SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 22, 1999
EVTC, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20986 22-3005943
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
121 S. Norwood Drive, Hurst, Texas 76053
----------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (817) 282-0022
N/A
----------------------------------------------------------
(Former name or former address, if changed since last report)
Item 1. Changes in Control of Registrant
Not Applicable
Item 2. Acquisition or Disposition of Assets
On December 22, 1999, EVTC, Inc., t/a Environmental Technologies Corp.,
(the "Company") entered into an Agreement and Plan of Reorganization (the
"Agreement") with afreegift.com, Inc., a Nevada corporation ("afreegift"),
Sakoff Enterprises, Inc., a Delaware corporation (the "Shareholder"), and Scott
L. Sakoff ("Sakoff"). Under the terms of the Agreement, afreegift will merge
into the Company's newly formed subsidiary, e solutions marketing, inc.
("e solutions") in exchange for common stock of the Company. Afreegift is an Oak
Brook, Illinois based Internet direct marketing company. The purpose of the
merger is to diversify the Company's business segments and to take
advantage of the burgeoning e-commerce industry. The transaction is
intended to qualify as a tax-free reorganization.
The consummation of the transactions contemplated by the Agreement is
subject to approval by the Company's stockholders. An annual meeting of the
Company's stockholders has been called for February 28, 2000 for the purpose of
seeking ratification and approval of the Agreement and the transactions
contemplated thereby. Subject to stockholder approval and satisfaction of
certain pre-closing conditions, the Shareholder will be entitled to receive at
the closing a number of shares of the Company's common stock to be agreed upon
prior to the closing and the right to receive additional shares of the Company's
common stock (the "Earn-Out Shares") upon satisfaction of certain financial
performance objectives. In no event shall the number of shares issued at closing
and Earn-Out Shares exceed 8,000,000.
Please see Section 3.1 and 3.2 of the Agreement as filed as Exhibit A
to this Current Report for a complete discussion of the conditions pursuant to
which the Earn-Out Shares shall be issued to the Shareholder.
If the merger is consummated, the Company expects to expand its board
of directors to seven members. The Shareholder will have the right to three
seats on the Company's board so long as e solutions meets specified financial
performance objectives. Also, at the closing of the merger, Sakoff will enter
into an Employment Agreement with e solutions under which he will serve as
President and Chief Executive Officer of e solutions. The Employment Agreement
is for a term of 1 year. The Company is obligated to renew the Employment
Agreement for an additional 1-year term upon e solutions meeting certain
performance goals.
Under the Employment Agreement, Sakoff shall have an annual base salary
of $120,000 per year and he is entitled to receive bonus compensation as
determined by the Board of Directors of the subsidiary and other benefits
commensurate with those currently afforded executive officers of the Company.
The Employment Agreement also contains standard non-competition and
non-solicitation provisions. The Employment Agreement is filed as Exhibit B to
this Current Report.
1
Pending shareholder action on the merger, the Company is obligated to
lend $1,000,000 to afreegift at times specified in a Funding Agreement. In
exchange, the Company will receive a note from afreegift secured by all of its
assets. The note is to be repaid in a year and bears interest at 9%. If the
merger is approved, the Company has agreed to use its commercially reasonable
best efforts to raise $10,000,000 of additional capital, within 180 days of the
closing, in order to invest that amount as additional equity in e solutions.
To provide working capital and short term financing for e solutions and
afreegift, the Company's board of directors approved the sell and issuance of up
to 1,000,000 shares to several private investors and vendors of e solutions and
afreegift. The sell price for up to 750,000 of such shares was set at $1.00 per
share, which represented approximately 85% of the prior four days closing stock
price on October 1, 1999 the date the Company's board of directors authorized
the signing of a letter of intent with afreegift.com. The remaining 250,000
shares will be issued to vendors of e solutions and/or afreegift.com for
services relating to developing afreegift's business. The price for shares
issued to vendors will be based on the current market price at such time they
are issued.
Item 3. Bankruptcy or Receivership
Not Applicable
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable
Item 5. Other Events
Not Applicable
Item 6. Resignations of Registrant's Directors
Not Applicable
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
Not Applicable
2
(b) Pro forma financial information
Not Applicable
(c) Exhibits
A. Agreement and Plan of Reorganization dated as of December
21, 1999
B. Employment Agreement between e solutions marketing, Inc.
and Scott L. Sakoff
Item 8. Change in Fiscal Year
Not Applicable
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EVTC, INC.
By: /s/ David Keener
------------------------------------
David Keener
Chief Financial Officer
Dated: January 7, 2000
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").
