof,
whether in machine-readable form, programming language or any other language or
symbols and whether stored, encoded, recorded or written on disk, tape, film,
memory device, paper or other media of any nature.
(ii) "Owned Software" means all Software owned
---------------
by the Company, whether purchased from a third party, developed by or on behalf
of the Company, currently under development or otherwise.
(iii) "Customer Software" means all Software,
-----------------
other than the Owned Software, that is, directly or through Distributors, either
(x) offered or provided to customers of the Company or (y) used by the Company
to provide information or services to customers of the Company for a fee.
(iv) "Seller Software" means the Owned Software
---------------
and the Customer Software.
(v) "Other Software" means all Software, other
--------------
than the Company's Software, that is licensed by the Company from third parties
or otherwise used by the Company for any purpose whatsoever.
(vi) "Intangible" means:
----------
(1) Patents, patent applications, patent
disclosures, all re-issues, divisions, continuations, renewals, extensions and
continuation-in-parts thereof and improvements thereto;
(2) Trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for Registration thereof and all goodwill associated therewith;
(3) Copyrights, Registrations thereof
and applications for Registration thereof;
(4) Maskworks, Registrations thereof and
applications for Registration thereof;
(5) Trade secrets and confidential
business information (including ideas, formulas, compositions, inventions,
whether patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research and
development information, drawings, flow charts, processes, ideas,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information);
(6) Other proprietary rights;
(7) All income, royalties, Damages and
payments due at Closing or thereafter with respect to the Owned Software,
Customer Software, Other Software, or other Intangibles and all other rights
thereunder including, without limitation, Damages and payments for past, present
or future infringements or misappropriations thereof, the right to sue and
recover for past, present or future infringements or misappropriations thereof;
(8) All rights to use all of the
foregoing forever; and
(9) All other rights in, to, and under
the foregoing in all countries.
B. Ownership and Right to License.
------------------------------
(i) Except as set forth in Schedule 3.18 of
--------------
the Disclosure Schedule, to the Knowledge of the Seller, at all times since
January, 1996, Seller has good and marketable title to the Owned Software and
Intangibles attributable to the Owned Software, and have the full right to use
all of the Customer Software and Other Software, and Intangibles attributable
thereto, as used or required to operate Seller's businesses as currently
conducted and as contemplated in the future in accordance with Seller's written
business plans, free and clear of any liens, claims, charges or encumbrances
which would affect the use of such Software in connection with the operation of
Seller's business as currently conducted and as contemplated in the future in
accordance with Seller's written business plans.
(ii) To the Knowledge of Seller, no rights of
any third party not previously obtained are necessary to market, license,
sell, modify, update, and/or create derivative works for any Software as to
which Seller take any such action in their respective businesses as currently
conducted and as contemplated in the future in accordance with Seller's written
business plans.
(iii) To the Knowledge of Seller, none of the
Software or Intangibles or their respective past or current uses by or
through Seller have violated or infringed upon, or is violating or infringing
upon, any Software, patent, copyright, trade secret or other Intangible of any
Person. To the knowledge of Seller, Seller has adequately maintained all trade
secrets and copyrights with respect to such Software.
To the Knowledge of Seller, Seller has performed all obligations
imposed upon them with regard to the Customer Software and Other Software which
are required to be performed by them on or prior to the date hereof, and Seller
nor, to the Knowledge of Seller, any other party, is in breach of or default
thereunder in any respect, nor to the Seller's Knowledge is there any event
which with notice or lapse of time or both would constitute a default
thereunder.
Certain Payments. Since January, 1996, neither Seller nor any director,
officer, agent, or employee of the Company, nor to Seller's Knowledge any other
Person associated with or acting for or on behalf of Seller, has directly or
indirectly:
A. Made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business; (ii) to pay for favorable treatment
for business secured; (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Copmany or any affiliate
of the Company or (iv) in violation of any Legal Requirement.
B. Established or maintained any fund or asset that has not
been recorded in the books and records of the Company.
Disclosure.
----------
A. No representation or warranty of Seller in this Agreement
and no statement in the Disclosure Schedule omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
B. No notice given pursuant to Section 5.5. will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
C. There is no fact known to Seller that has specific
application to Seller or the Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as Seller can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Company (on a consolidated
basis) that has not been set forth in this Agreement or the Disclosure Schedule.
Brokers or Finders. Seller and its agents have incurred no obligation
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
Organization and Good Standing. Buyer is a Texas corporation.
------------------------------
Authority. This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Upon the execution and delivery by Buyer of the closing documents set forth in
Section 2.5.B (collectively, the "Buyer's Closing Documents"), the Buyer's
Closing Documents will constitute the legal, valid, and binding obligations of
Buyer, enforceable against Buyer in accordance with their respective terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and the Buyer's Closing Documents and to perform its
obligations under this Agreement and the Buyer's Closing Documents.
Investment Intent. Buyer is acquiring the Shares for its own account
------------------
and not with a view to their distribution within the meaning of Section 2 (11)
of the Securities Act.
Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
Brokers or Finders. Buyer and its agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Seller harmless from any such payment alleged to be due by or
through Buyer as a result of the action of Buyer or its officers or agents.
4.6. Full Disclosure. To the best knowledge of Buyer, it's officers,
directors or agents, no representation, warranty or covenant of Buyer contained
in this Agreement or in any other written statement or certificate delivered by
Buyer pursuant to this Agreement or in connection with the transactions
contemplated herein or in any SEC filing contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading. To
the best knowledge of Buyer, it's officers, directors or agents, there is no
fact which adversely affects, or in the future may adversely affect, the
business, operations, cash flows, affairs, prospects, properties or assets or
the condition, financial or otherwise of the Buyer which has not been disclosed
in this Agreement, or in the documents, certificates and written statements
furnished to Seller for use in connection with the transactions contemplated
hereby or in any SEC filing.
