[EVTC, INC. LETTERHEAD]
January ___, 2000
Dear Stockholders:
We cordially invite you to attend the Annual Meeting of the
Stockholders of EVTC, Inc., trading as Environmental Technologies Corp. (the
"Company") to be held at 1:00 P.M. on Monday, February 28, 2000, at the offices
of Greenbaum, Rowe, Smith, Ravin, Davis & Himmell, LLP, 99 Wood Avenue South,
Iselin, New Jersey 08830.
The purpose of this meeting is to vote upon the proposals described in
the accompanying Notice of Meeting and Proxy Statement.
The Board of Directors recommends that Stockholders vote in favor of
each of the proposals. We encourage all Stockholders to participate by voting
their shares by Proxy whether or not they plan to attend the meeting. Please
sign, date and mail the enclosed Proxy as soon as possible. If you do attend the
meeting, you may still vote in person.
Sincerely,
George Cannan
Chief Executive Officer
<PAGE>
EVTC, INC.
(trading as Environmental Technologies Corp.)
121 S. Norwood Drive
Hurst, Texas 76053
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on February 28, 2000
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of EVTC, Inc., trading as Environmental Technologies Corp. (the
"Company") will be held at 1:00 P.M. on February 28, 2000 at the offices of
Greenbaum, Rowe, Smith, Ravin, Davis & Himmell, LLP, 99 Wood Avenue South,
Iselin, New Jersey 08830 for the following purposes:
1. To approve the Agreement and Plan of Reorganization dated December 21,
1999, by and among afreegift.com, Inc., a Nevada corporation, Sakoff
Enterprises, Inc., a Delaware corporation, Scott L. Sakoff and the Company, and
the transactions contemplated therein.
2. To elect five (5) members to the Board of Directors to serve until the
fiscal 2001 Annual Meeting of Stockholders or until their successors are duly
elected and qualified.
3. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock, par value .01 per
share from 10,000,000 to 25,000,000 shares.
4. To approve the EVTC, Inc. 2000 Incentive and Non-Qualified Stock Option
Plan.
5. To approve the appointment of BDO Seidman, LLP as independent public
accountants of the Company.
6. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
Only stockholders of record at the close of business on January 25, 2000
will be entitled to notice of and to vote at the Meeting.
Whether or not you intend to attend the Meeting, please complete, date
and sign the enclosed Proxy. Your Proxy will be revocable, either in writing or
by voting in person at the Meeting, at any time prior to its exercise.
By Order of the Board of Directors
---------------------------------------
George Cannan, Chief Executive Officer
Hurst, Texas
January__, 2000
<PAGE>
EVTC, INC.
(trading as Environmental Technologies Corp.)
121 S. Norwood Drive
Hurst, Texas 76053
PROXY STATEMENT
Accompanying this Proxy Statement is a Notice of Annual Meeting of
Stockholders of EVTC, Inc. (the "Company") and a form of Proxy for such meeting
solicited by the Board of Directors. The Board of Directors has fixed the close
of business on January 25, 2000, as the record date (the "Record Date") for the
determination of stockholders who are entitled to notice of and to vote at the
meeting or any adjournment thereof. The holders of a majority of the outstanding
shares of common stock, par value $.01 per share (the "Common Stock"), present
in person, or represented by Proxy, shall constitute a quorum at the meeting.
As of the Record Date, the Company had _______ outstanding shares of
Common Stock, the holders of which are entitled to one vote per share.
A Proxy that is properly submitted to the Company may be revoked at any
time before it is exercised by written notice to the Secretary of the Company,
and any stockholder attending the meeting may vote in person and by doing so
revokes any Proxy previously submitted by him. Where a stockholder has specified
a choice on his Proxy with respect to a proposal, it will be complied with. If
no direction is given, all the shares represented by the Proxy will be voted in
favor of each proposal.
The cost of soliciting Proxies will be paid by the Company, which will
reimburse brokerage firms, custodians, nominees and fiduciaries for their
expenses in forwarding proxy material to the beneficial owners of the Common
Stock. Officers and regular employees of the Company may solicit Proxies
personally and by telephone. The Annual Report of the Company for the year ended
September 30, 1999, containing audited financial statements for such year, is
enclosed with this Proxy Statement. This Proxy Statement and the enclosed Proxy
are being sent to the stockholders of the Company on or about January 25, 2000.
STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING IN PERSON ARE URGED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY IN THE ACCOMPANYING ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PROPOSAL 1.
APPROVAL OF AGREEMENT AND
PLAN OF REORGANIZATION WITH
AFREEGIFT.COM, INC.
Description of the Proposal
The board is requesting that the stockholders approve the Agreement and
Plan of Reorganization dated December 21, 1999 by and between afreegift.com,
Inc., a Nevada corporation, ("afreegift.com"), Sakoff Enterprises, Inc., a
Delaware corporation, Scott L. Sakoff, in his individual capacity and the
Company (the "afreegift Agreement") pursuant to which the Company will acquire
100% of the issued and outstanding capital stock of afreegift.com. afreegift.com
is an Oakbrook, Illinois based internet direct marketing company. A copy of the
afreegift Agreement is attached hereto as Appendix A.
Summary of the Transaction
The transactions contemplated by the afreegift Agreement are subject to
the approval by the Company's stockholders. If the afreegift Agreement and the
transactions contemplated thereby are approved at the meeting, Sakoff
Enterprises, Inc. will be entitled to receive 1,000 shares of Common Stock with
the right to receive up to an additional 7,999,000 shares of Common Stock upon
satisfaction of the financial performance objectives identified in the
agreement. In no event shall the number of additional shares to be earned by
Sakoff Enterprises, Inc. exceed 7,999,000. Furthermore, under the terms of the
afreegift Agreement, Mr. Sakoff has been nominated to serve as a member of the
Board of Directors. Mr. Sakoff's election is contingent upon the approval by the
stockholders of this proposal. If this proposal is not approved, Mr. Sakoff will
not serve on the board even if elected by the stockholders, and his vacancy will
not be filled. Also, if this proposal is approved, Mr. Sakoff will have the
right to appoint two additional members to the board to serve until the next
meeting of stockholders at which directors are elected or their earlier death,
removal or resignation. The identity of these individuals is not yet known to
the Company.
In connection with the afreegift.com transaction, Mr. Sakoff has agreed
to enter into an employment agreement with afreegift.com, which agreement shall
become effective upon approval of the afreegift transaction by the stockholders
at the meeting. Under the terms of the employment agreement Mr. Sakoff shall be
paid an annual base salary of $120,000 and shall receive benefits commensurate
with those received by other executive officers of the Company. The term of the
employment agreement is for a period of one year and will be automatically
renewed for successive one-year terms unless terminated in accordance with the
terms of the employment agreement.
On December 21, 1999 the Company and afreegift.com also entered into a
Funding Agreement pursuant to which the Company agreed to provide afreegift.com
an aggregate amount of $1,000,000 to assist it in meeting its short-term working
capital requirements. In the event the afreegift Agreement or the transactions
contemplated thereby are not approved by the stockholders at the meeting,
afreegift.com will be obligated to repay the $1,000,000 funding amount pursuant
to the terms of the Promissory Note, also dated December 21, 1999, executed by
afreegift.com in favor of the Company. The $1,000,000 funding amount evidenced
<PAGE>
by the Promissory Note is secured by all accounts, intellectual property,
inventory and equipment currently owned by afreegift.com as set forth in the
Security Agreement also entered into between the parties on December 21, 1999.
Rationale for the Proposal
The purpose of the afreegift transaction is to diversify the Company's
business segment and to take advantage of the emerging eCommerce industry. The
Company believes that afreegift.com is well positioned to achieve this
objective.
The Common Stock is currently traded on the Nasdaq SmallCap Market (the
"Nasdaq"). Nasdaq Marketplace rules require that the Company obtain stockholder
approval prior to the issuance of shares of Common Stock, if the number of
shares to be issued equals or exceeds 20% of the number of shares of Common
Stock outstanding before such issuance. In the event afreegift.com satisfies the
financial performance criteria set forth in the afreegift Agreement, the Company
will be obligated to issue a number of shares of Common Stock which exceeds 20%
of the number of shares of Common Stock currently outstanding. To insure
compliance of Nasdaq Marketplace rules and to not subject the Company's
securities to delisting from the Nasdaq, the Company is seeking stockholder
approval of this proposal.
If Stockholder approval of this proposal is not gained, the afreegift
Agreement will be terminated and the parties will remain subject to only the
terms and conditions of the Funding Agreement, the Promissory Note and the
related Security Agreement.
Recommendation of the Board of Directors
The board unanimously recommends that each stockholder vote in favor of
this proposal. A majority of the votes entitled to be cast by the holders of all
of the shares of Common Stock that are present at the meeting and entitled to
vote will be necessary to adopt this proposal.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AFREEGIFT
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN.
<PAGE>
PROPOSAL 2.
ELECTION OF DIRECTORS
The Board of Directors is currently composed of four (4) members. At
the Annual Meeting, all directors will be elected to serve for one year expiring
on the date of the Annual Meeting of Stockholders the following year. Each
director elected will continue in office until a successor has been elected or
until resignation or removal in the manner provided by the Company's By-Laws.
The names of the nominees for the Board of Directors are listed below. As
described in Proposal 1., Scott L. Sakoff is also a nominee to serve on the
Board of Directors. However, Mr. Sakoff's election to the board is contingent
upon the approval of the afreegift Agreement as described in Proposal 1. If the
afreegift Agreement is not approved, Mr. Sakoff will not accept election to the
board and his vacancy will not be filled. Shares represented by a properly
executed Proxy in the accompanying form will be voted for such nominees.
However, discretionary authority is reserved to vote such shares in the best
judgment of the persons named in the event that any person or persons other than
the nominees listed below are to be voted on at the meeting due to the
unavailability of any nominee so listed.
Except for Mr. Sakoff, all persons named below are directors of the
Company at the present time. There are no family relationships between any
nominee, director or executive officer of the Company.
NOMINEES
GEORGE CANNAN, SR. Mr. Cannan founded Environmental Materials Corp. ("EMC")
a wholly owned subsidiary of the Company in 1975 and has been President, Chief
Executive Officer and a director of EMC since that time. Mr. Cannan founded the
Company in 1989; was President and Chief Executive Officer until December 31,
1995; has been Chairman of the Board and a director of the Company since 1989;
and was reappointed Chief Executive Officer in 1999. In July 1992, EMC became a
wholly owned subsidiary of the Company. Mr. Cannan has been responsible for all
phases of the Company's operations since its inception. Prior to founding EMC,
Mr. Cannan was a manufacturer's representative in the automotive industry.
JOHN STEFIUK. Mr. Stefiuk is the President of Federal Bronze Products, Inc.
a metal servicing center and representative agency based in Newark, New Jersey.
Mr. Stefiuk joined Federal Bronze in 1972 and became President in 1978. During
his tenure at Federal Bronze, he has held various managerial and operating
positions.
JOHN D. MAZZUTO. Mr. Mazzuto is the President of Platinum Holdings, a
private investment company. Mr. Mazzuto has held prior positions with Asian
Oceanic Group, an international merchant bank where he served as President of
the bank's New York subsidiary and Group Managing Director of the parent
company. Prior to this, he held the position of Managing Director of Corporate
Finance for Chemical Bank.
ROBERT J. CASPER. Mr. Casper is the President and Chief Executive Officer
of R.J. Casper & Associates. Mr. Casper has held prior positions as Chairman,
Midwestern National Life Insurance Company, President of MC Equities,
President/Chief Operating Officer of U.S. Life Corporation and Executive Vice
President of Home Life Insurance Company. Mr. Casper's background encompasses
over 30 years of experience in the life insurance industry, with 25 years of
executive level, hands on management experience.
SCOTT L. SAKOFF. Mr. Sakoff is President/CEO of afreegift!com and the newly
formed subsidiary of EVTC e solutions marketing. Prior to forming afreegift.com,
<PAGE>
Mr. Sakoff founded and directed the growth of Access Media & Marketing Services,
Inc., a Nationally recognized Media Management firm serving Retail and Direct
Response Marketers. Mr. Sakoff has developed Advertising/Direct Marketing
programs and consulted for clients such as Toshiba, Sony, CBS TV, Telemundo
(Spanish TV Network), Nationwide Auto Insurance and leading National retailers
such as Play It Again Sports and USA Baby. He has 20 years of hands on
management and account development experience in the Advertising/Marketing
field.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE TO ELECT THE
AFOREMENTIONED NOMINEES TO SERVE ON THE BOARD OF DIRECTORS.
INFORMATION CONCERNING BOARD
The Board of Directors met three times in fiscal 1999, and acted by
unanimous consent on one occasion.
The Board of Directors has an Audit Committee, a Compensation Committee
and an Executive Committee. The Audit Committee is responsible for reviewing the
Company's audited financial statements, meeting with the Company's independent
accountants to review the Company's internal controls and financial management
practices and examining all agreements or other transactions between the Company
and its directors and officers (other than those compensation functions assigned
to the Compensation Committee) to determine whether such agreements or
transactions are fair to the Company's stockholders. Jack Stefiuk and Robert
Casper serve on the Audit Committee.
The Compensation Committee is responsible for reviewing the
compensation and benefits of the Company's executive officers, making
recommendations to the Board of Directors concerning compensation and benefits
for such executive officers and administering the Company's stock option plans.
Jack Stefiuk and Robert Casper serve on the Compensation Committee.
The Company's Executive Committee has the authority to act, between
meetings of the full Board of Directors, on any matter than might properly be
brought before the Board of Directors, subject to exceptions for certain major
matters. George Cannan and John Mazzuto serve on the Executive Committee.
Directors of the Company receive no cash compensation for serving on
the Board of Directors, other than reimbursement of reasonable expenses incurred
in attending meetings. Directors receive stock options for 5,000 shares for
serving on the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Proxy Statement,
the name and number of shares of Common Stock held by each person known to the
Company to own beneficially more than five percent (5%) of the Company's Common
Stock and the number of shares owned by each director of the Company, the
Company's Chief Executive Officer and its other four most highly compensated
<PAGE>
executive officers, and all directors and executive officers as a group. Each
of the following has an address c/o EVTC, Inc., 121 S.Norwood Drive, Hurst,
Texas 76053. All shares are owned directly by the named person.