4
(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
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.
5
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
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
6
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 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.
7
(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.
IV. 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.
V. 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.
(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
8
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 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
9
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
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
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
10
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 in Schedule
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
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.
11
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.
12
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.
4.10 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.
13
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
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.
3
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.
(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
14
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
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
15
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
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
16
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
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.
17
(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.
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
18
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 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
19
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.
(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.
20
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.
(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.
21
(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 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):
22
(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 termination and (ii) the Shareholder or Sakoff has not cured
any such condition within 10 days of receiving Parent's or Sub's
notice.
23
(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 the 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
24
Shareholder or Sakoff, then, in either case, Shareholder shall pay the Parent a
termination fee of $100,000.
(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
25
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
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:
Zane M. Cohn
Ray Felton Zane M. Cohn & Associates, P.C.
Greenbaum, Rowe, Smith, Ravin, Davis & Three First National Plaza, Suite 3700
Himmel LLP Chicago, Illinois 60602
99 Wood Ave South
Iselin, NJ 08830
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.
26
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
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.
27
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
EXHIBIT B
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into by and
between e solutions marketing, Inc., a Texas corporation ("Employer") and Scott
L. Sakoff, a resident of the State of Illinois ("Employee"), dated as of
[February __, 2000.]
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. Duties. Subject to the power of the Board of Directors of Employer to
elect and remove officers, Employee shall serve Employer as Chairman of the
Board of Directors, President and Chief Executive Officer] (or in such other
executive offices as Employer or the Board of Directors of Employer may
determine, whether such executive office will be with Employer or one of its
subsidiaries) and shall perform, faithfully and diligently, the services and
functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board of Directors of
Employer. Employee shall, during the "Term" (as defined in Section3.1) of this
Agreement (or any extension thereof), devote his full business time, attention,
energies and efforts to the duties of such office or as are reasonably necessary
to carry out his duties specified in this Section 2. Employee shall not be
assigned, or expected to perform, duties which are not customarily performed by
a senior executive officer of a corporation.
3. Term and Termination.
3.1 Term. The term of this Agreement shall be for a period of
one (1) year, commencing on the date of this Agreement and terminating on
[February __,] 2001 ("Initial Term"). The Initial Term will be automatically
renewed for successive one year terms thereafter unless terminated by either
party, by written notice to the other given no fewer than thirty (30) days prior
to the expiration of the then current term. Employer shall not have the option
to terminate this Agreement if least 75% of the Revenue and Net Income Profit
goals listed in the Afreegift business
28
plan listed at Exhibit _______ are being meet by the Employee and Company. (The
Initial Term and all renewals are collectively called the "Term.")
3.2 Termination by Employer for Cause. Employer and the Board
of Directors of EVTC, Inc., a Delaware corporation and the sole stockholder of
Employer ("EVTC"), each shall have the right to terminate this Agreement, in
their discretion, for any of the following reasons ("Termination for Cause"):
(a) Sickness or disability of Employee that renders Employee
incapable of performing his duties under this Agreement for a period in excess
of six (6) months;
(b) Dishonest conduct by Employee of a material nature
relating to the business of Employer including, but not limited to, theft,
embezzlement, misappropriation of funds or property, fraud or falsification of
company records, correspondence or other documents;
(c) Conviction by a court of competent jurisdiction of
Employee of a criminal act involving a felony or moral turpitude; or
(d) Gross dereliction by Employee of his duties to Employer
over a substantial period, such as repeated failure to carry out directions of
the Board of Directors of Employer or his responsibilities to the Employer;
provided, however that (i) Employer or the Board of Directors of EVTC has first
given Employee a notice setting forth, in reasonable detail, both such
derelictions and a reasonable plan to remediate such derelictions over a period
of at least thirty days and (ii) Employee has failed to abide by such plan.
(e) To terminate Employee under this Section 3.2, Employer or
the Board of Directors of EVTC must deliver a termination notice to Employee
specifying the reason for such termination. The effective date of a Termination
for Cause shall be the date specified in the notice to the Employee on which his
employment shall cease or, if none is so specified, the date of such notice.