COVENANTS OF SELLER PRIOR TO CLOSING DATE.
Access and Investigation. Between the date of this Agreement and the
-------------------------
Closing Date, Seller will, and will cause the Company and its Representatives
to:
A. Afford Buyer and its Representatives and prospective
lenders and their Representatives (collectively, "Buyer's Advisors") full
and free access to the Company's personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data;
B. Furnish Buyer and Buyer's Advisors with copies of all such
contracts, books and records, and other existing documents and data as Buyer
may reasonably request; and
C. Furnish Buyer and Buyer's Advisors with such additional
financial, operating, and other data and information as Buyer may reasonably
request.
Operation of the Business of the Company. Between the date of this
Agreement and the Closing Date, Seller will:
A. Conduct the business of the Company only in the Ordinary
Course of Business;
B. Use its commercially reasonable efforts to preserve intact
the current business organization of the Company, keep available the services of
the current officers, employees, and agents of the Company, and maintain the
relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company or
Seller;
C. Confer with Buyer concerning operational matters of a
material nature; and
D. Otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of the Company.
Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Seller will
not without the prior consent of Buyer, take any affirmative action, or fail to
take any reasonable action within their or its control, as a result of which any
of the changes or events listed in Section 3.13. is likely to occur.
Required Approvals. As promptly as practicable after the date of this
Agreement, Seller will, and will cause the Company to, make all filings required
by Legal Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Seller
will, and will cause the Company to:
A. Cooperate with Buyer with respect to all filings that Buyer
reasonably elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions; and
B. Cooperate with Buyer in obtaining all required Consents.
Notification. Between the date of this Agreement and the Closing Date,
Seller will promptly notify Buyer in writing if Seller becomes aware of any fact
or condition that causes or constitutes a Breach of any of Seller's
representations and warranties as of the date of this Agreement, or if Seller
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
Should any such fact or condition require any change in the Disclosure
Schedule if the Disclosure Schedule were dated the date of the occurrence or
discovery of any such fact or condition, Seller will promptly deliver to Buyer a
supplement to the Disclosure Schedule specifying such change. During the same
period, each Seller will promptly notify Buyer of the occurrence of any Breach
of any covenant of Seller in this Section 5. or of the occurrence of any event
that may make the satisfaction of the conditions in Section 7. impossible or
unlikely.
No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 9., Seller will not, and will cause its
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of the Company, or any of the capital stock of the Company, or any
merger, consolidation, business combination, or similar transaction involving
Seller.
Closing of Bank Accounts. Seller shall cause the closing of all Company
-------------------------
bank accounts for which Seller, or its officers and directors, have sole
signature authority.
COVENANTS OF BUYER PRIOR TO CLOSING DATE.
Approvals of Governmental Bodies/Third Party Consents. As promptly as
practicable after the date of this Agreement, Buyer will, and will cause each of
its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer will,
and will cause each Related Person to:
A. Cooperate with Seller with respect to all filings that
Seller is required by Legal Requirements to make in connection with the
Contemplated Transactions; and
B. Cooperate with Seller in obtaining all consents identified
in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will
not require Buyer to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
Access and Investigation. Between the date of this Agreement and the
-------------------------
Closing Date, Buyer will, and will cause its Representatives to:
A. Afford Seller and its Representatives and prospective
lenders and their Representatives (collectively, "Seller's Advisors") full
and free access to Buyer's personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data;
B. Furnish Seller and Seller's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Seller may reasonably request; and
C. Furnish Seller and Seller's Advisors with such additional
financial, operating, and other data and information as Seller may reasonably
request.
Operation of the Business of the Company. Between the date of this
Agreement and the Closing Date, Buyer will:
A. Conduct the business of Buyer only in the Ordinary Course
of Business;
B. Use commercially reasonable efforts to preserve intact the
current business organization of Buyer; and
A. Confer with Seller concerning operational matters of a material nature.
Notification. Between the date of this Agreement and the Closing Date,
Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact
or condition that causes or constitutes a Breach of any of Buyer's
representations and warranties as of the date of this Agreement, or if Buyer
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
Accuracy of Representations.
---------------------------
A. All of Seller's representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Schedule.
B. Each of Seller's representations and warranties in Article
3. must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure
Schedule.
Seller's Performance.
--------------------
A. All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
B. Each document required to be delivered pursuant to Section
2.4. must have been delivered by closing, and each of the other covenants and
obligations in Section 5. must have been performed and complied with in all
respects.
C. The results of any investigation performed by Buyer in
connection with Section 5.1. shall be satisfactory to Buyer in its sole
discretion.
Consents. Each of the Consents identified in Schedule 3.2 of the
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Disclosure Schedule must have been obtained and must be in full force and
effect.
Additional Documents. Seller shall deliver such other documents as
Buyer may reasonably request for the purpose of (i) evidencing the accuracy of
any of Seller's representations and warranties; (ii) evidencing the performance
by Seller of, or the compliance by Seller with, any covenant or obligation
required to be performed or complied with by such Seller; (iii) evidencing the
satisfaction of any condition referred to in this Section 7. or (iv) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions.
No Proceedings. Since the date of this Agreement, there must not have
been commenced or Threatened against Buyer, or against any Person affiliated
with Buyer, any Proceeding (i) involving any challenge to, or seeking Damages or
other relief in connection with, any of the Contemplated Transactions or (ii)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such Person
(i) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, any of Seller or (ii) is entitled to all or any portion
of the Purchase Price payable for the Shares, except as has been orally
disclosed to Buyer.