NUMBER OF
NAME SHARES OWNED PERCENT OF CLASS(1)
---- ------------ -------------------
George Cannan, Sr. 1,710,060 29.6%
Caroline Costante 122,761(2) 2.1%
David Keener 63,000(3) 1.1%
John Stefiuk 65,000(4) 1.1%
Robert Casper 31,000(5) 0.5%
John Mazzuto 35,000(6) 0.6%
All Directors and Officers
as a Group (6 persons) 2,026,821 35.1%
- ---------------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this report upon the
exercise of warrants or options. Each beneficial owner's percentage owner-
ship is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this report have been
exercised.
(2) Includes 40,000 shares of Common Stock issuable upon the exercise of
stock options (10,000 of which are presently exercisable).
(3) Includes 45,000 shares of Common Stock issuable upon the exercise of stock
options (none are presently exercisable).
(4) Includes 15,000 shares of Common Stock issuable upon the exercise of stock
options, which are presently exercisable.
(5) Includes 5,000 shares of Common Stock issuable upon the exercise of stock
options, which are presently exercisable.
(6) Includes 35,000 shares of Common Stock issuable upon the exercise of stock
options, which are presently exercisable.
<PAGE>
CERTAIN TRANSACTIONS
The Company's refrigerant packaging and distribution operations are
located in a 21,000 square foot building situated at 550 James Street, Lakewood,
New Jersey 08701. The building is leased at a rental of $10,000 per month from
George Cannan, Sr., the Company's founder, Chairman and principal stockholder,
pursuant to a 5-year lease. The Company believes that the terms of such lease
are at least as favorable as those that it could obtain from a non-affiliated
third party.
As of September 30, 1999, the Company had a $371,016 note receivable
from George Cannan. This note receivable bears interest at 7% per annum and is
secured by the 21,000 square foot building located at 550 James Street in
Lakewood New Jersey. The Company plans to purchase the Lakewood, New Jersey
facility for a fair market value of $871,000, financed by a mortgage for
approximately $500,000 and forgiveness of the note receivable due from George
Cannan.
EXECUTIVE COMPENSATION
The following table sets forth, compensation for the Company's Chairman
and Chief Executive Officer ("CEO) and each officer that earned over $100,000
during such years (the "Named Executives"):
Stock
Options
Name and Principal Position Year Salary ($) Bonus($) Share(s)
- --------------------------- ---- ---------- -------- --------
George Cannan, Sr.
Chairman/CEO 1999 200,000 (1) -0-
1998 200,000 (1) -0-
1997 200,000 (1) -0
David A. Keener
Chief Financial Officer 1999 $123,077 (1) 45,000
1998 $ 85,998 -0-
James Hellauer (2)
CEO/President 1999 $ - 0 - (1) -0-
(1) Represents less than 10% of the Executive's compensation.
(2) Mr. Hellauer resigned in 1999. Mr. Hellauer's salary was paid by Colmen
Capital Advisors from the monthly management fees paid by the Company to
Colmen.
<PAGE>
<TABLE>
Stock Option Grants in Last Fiscal Year
The following table sets forth stock options granted to the Chairman
and Chief Executive Officer ("CEO") and Named Executives as of September 30,
1999.
NUMBER OF OPTIONS % OF TOTAL OPTIONS
GRANTED AT FISCAL YEAR GRANTED TO EMPLOYEES EXERCISE EXPIRATION GRANT
NAME END IN FISCAL YEAR ($/SHARE) DATE VALUE $
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
- ---- ---------------------- -------------------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
George Cannan, Sr. 0 0.0% $0.000 -- $0.00
David Keener 45,000 11.8% $0.625 2-18-2009 $28,125.00
James Hellauer 0 0.0% $0.000 $0.00
</TABLE>
Option Exercises During, and Stock Options Held at End of Fiscal 1999
The following table indicates the total number and value of exercisable
stock options held by the Named Executives as of September 30, 1999. No options
were exercised by the Named Executives in the fiscal year ended September 30,
1999:
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------------------- ---------------------------
George Cannan, Sr. 0 0 $ 0 $ 0
David Keener 0 45,000 0 50,850
James Hellauer 0 0 0 0
(1) Based on the last sale price for the Company's Common Stock on September 30,
1999 of $1.13 per share, as reported by NASDAQ.
Stock Option Plans
The Company maintains stock option plans designated as the 1992 Stock
Option Plan (the "1992 Plan") and the 1996 Stock Option Plan (the "1996 Plan")
collectively the "Option Plans" pursuant to each of which 500,000 shares of
Common Stock have been reserved for issuance upon the exercise of options
designated as either (i) incentive stock options ("ISOs") under the Internal
Revenue Code of 1986, amended (the "Code") or (ii) non-qualified options.
Nonqualified options may be granted to consultants, directors (whether or not
they are employees), employees or officers of the Company. In certain
circumstances, the exercise of stock options may have an adverse effect on the
market price of the Company's Common Stock.
<PAGE>
The purpose of the Option Plans is to encourage stock ownership by
certain directors, officers and employees of the Company and certain other
people instrumental to the success of the Company and give them a greater
personal interest in the success of the Company. The Option Plans are
administered by the Board of Directors. The Board, within the limitations of the
Option Plans, determines the persons to whom options will be granted, the number
of shares to be covered by each option, whether the options granted are intended
to be ISOs, the duration and rate of exercise of each option, the option
purchase price per share and the manner of exercise, the time, manner and form
of payment upon exercise of an option, and whether restrictions such as
repurchase rights by the Company are to be imposed on shares subject to options.
ISOs granted under the Option Plans may not be granted at a price less than the
fair market value of the Common Stock on the date of grant. Non-qualified
options granted under the Option Plans may not be granted at a price less than
the fair market value of the Common Stock on the date of grant. Options granted
under the Option Plans will expire not more than ten years from the date of
grant (five years in the case of ISOs granted to persons holding 10% or more of
the voting stock of the Company). Any options granted under the Option Plans are
not transferable during the optionee's lifetime but are transferable at death by
will or by the laws of descent and distribution.
EMPLOYMENT AGREEMENTS
David Keener, the Company's Executive VP and CFO, is subject to the
terms of an employment agreement whereby Mr. Keener is entitled to receive a
base compensation of $120,000, bonus and benefits commensurate with other
executive officers of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is comprised of Jack Stefiuk and Robert
Casper. The Compensation Committee reviews, recommends and approves changes to
the Company's compensation policies and programs and is responsible for
reviewing and approving the compensation of the Chief Executive Officer and
other senior officers of the Company.
The following report shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 (the "Securities Act") or under the
Securities Exchange Act of 1934 (the "Exchange Act"), except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Compensation Philosophy
The Company believes that executive compensation should be based upon
value returned to stockholders. The Company has developed compensation programs
designed to reflect Company performance and to be competitive in the
marketplace. In designing its compensation programs, the Company attempted to
reflect both value created for stockholders while supporting the Company's
strategic goals. The Company's compensation programs reflect the following
themes:
- Compensation should be meaningfully related to the value created
for stockholders.
<PAGE>
- Compensation programs should support the Company's short-term and
long-term strategic goals and objectives.
- Compensation programs should promote the Company's value and
reward individuals for outstanding contributions to the Company's
success.
- Short-term and long-term compensation should be designed to attract
and retain superior executives.
The Company's executive compensation is based upon three components,
base salary, annual incentive bonuses and long-term incentives, which are
intended to serve the overall compensation philosophy.
Base Salary
The base salary of each executive officer is determined as a function
of three principal factors: the individual's performance, the relationship of
the individual's salary to similar executives in comparable companies, and
increases in the individual's responsibilities, whether through promotions or
otherwise. The base salaries of the named executives remained constant in Fiscal
1999.
Annual Incentive Bonus
The Company's annual incentive bonuses are designed to reflect the
individual officer's contribution to the profitability of the Company and any
special achievements by the respective officers. Each officer's bonus is based
upon the Company's performance in various areas, such as sales, profit margins,
operating expenses and earnings before interest and taxes as compared to a
pre-determined plan for each officer for each year.
The Compensation Committee
/s/ Jack Stefiuk
-------------------
Jack Stefiuk
/s/ Robert Casper
-------------------
Robert Casper
PERFORMANCE TABLE
The comparative stock performance table below compares the cumulative
stockholder return on the Common Stock of the Company for the period from
December 31, 1994 through December 31, 1999 with the cumulative total return (i)
on the Total Return Index for the Nasdaq Stock Market (U.S. Companies) (the
"Nasdaq Composite Index"), and (ii) of a peer group of specialty chemical
industry companies (assuming the investment of $10,000 in the Company's Common
Stock, the Nasdaq Composite Index and the Peer Group on December 31, 1994 and
reinvestment of all dividends).
This table shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
the Securities Act or under the Exchange Act, except to the extent that the
Company specifically incorporate this graph by reference, and shall not
otherwise be deemed filed under such Acts.
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY, NASDAQ AND INDUSTRY INDEX
As of December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Company 18,000 13,500 13,000 1,500 _____
NASDAQ 13,500 16,500 20,000 28,000 _____
Industry Index 11,000 11,500 13,000 11,200 _____
PROPOSAL 3.
INCREASE IN THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
Description of the Proposal
The board has approved, subject to the consideration and approval of
the stockholders of the Company, a proposed amendment to the Company's
Certificate of Incorporation to increase the authorized capital stock of the
Company by increasing the number of shares of Common Stock available for
issuance from 10,000,000 shares to 25,000,000 shares. The number of shares of
preferred stock available for issuance shall remain the same.
Rationale for the Proposal
The principal reason for recommending approval of this proposal is to
accommodate the potential issuance of up to an additional 8,000,000 shares of
Common Stock pursuant to the terms of the afreegift.com transaction and to have
sufficient shares available to raise additional equity capital in the future.
As of the Record Date, a total of _________ shares of Common Stock were
authorized but not issued or reserved for issuance. On the Record Date, a total
of __________ shares of Common Stock were issued and outstanding and a total of
__________ shares of Common Stock were reserved or otherwise committed for
possible issuance by the Company to the holders of various warrants and to
employees pursuant to various benefit plans of the Company.
The proposal to increase the Company's authorized Common Stock is thus
intended to ensure that the Company has sufficient Common Stock to meet the
foregoing obligations and to provide additional authorized shares that could be
issued in connection with exercise of stock options, possible future stock
splits, stock dividends and mergers and acquisitions and to raise additional
capital, which could include public offerings or private placements of Common
Stock or securities convertible into Common Stock.
<PAGE>
While the Board believes it important that the Company have the
flexibility that would be provided by having available additional authorized
Common Stock, the Company does not now have any commitments, arrangements or
understandings which would require the issuance of such additional shares of
Common Stock. The availability of additional authorized shares of Common Stock
would simply permit the board to respond in a timely manner to future
opportunities and business needs of the Company as they may arise and would
avoid the possible necessity and expense of a special meeting of stockholders to
increase the authorized Common Stock.
If this proposal is not approved by the stockholders, the Company will
be unable to consummate the afreegift.com transaction.
Effects of the Adoption of the Proposal
If the authorized shares of Common Stock are increased as proposed, the
authorized shares of Common Stock would be available for issuance from time to
time upon such terms and for such purposes as the board may deem advisable
without further action by the stockholders of the Company except as may be
required by law or the rules of any stock exchange on which the Common Stock may
be listed. Such an issuance may decrease or increase the book value per share of
the Common Stock presently issued and outstanding, depending upon whether the
consideration paid for such newly issued shares is less or more than the book
value per share prior to issuance. The issuance of additional shares could
dilute the voting power and equity of the holders of outstanding Common Stock
and may have the effect of discouraging attempts by a person or group to take
control of the Company.
Recommendation of the Board of Directors
Adoption of the proposal to increase the number of authorized shares of
Common Stock requires the affirmative vote of the holders of the majority of the
shares of the Common Stock outstanding on the Record Date. If approved by the
stockholders, such increase in the number of authorized shares will become
effective on the filing with the Secretary of State of Delaware of an amendment
to the Company's Certificate of Incorporation setting forth such increase in the
outstanding shares Common Stock.
THE BOARD RECOMMENDS A VOTE FOR THE INCREASE IN THE NUMBER OF AUTHORIZED SHARES
OF THE COMPANY'S COMMON STOCK TO 25,000,000 SHARES.
<PAGE>
PROPOSAL 4.
APPROVAL OF THE EVTC, INC.
2000 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
Summary Description of Options and Tax Status
The full text of the 2000 Incentive and Non-Qualified Stock Option Plan (the
"2000 Plan") is set forth as Exhibit B to this Proxy Statement and reference is
made thereto for a complete statement of the terms of the document.
Shares Reserved for Issuance. Pursuant to the terms of the 2000 Plan, one
million (1,000,000) shares of the Company's Common Stock are reserved for
issuance thereunder. In the event there is any change in the number of issued
shares of the Common Stock of the Company without new consideration to the
Company (such as by stock dividends or stock splits), the number of shares
reserved for issuance under the 2000 Plan, the number of shares subject to any
outstanding option and the option price per share of each outstanding stock
option shall be appropriately adjusted. Similarly, if the Company shall be party
to a merger, consolidation, reorganization, sale or similar occurrence,
equitable adjustment in the option may be made.
Administration Plan; Award of Options. The 2000 Plan is administered by the
Board of Directors. Pursuant to its authority, the Board may grant options to
purchase shares of Common Stock reserved under the Plan to all employees and
consultants of the Company.
Amendments. The Board of Directors may amend the Plan as it deems advisable. No
amendment may, without further approval of the shareholders of the Company
within twelve months before or after the date on which such amendment was
adopted, (a) increase the total number of shares which may be made to options
granted under the 2000 Plan, (b) change the manner of determining the option
price, (c) change the criteria of determining which employees are eligible to
receive options, (d) extend the period during which options may be granted or
exercised, or (e) withdraw the administration of the 2000 Plan from the Board of
Directors.