3.3 Termination By Employee. Employee's employment hereunder
may be terminated by Employee in the event of a material breach of the terms
hereof by Employer; provided, however, that (i) Employee has first delivered a
notice to Employer and EVTC setting forth in reasonable detail the nature of the
breach and giving Employer at least 30 days to cure such breach and (ii)
Employer has failed to timely cure such breach. If Employer has not timely cured
such breach, then, in order to terminate his employment under this Section 3.3,
Employee shall deliver a termination notice to Employer and EVTC; and the
effective date shall be the date specified in such notice or, if none is so
specified, the date of such notice. Such termination shall be referred to as a
"Rightful Resignation." In the event Employee terminates his employment
hereunder for any other reason (a "Resignation Without Cause"), Employee will
give notice of resignation to Employer and Employee's resignation will be
effective 10 days after such notice, unless a shorter period is agreed upon by
the parties hereto.
29
3.4 Early Termination. The Term of this Agreement shall expire
upon any of the following (each of which is called an "Involuntary
Termination"):
(a) The sickness or disability of Employee that renders
Employee incapable of performing substantially all of his duties under this
Agreement for a period in excess of six months;
(b) The judicial determination of incompetency of Employee by
a court of competent jurisdiction; or
(c) The death of Employee.
No Involuntary Termination shall be deemed to be a Termination for Cause or
Resignation Without Cause. An Involuntary Termination shall be effective upon
Employer first becoming aware of the Involuntary Termination.
3.5 Effect of Termination. In the event of a Termination for
Cause or Resignation Without Cause, Employee shall be entitled to receive his
"Salary" (as defined in Section 4.1), at the rate then in effect, and fringe
benefits earned by him or accrued for his account, through the effective date of
such termination, but Employee shall not be entitled to receive any separation
payment in connection with such termination. In the event of any other
termination of Employee's employment hereunder, Employer shall continue to pay
Employee his Salary, at the rate then in effect, and fringe benefits earned by
him or accrued for his account, for the longer of the remainder of the Term or
six (6) months. The provisions of Section 5 below shall survive termination of
this Agreement for any reason. The provisions of Sections 6.2 and 6.3 below
shall only be applicable in the event of a Termination for Cause or Resignation
Without Cause.
4. Compensation. As compensation for the services rendered under this
Agreement, Employee shall be entitled to receive the following:
4.1 Salary. During the Term, Employee shall be paid an annual
base salary of $120,000, payable in accordance with the then current payroll
policies of Employer, or as otherwise agreed to by the parties (the "Salary").
At any time and from time to time, the Salary may be increased for the remaining
portion of the Term of the Agreement if so determined by the Board of Directors
of Employer after a review of Employee's performance of his duties hereunder.
The Salary, as adjusted, may not be decreased at any time during the Term. In
addition, at any time and from time to time, Employee may be eligible for bonus,
or other incentive compensation programs, if so determined by the Board of
Directors of Employer in the sole discretion of the Board of Directors.
4.2 Benefits. During the Term, Employee and his family shall
be entitled to participate in such fringe benefits and employee benefit plans,
under the same terms and conditions, as are generally available to senior
executive officers of EVTC and its subsidiaries including, without limitation,
medical insurance, disability insurance, profit-sharing plans, pension plans and
stock option plans. In addition, Employee shall be entitled to participate in
such fringe benefits and employee benefit plans of Employer as are generally
available to executive officers of the Employer
30
from time to time. However, both EVTC and Employer reserve the right to
terminate, amend, modify or otherwise change the terms and conditions of any
such fringe benefits or employee benefit plans in any manner which does not
discriminate against Employee. Except as provided in Section 3.5, Employee
shall not be entitled to receive any payments in lieu of any fringe benefit or
employee benefit plan of EVTC or Employer upon termination of this Agreement
for any reason; provided, however, that, if EVTC and/or Employer maintain life
insurance on the life of Employee, then, upon any such termination, he shall
be entitled to purchase any or all such insurance policies for the cash value
thereof.
4.3 Expenses. Employer shall reimburse Employee for all
reasonable and necessary out-of-pocket travel and other expenses incurred by
Employee in rendering services required under this Agreement, on a monthly
basis, upon submission of a detailed monthly statement and reasonable
documentation.
4.4 D & O Insurance. If EVTC and/or Employer provide directors
and officers liability insurance coverage for their respective directors and
officers at any time in the Term, such coverage shall be provided to Employee,
without cost to him, and regardless of whether he is deemed to be an officer of
EVTC.
4.5 Vacation. Employee shall be entitled to two weeks' paid
vacation for each 12-month period during the Term. Unused vacation may be
carried over to subsequent periods.