No Prohibition. Neither the consummation nor the performance of any of
the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, (i) any applicable Legal
Requirement or Order or (ii) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
Employment Agreement. On or before the Closing Date, Seller(s) shall
---------------------
have entered into an employment agreement with Buyer.
Registration of Shares for Seller. Buyer hereby certifies that it
intends to file a registration statement under exception rule SB-2, for a block
of Buyers common stock. Buyer agrees to allow Seller "piggyback" registration
rights of Buyers common stock in an amount so that Seller shall receive a
benefit of two hundred fifty thousand dollars ($250,000.00). Seller agrees to
sell the registered shares through Buyers Investment Banker only, and only in an
amount of shares (as deemed by the Investment Banker of Buyer) as not to cause
any adverse effect on stock price of Buyer.
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
Buyer's Performance.
-------------------
A. All of the covenants and obligations that Buyer is required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
B. Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.5.
Consents. Each of the Consents identified in Schedule 3.2 of the
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Disclosure Schedule must have been obtained and must be in full force and
effect.
Additional Documents. Buyer must have caused the following documents to
be delivered to Seller such other documents as Seller may reasonably request for
the purpose of (i) evidencing the accuracy of any representation or warranty of
Buyer; (ii) evidencing the performance by Buyer of, or the compliance by Buyer
with, any covenant or obligation required to be performed or complied with by
Buyer; (iii) evidencing the satisfaction of any condition referred to in this
Section 8. or (iv) otherwise facilitating the consummation of any of the
Contemplated Transactions.
No Injunction. There must not be in effect any Legal Requirement or any
injunction or other Order that (i) prohibits the sale of the Shares by Seller to
Buyer and (ii) has been adopted or issued, or has otherwise become effective,
since the date of this Agreement. 8.6.
8.6 Employment Agreements. Buyer and Stephen R. Ragsdale shall enter into an
Employment Agreement, in a form to be mutually agreed by the parties. 8.7
Performance of Buyer's Stock. Buyer shall use best efforts, at all times, to
maintain promotion of Buyer's stock in the public market (AMEX, NYSE, Etc.).
Should the stock price of Buyer fall below one dollar ($1.00) for the average of
five business days from the date of the anniversary of this Agreement through
five business days after the date of the anniversary of this Agreement, and the
price of Buyers stock fail to rise above one dollar ($1.00), Seller shall have
one of the following options:
Seller may terminate this Agreement, and 100% of the stock of Seller
shall be returned. Seller shall return 100% of the stock of Buyer. Provision 9.2
of this Agreement shall immedately take effect.
B. Seller shall receive an additional five hundred thousand (500,000)
shares of common stock of Buyer, with "piggy back" registration rights.
TERMINATION.
Termination Events.
------------------
This Agreement may, by notice given prior to or at the Closing, be
terminated:
A. By either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
B. (i) By Buyer if any of the conditions in
Section 7. have not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Buyer to comply with its obligations under this Agreement) and
Buyer has not waived such condition on or before the Closing Date;
(ii) By Seller, if any of the conditions in
Section 7. have not been satisfied of the Closing Date or if satisfaction
of such a condition is or becomes impossible (other than through the failure of
Seller to comply with their obligations under this Agreement) and Seller has not
waived such condition on or before the Closing Date; or
C. By mutual consent of Buyer and Seller; or
D. By either Buyer or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before March
31, 2000, or such later date as the parties may agree upon.
Effect of Termination. Each party's right of termination under Section
9.1. is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 9.1., all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Sections 12.1. and 12.3. will survive; provided, however, that if
this Agreement is terminated by a party because of the Breach of the Agreement
by the other party or because one (1) or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired. INDEMNIFICATION; REMEDIES.
Agreement by Seller to Indemnify. Seller (the "Seller Indemnifying
Party"), agrees that they will indemnify and hold Buyer harmless in respect of
the aggregate of all indemnifiable Damages of Buyer.
For this purpose, "indemnifiable Damages" of Buyer means the aggregate
of all Damages incurred or suffered by Buyer resulting from:
A. Any inaccurate representation or warranty made by Seller
in or pursuant to this Agreement;
B. Any default in the performance of any of the covenants or
agreements made by Seller in this Agreement; or
C. The failure of any Seller to pay, discharge or perform any
liability or obligation of Seller or of Seller resulting from the operation of
Seller's business prior to the Closing Date.
With respect to the measurement of "Indemnifiable Damages", Buyer shall
have the right to be put in the same financial position as it would have been
had each of the representations and warranties of Seller been true and correct
and had each of the covenants of Seller been performed in full.
The amount of any indemnifiable Damages otherwise payable to Buyer
hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will
provide Buyer with income tax deductions or credits. The amount of the reduction
shall be the amount of the actual cash tax savings realized by Buyer as a result
of such deductions or credits, discounted to its present value as of the date of
the payment of the indemnifiable Damages from the date such indemnifiable
Damages were incurred by Buyer at the rate of interest charged on such date by
the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Seller Indemnifying Party to indemnify
Buyer shall be subject to each of the following principles or qualifications:
3. Each of the representations and warranties made by Seller
in this Agreement or pursuant hereto, shall survive for a period of one (1) year
after the Closing; provided, however, that the representations and warranties
made by Seller to the extent they relate to Seller's title to the Shares shall
survive forever and that the representations and warranties made by Seller and
Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until
the first (1st) anniversary of the later of:
A. The date on which applicable period of limitation
on assessment or refund of tax has expired; or
B. The date on which the applicable taxable year (or
portion thereof) has been closed.
No claim for the recovery of indemnifiable Damages may be asserted by
Buyer against Seller Indemnifying Party or their successors in interest after
such representations and warranties shall be thus extinguished; provided,
however, that claims first asserted in writing within the applicable period
shall not thereafter be barred.
Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying
Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party")
harmless in respect of the aggregate of all indemnifiable Damages of any of
Seller Indemnified Parties.
For this purpose, "indemnifiable Damages" of the of Seller Indemnified
Party means the aggregate of all Damages incurred or suffered by the Seller
Indemnified Party resulting from:
A. Any inaccurate representation or warranty made by Buyer or
pursuant to this Agreement; or
B. Any default in the performance of any of the covenants or
agreements made by Buyer in this Agreement.
With respect to the measurement of "Indemnifiable Damages", the Seller
Indemnified Party shall have the right to be put in the same financial position
as they would have been had each of the representations and warranties of Buyer
Indemnifying Party been true and correct and had each of the covenants of Buyer
Indemnifying Party been performed in full.
The amount of any indemnifiable Damages otherwise payable to any Seller
Indemnified Party hereunder shall be reduced if the indemnifiable Damages
incurred by Seller Indemnified Party will provide such Party with income tax
deductions or credits. The amount of the reduction shall be the amount of the
actual cash tax savings realized by Seller Indemnified Party as a result of such
deductions or credits discounted to its present value as of the date of the
payment of the indemnifiable Damages from the date such indemnifiable Damages
were incurred by Seller Indemnified Party at the rate of interest charged on
such date by the Internal Revenue Service on underpayment of taxes.
The foregoing obligation of Buyer Indemnifying Party to indemnify
Seller Indemnified Party shall be subject to each of the following principles or
qualifications:
10.2.1 Each of the representations and warranties made by
Buyer in Article 4 of this Agreement shall survive for a period of one (1) year
after the Closing Date, and thereafter all such representations and warranties
shall be extinguished.
No claim for the recovery of indemnifiable Damages pursuant to clause
(i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer
Indemnifying Party or its successors in interest after such representations and
warranties shall be thus extinguished; provided, however, that claims first
asserted in writing within the applicable period shall not thereafter be barred.
Matters Involving Third Parties. If any third party shall notify Buyer
or Seller (the "Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 10., then the Indemnified Party shall notify each
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent that) the Indemnifying Party thereby is Damaged.
If any Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then:
A. The Indemnifying Party will defend the Indemnified Party
against the matter with counsel of its choice satisfactory to the Indemnified
Party;
B. The Indemnified Party may retain separate co-counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the fees and expenses of the separate co-counsel to the extent the
Indemnified Party concludes that the counsel the Indemnifying Party has selected
has a conflict of interest);
C. The Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld or delayed
unreasonably); and
D. The Indemnifying Party will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld or delayed unreasonably).
If no Indemnifying Party notifies the Indemnified Party within fifteen
(15) days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, then the Indemnified Party
may defend against, or enter into any settlement with respect to, the matter in
any manner it may deem appropriate.
10.4. Limitations on Indemnification. Notwithstanding the provisions of
Sections 10.1 or 10.2 hereof, neither party shall have any liability to
indemnify the other until and to the extent that the aggregate amount of
indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any
indemnification claims hereunder shall in no event exceed an amount equal to one
half of the value of Buyer's Stock transferred hereunder valued as of the
Closing Date.
POST-CLOSING AGREEMENTS.
Consistency in Reporting. Each party hereto agrees that: (i) the
transaction is intended to qualify as a tax-free transaction under the I.R.C.;
(ii) the transaction shall be reported for Federal income tax purposes as a
tax-free transaction; (iii) for purposes of all financial statements, tax
returns and reports, and communications with third parties, the transactions
contemplated in this agreement and ancillary or collateral transactions will be
treated as a tax-free transaction; and (iv) if the characterization of any
transaction contemplated in this agreement or any ancillary or collateral
transaction is challenged, each party hereto will testify, affirm and ratify
that the characterization contemplated in such agreement was with the
characterization intended by the party; provided, however, that nothing herein
shall be construed as giving rise to any obligation if the reporting position is
determined to be incorrect by final decision of a court of competent
jurisdiction. GENERAL PROVISIONS.
Expenses. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants.
Seller will cause the Company not to incur any out-of-pocket expenses
in connection with the Contemplated Transactions. In the event of termination of
this Agreement, the obligation of each party to pay its own expenses will be
subject to any rights of such party arising from a breach of this Agreement by
another party.
Public Announcements. Any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if at
all, at such time and in such manner as Buyer determines. Unless consented to by
Buyer in advance or required by Legal Requirements, prior to the Closing, Seller
shall, and shall cause the Company to, keep this Agreement strictly confidential
and may not make any disclosure of this Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by
which the Company's employees, customers, and suppliers and others having
dealings with Seller will be informed of the Contemplated Transactions, and
Buyer will have the right to be present for any such communication.
Confidentiality. Between the date of this Agreement and the Closing
Date, Buyer and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, and not use to the detriment of another party or the
Company any written, oral, or other information obtained in confidence from
another party or an Seller in connection with this Agreement or the Contemplated
Transactions, unless:
A. Such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party;
B. The use of such information is necessary or appropriate
in making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions; or
C. The furnishing or use of such information is required by
or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waives, and
will upon Buyer's request cause Seller to waive, any cause of action, right, or
claim arising out of the access of Buyer or its representatives to any trade
secrets or other confidential information of the Company.
Notices. All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (i) delivered by hand (with written confirmation of receipt); (ii) sent by
telecopier (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested or (iii) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Seller:
AMG, Ltd..
4182 Winters Chapel Road
Doraville, GA 30360
Attn: S. Randy Ragsdale, President
With a copy to:
Paul Suda, Esq.
1362 Salem Drive
Alpharetta, GA 31141
Attn: Paul Suda
Buyer: Elite Technologies, Inc.