Vesting. Options granted to employees under the 2000 Plan are to vest and become
exercisable as specified in each grant provided that certain conditions are
satisfied. For a description of these conditions, see the subsection below
entitled "Termination of Employment."
Exercise Period. The options granted to employees under the 2000 Plan may not be
exercised more than ten (10) years after the date of grant or five (5) years
after the date of grant in the case of an incentive option granted to a 10%
shareholder.
Termination of Employment. Outstanding incentive stock options must be exercised
during employment with the Company or within three months after termination of
employment with the Company (other than by reason of death or permanent
disability, in which case they must be exercised within three years after
termination). In addition, options are exercisable only to the extent that they
are vested as of the date of termination of employment.
<PAGE>
Nontransferability. Each incentive option granted under the 2000 Plan is not
transferable by the holder except by will or the laws of descent and
distribution of the State wherein the holder is domiciled at the time of his
death. If the administrator makes an option transferable, such option shall
contain additional terms and conditions as the administrator deems appropriate.
Merger or Asset Sale of the Company. In the case of (i) a merger of the Company
with or into another corporation or (ii) the sale of substantially all of the
assets of the Company, all outstanding options may be assumed or equivalent
options may be substituted by the successor corporation or a parent or
subsidiary thereof. In the event an option is assumed or substituted for, the
option or substituted option shall continue to be exercisable as it would have
been in the absence of the transaction for so long as the optionee serves as a
employee of the successor corporation. If, following such an assumption or
substitution, the optionee's status as a employee is terminated other than as a
result of his or her voluntary resignation, his or her options shall become
fully exercisable and shall be exercisable for such period during which options
may generally be exercised under the plan by an individual who is no longer an
employee.
Federal Income Tax Treatment of Options. The options to be granted under the
2000 Plan may be deemed to be qualified or non-qualified within the meaning of
the Code, in the discretion of the Board of Directors. Generally, an optionee
will recognize ordinary income upon exercise of a non-qualified stock option
(or, if the stock subject to the option is restricted within the meaning of Code
Section 83 and the optionee does not otherwise elect to recognize income upon
the exercise of the stock option, at such time as the shares become transferable
or are no longer subject to a substantial risk of forfeiture) in an amount equal
to the excess (if any) of the fair market value of the shares purchased at the
time of exercise over the exercise price. The Company will be entitled to an
income tax deduction in the same amount and at the same time as the optionee
recognizes such income. Upon the sale of shares which were purchased upon the
exercise of an option, the optionee will recognize capital gain or loss measured
by the difference between the amount recognized in connection with the exercise
(or possibly the grant) of the stock option. Such capital gain or loss will be
short-term or long -term, depending upon the length of time thee shares were
held by the optionee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
AND RATIFICATION OF THE COMPANY'S 2000 INCENTIVE AND NON-QUALIFIED STOCK OPTION
PLAN.
PROPOSAL 5.
APPROVAL OF THE APPOINTMENT
OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS
The board has appointed, subject to approval of the stockholders, the
firm of BDO Seidman, LLP ("BDO Seidman") as independent public accountants to
audit the Company's consolidated financial statements for the fiscal year ending
September 30, 2000. BDO Seidman has served as the Company's independent public
accountants since 1999 and audited the books and records of the Company for its
fiscal year ended September 30, 1999. To the knowledge of management of the
Company, neither BDO Seidman nor any of their members has any direct or material
indirect financial interest in the Company, nor any connection with the Company
in any capacity other than as independent public accountants.
<PAGE>
Stockholder approval of this appointment is not required; however, as a
matter of good corporate governance, the board is seeking approval of this
appointment. If the appointment is not approved, the board must then determine
whether to appoint other auditors prior to the end of the current fiscal year,
and in such case, the opinions of stockholders will be taken into consideration.
The following resolutions concerning the appointment of independent
auditors will be offered at the meeting:
RESOLVED, that the appointment by the Board of Directors of BDO
Seidman to audit the consolidated financial statements and related books,
records and accounts of the Company and its subsidiaries for the fiscal
year 2000 at a remunerations to be determined by the Board of Directors of
the Company is hereby ratified.
The enclosed Proxy will be voted as specified, but if no specifications
is made, it will be voted in favor of the adoption of the resolution of approval
of BDO Seidman as the Company's independent public accountants to audit the
Company's financial statements for the fiscal year ending September 30, 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPOINTMENT OF BDO SEIDMAN AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS TO
AUDIT THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2000.
GENERAL
The expense of this solicitation is to be borne by the Company. The
Company may also reimburse persons holding shares in their names or in the names
of their nominees for their expenses in sending proxies and proxy material to
their principals.
Unless otherwise directed, the persons named in the accompanying form
of Proxy intend to vote all Proxies received by them in favor of each of the
proposals identified herein. All Proxies will be voted as specified.
Management does not intend to present any business at the meeting other
than that set forth in the accompanying Notice of Annual Meeting, and it has no
information that others will do so. If other matters requiring the vote of the
stockholders properly come before the meeting and any adjournments thereof, it
is the intention of the persons named in the accompanying form of Proxy to vote
the Proxies held by them in accordance with their judgment on such matters.
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholder proposals for inclusion in the proxy materials related to
the 2000 Annual Meeting of Stockholders must be received by the Company no later
than _____________, 2000. A stockholder must have been a record or beneficial
owner of the Company's Common Stock for at least one year prior to ____________,
2000, and the stockholder must continue to own such shares, worth at least
$1,000, through the date on which the meeting is held.
FORM 10-K ANNUAL REPORT
Upon written request by any stockholder entitled to vote at the 2000
Annual Meeting, the Company will furnish that person without charge a copy of
the Form 10-K Annual Report which it filed with the Securities and Exchange
Commission for 1999, including financial statements and schedules. If the person
requesting the report was not a stockholder of record on January 25, 2000, the
request must contain a good faith representation that the person making the
request was a beneficial owner of the Company's Common Stock at the close of
business on that date. Requests should be addressed to EVTC, Inc., Attention
Investor Relations, 121 S. Norwood Drive, Hurst, Texas 76053.
By Order of the Board of Directors
EVTC, INC.
---------------------------------
GEORGE CANNAN
Chief Executive Officer
Hurst, Texas
January 25, 2000
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is dated as of the 21st day
of December, 1999 by and among afreegift.com, Inc., a Nevada corporation
("Target"), Sakoff Enterprises, Inc., a Delaware corporation ("Shareholder"),
Scott L. Sakoff ("Sakoff"), EVTC, Inc., a Delaware corporation ("Parent") and e
solutions marketing, inc., a Texas corporation in formation ("Sub"). (Target and
Sub are collectively referred to as the "Constituent Corporations.")
RECITALS
WHEREAS, Parent, Sub and Target desire to enter into a merger
("Merger") in accordance with the applicable provisions of the statutes of Texas
and Nevada;
WHEREAS, for federal income tax purposes, the parties intend that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended ("Code");
WHEREAS, the value of Target is difficult to determine, particularly
because of the characteristics of an e-commerce business and the early stage of
Target; and, therefore, the parties believe it to be fairest to all of them that
a substantial portion of the consideration in the Merger be the right to receive
stock based on future contingencies;
WHEREAS, Shareholder is the sole shareholder of Target and Sakoff is
the President of Shareholder; and
WHEREAS, each of the parties to this Agreement desires to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions thereto.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals, which are
incorporated by reference, and the mutual promises herein contained, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to the terms and conditions of this Agreement and any related agreement
executed by the parties in connection with the Merger, Target shall be merged
into Sub, and the separate existence of Target shall cease, in accordance with
the applicable provisions of the Texas Business Corporation Act ("TBCA") and
Section 78.010 et seq. of the Nevada Revised Statutes ("NCL").
(b) Sub will be the surviving corporation in the Merger and will be
governed by the laws of the State of Texas. (For periods after the Effective
<PAGE>
Time, Sub is sometimes referred to herein as the "Surviving Corporation.") The
separate corporate existence of Sub and all of its rights, privileges,
immunities and franchises, public or private, and all its duties and liabilities
as a corporation organized under the TBCA, will continue unaffected by the
Merger.
(c) The Merger will have the effects specified by the TBCA and the NCL.
1.2 Effective Time. As soon as practicable following fulfillment or
waiver of the conditions specified in Article VIII, and provided that this
Agreement has not been terminated or abandoned pursuant to Article IX, the
Constituent Corporations will cause the Articles of Merger (the "Articles of
Merger") to be filed with the Secretary of State of Texas, and will cause all
documents required to be filed or submitted by them under the NCL in connection
with the Merger to be so filed or submitted. Subject to and in accordance with
the laws of the States of Texas and Nevada, the Merger will become effective at
the date and time the Articles of Merger is filed with the Secretary of State of
Texas or such later time or date as may be specified in the Articles of Merger
(the "Effective Time"). Each of the parties will use its best efforts to cause
the Merger to be consummated as soon as practicable following the fulfillment or
waiver of the conditions specified in Article VIII.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Sub as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time.
2.2 By-Laws. The By-Laws of Sub as in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation after the
Effective Time.
2.3 Board of Directors. At the Effective Time, the Board of Directors
of Target shall become the Board of Directors of the Surviving Corporation.
Through the end of the "Earn-Out Period" (as defined in Section 3.2(a)), Parent
shall cause the Board of Directors of the Surviving Corporation always to
consist of a majority of persons designated by Shareholder (or any successor in
interest to Shareholder). Without limiting the generality of the foregoing,
Parent also agrees that if any person who had been designated by Shareholder or
such successor dies, resigns or is removed, such vacancy shall be filled by a
person designated by Shareholder or such successor. However, the obligations of
Parent under this Section 2.3 shall terminate on or after the 9-month
anniversary of the Closing Date if (x) both Surviving Corporation's actual
cumulative "Gross Revenues" and "Pre-Tax Profits" (as defined in Section
3.2(b)(v)) at the end of any fiscal quarter are less than 50% of those amounts
forecasted in Target's business plan as revised on 12/1/99 ("Business Plan")
which has been delivered to Parent and (y) Parent has funded at least $1,000,000
in cash and/or stock to Sub and/or its vendors.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of Target Shares in the Merger. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
<PAGE>
capital stock of Target, all issued and outstanding shares of Common Stock, no
par value, of Target ("Target Common Stock") shall be converted into, and become
exchangeable for, the sum of (i) the number of "Initial Shares" of Common Stock,
$0.01 par value, of Parent ("Parent Common Stock") set forth in this Section 3.1
plus (ii) the right to receive such number of additional shares of Parent Common
Stock as shall be determined pursuant to Section 3.2 ("Earn-Out Shares"). The
number of Initial Shares shall be the sum of (i) 1,000 shares plus (ii) or a
greater amount if mutually agreed to by all parties (iii) such number of shares
as Parent and Shareholder agree would have been earned under Section 3.2 if the
first fiscal quarter of the Earn-Out Period had begun on the date hereof and
ended on the last day of the month immediately preceding the Effective Time. The
Initial Shares and, when earned, the Earn-Out Shares shall be validly issued,
fully paid and non-assessable. The Shareholder or any successor in interest
shall not have any rights as a shareholder of Parent with respect to any
Earn-Out Shares until those have been earned pursuant to Sections 3.2 and 3.3.
3.2 Earn-Out Shares.
(a) The number of Earn-Out Shares shall be determined based upon the
amount of "Gross Revenues" and "Pre-Tax Profits" (as defined in Section
3.2(b)(v)) generated by the Surviving Corporation for each fiscal quarter during
the period beginning at the Effective Time and ending on December 31, 2001 (the
"Earn-Out Period"). (However, solely for the purpose of determining the number
of Earn-Out Shares, the first fiscal quarter during the Earn-Out Period shall be
deemed to begin on the date of this Agreement and end on the last day of the
fiscal quarter during which "Closing," as defined in Section 7.1, occurs.)
However, in no event, shall the Target Common Stock be converted in the Merger
into more than 8,000,000 shares of Parent Common Stock, subject to adjustment
pursuant to Section 3.2(e). Notwithstanding the foregoing but subject to
Sections 3.2(b)(iv) and 3(d), if, at the end of a fiscal quarter, the sum of (i)
the Initial Shares, (ii) the Earn-Out Shares earned for the previous quarters
plus (iii) those Earn-Out Shares which otherwise would be earned based on the
Gross Revenues and Pre-Tax Profits for that fiscal quarter would exceed 49.9% of
the number of shares of Parent Common Stock which would be outstanding
immediately after the issuance of the Earn-Out Shares with respect to that
fiscal quarter ("Percentage Limitation"), then the number of Earn-Out Shares
which will be issued and delivered for that fiscal quarter shall be reduced in
order that the sum of the Initial Shares, the previously earned Earn-Out Shares
and the Earn-Out Shares actually issued with respect to that quarter shall equal
the Percentage Limitation. (The additional Earn-Out Shares which would have been
issued with respect to any fiscal quarter but for the Percentage Limitation are
referred to as the "Excess Earn-Out Shares.")
(b) The number of Earn-Out Shares, if any, to be issued will be
computed as follows:
(i) The number of Earn-Out Shares earned for each fiscal quarter shall
equal the sum of (A) one (1) share for each $1.00 of Gross Revenues received by
Surviving Corporation during the quarter plus (B) four (4) shares for each $1.00
of Pre-Tax Profits earned by Surviving Corporation during that quarter plus (C)
such number of Excess Earn-Out Shares from previous fiscal quarters as may be
issued and delivered without violating the Percentage Limitation less (D) that
number of shares which has a "Fair Market Value," as defined in Section
3.2(b)(vi), on the last business day of such quarter, equal to the product of
(x) the number of shares determined in clauses (A) and (B) multiplied by (y)
$1.20. For example, if (i) Surviving Corporation had Gross Revenues of $100,000
and had Pre-Tax Profits of $5,000 during a quarter, (ii) the Fair Market Value
of each share was $10.00 at the end of such quarter and (iii) there were 2,000
Excess Earn-Out Shares from all previous quarters, then, subject to the
Percentage Limitation, Shareholder would receive 107,600 shares. This would
equate to 100,000 shares for the Gross Revenues and 20,000 shares for the
<PAGE>
Pre-Tax Profits less 14,400 shares (120,000 shares multiplied by $1.20 divided
by $10.00) plus the 2,000 Excess Earn-Out Shares. However, if only 100,000
shares could be delivered to Shareholder without violating the Percentage
Limitation, then only that number would be delivered to Shareholder and the
balance of 7,600 shares would constitute Excess Earn-Out Shares.