5. Confidentiality.
5.1 Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer and its affiliates in any
"Confidential Information" (as hereinafter defined) of Employer and its
affiliates. Employee acknowledges and agrees that any and all Confidential
Information learned by Employee during the course of his engagement by Employer,
whether developed by Employee alone or in conjunction with others or otherwise,
shall be and is the property of Employer and its affiliates. Employee further
acknowledges and understands that his disclosure of any Confidential Information
will result in irreparable injury and damage to Employer and its affiliates. As
used herein, "Confidential Information" means all information of Employer and
its affiliates which those persons treat as confidential, including, without
limitation, information derived from reports, investigations, experiments,
research, work in progress, drawing, designs, plans, proposals, codes, marketing
and sales programs, client lists, client mailing lists, financial projections,
cost summaries, pricing formulae, and all other concepts, ideas, materials, or
information prepared or developed by Employer or its affiliates. "Confidential
Information" also includes information which is treated as confidential and
relates to the business, products or sales of Employer or its affiliates, or any
information which Employer or its affiliates are required by their respective
customers to maintain in confidence. However, Confidential Information shall not
include any information, in whatever form, which (i) already is in the public
domain, (ii) subsequently becomes part of the public domain without a breach by
Employee of his obligations under this Agreement, (iii) is lawfully received
from a third person having the right to disseminate such information without
restriction on disclosure or (iv) is furnished to others by Employer and/or its
affiliates without restriction on disclosure.
31
5.2 Covenant Not to Divulge Confidential Information. Employee
acknowledges and agrees that Employer and its affiliates are entitled to prevent
the disclosure of Confidential Information. As a portion of the consideration
for the employment of Employee and for the compensation being paid to Employee
by Employer, Employee agrees that, at all times during the Term and for a period
of two (2) years thereafter, (i) he will hold the Confidential Information in
strict confidence, (ii) he will not disclose the Confidential Information to any
person, firm or corporation, other than to persons engaged by Employer and its
affiliates to further the business of Employer and its affiliates, and (iii) he
will not use the Confidential Information except in the pursuit of the business
of Employer and its affiliates without, in any case, the prior consent of
Employer.
5.3 Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents, data and
other information constituting Confidential Information. Employee shall not take
any documents or other information, or any reproduction or excerpt thereof,
containing any Confidential Information.
6. Covenants Not to Compete.
6.1 Competition During Employment. Employee agrees that,
during his employment, neither he nor his affiliates, will directly or
indirectly compete with Employer or its affiliates in any way, and that he will
not act as an officer, director, employee, consultant, shareholder, lender, or
agent of any entity which is engaged in any business in competition with the
business in which Employer or any of its subsidiaries, if applicable, is now
engaged or in which Employer becomes engaged during the term of his employment;
provided, however, this Section 7.1 shall not prohibit Employee or any of his
affiliates from purchasing or holding an aggregate equity interest of up to 1%,
so long as Employee and his affiliates combined do not purchase or hold an
aggregate equity interest of more than 5%, in any business engaged in the direct
or indirect competition with Employer and its affiliates. Furthermore, Employee
agrees that during his employment he will undertake no planning for an
organization of any business activity competitive with the work he performs, or
with the profit unit he works in, as an employee of Employer, and Employee will
not combine or conspire with any other employees of Employer for the purpose of
organization of any such competitive business activity.
6.2 Competition Following Employment. Employee agrees that for
one (1) year following a Termination for Cause or Resignation Without Cause
pursuant to Section 3.2 or 3.3, he will not, for himself or on behalf of any
corporation, person, firm, partnership, association, or any other entity, engage
in or participate in any business which engaged in competition in the market
served by the Employer or its subsidiaries at the date Employee's employment
terminates; provided, however, this Section 6.2 shall not prohibit Employee or
any of his affiliates from purchasing or holding an aggregate equity interest of
up to 1%, so long as Employee and his affiliates combined do not purchase or
hold an aggregate equity interest of more than 5%, in any business engaged in
the direct or indirect competition with Employer and its affiliates.
6.3 Associations with Co-Workers. Employee further agrees that
during his employment and for one (1) year following termination of his
employment with Employer, he will
32
not, by act in concert with others, employ or attempt to employ or solicit for
any employment competitive with Employer, any of Employer's employees who work
in any area wherein Employee has himself been significantly engaged on behalf
of Employer. Employee will not, either directly or indirectly or by act in
concert with others, seek to induce or influence any employee to leave
Employer's employment.
6.4 Employer's Existing Businesses. Notwithstanding anything
in this Agreement to the contrary, Employee's interest in, or ownership of,
those businesses set forth on Schedule B (being those businesses in which
Employee has had an interest or ownership prior to the date hereof) shall not
constitute a violation of this Agreement.