3700 Crestwood Parkway
Suite 1000
Duluth, GA 30096
With a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1044
Attention: Bryan G. Harrison, Esq.
Telecopy No.: (404) 365-9532
Jurisdiction; Service of Process. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the State of Georgia,
County of Gwinnett, or, if it has or can acquire jurisdiction, in the United
States District Court for the Northern District of Georgia, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
Further Assurances. The parties agree (i) to furnish upon request to
each other such further information; (ii) to execute and deliver to each other
such other documents and (iii) to do such other acts and things, all as the
other party may reasonably request for the purpose of carrying out the intent of
this Agreement and the documents referred to in this Agreement.
Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable law:
A. No claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one (1) party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party;
B. No waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and
C. No notice to or demand on one (1) party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent between Buyer and Seller) and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
Disclosure Schedule.
-------------------
A. The disclosures in the Disclosure Schedule, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
B. In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Schedule (other than an
exception expressly set forth as such in the Disclosure Schedule with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.
Assignments, Successors and No Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, which will not be unreasonably withheld, except that Buyer may
assign any of its rights under this Agreement to any Subsidiary of Buyer.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
Time of Essence. With regard to all dates and time periods set forth
----------------
or referred to in this Agreement, time is of the essence.
Governing Law. This Agreement will be governed by the laws of the
--------------
State of Georgia without regard to conflicts of laws principles.
Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made this 1st day of June, 1999, between Elite Technologies,
Inc., a Texas corporation ("Employer"), having its principal place of business
in Duluth, Georgia, and Scott Schuster ("Employee").
WHEREAS, Employee and Employer desire to set forth in writing their
contract with respect to Employee's employment by Employer;
NOW, THEREFORE, in consideration of their mutual promises set forth herein,
the parties hereby agree as follows:
1. Employment. Employer hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions set forth in this
Agreement.
2. Duties and Authority.
a. Employee will occupy the position of Chairman of the Board and Chief
Executive Officer (the "Position") with Employer. Employee has also been
appointed as a member of the Board of Directors of Employer (the "Board").
b.Employee will have the responsibility and authority associated with the
Position, reporting directly to, and subject to the control of, the Board, and
will have general supervision, direction and control, as necessary, over all of
the business and affairs of Employer and its employees. Employee will be
primarily responsible for carrying out orders and resolutions of the Board and
such duties as may from time to time be assigned to Employee by the Board.
c. Employee agrees to devote his full time attention and best efforts to
the performance of his employment hereunder. 3. Term of Employment. The term of
employment shall begin on the date of this Agreement and shall extend for a
period of three (3) consecutive years unless earlier terminated as provided
herein. 4. Noncompetition. Employee agrees, during the term of this Agreement,
and for a period of one (1) additional year immediately following the
termination of this Agreement, that (i) he will not solicit, engage, entice,
procure, or otherwise interfere, in any manner, with the employees, customers,
or other business relationships of Employer, (ii) he will not engage, directly
or indirectly, in any business similar, like, comparable or related to the
business then being conducted by Employer, and (iii) he will not serve as an
officer, member of the board of directors, or have any other affiliation with
any entity engaged in such a business. In the event that Employer and Employee
are unable to agree on whether a particular business in which Employee attempts
to engage is directly or indirectly in competition with Employer, the matter
will be submitted to arbitration under the provisions of Paragraph 24 of this
Agreement.
5. Compensation. Employee will receive compensation during the term of this
Agreement as follows:
a. A base annual salary of Two Hundred Fifty Thousand Dollars ($250,000)
per year payable either bi-monthly, weekly, semi-weekly or monthly at the
discretion of Employer, subject to annual upward adjustments by the Board (the
"Base Salary").
b. An incentive salary (the "Profits Bonus") equal to a maximum of one and
one half percent (1.5%) of the Adjusted Net Profits (hereinafter defined) of
Employer during each fiscal year beginning or ending during the term of this
Agreement, prorated for any partial fiscal year. "Adjusted Net Profits" shall be
the net profits before federal and state income taxes, determined on a
consolidated basis and otherwise in accordance with generally accepted
accounting principles by the independent accounting firm employed by Employer as
auditors (the "Auditors") and adjusted to exclude: (i) any incentive salary
payments paid pursuant to this Agreement; (ii) any contributions to pension
and/or profit-sharing plans; (iii) any extraordinary gains or losses (including,
but not limited to, gains or losses on disposition of assets); (iv) any refund
or deficiency of federal and state income taxes paid in or assessed for a prior
year for which a Profits Bonus has been paid after taking into account such over
or under payment; and (v) any provision for federal or state income taxes made
in prior years for which a Profits Bonus has been paid which is subsequently
determined as unnecessary. The determination of the Adjusted Net Profits made by
the Auditors shall be final and binding upon Employee and Employer. The Profits
Bonus shall be paid within sixty (60) days after the end of each fiscal year.
The maximum Profits Bonus payable for any one fiscal year under this Paragraph
5.b. shall not exceed two hundred percent (200%) of Employee's Base Salary
during such fiscal year unless authorized by the Board. The Profits Bonus may be
paid in shares of common stock, $0.10 par value, of Employer ("Employer Shares")
by mutual agreement of Employer and Employee.