(ii) In the event that there is a loss before income taxes for any fiscal
quarter, then, subject to Section 3.2(b)(iii), the calculation in Section
3(b)(i) above shall be reduced by four (4) shares for each $1.00 of such loss.
(iii) From and after the time that either a minimum of $5,000,000 has been
raised either by Surviving Corporation or by Parent for the benefit of Surviving
Corporation, whether in a private placement, public offering or otherwise, or
Parent has breached its obligations under Section 6.4, then, in either case, the
deduction for losses in Section 3.2(b)(ii) shall not apply.
(iv) If, at the end of the Earn-Out Period, any Excess Earn-Out Shares have
not been issued to Shareholder, then Parent shall pay to Shareholder the Fair
Market Value, on the last day of the Earn-Out Period, of such Excess Earn-Out
Shares. Such payment shall be made within 30 days of the "Determination Date"
(as defined in Section 3.2(c)) for calculating the number of Earn-Out Shares
earned for the last fiscal quarter of the Earn-Out Period.
(v) Pre-Tax Profits (or loss before income taxes) of Surviving Corporation
shall be determined in accordance with GAAP consistently applied, except as
follows:
(A) In determining Gross Revenues, barter revenue, which is any
revenue received in the form of goods or services, shall be valued at 50%
of the estimated cash value of such goods and services; provided, however,
that all barter revenues in excess of 10% of the total revenues received in
that quarter shall be excluded entirely.
(B) In determining Pre-Tax Profits or loss before income taxes, no
general corporate expense allocations from the Parent to Surviving
Corporation shall be deducted other than direct expenses incurred for
Surviving Corporation.
(C) In determining Pre-Tax Profits or loss before income taxes, all
costs and expenses relating to the consummation of the Merger and the
closing under this Agreement shall not be deducted.
(D) In determining either Gross Revenues, Pre-Tax Profits or losses
before income taxes, those principles which are mutually agreed upon from
time to time by Parent and Shareholder (and which are initially set forth
in the Business Plan shall be used and applied.
(E) Any stock options of EVTC issued to Target employees shall be
valued at the time of grant using the Black Sholes Model and included as
expense and included in Pre-Tax Profits for the purpose of determining
Earn-Out Shares.
(vi) The Fair Market Value of Parent Common Stock on a date shall mean the
average of the closing prices for those securities during the period of ten
consecutive trading days ending on that date as reported in the Wall Street
Journal or on Yahoo Finance.
<PAGE>
(c) Within 15 business days following the end of each fiscal quarter during
the Earn-Out Period, Surviving Corporation shall deliver to Parent a calculation
of the Earn-Out Shares earned for that quarter (including Excess Earn-Out
Shares) as determined in accordance with Section 3.2(b). Unless Parent objects
to such calculation within 30 business days thereafter, such calculation shall
be binding and conclusive. If Parent does timely object, then it shall so notify
Shareholder setting out the disputed items in reasonable detail. Any disputed
item which has not been settled by the Shareholder and Parent within 10 business
days thereafter shall be submitted to the independent certified public
accountant for Parent; and his determination of such disputed items shall be
binding and conclusive on all parties. Parent shall use commercially reasonable
efforts to cause such accountant to deliver its determination to Shareholder and
Parent within 75 business days of the close of the applicable period. All costs
and expenses of such accountant shall be borne by Parent. (Each determination of
the number of Earn-Out Shares earned for a quarter which has been agreed to by
Shareholder and Parent or otherwise has become binding and conclusive is
referred to as a "Determination"; and the date on which a Determination has been
agreed upon or has become binding and conclusive is referred to as a
"Determination Date.")
(d) Notwithstanding anything in this Agreement to the contrary (including
the Percentage Limitation), if the Surviving Corporation is meeting or exceeding
at least 50% of the Gross Revenue and Pre-Tax Profits as listed in Target's
Business Plan as adjusted pursuant to Section 3.2(e), then, without the need for
any action by Shareholder or Parent:
(i) The balance of the Earn-Out Shares shall be earned and issued, and
Shareholder shall be deemed to hold such balance, immediately upon Parent
ceasing to own at least 80% of the capital stock of the Surviving
Corporation (unless Shareholder consents) during the Earn-Out Period.
(ii) A portion of the balance of the Earn-Out Shares shall be earned
and issued, and Shareholder shall be deemed to hold such portion,
immediately prior to the occurrence of any of the following events or
circumstances during the Earn-Out Period unless Shareholder consents (which
consent shall not be unreasonably withheld):
(A) The liquidation or dissolution of Parent.
(B) The "Bankruptcy" of Parent.
(C) Immediately upon the termination without cause by Parent or the
Surviving Corporation of Sakoff's employment during the Earn-Out Period in
violation of the terms of Sakoff's Employment Agreement.
(iii) The balance of the Earn-Out Shares which could be earned under
Section 3.2(d)(i)shall be the total of (i) 8,000,000 shares less (ii) the
Earn-Out Shares previously earned and less (iii) that number of shares
which has a Fair Market Value, immediately prior to such event, equal to
the product of (x) the number of shares determined in clauses (i) and (ii)
multiplied by (y) $1.20. The portion of the balance of the Earn-Out Shares
which could be earned pursuant to this Section 3.2(d)(ii) shall be equal to
the product of (x) the balance of the Earn-Out Shares multiplied by (y) the
average of Surviving Corporation 's actual cumulative Gross Revenues for
the applicable period expressed as a percentage of the forecasted Gross
Revenues for such period in the Business Plan and of the Surviving
<PAGE>
Corporation's actual cumulative Pre-Tax Profits during the applicable
period expressed as a percentage of the amount forecasted in Target's
Business Plan for the applicable period multiplied by (iii) 2; provided,
however, that such portion may not exceed 100% of such balance. The
applicable period shall begin on the date of this Agreement and end on the
last day of the fiscal quarter immediately prior to the triggering event or
circumstance. (For example, if the balance of the Earn-Out Shares was
7,000,000, Surviving Corporation's cumulative Gross Revenues were 40% of
the amount forecasted in the Business Plan and Surviving Corporation's
cumulative Pre-Tax Profits were 30% of the amount forecasted in the
Business Plan, then the number of Earn-Out Shares which would be earned
would be 7,000,000 multiplied by 35% (the average of 40% and 30%) times 2
and would equal 4,900,000 shares.) As used in this Section 3.2(d),
"Bankruptcy" shall mean:
(A) Parent or its successor in interest makes an assignment for the
benefit of creditors, or petitions or applies for the appointment of a
liquidator, receiver or custodian (or similar official) of it or of any
substantial part of its assets, or Parent or its successor in interest
commences any proceeding or case relating to it under the Bankruptcy Code
or any other bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt or similar law of any jurisdiction, or takes any
action to authorize any of the foregoing; or
(B) Any petition or application of the type described in Section
3.2(d)(iii)(A) is filed or if any such proceeding or case is commenced
against Parent or its successor in interest and is not dismissed within
sixty (60) days, or Parent or its successor in interest indicates its
approval thereof, consents thereto or acquiesces therein, or an order is
entered appointing any such liquidator or receiver or custodian (or similar
official), or adjudicating Parent and/or its successor in interest bankrupt
or insolvent, or approving a petition in any such proceeding, or a decree
or order for relief is entered in respect of Parent or its successor in
interest in an involuntary case under the Bankruptcy Code or any other
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt
or similar law of any jurisdiction.
(e) At the time that the holders of then outstanding Parent Common
Stock become entitled to hold a different number of shares of Parent Common
Stock, or different or additional classes or series of securities, by reason of
a stock dividend, merger, consolidation, recapitalization of Parent's capital
stock, split-up, subdivision, combination, exchange of securities or any similar
transaction, then the number, classes and series of securities to be issued and
exchanged in the Merger shall be equitably adjusted by the Board of Directors of
Parent or its successor in interest in order that Shareholder shall be entitled
to receive the same number, classes and series of securities of Parent and its
successors during the Earn-Out Period as if all of the Earn-Out Shares had been
earned immediately prior to each such event. From and after each such event, the
term "Parent Common Stock" shall include all such different and additional
classes and series of securities. Any other issuance of Parent Common Stock
shall not effect the number of Earn-Out Shares.
3.3 Mechanics of Exchange of Securities. At the Closing, Shareholder
shall deliver to Sub a certificate or certificates representing the Target
Common Stock, duly endorsed, as more fully set forth in Section 7.2(b); and
Parent shall deliver to Shareholder a certificate or certificates representing
the Initial Shares, as more fully set forth in Section 7.3(b). However,
regardless of whether either such party delivers any of such certificates, at
the Effective Time, by virtue of the Merger, the Initial Shares shall be deemed
<PAGE>
to have been issued and Shareholder shall be deemed to be a shareholder of
Parent who holds the Initial Shares. Within 10 days of each Determination Date,
Parent also shall deliver to Shareholder a certificate or certificates
representing the Earn-Out Shares then earned as shown in a Determination.
However, regardless of whether such certificates have actually been delivered,
the Earn-Out Shares shown on such Determination shall be deemed to have been
issued and Shareholder shall be deemed to hold such Earn-Out Shares on the
Determination Date.
3.4 Status of Sub Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any capital stock of
Sub, each issued and outstanding share of common stock of Sub shall continue
unchanged and remain outstanding as a share of common stock of the Surviving
Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET, SHAREHOLDER AND SAKOFF
Each of the Target, Shareholder and Sakoff, jointly and severally,
represent and warrant to Parent and Sub that:
4.1 Corporate Existence. Each of the Shareholder and Target is a
corporation duly organized, validly existing in good standing under the laws of
its respective jurisdiction of incorporation and has the corporate power to own,
operate or lease its respective properties and to carry on its business as now
being conducted. Complete and correct copies of the Articles of Incorporation of
Target and all amendments thereto, certified by the Secretary of State of
Nevada, and of the By-Laws of the Target and all amendments thereto, certified
by the Secretary of the Target, heretofore have been delivered to Parent. Target
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities make such qualifications necessary,
except for those jurisdictions where failure to be so qualified would not have a
material adverse effect upon the business, operations, assets, properties,
rights or condition (financial or otherwise) or prospects of the Target or upon
the ability of Target to consummate the transactions contemplated by this
Agreement (a "Material Adverse Effect").
4.2 Authorization; Validity. Each of the Shareholder and Target has all
requisite corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. No declaration, recording or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement, the
Registration Rights Agreement and the Shareholders Agreement by the Shareholder,
Target and Sakoff and the Employment Agreement by Sakoff or the consummation by
the Shareholder, Target and Sakoff of the transactions contemplated hereby or
thereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which are set forth in Article I or which,
if not made or obtained, as the case may be, would not, in the aggregate, have a
Material Adverse Effect. All necessary action has been taken, or will be taken,
by the Shareholder, Target and Sakoff with respect to the execution, delivery
and performance by the Shareholder, Target and Sakoff of this Agreement, the
Employment Agreement, the Registration Rights Agreement and the Shareholders
Agreement and the consummation of the transactions contemplated hereby and
thereby, as applicable. Assuming the due execution and delivery of this
Agreement, the Employment Agreement the Registration Rights Agreement and the
Shareholders Agreement by Parent and Sub, each of those agreements is or will be
<PAGE>
a legal, valid and binding obligation of the Shareholder, Target and/or Sakoff,
as applicable, and enforceable against those parties in accordance with its
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, and other similar laws of general application affecting the
enforcement of creditors' rights and general principles of equity (whether
applied in a proceeding at law or in equity).
4.3 No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement, nor the consummation by each of the Shareholder,
Target and Sakoff of the transactions contemplated hereby, nor compliance by
each of the Shareholder, Target and Sakoff with any of the provisions hereof,
will (a) violate or cause a default under any statute (domestic or foreign),
judgment, order, writ, decrees, rule or regulation of any court or governmental
authority applicable to the Shareholder, Target, Sakoff or any of their
respective properties; (b) breach or conflict with any of the terms, provisions
or conditions of the respective Certificates of Incorporation or respective
By-Laws of Target or the Shareholder; or (c) violate, conflict with or breach or
require the authorization, consent or approval of any party under any agreement,
contract, mortgage, instrument, indenture or license to which the Shareholder,
Sakoff or Target is or may be bound, or constitute a default (in and of itself
or with the giving of notice, passage of time or both) thereunder, or result in
the creation or imposition of any encumbrance upon, or give to any other party
or parties any claim, interest or right, including rights of termination or
cancellation in, or with respect to , any of their respective properties or
Target Common Stock.
4.4 Subsidiaries. Target has no subsidiaries or equity investments in
any other corporation, association, partnership, joint venture or any other
entity.
4.5 Capitalization and Shareholdings. The authorized capital stock of
Target consists of 25,000 shares of Common Stock, of which 25,000 shares are
issued and outstanding. At the Closing, Shareholder will deliver a certificate
or certificates representing all Target Common Stock, free and clear of all
liens, claims, charges or encumbrances. Neither the Shareholder nor Target is a
party to or bound by any agreements, arrangements or understandings restricting
in any manner the conversion and exchange in the Merger of Target Common Stock.
The Target Common Stock is duly and validly issued and is fully paid and
non-accessible and free of preemptive rights. There is not outstanding, and
neither the Shareholder nor Target is bound by or subject to, any subscription,
option, warrant, call, right, contract, commitment, agreement, understanding or
arrangement to issue any additional shares of capital stock of Target, including
any right of conversion or exchange under any outstanding security or other
instrument, and no shares of the capital stock of Target are reserved for
issuance for any such purpose.
4.6 Financial Statements. The balance sheet of Target and the related
statement of income as of October 31, 1999, has been delivered to the Parent.
Target's Financial Statements (i) are true, correct, and complete, (ii) are in
accordance with the books and records of Target, and (iii) fairly, completely
and accurately present the financial position of Target at the dates specified
and the results of its operations for the periods covered.