7. Miscellaneous.
7.1 Remedies Upon Breach By Employee. In the event of any
breach of this Agreement by Employee, Employer shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction (subject to Section 7.9), either in law or in equity, to enjoin
Employee from violating any of the terms of this Agreement, to enforce the
specific performance by Employee of any of the terms of this Agreement, and to
obtain damages, or any of them, but nothing herein contained shall be construed
to prevent such remedy or combination of remedies as Employer may elect to
invoke. The failure of Employer to promptly institute legal action upon any
breach of this Agreement shall not constitute a waiver of that or any other
breach hereof. Employee acknowledges and recognizes that the enforcement of the
provisions set forth in Sections 6 and 7 above by Employer will not interfere
with Employee's ability to pursue a proper livelihood. Employee recognizes and
agrees that the enforcement of this Agreement is necessary to ensure the
preservation and continuity of the business and goodwill of Employer and its
affiliates.
7.2 Remedies Upon Breach by Employer. In the event of any
breach of this Agreement by Employer, Employee shall be entitled, if he so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction (subject to Section 7.9), either in law or in equity, to enjoin
Employer from violating any of the terms of this Agreement, and to obtain
damages, or any of them, but nothing herein contained shall be construed to
prevent such remedy or combination of remedies as Employee may elect to invoke.
The failure of Employee to promptly institute legal action upon any breach of
this Agreement shall not constitute a waiver of that or any other breach hereof.
7.3 Attorneys' Fees. In the event of any litigation concerning
any controversy, claim or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach hereof, or the interpretation hereof,
the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees, and costs incurred therein or in the
enforcement or collection of any judgment or award rendered therein. The
"prevailing party" means the party determined by the court to have most nearly
prevailed, even, if such party did not prevail in all matters, not necessarily
the one in whose favor a judgment is rendered. Further, in the event of any
default by a party under this Agreement, such defaulting party shall pay all the
expenses and attorneys' fees incurred by the other party in connection with such
default, whether or not any litigation is commenced.
33
7.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Severability. In the event that any of the terms, conditions or
provisions of this Agreement are held to be illegal, invalid or unenforceable by
any court of competent jurisdiction, the legality, validity and enforceability
of the remaining terms, conditions or provisions shall not be affected thereby.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement, a provision as similar
in its terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
7.6 Amendments. No amendment or modification of the terms or conditions
of this Agreement shall be valid unless in writing and signed by the parties
hereto.
7.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the employment of Employee.
7.8 Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and personally
delivered or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows:
If to Employer: e solutions marketing, Inc.
1100 Jorie Boulevard, Suite 173
Oak Brook, Illinois 60523
Attention: Secretary for the benefit of the
Board of Directors
with copy to: David Keener, Chief Financial Officer
EVTC, Inc.
121 S. Norwood Drive
Hurst, Texas 76053
If to Employee: Scott L. Sakoff
1100 Jorie Blvd., Suite 173
Oak Brook, Illinois 60523
Notices delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of three days after mailing.
7.9 GOVERNING LAWS AND VENUE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
ALL MATTERS LITIGATED BY, AMONG, OR BETWEEN ANY OF THE PARTIES THAT INVOLVE THIS
AGREEMENT OR ANY RELATED MATTER HEREUNDER SHALL BE BROUGHT ONLY IN A COURT OF
34
COMPETENT JURISDICTION IN COOK COUNTY, ILLINOIS OR IN THE NORTHERN DISTRICT OF
ILLINOIS.
7.10 Parties Bound. This Agreement and the rights and obligations here-
under shall be binding upon and inure to the benefit of Employer and Employee,
and their respective heirs, personal representatives, successors and permitted
assigns. Employer shall have the right to assign this Agreement to any person,
corporation, partnership or other entity that buys all or substantially all of
Employer's assets or all of its stock, or with which Employer merges or
consolidates. The rights, duties or benefits to Employee hereunder are personal
to him, and no such right or benefit, including the receipt of any compensation,
may be assigned by him.
7.11 Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by any party.
7.12 Captions. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms
or provisions hereof.
7.13 Other Obligations. Employee represents and warrants that he has
not as of the execution of this Agreement assumed any obligations inconsistent
with those contained herein.
7.14 Affiliate. An "affiliate" of any party hereto shall mean any
person controlling, controlled by or under common control with such party.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYER:
e solutions marketing, inc.
By:
-------------------------------------
David A. Keener
Its: Director
-------------------------------------
EMPLOYEE:
-------------------------------------
Scott L. Sakoff