c. An incentive salary ("Revenue Bonus") equal to a maximum of four percent
(4%) of the Revenue Increase(s) (hereinafter defined) of Employer during each
fiscal year beginning or ending during the term of this Agreement. "Revenue
Increase(s)" shall be the difference between the gross revenue reported by
Employer for the applicable fiscal year, less the gross revenue reported by
Employer for the immediately preceding fiscal year, determined in accordance
with generally accepted accounting principles by the Auditors, and prorated for
any partial fiscal year. Any increase in gross revenue which is caused by the
acquisition, merger or roll up of any entity (the "Transaction") shall be
discounted by fifty percent (50%) in the year in which the Transaction occurs
and only the discounted amount included in calculating gross revenue. The
Revenue Bonus shall be paid within sixty (60) days after the end of each fiscal
year. The maximum Revenue Bonus payable for any one fiscal year under this
Paragraph 5.c. shall not exceed two hundred percent (200%) of Employee's Base
Salary unless authorized by the Board. The Revenue Bonus may be paid in Employer
Shares by mutual agreement of Employer and Employee. In the event of a
Transaction, Employer and Employee agree that, for purposes of calculating the
Revenue Increase, the gross revenues attributable to the acquired company or
assets (the "Target") for the immediately preceding fiscal year shall be the
gross revenues of the Target for the twelve (12) calendar months immediately
preceding the closing of the Transaction.
d. Employer agrees that Employee may review the books and records of
Employer at anytime during the term of this Agreement and for a period of twelve
(12) months after a termination of this Agreement for purposes of verifying the
calculation of the Profits Bonus and the Revenue Bonus. On written notice from
Employee to Employer, such review may be conducted at Employer's principal
business office after ten (10) days written notice from Employee. If such review
determines an underpayment to Employee of the amounts owed for the Profits Bonus
and the Revenue Bonus in excess of ten percent (10%) of the amounts actually
paid to Employee for same for the periods of the underpayment, Employer shall
reimburse Employee for the reasonable costs of such review.
6. Deferred Compensation. In the event that Employee retires after
performing services for Employer up until Employee reaches the age of 65 or
retires at an earlier age with the approval of Employer, Employee will be
entitled to deferred compensation payments after retirement upon the following
terms and conditions:
a. For a period of twenty (20) years ("Retirement Period") Employee will
receive all of the following: (i) base payments equal to thirty percent (30%) of
the average total salary (Base Salary plus Profits Bonus plus Revenue Bonus)
paid to Employee during the last three (3) full years of employment or based
upon his total period of employment, should that period be less that three (3)
full years, prior to the month of retirement ("Retirement Base Salary"); (ii)
Advisory Payments equal to thirty percent (30%) of the Retirement Base Salary,
provided that Employee serves as an advisor and consultant to Employer regarding
its business. Employee will hold himself available to perform services at
reasonable times at the request of the Board, consistent with any business
activities Employee may be engaged in at such time. The Board shall have the
right to require the presence of Employee at any Board meeting, not exceeding
more than one meeting per month. Attendance at these Board meetings shall not be
required should Employee's health prevent attendance; however, Employer shall
have the right to demand a written statement from Employee prepared by a
licensed medical examiner evidencing inability of Employee to attend the meeting
or meetings. Employee will be reimbursed for all reasonable and necessary travel
and incidental expenses incurred by Employee in connection with the performance
of advisory services; and (iii) Noncompetition Payments equal to forty percent
(40%) of the Retirement Base Salary.
b. The Retirement Base Salary, the Advisory Payments and the Noncompetition
Payments (collectively, the "Deferred Compensation Payments") shall be made in
equal monthly installments on the first day of each month, starting the month
following the month of retirement.
c. In the event of the death of Employee prior to the expiration of the
"Retirement Period," Employer will pay all remaining installments of Retirement
Base Salary specified in Paragraph 6.a.(i), but no other Deferred Compensation
Payments, to any beneficiary of Employee designated by Employee in a written
document filed with Employer, or in the absence of such designation, the estate
of Employee. Employer may elect to pay these remaining installments of
Retirement Base Salary in a lump sum or in the equal monthly installments
specified in Paragraph 6.b.
d. Employee shall not sell, assign, transfer, or pledge, or in any other
way dispose of or encumber, voluntarily or involuntarily, by gift, testamentary
disposition, inheritance, transfer to any inter-vivos trust, seizure and sale by
legal process, operation of law, bankruptcy, winding up of a corporation, or
otherwise, the right to receive any Retirement Base Salary pursuant to this
Agreement.
7. Relocation. In the event Employee is transferred and assigned to a new
principal place of work located more than fifty (50) miles from Employee's
present residence, Employer will pay for all reasonable relocation expenses
including:
a. Transportation fares, meals, and lodging for Employee, his spouse, and
family from Employee's present residence to any new residence located near the
new principal place of work.
b. Moving of Employee's household goods and the personal effects of
Employee and Employee's family from Employee's present residence to the new
residence.
c. Lodging and meals for Employee and Employee's family for a period of not
more than sixty (60) consecutive days while occupying temporary living quarters
located near the new principal place of work.
d. Round trip travel, meals and lodging expenses for Employee's family for
no more than two (2) house hunting trips to locate a new residence, each trip
not to exceed fourteen (14) days; and
e. Expenses in connection with the sale of the residence of Employee
including realtor fees, property appraisals, mortgage prepayment penalties,
termite inspector fees, title insurance policy and revenue stamps, escrow fees,
fees for drawing documents, state or local sales taxes, mortgage discount points
(if in lieu of a prepayment penalty), and seller's attorney's fees (not to
exceed one percent (1%) of the sales price). At the option of Employee and in
lieu of reimbursement for these expenses, Employee may sell the residence of
Employee to Employer at the fair market value of the residence determined by an
appraiser chosen by Employer. The appraisal will be performed within ten (10)
days after notice of transfer and notice of appraised value will be submitted by
report to Employee. Employee will have the right to sell the residence to
Employer at the appraised price by giving notice of intent to sell within thirty
(30) days from the date of the appraisal report. The term "residence" shall mean
the property occupied by Employee as the principal residence at the time of
transfer and does not include summer homes, multiple-family dwellings,
houseboats, boats, or airplanes but does include condominium or cooperative
apartment units and duplexes (two family) occupied by Employee.