4.7 Absence of Undisclosed Liabilities. Target has no undisclosed
debts, liabilities or obligations of any kind, whether accrued, absolute,
contingent or other, whether due or to become due, that would have a material
adverse effect other than those that are fully described and listed inSchedule
4.7. Any undisclosed liabilities that are not listed in Schedule 4.7 that are
not agreed to in advance by Parent shall be the responsibility of Shareholder,
and/or Sakoff. If the Parent is required to pay any liability relating to
Target, Shareholder or Sakoff that relates to activities prior to this Agreement
that are not fully disclosed in Schedule 4.7, Parent has the right to offset
<PAGE>
Earn-Out Shares due under this Agreement by such amount(s) paid by Parent. The
amount of offset shall be further increased by 25% for any and all cash or debt
that Sub or Parent has spent or issued to satisfy Target obligations originating
prior to this Agreement.
4.8 Absence of Certain Changes or Events. Since (the inception date of
Target), no event or circumstance has occurred resulting or reasonably likely to
result in a Material Adverse Effect.
4.9 Proprietary Rights. Schedule 4.9 sets forth a complete and accurate
list of all patents (including all reissues, reexaminations, continuations,
continuations-in-part and divisions thereof), inventions, trade secrets,
processes, proprietary rights, proprietary knowledge, know how, computer
software, trademarks, names, service marks, trade names, copyrights, symbols,
logos, franchises and permits of Target and all applications therefor,
registrations thereof and licenses, sublicenses or agreements in respect thereof
that Target owns or has the right to use or to which Target is a party and all
filings, registrations or issuance of any of the foregoing with or by any
federal, state, local or foreign regulatory, administrative or governmental
office or offices (collectively, the "Intellectual Property Rights"). The
Intellectual Property Rights listed on Schedule 4.9 are all the proprietary
rights necessary to the conduct of Target's Business as now conducted. Except as
set forth on Schedule 4.9 or as would not be reasonably expected to have a
material adverse effect, (a) Target is the sole and exclusive owner of all
right, title and interest in and to all Intellectual Proprietary Rights free and
clear of all liens, claims, charges, equities, rights of use, encumbrances and
restrictions whatsoever, (b) no consent or approval of any party will be
required for the use of any of these Intellectual Property Rights by Surviving
Corporation following the Effective Time, and (c) no governmental registration
of any of these Intellectual Property Rights has lapsed or expired or been
canceled, abandoned, opposed or the subject of any reexamination request.
Except as disclosed in Schedule 4.9 or as would not be reasonably
expected to have a material adverse effect, (a) Target is not, nor will it be as
a result of the execution and delivery of this Agreement or the performance of
its obligations hereunder, in violation of any license, sublicense or other
agreement to which it is a party and pursuant to which it is authorized to use
any third-party patents, trademarks, service marks or copyrights ("the Third
Party Intellectual Property Rights"); (b) no claims with respect to the patents,
registered and material unregistered trademarks and service marks, registered
copyrights, trade names and any applications therefor owned by Target (Target
Intellectual Property Rights), any trade secret material to Target , or
Third-Party Intellectual Property Rights to the extent arising out of any use,
reproduction or distribution of such Third-Party Intellectual Property Rights by
or through Target , are currently pending or, to the knowledge of the
Shareholder or Sakoff, threatened in writing by any person; and (c) the
Shareholder and Sakoff do not know of any valid ground for any bona fide claims
(i) to the effect that the manufacture, sale, licensing or use of any products
as now used, sold or licensed or proposed for use, sale or license by Target,
infringes on any copyright, patent, trademarks, service mark or trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the business of Target as currently conducted or as
proposed to be conducted; (ii) challenging the ownership, validity or
effectiveness of any of Target Intellectual Property Rights or other trade
secret material to Target; or (iii) challenging the license or legally
enforceable right to use of the Third Party Intellectual Property Rights by
Target. Any money spent by Parent or Target after the date of this Agreement to
defend any asset listed in 4.9 for prior or future claims related to actions
that occurred prior to the date of this Agreement shall be the responsibility of
Shareholder, and/or Sakoff. Parent has the right to offset Earn-Out Shares due
under this Agreement by such amount(s) paid by Parent. The amount of offset
shall be further increased by 25% for any and all cash or debt that Parent has
spent or issued to defend or satisfy claims originating prior to this Agreement.
<PAGE>
4.10 Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
Target or Shareholder, threatened against or affecting Target, its subsidiaries
or any Affiliate or their respective directors or officers which reasonably
could be expected to have a material adverse effect except as set forth on
Schedule 4.10. Any money spent by Parent or Target after the date of this
Agreement to defend any litigation related to actions that occurred prior to the
date of this Agreement shall be the responsibility of Shareholder, and/or
Sakoff. Parent has the right to offset Earn-Out Shares due under this Agreement
by such amount(s) paid by Parent. The amount of offset shall be further
increased by 25% for any and all cash or debt that Parent has spent or issued to
defend or satisfy claims originating prior to this Agreement.
4.11 Contracts and Commitments. Schedule 4.11 lists all personal
property leases, contracts, agreements, contract rights, license agreements,
franchise rights and agreements, policies, purchase and sales orders, quotations
and executory commitments, instruments, third party guarantees,
indemnification's, arrangements, obligations and understandings, whether oral or
written, to which Target is a party (whether or not legally bound thereby), that
are currently in effect and that require payments, individually or in the
aggregate, in excess of $25,000, other than purchase and sale orders, quotations
and executory commitments incurred in the ordinary course of business of Target
(collectively, the "Contracts"). Each of the Contracts is valid and binding, in
full force and effect and enforceable against Target in accordance with its
provisions. Except as set forth on Schedule 4.11, Target has not assigned,
mortgaged, pledged, encumbered, or otherwise hypothecated any of its right,
title or interest under any of the Contracts. Neither Target nor, to both the
Shareholder's and Sakoff's knowledge, any other party thereto is in violation
of, in default in respect of nor has there occurred an event or condition which,
with the passage of time or giving of notice (or both)), would constitute a
material violation or a default of any Contract. No notice has been received by
the Shareholder or Target claiming any such default by Target or indicating the
desire or intention of any other party thereto to amend, modify, rescind or
terminate the same.
4.12 Governmental Consents; Compliance with Laws. Other than filings
described in Article I and filings with Federal and state securities authorities
in respect of the conversion and exchange of Target Common Stock, no consent,
approval, order, or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, local or provincial
governmental authority on the part of Target is required in connection with the
consummation of the transactions contemplated by this Agreement. Target has
complied (and in carrying out its business Target will be in compliance) with
all laws, ordinances and regulations applicable to it and its business, which
the failure to comply with would, either individually or in the aggregate, have
a Material Adverse Effect. Target has obtained all federal, state, local, and
foreign governmental licenses and permits material to and necessary in the
conduct of its business, such licenses and permits are in full force and effect,
no material violations are or have been recorded in respect of any such licenses
or permits, and no proceeding is pending or threatened to revoke or limit any
thereof. There are no consents or waivers necessary for the consummation of the
transactions contemplated by this Agreement.
4.13 Taxes.
(a) Target has duly filed all federal, state, local and
foreign tax returns and tax reports required to have been filed by it prior to
the date hereof and will file, on or before the Closing Date, all such returns
<PAGE>
and reports that are required to be filed after the date hereof and on or before
the Closing Date, all such returns and reports are true, correct and complete in
all material respects, none of such returns and reports have been amended, and
all taxes, assessments, fees and other governmental charges arising under such
returns and reports (i) have been fully paid (or, with respect to any returns or
reports filed between the date hereof and the Closing Date, will be), or (ii)
are being contested in good faith by appropriate proceedings.
(b) Target has no material liabilities for taxes other than
has shown on Target Financial Statements, and no federal, state, local or
foreign tax authority is now asserting or, to the knowledge of the Shareholder,
threatening to assert any deficiency or assessment for additional taxes with
respect to Target.
(c) All amounts required to be withheld by Target and paid to
governmental agencies for income, social security, unemployment insurance,
sales, excise, use and other taxes have been collected or withheld and paid to
the proper taxing authority. Target has made all deposits required by law to be
made with respect to employees' withholding and other employment taxes.
4.14 Employee Benefit Plans. Target has no bonus, stock option, stock
purchase, benefit, profit sharing, savings, retirement, liability, insurance,
incentive, deferred compensation, and other similar fringe or employee benefit
plans, programs or arrangements for the benefit of or relating to, any employee
of, or independent contractor or consultant to, and all other compensation
practices, policies, terms or conditions, whether written or unwritten (the
"Employee Plans") which Target presently maintains, to which Target presently
contributes or under which Target has any liability and which related to
employees or independent contractors of Target.
4.15 Title to Property. Target has good and marketable title, or valid
leasehold rights (in the case of leased property), to all real property and all
personal property purported to be owned or leased by it or used in the operation
of its business, free and clear of all encumbrances. Target has provided Sub
with true, complete and correct copies of all title reports and insurance
policies relating to any of the real properties listed as being owned or leased
in Schedule 4.15 and of all leases under which Target is leasing each of the
properties listed in Schedule 4.15 as being leased. The fixed assets of Target
are affixed only to one or more of the real properties listed in Schedule 4.15
and, except as set forth therein, are well-maintained and adequate for the
purposes for which they presently are being used or held for use, ordinary wear
and tear excepted. All the property, plant and equipment of Target are in good
working order and condition, ordinary wear and tear expected, and adequate for
the purposes for which they presently are being used or held for use.
4.16 Investment.
(a) The Shareholder will acquire the Parent Common Stock solely for
its own account as an investment and not with a view to, or for offer or
resale in connection with, distribution thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations promulgated thereunder.
(b) Shareholder, Sakoff or any assignee to this Agreement shall sign a
Stock Subscription Agreement prepared by Parent before they will receive
any shares of Parents Common Stock due under this agreement. An example of
such agreement is included at Schedule 4.16.
<PAGE>
(c) The Target, Shareholder and Sakoff have received and read and are
familiar with this Agreement. They have had an opportunity to ask questions
of and receive answers from representatives of the Parent or Sub concerning
the terms and conditions of the Merger. The Target, Shareholder and Sakoff
have substantial experience in evaluating the merits and risks of an
investment in Parent.
(d) The Target, Shareholder and Sakoff have been furnished access to
the business records of the Parent and such additional information and
documents as they have requested and have been afforded an opportunity to
ask questions of, and receive answers from, representatives of the Parent
concerning the terms and conditions of this Agreement.
4.17 Related Party Agreements. Except as set forth on Schedule 4.17,
there are no contracts or other agreements, written or oral, to which Target is
a party or is bound or by which any property of Target is bound or may be
subject and to which the Shareholder, Sakoff or any of their Affiliates (as such
term is defined in the Securities Act) also is a party.
4.18 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by or on behalf of the
Shareholder, Sakoff and Target in such a manner not to give rise to any claim
against the Parent, Sub or any Affiliate (as such term is defined in the rules
and regulations promulgated under the Securities Act) thereof, for a finder's
fee, brokerage commission, advisory fee or other similar payment.
4.19 Closing Date Effect. All of the representations and warranties of
the Shareholder and Sakoff are true and correct as of the date hereof and shall
be true and correct on and as of the Closing Date with the same force and effect
as if such representations and warranties were made by the Shareholder and
Sakoff to the Parent on the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Shareholder and Sakoff that:
5.1 Corporate Existence. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sub is in the process of becoming a corporation, which will be duly organized,
validly existing and in good standing under the laws of Texas. Complete and
correct copies of the Certificates of Incorporation of each of Parent and Sub
and all amendments thereto, certified by the Secretary of State of Delaware and
Texas, and the By-Laws of each of Parent and Sub, and all amendments thereto,
certified by the Secretary of that corporation, have been or will be delivered
to the Shareholder. The Parent is, and Sub shall be, duly qualified to do
business as a foreign corporation in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities make such qualification necessary, except for those jurisdictions
where failure to be so qualified would not have a material adverse effect upon
the business, operations, assets, properties, rights or condition (financial or
otherwise) or prospects of such corporation or upon the ability of the Parent or
Sub to consummate the transactions contemplated by this Agreement (a "Parent
Material Adverse Effect").
5.2 Authorization; Validity. Parent has, and Sub will have, all
requisite corporate power and authority to enter into this Agreement, to perform
<PAGE>
its obligations hereunder and to consummate the transactions contemplated
hereby, subject, however, to the requisite approvals of Parent's shareholders.
Except as described in Article II, no declaration, recording or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by Parent or Sub or the consummation by Parent or Sub of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a Parent
Material Adverse Effect. Subject to the approvals of Parent's shareholders, all
necessary corporate action has been taken by Parent, and will be taken by Sub,
with respect to the execution, delivery and performance by Parent and Sub of
this Agreement and the consummation of the transactions contemplated hereby.
Assuming the due execution and delivery of this Agreement by the Shareholder,
Target and Sakoff, this Agreement is a legal, valid and binding obligation of
Parent, and, upon incorporation of Sub, will be a legal, valid and binding
obligation of Sub, enforceable against each corporation in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application affecting the enforcement of
creditor's rights and general principles of equity (whether applied in a
proceeding at law or in equity). There does not exist any circumstances that
would operate to terminate, reduce, alter or impair the obligations of either
corporation under this Agreement or that gives rise to or would give rise to a
right of set-off by Parent or Sub or any defense to the performance of Parent's
or Sub's obligations in accordance with the terms of this Agreement. Parent
shall cause Sub to be incorporated and qualified to do business as set forth in
Section 5.1 and to approve this Agreement and all transactions contemplated
thereby.
5.3 No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement, nor the consummation by the Parent or Sub of the
transactions contemplated hereby, nor compliance by Parent or Sub with any of
the provisions hereof, will (a) violate or cause a default under any statute
(domestic or foreign), judgment, order, writ, decree, rule or regulation of any
court or governmental authority applicable to Parent or Sub or any of their
respective material properties: (b) breach or conflict with any of the terms,
provisions or conditions of the Articles of Incorporation or By-laws of Parent
or Sub; or (c) violate, conflict with or breach or require the authorization,
consent or approval of any party under any agreement, contract, mortgage,
instrument, indenture or license to which Parent or Sub is a party or by which
Parent or Sub is or may be bound, or constitute a default (in and of itself or
with the giving of notice, passage of time or both) thereunder, or result in the
creation or imposition of any encumbrance upon, or give to any other party or
parties, any claim, interest or right, including rights of termination or
cancellation, in or with respect to any of Parent's or Sub's properties.
5.4 Capitalization; Parent Common Stock. Parent's authorized capital
stock consists of (i) 10,000,000 shares of Parent Common Stock, of which
5,010,719 shares are issued and outstanding on the date hereof and (ii) shares
of Preferred Stock, $0.01 par value, of which there are 0 shares issued and
outstanding on the date hereof. Except as set forth in the "Parent SEC Reports"
(as defined in Section 5.5), there are no subscriptions, options, warrants,
calls, rights, contracts, commitments, understandings, restrictions, or
arrangements of any kind relating to the issuance, sale or transfer by Parent of
its capital stock, including without limitation, any rights of conversion or
exchange under any outstanding securities or other instruments. The issuance and
delivery of the Parent Common Stock has been duly and validly authorized by all
necessary corporate action on the part of the Parent, subject to approval by
Parent's shareholders, and will be duly and validly issued, fully paid and
non-assessable. The Parent Common Stock will be issued and delivered to the
<PAGE>
Shareholder free and clear of any and all liens, claims, charges, encumbrances,
restrictions and agreements of any nature whatsoever. The Parent Common Stock
will not be issued, transferred, and delivered to the Shareholder in violation
of any preemptive rights, rights of first refusal or other similar rights.
5.5 SEC Reports and Financial Statements. Parent has timely filed with the
SEC, and has heretofore made available to the Shareholder and Sakoff, true and
complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it under the Securities Act of 1933, as
amended ("Securities Act") and the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). (Such documents as they have been amended or supplemented
since the time of their filing or, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively, collectively are defined as "Parent SEC Reports.") Except as set
forth in subsequently filed SEC documents, at the time of filing, the Parent's
SEC Reports (including any financial statements or schedules included therein),
(a) did not contain any untrue statement of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and (b) complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as case may be. The audited consolidated financial statements and
unaudited interim consolidated financial statements (including the related
notes) of Parent included in the Parent SEC Reports, as amended, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present in all material respects the financial position of Parent and
its subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein (which will not be
material individually or in the aggregate).
5.6 Closing Date Effect. All of the representatives and warranties of
Parent are true and correct as of the date hereof and shall be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties were made by Parent to the Shareholder and Sakoff
on the Closing Date.
ARTICLE VI
COVENANTS
6.1. Access to Information.
(a) The Shareholder and Sakoff shall cause Target to afford to Parent
and Sub and their respective accountants, counsel, financial advisors and other
representatives (the "Parent Representatives") full access during normal
business hours throughout the period prior to the Closing Date to all of
Target's properties, books, contracts, commitments and records (including, but
not limited to, tax returns) and, during such period, shall furnish promptly to
the Parent, Sub or Parent Representatives such other information concerning
Target's business as they shall request. Parent and Sub shall treat, and shall
cause the Parent Representatives to treat, all such materials and information in
accordance with Section 6.5 hereof.
(b) Parent and Sub shall afford the Shareholder and Sakoff and their
respective accounts, counsel, financial advisors and other representatives (the
"Shareholder Representatives") full access during normal business hours
throughout the period prior to the Closing date to all of the respective
properties, books, contracts, commitments and records (including, but not
<PAGE>
limited to, tax returns) of Parent and its subsidiaries and, during such period,
shall furnish promptly to the Shareholder, Sakoff or the Shareholder
Representatives (i) a copy of each Parent SEC Report filed in connection with
the Merger and other transactions contemplated by this Agreement or that may
have a material effect on the businesses of Parent or Sub, and (ii) such other
information concerning Parent's and Sub's businesses as Shareholder, Sakoff and
Shareholder Representatives shall request. The Shareholder and Sakoff shall
treat, and shall cause the Shareholder Representatives to treat, all such
materials and information in accordance with Section 6.5 hereof.
6.2 Agreement to Cooperate. Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary or appropriate
waivers, consents and approvals and to effect all necessary filings and
submissions.
6.3. Conduct of Business Prior to the Closing Date.
(a) During the period from the date of this Agreement to the Closing
Date, except as otherwise contemplated by this Agreement or approved by Parent
or Sub, the Shareholder and Sakoff shall cause Target (i) to conduct its
business in the usual, regular and ordinary course consistent with past
practices and prudent business principles and (ii) to use its reasonable efforts
to maintain and preserve intact its business organization, employees, goodwill
with customers and advantageous business relationships and to retain the
services of its officers and key employees.
(b) The Shareholder and Sakoff agree that, on and or after the date
hereof and prior to the Closing Date, without the consent of the Parent, the
Shareholder and Sakoff shall not cause or otherwise suffer or permit the Target
to:
(i) Incur or become subject to, or agree to incur or become subject to, any
obligation or liability (absolute or contingent) except current liabilities
incurred, and obligations under contracts entered into, in the ordinary course
of business;
(ii) Mortgage, pledge or subject to lien, charge or any encumbrance, any of
Target's properties or agree so to do;
(iii) Sell or transfer or agree to sell or transfer any of its assets,
properties or services or cancel or agree to cancel any debt or claim, except in
each case in the ordinary course of business;
(iv) Consent or agree to a waiver of any right of substantial value;
(v) Terminate any contract, agreement, license or other instrument to which
it is a party that provides for monthly payments by or to Target in excess of
$10,000; and
(vi) Authorize or enter into any agreement to do any of the foregoing.
<PAGE>
6.4. Financing.
(a) From the date hereof through the Closing Date, Parent will lend
Target a minimum of $1,000,000 in accordance with Schedule 6.4. Following the
Closing Date, the Parent shall use its commercially reasonable good faith
efforts to raise additional funds of at least $10,000,000 through equity or debt
financing over a period of no more than 180 days from the Closing. Such funds
raised after the Closing Date shall be contributed to the capital of Surviving
Corporation to be used for the further development of Surviving Corporation's
business. Surviving Corporation and Shareholder shall use their respective
reasonable good faith efforts to assist the Parent in securing such additional
financing.
(b) For a period of two years after the Closing Date, in the event that
the Parent commences an offering of its securities, the Shareholder and Sakoff
agree to enter into with the managing underwriter of such offering, and perform
their respective obligations under, a lock-up agreement similar in form and
substance to lock-up agreements executed by other executive officers and
directors of the Parent in connection with such offering.
6.5 Confidentiality. Each of the parties to this Agreement covenants and
agrees to hold in strict confidence all data and information obtained from any
other party hereto (or any subsidiary, division, associate, representative,
agent or affiliate of any such party) including, but not limited to, information
furnished prior to the date hereof (unless such information is or becomes
publicly available, without the fault of such party or any representatives of
such party, or public disclosure of such information is required by law in the
reasonable opinion of counsel to such party). Each of the parties to this
Agreement agree that its representatives shall not disclose information to
others without the prior written consent of the party who had provided such
information, and, in the event of the termination of this Agreement, to cause
its representatives to return promptly every document furnished by any other
party hereto (or any subsidiary, division, associate, representative, agent, or
affiliate of any such party) in connection with the transactions contemplated
hereby and any copies thereof which may have been made, other than documents
which are publicly available.
6.6 Announcements. None of the parties to this Agreement nor any of their
respective Affiliates shall make any public announcements prior to the Closing
date with respect to this Agreement or the transactions contemplated hereby
without the mutual written consent of the parties, unless such disclosure is
required by law.
6.7 Satisfaction of Conditions. Each of the parties hereto shall use its
commercially reasonable efforts in good faith to fulfill or obtain the
fulfillment of all of those conditions to closing which it must fulfill.
6.8 Reporting Status. Until one year after the date as of which the
Shareholder may sell all of the Parent Common Stock without restriction pursuant
to Rule 144(k) of the General Rules and Regulations promulgated under the
Securities Act, the Parent shall use its reasonable efforts to (i) timely file
all reports and documents required to be filed with the SEC pursuant to the
Exchange Act and (ii) maintain Parent's status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.
6.9 Target Information. Target and Shareholder shall promptly furnish the
Parent and Sub with all information concerning Target's business and financial
<PAGE>
statements and affairs which, in the reasonable judgment of the Parent, Sub or
their respective counsel, may be required or appropriate. Such information shall
be held in confidence pursuant to Section 6.5.
6.10 Covenants Relating to Earn-Out Shares.
In order to protect Shareholder's ability to earn the Earn-Out Shares and
to protect the value of the Earn-Out Shares, Parent agrees that, unless
Shareholder or its successor in interest consents, during the Earn-Out Period,
the Board of Directors of Parent shall always consist of at least three persons
designated by Shareholder (or the successor in interest to Shareholder). Without
limiting the generality of the foregoing, Shareholder agrees that any person who
has been designated by Shareholder must be acceptable to Parent and Parent
agrees that it will not unreasonably object to such persons designated by
Shareholder. In addition, if the Board of Directors of Parent is expanded to
more than seven directors, then, during the Earn-Out Period, such additional
directors shall be mutually satisfactory to Parent and Shareholder. However, the
obligations of Parent under this Section 6.10 shall terminate on or after the
6-month anniversary of the Closing Date if (x) both Surviving Corporation's
actual cumulative Gross Revenues and Pre-Tax Profits at the end of any fiscal
quarter are less than 50% of those amounts forecasted in Target's Business Plan
which has been delivered to Parent, (y) Parent has provided funding under
Section 6.4(a), directly to Target and/or indirectly by paying Target's
obligations to its vendors, of at least $1,000,000 in cash and/or Parent Common
Stock (valued as per agreements with such vendors).
ARTICLE VII
CLOSING
7.1 Closing. The closing ("Closing") of the transactions contemplated by
this Agreement shall take place (a) at 121 S. Norwood Drive, Hurst Texas 76053
at 10:00 a.m., local time, on the later of (i) February 1, 2000, and (ii) the
second business day immediately following the date on which the last of the
conditions set forth in Article VIII hereof has been fulfilled or waived, or (b)
at such other time and place and on such other date as Parent and Shareholder
shall agree ("Closing Date").
7.2 Deliveries by the Shareholder and Sakoff. On or prior to the Closing
Date, the Shareholder and Sakoff shall deliver to Parent and/or Sub, as
applicable, the following documents duly and properly executed:
(a) Articles of Merger executed by Target.
(b) A certificate or certificates representing the Target Common Stock,
duly endorsed in blank for transfer or accompanied by separate stock powers duly
executed in blank, with all necessary documentary stamps evidencing the payment
of all applicable transfer taxes.
(c) Resolutions of the Board of Directors of Target and Shareholder
authorizing the execution and delivery of this Agreement by Target and
Shareholder and the performance of their respective obligations hereunder,
certified by the Secretary of the Shareholder.
(d) A certificate of the Secretary of State of Nevada dated as of a recent
date as to the good standing of Target in such state.
<PAGE>
(e) The Sakoff Employment Agreement executed by Sakoff.
(f) The Registration Rights Agreement executed by Shareholder.
(g) Certificates, dated the Closing Date, executed by Sakoff and Target's
President and Secretary, to the effect that (i) the conditions set forth in
Sections 8.1(a) and (b) and, to the best knowledge of such officers, Section
8.1(c) and (e), have been satisfied and (ii) the Articles of Incorporation and
By-laws of Target shall have not been amended since the date upon which
certified copies of each had been delivered to Parent and remain in full force
and effect.
(h) Such other separate instruments or documents that the Parent or Sub may
reasonably deem necessary or appropriate in order to consummate the transactions
contemplated by this Agreement.
7.3 Deliveries by Parent. On or prior to the Closing Date, Parent shall
deliver to the Shareholder and Sakoff the following documents duly and properly
executed:
(a) Articles of Merger executed by Parent and Sub.
(b) A certificate or certificates representing the Initial Shares duly and
validly issued in the name of Shareholder.
(c) A certificate of the Secretary of State of Delaware dated as of a
recent date as to the good standing of Parent in such state.
(d) Resolutions of the Board of Directors and shareholders of Parent
authorizing the execution and delivery of this Agreement by Parent and the
performance of its obligations hereunder, certified by the Secretary of Parent.
(e) A certificate of the President and Secretary of Parent dated the
Closing Date to the effect that (i) the conditions set forth in Sections 8.2(a),
(b), (d) and (e) and, to the best knowledge of such officers, Section 8.2(c)
have been satisfied and (ii) the Articles of Incorporation and By-laws of the
Parent shall not have been amended since the date upon which certified copies of
each had been delivered to Shareholder and remain in full force and effect. (f)
The Sakoff Employment Agreement executed by Parent.
(g) The Registration Rights Agreement executed by Parent.
(h) Such other separate instruments or documents that Sakoff or Shareholder
may reasonably deem necessary or appropriate in order to consummate the
transactions contemplated by this Agreement.
7.4 Deliveries by Sub. On or prior to the Closing Date, Sub shall deliver
to the Shareholder and Sakoff the following documents duly and properly
executed:
(a) A certificate of the Secretary of State of Texas dated as of a recent
date as to the good standing of Sub in such state.
<PAGE>
(b) Resolutions of the Board of Directors and shareholders of Sub
authorizing the execution and delivery of this Agreement by Sub and the
performance of its obligations hereunder, certified by the Secretary of Sub.
(c) A certificate of the President and Secretary of Sub dated the Closing
Date to the effect that (i) the conditions set forth in Sections 8.2(a) and (b)
and, to the best knowledge of such officers, Sections 8.2(c) and (e) have been
satisfied and (ii) the Certificate of Incorporation and By-laws of the Sub shall
not have been amended since the date upon which certified copies of each had
been delivered to Shareholder and remain in full force and effect.
(d) The Sakoff Employment Agreement executed by Sub.
(e) Such other separate instruments or documents that Sakoff or Shareholder
may reasonably deem necessary or appropriate in order to consummate the
transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
8.1 Conditions to Obligations of Parent and Sub. Each and every obligation
of Parent and Sub to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by Parent or Sub, as applicable):
(a) Representations and Warranties. The Shareholder's and Sakoff's
representations and warranties set forth in Article IV of this Agreement shall
have been true and correct in all material respects at and as of the Closing
Date as if such representations and warranties were made as of the Closing Date,
except for changes permitted or contemplated by this Agreement and except to the
extent that any representation or a warranty is made as of a specified date, in
which case such representation or warranty shall be true in all material
respects as of such date.