8. Medical and Group Insurance. At the expense of Employer, Employer agrees
to include Employee in the group medical and hospital plan of Employer, when
such plan is established.
9. Stock Options. Pursuant to a separate stock option agreement (the "Stock
Option Agreement"), Employer will grant Employee options to acquire two million
(2,000,000) shares of Employer Shares at $0.01 per share, one million
(1,000,000) of which shares will vest and become fully exercisable on January 1,
2001, and the balance of which will vest and become fully exercisable on August
31, 2001, subject to acceleration of the vesting period upon the termination of
this Agreement for any reason whatsoever. The options will have a term of ten
(10) years. Employee agrees that at no time will he sell any Employer Shares in
such amounts or at such prices which would create a material adverse effect on
the ten (10) day moving average closing price of Employer Shares on such
exchange or system then trading in Employer's quoted stock. The Stock Option
Agreement will also grant Employee "piggy-back" registration rights with respect
to the shares acquired pursuant to the exercise of such options.
10. Vacation. Employee shall be entitled to six (6) weeks of paid vacation
during each fiscal year of employment; for the fourth fiscal year and each
fiscal year thereafter, said vacation time shall increase to five (5) weeks
during each fiscal year. The time for the vacation shall be mutually agreed upon
by Employee and Employer. If vacation is not taken, for the benefit of Employer,
Employee shall be compensated at one and one half (1 1/2) times his then current
Base Salary for time not taken. Additionally, Employee shall receive thirty (30)
days sick/personal leave for each fiscal year of employment. Unused
sick/personal leave will accrue and be retained by Employee to be used at his
discretion or paid on a termination of his employment.
11. Automobile. Employer will provide Employee, during the term of this
Agreement, with the use of a new luxury automobile of Employee's choice.
Employer will pay all operating expenses on such automobile and will procure and
maintain in force an automobile liability policy for the automobile with
coverage, including Employee, in the minimum amount of One Million Dollars
($1,000,000) combined single limit on bodily injury and property damage.
12. Expense Reimbursement. Employee shall be entitled to reimbursement for
all reasonable expenses, including travel and entertainment, incurred by
Employee in the performance of Employee's duties. Employee will maintain records
and written receipts as required by federal and state tax authorities to
substantiate expenses as an income tax deduction for Employer and shall submit
vouchers for expenses for which reimbursement is made 13. Low Interest Loan.
a. From time to time, Employee may borrow sums from Employer up to a
maximum aggregate of Six Hundred Thousand Dollars ($600,000) provided Employer
has excess funds available for such purposes. The Board shall establish the
amount of such funds available upon request by Employee. Each loan shall be
evidenced by a promissory note payable in not more than sixty (60) monthly
principal and interest installment payments starting with the first day of the
month following the month in which the loan is made, with interest at the rate
of three percent (3%) per year on the unpaid balance of the loan or loans
outstanding.
b. In the event Employee severs employment with Employer for reasons other
than permanent disability, death, or retirement while a loan or loans are
outstanding, the unpaid principal amount then outstanding shall be due and
payable within thirty (30) days after the date of termination. In the event
severance of employment is due to permanent disability, death, or retirement,
Employee, or the legal representative of Employee, shall repay any outstanding
loan in accordance with the terms of the promissory note.
c. Should there be a default in the payment of any installment of principal
and interest when due, during Employee's employment under this Agreement,
Employer may withhold installments from Employee's compensation under this
Agreement. If there is a default after a termination of Employee's employment,
then the entire sum of principal and interest, at the option of Employer, shall
immediately become due and payable without demand or notice. In case this note
is not paid upon acceleration, Employee shall pay all costs of collection and
reasonable attorney's fees whether or not suit is filed on the note.
14. Permanent Disability.
a. In the event Employee becomes Permanently Disabled (hereinafter defined)
during employment by Employer, Employer may terminate this Agreement by giving
thirty (30) days prior notice to Employee of its intent to terminate this
Agreement, and, unless Employee resumes performance of the duties set forth in
Paragraph 2 within such thirty (30) days and continues such performance, this
Agreement will terminate at the end of the thirty (30) day period. "Permanently
Disabled" for purpose of this Agreement will mean the inability, due to physical
or mental ill health, or any reason beyond the control of Employee, to perform
Employee's duties for sixty (60) consecutive days or for an aggregate of ninety
(90) days during any one fiscal year irrespective of whether such days are
consecutive, as determined by a physician selected by Employer and a physician
selected by Employee. Employee will be entitled to his Base Salary earned prior
to the date of becoming Permanently Disabled as provided for in Paragraph 5
computed pro rata up to and including the date of becoming Permanently Disabled.
b. Upon termination of employment under the provisions of Paragraph 14.a.,
Employee will be entitled to Retirement Base Salary under the provisions of
Paragraph 6(i). For purposes of Paragraph 6, termination under Paragraph 14.a.
of this Agreement shall be considered "retirement." Employee will be excused
from performing advisory services as required under Paragraph 6.b.(ii) but shall
nevertheless be entitled to receive the Advisory Payments except to the extent
limited by death of Employee as set forth in Paragraph 6.c. Employee, however,
shall not be entitled to Noncompetition Payments under Paragraph 6.
c. Employer shall maintain, at its expense, a disability policy covering
Employee for a dollar amount specified by the Board. This amount may not exceed
one hundred percent (100%) of the Base Salary. Benefits of this policy shall
begin on the date Employee's sick/personal leave days are exhausted and shall
continue until Employee's Deferred Compensation Payments as outlined in
Paragraph 6 of this Agreement commence.