(b) Performance of Agreement. All covenants, conditions and other
obligations under this Agreement which are to be performed or complied with by
the Shareholder or Sakoff shall have been fully performed and complied with on
or prior to the Closing Date, including, without limitation, the delivery of the
duly executed instruments and documents in accordance with Section 7.2 hereof.
(c) No Adverse Proceeding. There shall not be any litigation or proceeding,
judicial or administrative, or governmental investigation against Parent or Sub,
which has enjoined or prevented the consummation of this Agreement.
(d) Shareholder Approval. The shareholders of Parent shall have duly
approved the issuance of Parent Common Stock in the Merger and such other
matters as counsel for Parent shall reasonably deem necessary in connection with
this Agreement.
(e) Consents and Approvals. The Merger shall have become effective under
the TBCA and NCL. All other consents, approvals, and authorizations of all
<PAGE>
material contracts, licenses, agreements or instruments required for
consummation of the transactions contemplated by this Agreement shall have been
received and shall be in force and effect.
8.2 Conditions to Obligations of the Shareholder and Sakoff. Each and every
obligation of the Shareholder and Sakoff to be performed on the Closing Date
shall be subject to the satisfaction as of or before the Closing Date of the
following conditions (unless waived by the Shareholder or Sakoff):
(a) Representations and Warranties. Parent's and Sub's representations and
warranties set forth in Article V of this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date as if such representations and
warranties were made as of the Closing Date, except for the changes permitted or
contemplated by this Agreement and except to the extent that any representation
or a warranty is made as of a specific date, in which case such representation
or warranty shall be true in all material respects as of such date.
(b) Performance of Agreement. All covenants, conditions and other
obligations under this Agreement which are to be performed or complied with by
Parent and Sub shall have been fully performed or complied with on or prior to
the Closing Date including, without limitation, the delivery of the duly
executed instruments and documents in accordance with Sections 7.3 and 7.4
hereof.
(c) No Adverse Proceeding. There shall be no pending or threatened claim,
action, litigation or proceeding, judicial or administrative, or governmental
investigation against the Parent or Sub for the purpose of enjoining or
preventing the consummation of this Agreement, or otherwise claiming that this
Agreement or the consummation hereof is illegal.
(d) Consents and Approvals. The Merger shall have become effective under
the TBCA and NCL. All other consents, approvals, and authorizations of all
material contracts, licenses, agreements or instruments required for
consummation of the transactions contemplated by this Agreement shall have been
received and shall be in force and effect.
(e) Shareholder Approval. The shareholders of Parent shall have duly
approved the issuance of Parent Common Stock in the Merger and such other
matters as counsel for Parent shall reasonably deem necessary in connection with
this Agreement.
ARTICLE IX
TERMINATION
9.1 Termination by Parent or Sub. This Agreement may be terminated and
cancelled at any time prior to the Closing Date by Parent or Sub upon written
notice to the Shareholder and Sakoff if:
(a) Any of the representations or warranties of the Target, Shareholder or
Sakoff contained herein shall prove to be inaccurate or untrue in any respect;
or any obligation, term or condition listed in Section 8.1(a) or (b) to be
performed kept or observed by the Shareholder or Sakoff hereunder has not been
performed, kept or observed in any material respect at or prior to the time
specified in this Agreement; provided, however, that (i) Parent or Sub has given
the Shareholder and Sakoff written notice of all reasons for the proposed
<PAGE>
termination and (ii) the Shareholder or Sakoff has not cured any such condition
within 10 days of receiving Parent's or Sub's notice.
(b) The performance of this Agreement would result in the Parent Common
Stock being delisted from the NASDAQ National Market System.
(c) Any condition listed in Section 8.1(c), (d) or (e) has not been
satisfied.
9.2 Termination by tnhe Shareholder and Sakoff. This Agreement may be
terminated and cancelled at any time prior to the Closing Date by the
Shareholder and Sakoff upon written notice to the Parent and Sub if:
(a) Any of the representations or warranties of Parent or Sub contained
herein shall prove to be inaccurate or untrue in any material respect; or any
material obligation, term or condition listed in Section 8.2(a) or 8.2(b) to be
performed, kept or observed by Parent or Sub hereunder has not been performed,
kept or observed in any material respect at or prior to the time specified in
this Agreement; provided, however, that (i) the Shareholder or Sakoff has given
Parent and Sub written notice of all reasons for the proposed termination and
(ii) Parent or Sub, as applicable, has not cured any such condition within 10
days of receiving the termination notice from Shareholder and Sakoff.
(b) The Parent Common Stock is delisted from the NASDAQ National Market
System for any reason.
(c) Any condition listed in Section 8.2(c), (d) or (e) has not been
satisfied.
9.3 Termination by Any Party. Any party hereto shall have the right to
terminate and cancel this Agreement if (i) the Closing Date shall not have
occurred on or before February 1, 2000, unless extended pursuant to Section 7.1
hereof; provided that such failure of occurrence shall not have resulted from
the delay, default or breach of such party; or (ii) a court of competent
jurisdiction shall have issued an order, decree or ruling permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, and such order, decree, ruling or other action shall have become
final and unappealable.
9.4. Termination by Mutual Consent. This Agreement may be terminated and
cancelled at any time prior to the Closing Date by mutual written consent of
Parent, Sub, Shareholder and Sakoff.
9.5. Effect of Termination. Subject to Section 9.6, in the event of
termination of this Agreement by any party hereto as provided in this Article
IX, this Agreement shall forthwith become void and there shall be no further
obligation on the part of any party or their respective officers or directors
(except as set forth in this Section 9.5, Section 6.5 and Section 6.6 which
shall survive the termination). Nothing in this Section 9.5 shall relieve any
party from liability for any willful breach or failure of observance of the
provisions of this Agreement.
9.6. Termination Fees.
(a) In the event that this Agreement is terminated by Parent or Sub
pursuant to either (i) Section 9.1(a) or (ii) Section 9.3 if the failure to
close resulted from the delay, default or breach by Shareholder or Sakoff, then,
in either case, Shareholder shall pay the Parent a termination fee of $100,000.
<PAGE>
(b) In the event that this Agreement is terminated by
Shareholder or Sakoff (i) pursuant to Section 9.2(a), (ii) pursuant to 9.2(c)
because Parent's shareholders have not approved any matter in connection with
the Merger and consummation of the transactions contemplated in this Agreement
but the provisions of Section 9.6(c) have not been satisfied or (iii) pursuant
to Section 9.3 if the failure to close resulted from the delay, default or
breach by Parent or Sub, then, in any case, the Parent shall pay Shareholder a
termination fee of $100,000.
(c) Parent and Sub may terminate this Agreement prior to
February 29, 2000 without paying any termination fee if the (i) Parent has duly
and timely called a meeting of its shareholders to be held prior to February 28,
2000 to approve this Agreement, (ii) neither Parent, Sub nor any of Parent's
affiliates has breached this Agreement or the Shareholders Agreement, (iii)
Parent has used reasonable efforts to cause a proxy statement for such meeting
that meets the requirements of the Exchange Act to be timely mailed to the
Parent's stockholders and (iv) Parent has used its best efforts to have its
shareholders approve the issuance of Parent Common Stock and any other matter
which counsel for Parent reasonably believes such shareholders are required to
approve in connection with the consummation of the transactions contemplated by
this Agreement but Parent's shareholders have not approved such issuance or
other matter.
9.7. Monies Advanced to Target Prior to Close Any cash or stock advanced to
Target prior to closing on the Agreement shall be in the form of a Note due from
Target to Parent. Such note shall be secured by the assets of Target and shall
be due in 1 year. Such note shall be in substantially the form of Exhibit A. The
security for the note shall be on substantially the terms and conditions of the
Security Agreement in the form of Exhibit B.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Survival of Representations and Warranties and Agreements. All
representations, warranties, covenants and agreements of the Parent, the
Shareholder and Sakoff in this Agreement shall survive the execution, delivery
and performance of this Agreement for a period of one year from the Closing
Date, and shall be deemed to have been made again by the Parent, the
Shareholder, and Sakoff at and as of the Closing. The obligation of the
indemnity provided herein shall survive the Closing.
10.2 Notices. All notices and demands required or permitted under this
Agreement shall be in writing and shall be given (i) by actual delivery of the
notice into the hands of the person entitled to receive it, (ii) by mailing such
notice by registered or certified mail, return receipt requested, in which case
the notice shall be deemed to be given on the second day after the date of its
mailing or (iii) by depositing such notice with any nationally recognized
overnight carrier for priority delivery, in which case the notice shall be
deemed to be given as of the date it is so deposited. All notices to a party
shall be addressed as follows:
If To the Parent or Sub: If To the Shareholder, Sakoff:
Environmental Technologies, Inc. afreegift.com, Inc.
121 S. Norwood Drive 1100 Jorie Blvd.-Suite 173
Hurst, Texas 76053 Oak Brook, Illinois 60523
Attn: David Keener, President Attn: Scott L. Sakoff, President
<PAGE>
If to Target:e solutions marketing, Inc.
1100 Jorie Blvd. - Suite 173
Oak Brook, Illinois 60523
Atten: Chairman of the Board
With copy to: With copy to:
Ray Felton Zane M. Cohn
Greenbaum, Rowe, Smith, Ravin, Zane M. Cohn & Associates, P.C.
Davis & Himmel LLP Three First National Plaza
99 Wood Ave South Suite 3700
Iselin, NJ 08830 Chicago, Illinois 60602
Any party may specify a different address, which change shall become effective
upon receipt of such notice by all other parties.
10.3 Entire Agreement. This Agreement, the documents referred to herein,
and the other matters agreed to in writing by the parties on the date hereof,
embody the entire agreement and understanding of the parties hereto with respect
to the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, oral or written, relative to said subject matter.
10.4 Binding Effect; Assignment. This Agreement and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Parent, Sub, the Shareholder, Sakoff and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be transferred or assigned by either of the parties
hereto except (i) with the prior written consent of the other party, (ii) by
operation of law or (iii) by will or the laws of descent and distribution. Any
transfer or assignment of any of the rights, interests or obligations hereunder
in violation of the terms hereof shall be void and of no force or effect.
10.5 Captions. The Article and Section headings of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement
in construing or interpreting any provision hereof.
10.6 Expenses of Transaction. The Shareholder and Sakoff shall pay all
costs and expenses incurred by them and Target, in connection with this
Agreement and the transactions contemplated hereby. Parent and Sub shall pay all
costs and expenses incurred by them in connection with this Agreement and the
transactions contemplated hereby.
10.7 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescind, or discharged (other than by performance), in
whole or in part, except by a writing executed by each of the parties hereto,
and no waiver of any of the provisions or conditions of this Agreement or any of
the rights of a party hereto shall be effective or binding unless such waiver
shall be in writing and signed by the party to have given or consented thereto.
Except to the extent that a party hereto may have otherwise agreed in writing,
no waiver by that party of any condition of this Agreement or breach by the
other party of any of its obligations, representations or warranties hereunder
shall be deemed to be a waiver of any other condition or subsequent or prior
breach of the same or any other obligation or representation or warranty by such
other party, nor shall any forbearance by the first party to seek a remedy for
<PAGE>
any noncompliance or breach by such other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
10.8 No Third Party Beneficiaries. Nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation or legal entity, other than the parties hereto, any rights, remedies
or other benefits under or by reason of the provisions of the Agreement.
10.9 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
10.10 Gender. Whenever the context requires, words used in the singular
shall be construed to mean or include the plural and vice versa, and pronouns of
any gender shall be deemed to include and designate the masculine, feminine or
neuter gender.
10.11 Governing Law. This Agreement shall in all respects be construed in
accordance with and governed by the laws of the state of Texas, without regard
to the principles of conflicts of laws thereof.
10.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this part of the Agreement are incorporated herein by reference
and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PARENT: TARGET:
EVTC, INC. AFREEGIFT.COM, INC.
By: /s/ George Cannan By: /s/ Scott Safoff
------------------------------- --------------------------------
George Cannan, as its Chairman Scott Safoff, as its Director
SUB: SHAREHOLDER:
E SOLUTIONS MARKETING, INC. SAKOFF ENTERPRISES, INC.
By: /s/ David Keener By: /s/ Scott L. Sakoff
------------------------------- ---------------------------------
David Keener, as its Director Scott L. Sakoff, as its CEO
SAKOFF:
/s/ Scott L. Sakoff
------------------------------------
Scott L. Sakoff
Name: Scott L. Sakoff
Title: President
<PAGE>
EXHIBIT B
EVTC, INC.
2000 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. Purposes of Plan. The purposes of the EVTC, Inc. 2000 Incentive and
Non-Qualified Stock Option Plan (hereinafter referred to as the "Plan") are to
provide to employees of, and consultants to, EVTC, Inc., a Delaware corporation
(hereinafter referred to as the "Corporation"), as well as employees of
subsidiary or parent corporations which may currently exist or be formed or
acquired in the future, an opportunity for investment in the Corporation's
common stock (hereinafter referred to as the "Shares"), as an inducement for
such individuals to remain with the Corporation, and to encourage them to
increase their efforts to make the Corporation's business more successful.
2. Effective Date and Termination of Plan. The effective date of the Plan
is January 11, 2000, the date on which the Plan was adopted by the Board of
Directors of the Corporation. The Plan shall terminate on, and no option shall
be granted hereunder, after January 11, 2010; provided, however, that the Board
of Directors may at any time prior to that date terminate the Plan; and provided
further that any option granted hereunder prior to the termination of the Plan
shall remain exercisable in accordance with its terms as then in effect.