15. Death. In the event that Employee dies during the term of this
Agreement, this Agreement shall immediately terminate except that Employee will
be entitled to his Base Salary earned prior to the date of death as provided for
in Paragraph 5 computed pro rata up to and including the date of death.
Additionally, Employee will be entitled to Retirement Base Salary under the
provisions of Paragraph 6(i). For purposes of Paragraph 6, termination under
Paragraph 15 of this Agreement shall be considered "retirement." Employee,
however, shall not be entitled to receive either Advisory Payments or
Noncompetition Payments under Paragraph 6. 16. Termination.
a. Employer may terminate Employee's employment under this Agreement by
giving ten (10) days prior written notice to Employee. Should Employer terminate
Employee's employment for any reason other than Cause (hereinafter defined),
Employee shall receive his Base Salary, the Profits Bonus and the Revenue Bonus
due for the remainder of the term of this Agreement, payable as and when same
would have become due and payable but for the termination of Employee's
employment, the Retirement Base Salary, the Advisory Payments and the
Noncompetition Payments. Should Employer terminate Employee's employment for
Cause, Employee will be entitled to his Base Salary earned prior to the date of
termination as provided for in Paragraph 5 of this Agreement, computed pro rata
up to and including the date of termination, plus one twelfth (1/12) of his Base
Salary. Employee shall not be entitled to any further payments under this
Agreement. For purposes of this Agreement, "Cause" will occur if Employee
willfully breaches or habitually neglects the duties to be performed under
Paragraph 2, habitually engages in the use of illegal substances or the
excessive use of alcohol.
b. In the event Employer is acquired, is a non-surviving party in a merger,
or transfers substantially all of its assets, this Agreement shall not be
terminated and Employer agrees to take all actions necessary to ensure that the
transferee or surviving company is bound by the provisions of this Agreement. c.
Employee may terminate Employee's employment by providing thirty (30) days prior
written notice to Employer. Should Employee terminate Employee's employment for
any reason other than Good Reason (hereinafter defined), Employee will be
entitled to his Base Salary earned prior to the date of termination as provided
for in Paragraph 5 of this Agreement, computed pro rata up to and including the
date of termination, plus one full year of his Base Salary, plus all stock based
compensation due through the term of this agreement. Should Employee terminate
Employee's employment with Good Reason, Employee shall receive his Base Salary,
the Profits Bonus and the Revenue Bonus due for the remainder of the term of
this Agreement, payable as and when same would have become due and payable but
for the termination of Employee's employment, the Retirement Base Salary, the
Advisory Payments and the Noncompetition Payments. For purposes of this
Agreement, "Good Reason" means the occurrence, during the term of this
Agreement, of any one of the following acts by Employer, or failures by Employer
to act: i. any material diminution in Employee's authorities or responsibilities
(including reporting responsibilities) or from his status, title, position or
responsibilities (including reporting responsibilities); the assignment to him
of any duties or work responsibilities which are inconsistent with such status,
title, position or work responsibilities; or any removal of Employee from, or
failure to reappoint or reelect him to the Position and Employer's Board of
Directors, except if any such changes are because of Permanent Disability,
retirement, or death; ii. a reduction by Employer in Employee's Base Salary,
Profits Bonus or Revenue Bonus as in effect on the date hereof or as the same
may be increased from time to time; iii. the failure by Employer, without
Employee's consent, to pay to Employee any portion of Employee's current
compensation; or iv. the failure by Employer to continue to provide Employee
with benefits substantially similar in value to Employee in the aggregate to
those enjoyed by Employee under any of Employer's pension, life insurance,
medical, health and accident, or disability plans.
17. Notices.
a. Any notice under this Agreement must be written. Notices must be either
(i) hand delivered to the address set forth below for the recipient; or (ii)
placed in the United States mail, certified, return receipt requested, addressed
to the recipient or (iii) deposited with an overnight delivery service,
addressed to the recipient; or (iv) telecopied by facsimile transmission to the
party, provided that the transmission is confirmed by telephone on the date of
the transmission and is followed with a copy sent by overnight delivery or
regular mail to the address specified below. Any mailed notice is effective upon
deposit with the United States Postal Service or the overnight delivery service,
as applicable; all other notices are effective upon receipt.
b. Either party may designate another address for this Agreement by giving
the other party at least five (5) business days' advance notice of its address
change. A party's attorney may send notices on behalf of that party, but a
notice is not effective against a party if sent only to that party's attorney.
18. Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understanding, oral or written, with respect
to the subject matter hereof. This Agreement may be changed only by an agreement
in writing signed by the party against whom any waiver, change, amendment or
modification is sought. 19. Waiver. The waiver by Employer of a breach of any of
the provisions of this Agreement by Employee shall not be construed as a waiver
of any subsequent breach by Employee.
20. Governing Law; Venue. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia. Gwinnett County, Georgia shall
be the proper venue for any litigation arising out of this Agreement.
21. Paragraph Headings. Paragraph headings are for convenience only and are
not intended to expand or restrict the scope or substance of the provisions of
this Agreement.
22. Assignability. The rights and obligations of Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer. This Agreement is a personal employment agreement and
the rights, obligations and interests of Employee hereunder may not be sold,
assigned, transferred, pledged or hypothecated.
23. Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of the
Agreement shall remain in full force and effect and shall in no way be impaired.
24. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association, and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any arbitration shall be held in Atlanta, Georgia.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: November 10, 2000 ELITE TECHNOLOGIES, INC.
By: /s/ Scott Schuster
Name: Scott Schuster
Title: CEO
By: /s/ Jason Kiszonak
Name: Jason Kiszonak
Title: Director
By: /s/ David Aksoy
Name: David Aksoy
Title: Director
By: /s/ Stephen Randy Ragsdale
Name: Stephen Randy Ragsdale
Title: Director
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the date indicated.