3. Administration of Plan. The Plan shall be administered by the Board of
Directors of the Corporation. The Board of Directors may, however, to the extent
permissible under the Corporation's Certificate of Incorporation, By-laws and
applicable law, delegate any of its functions under this Plan to a committee of
the Board of Directors or any other committee. Wherever in this Plan the term
"Board of Directors" is used it shall be construed to mean such committee to the
extent that the Board of Directors may have delegated any of its functions to
said committee and only to the extent of any such delegation. The acts of a
majority of the members present at any meeting of the Board of Directors at
which a quorum is present, or acts approved in writing by a majority of the
entire Board, shall be the acts of the Board of Directors for purposes of the
Plan.
4. Eligibility and Grant of Options. Subject to the provisions of the Plan,
the Board of Directors shall (i) authorize the granting of incentive stock
options, non-qualified stock options or a combination of incentive stock options
and non-qualified stock options (hereinafter collectively referred to as
"options" unless otherwise stated); (ii) determine and designate from time to
time those employees (from the group consisting of all employees of the Company)
and consultants to whom options are to be granted and the number of Shares to be
optioned to each employee; (iii) determine the number of Shares subject to each
option; and (iv) determine the time or times when and the manner in which each
option shall be exercisable and the duration of the exercise period. In
determining the eligibility of an individual to receive an option, as well as in
determining the number of Shares to be optioned to any individual, the Board of
Directors shall consider the position and responsibilities of the employee, the
nature and value to the Corporation, parent or subsidiary of his services and
accomplishments, his present and potential contribution to the success of the
Corporation, parent or subsidiary, and such other factors as the Board may deem
relevant. To be eligible to receive an incentive stock option or non-qualified
stock option an individual must be an employee of, or consultant to, the
Corporation, parent or subsidiary. A Director shall abstain from voting on the
grant of any options to himself, his spouse, his children, grandchildren and
<PAGE>
parents. The grant of each option shall be confirmed by a Stock Option Agreement
(in the form prescribed by the Board of Directors) which shall be executed by
the Corporation and the optionee as promptly as practicable after such grant.
More than one option may be granted to an individual.
Incentive stock options shall be those options which satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended and
which the Board of Directors has specifically identified as incentive stock
options in the Stock Option Agreement executed by the Corporation and the
optionee. In the case of incentive stock options, the aggregate fair market
value, determined at the time incentive stock options are granted, of the stock
with respect to which the incentive stock options are exercisable for the first
time by such individual during any calendar year (under all such plans the
Corporation may adopt) shall not exceed one hundred thousand dollars
($100,000.00). In the event that an incentive stock option granted pursuant to
the terms of this Plan is granted to an employee who, prior to the grant, holds
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation, its parent or a subsidiary ("10% Shareholder") the
option price under such grant shall be at least one hundred ten percent (110%)
of the fair market value, and such option, by its terms, shall not be
exercisable more than five (5) years from the date of grant.
Nothing in the Plan or in any option granted pursuant to the Plan shall
confer on any individual any right to continue in the employ of the Corporation
or any parent or subsidiary or interfere in any way with the right of the
Corporation to terminate his employment at any time.
5. Number of Shares Subject to Options. The Board of Directors, prior to
the time options under the Plan become exercisable, shall reserve for the
purposes of the Plan a total of One Million (1,000,000) Shares, which Shares may
be either authorized and unissued Shares, or previously issued Shares held in
the treasury of the Corporation, or both. Shares as to which an option granted
under the Plan shall remain unexercised at the expiration or termination
thereof, and Shares subject to options which are canceled, may be the subject of
the grant of further options. Shares reserved pursuant to this paragraph may be
adjusted to reflect changes in the Corporation's capital structure as discussed
in paragraph 19 hereof.
6. Option Price. The option price per Share shall be determined in each
case by the Board of Directors and shall not be less than one hundred percent
(100%) (one hundred ten percent (110%) in the case of an incentive stock option
granted to a 10% Shareholder) of the fair market value thereof as determined by
the Board by any reasonable method using market quotations on the date the
option is granted.
7. Period of Option and When Exercisable. No option may be granted under
this Plan whose exercise date is later than ten (10) years after the date of the
grant or five (5) years after the date of grant in the case of an incentive
stock option granted to a 10% Shareholder. Generally, an option may be exercised
only by the optionee and subject to the rules set forth below only if, at all
times during the period beginning on the date of the granting of such option and
ending with the date of exercise of such option, the optionee is an employee of
the Corporation, its parent or a subsidiary.
(i) Except as otherwise provided herein, in the case of an
employee who terminates employment, options which are vested but unexercised as
of the date of termination of employment must be exercised within three (3)
months of termination. In the case of an employee who is discharged for cause,
as determined in the sole discretion of the Board of Directors, all previously
vested but unexercised options shall be forfeited immediately.
(ii) In the case of an employee who dies during the three (3)
month period discussed in (i) above, options which are vested but unexercised as
of the date of termination of employment must be exercised within twelve (12)
months of death.
(iii) Options which are vested but unexercised as of the date
of termination of employment due to death, must be exercised within twelve (12)
months after the death of an optionee.
(iv) In the event that the employee becomes disabled as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended,
options which are vested but unexercised as of the date of termination of
employment due to disability must be exercised within twelve (12) months
following the date of termination of the optionee's said employment.
(v) In the event an optionee's employment is terminated for
any reason (including but not limited to, voluntary or involuntary termination
or termination resulting from the death or disability of the optionee), all
unvested options shall be immediately forfeited.
Notwithstanding the foregoing, options may not be exercised after the
original five (5) or ten (10) year term. Options may be exercised on behalf of
the estate of a former employee by the person or persons entitled to do so under
the optionee's will or, if the optionee shall have failed to make testamentary
disposition of such option or shall have died intestate, by the optionee's legal
representative or representatives. Such person, persons, representative, or
representatives are hereinafter referred to as the "Successors of an Optionee."
8. Vesting. Options granted to a participant shall be exercisable in
accordance with a schedule to be established by the Board for each Option grant
at the time of such grant. Non-vested options shall be immediately forfeited
upon the termination of employment for any reason. Vested options shall be
forfeited upon the termination of employment as provided in paragraph 7 hereof.
9. Exercise of Options. Subject to Plan restrictions and vesting, an option
may be exercised, and payment in full of the option price made, by an optionee
only by written notice (in the form prescribed by the Board of Directors) to the
Corporation specifying the number of Shares to be so purchased. Such notice
shall state that the option price will be paid in full in cash (which in the
discretion of the Board of Directors may be obtained through a loan from the
Corporation or from a third party and guaranteed by the Corporation) or other
property, in the discretion of the Corporation. If the Corporation accepts a
request to pay in stock of the Corporation in satisfaction of the exercise
price, the fair market value of said stock shall at least equal the option
price, and, in the case of incentive stock options, prior to such acceptance the
Corporation must be furnished with evidence that the acquisition of said stock
and its transfer in payment of the option price satisfies the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended and other
applicable law. As soon as practicable after receipt by the Corporation of such
notice and of payment in full of the option price of all the Shares with respect
to which an option has been exercised, a certificate or certificates
representing such Shares shall be registered (subject to the provisions of
paragraph 16 hereof) in the name of the optionee or the Successors of an
Optionee as defined under this Plan and delivered to the optionee or to the
Successors of an Optionee.
10. Sale of the Corporation. In the case of a Sale of the Corporation as
herein defined, in the discretion of the Board of Directors options granted but
unexercised shall become fully vested (100%) and exercisable for a period of
twenty (20) days from the date notice of such Sale is given to the optionees.
Upon the expiration of the twenty (20) day period, all then unexercised options
shall be permanently canceled. For purposes of this paragraph, a Sale shall be
deemed to occur upon the happening of any one of the following:
(i) A sale of all or substantially all of the Corporation's assets outside
the ordinary course of business;
(ii) An offer to purchase at least a majority of the Corporation's issued
and outstanding common stock or an offer to the Corporation's shareholders to
tender for sale at least a majority of the Corporation's issued and outstanding
common stock, which offer is accepted or tender made with respect to at least a
majority of the Corporation's issued and outstanding shares of common stock;
(iii) The merger or consolidation of the Corporation with another
corporation or entity; or
(iv) A dissolution or liquidation of the Corporation.
11. Employer Withholding. In the case of non-qualified stock options, the
Corporation shall be required to withhold additional income taxes attributable
to that amount which is considered compensation includible in the optionee's
gross income by reason of the exercise of such options. The Corporation in its
discretion shall determine the method and amount of withholding.
12. Exercise by Successors and Payment in Full. An option may be exercised,
and payment in full of the option price made, by the Successors of an Optionee
only by written notice (in the form prescribed by the Board of Directors) to the
Corporation specifying the number of Shares to be purchased. Such notice shall
state that the option price will be paid in full in cash (which in the
discretion of the Board of Directors may be obtained through a loan from the
Corporation or from a third party and guaranteed by the Corporation), property
or stock of the Corporation in conformance with paragraph 9 hereof. As soon as
practicable after receipt by the Corporation of such notice and of payment in
full of the option price of all the Shares with respect to which an option has
been exercised, a certificate or certificates representing such Shares shall be
registered (subject to the provisions of paragraph 16 hereof) in the name or
names of such Successors of an Optionee and shall be delivered to him.
13. Non-Transferability of Option. Each option granted under the Plan shall
by its terms be nontransferable by the optionee except by will or the laws of
descent and distribution of the state wherein the optionee is domiciled at the
time of his death.
14. Other Terms of Options. Options granted pursuant to the Plan shall
contain such terms, provisions, and conditions not inconsistent herewith as
shall be determined by the Board of Directors.
15. Registration of Certificates. Certificates representing Shares may be
registered either in the name of the Optionee or in the name or names of the
Successors of an Optionee. Designation of the appropriate form of registration
of certificates shall be made in the written notice given to the Corporation
upon exercise of an option.
<PAGE>
16. Listing and Registration of Shares. If at any time the Board of
Directors of the Corporation shall determine, in its discretion, that the
listing, registration, or qualification of any of the Shares subject to options
under the Plan upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of or in connection with the granting of options or the
purchase or issue of Shares thereunder, no further options may be granted and
outstanding options may not be exercised in whole or in part unless and until
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Board of Directors shall have the authority to cause the
Corporation at its expense to take any action related to the Plan which may be
required in connection with such listing, registration, qualification, consent,
or approval. The Board of Directors may require that any person exercising an
option hereunder shall make such representations and agreements and furnish such
information as it deems appropriate to assure compliance with the foregoing or
any other applicable legal requirement.
17. Interpretation and Amendments. The Board of Directors may make such
rules and regulations and establish such procedures for the administration of
the Plan as it deems appropriate. In the event of any dispute or disagreements
as to the interpretation of this Plan or of any rule, regulation, or procedure,
or as to any question, right or obligation arising from or related to the Plan,
the decision of the Board of Directors shall be final and binding upon all
persons. The Board of Directors may amend this Plan as it shall deem advisable.
However, in no event shall any such amendment adversely affect the rights of an
optionee under any existing stock option agreement without the consent of such
optionee.
18. Indemnification and Exculpation.
(a) Each person who is or shall have been a member of the Board of
Directors shall be indemnified and held harmless by the Corporation against and
from any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be or become a party or in which he
may be or become involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof (with the Corporation's written approval) or paid by him in satisfaction
of a judgment in any such action, suit, or proceeding, except a judgment in
favor of the Corporation based upon a finding of his lack of good faith;
subject, however, to the condition that upon the institution of any claim,
action, suit, or proceeding against him, he shall in writing give the
Corporation an opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which such
person may be entitled as a matter of law or otherwise, or any power that the
Corporation may have to indemnify him or hold him harmless.
(b) Each member of the Board of Directors, and each officer and employee of
the Corporation shall be fully justified in relying or acting in good faith upon
any information furnished in connection with the administration of the Plan by
any appropriate person or persons other than himself. In no event shall any
person who is or shall have been a member of the Board of Directors, or an
officer or employee of the Corporation be held liable for any determination made
or other action taken or any omission to act in reliance upon any such
information, or for any action (including the furnishing of information) taken
or any failure to act, if in good faith.
19. Changes in Capital Structure. In the event that a dividend shall be
declared upon the Shares payable in Shares, the number of Shares then subject to
any option outstanding under the Plan and the number of Shares reserved for the
grant of options pursuant to the Plan but not yet subject to option shall be
adjusted by adding to each such Share the number of Shares which would be
distributable in respect thereof if such Shares had been outstanding on the date
fixed for determining the shareholders of the Corporation entitled to receive
such Share dividend. In the event that the outstanding Shares shall be changed
into or exchanged for a different number of Shares or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, split-up, combination of shares, merger, or consolidation,
then there shall be substituted for each Share subject to any such option and
for each Share reserved for the grant of options pursuant to the Plan but not
yet subject to option the number and kind of Shares or other securities into
which each outstanding Share shall have been so changed or for which each such
Share shall have been exchanged. In the event there shall be any change, other
than as specified above in this paragraph, in the number or kind of outstanding
Shares or of any shares or other securities into which such Shares shall have
been changed or for which they shall have been exchanged, then if the Board of
Directors shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of Shares theretofore reserved for
the grant of options pursuant to the Plan but not yet subject to option and of
the Shares then subject to an option or options, such adjustments shall be made
by the Board of Directors and shall be effective and binding for all purposes of
the Plan and of each option outstanding thereunder. In the case of any such
substitution or adjustment as provided for in this paragraph, the aggregate
option exercise price set forth for all outstanding options for all Shares
covered thereby prior to such substitution or adjustment will be the option
exercise price for all shares or other securities which shall have been adjusted
pursuant to this paragraph. No adjustment or substitution provided for in this
paragraph shall require the Corporation to sell a fractional Share, and the
total substitution or adjustment with respect to each outstanding option shall
be limited accordingly. Upon any adjustment made pursuant to this paragraph, the
Corporation will, upon request, deliver to the optionee or to his successors a
certificate setting forth the option price thereafter in effect and the number
and kind of shares or other securities thereafter purchasable on the exercise of
the option.
20. Notices. All notices under the Plan shall be in writing, and if to the
Corporation, shall be delivered to the Treasurer of the Corporation or mailed to
its principal office, addressed to the attention of the Treasurer; and if to the
optionee, shall be delivered personally or mailed to the optionee at the address
appearing in the payroll records of the Corporation. Such addresses may be
changed at any time by written notice to the other party.
