EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January 9,
2003, by and among PALADYNE CORP., a Delaware corporation (together with each of
its predecessor corporations, the "Company"); GLEN H. HAMMER, an individual
resident of the State of Georgia ("Hammer"); A. RANDALL BARKOWITZ, an individual
resident of the State of Georgia ("Barkowitz"); WAG HOLDINGS, LLC, a Georgia
limited liability company ("WAG Holdings" and collectively with Hammer and
Barkowitz, the "Buyers"). Capitalized terms used herein and not otherwise
defined herein are defined in Section 10 hereof.
WITNESSETH:
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company wishes to sell to the Buyers, and the Buyers wish to buy
from the Company, a number of newly issued shares (the "Purchased Shares") of
the Company's common stock, par value $0.001 per share (the "Common Stock"),
such that, immediately following the issuance of such shares, the Buyers shall
own seventy percent (70%) of the outstanding shares of Common Stock, determined
on a fully-diluted basis giving effect to the issuance, if any, of shares to
Terrence J. Leifheit or the other former shareholders of e-commerce support
centers, inc. ("ecom") pursuant to the terms of that certain Agreement and Plan
of Merger, dated December 21, 2000, among the Company, ecom and the former
shareholders of ecom, as amended (excluding the exercise of any outstanding
options and warrants to acquire Common Stock at a price equal to or greater than
$.55 per share) and the conversion of all other outstanding securities of the
Company convertible into Common Stock (except where such conversion requires the
payment to the Company of at least $.55 per share of Common Stock); and
WHEREAS, in connection with the sale of the Purchased Shares, and in
order to enable WAG Holdings and Hammer to prevent dilution of their respective
ownership interests in the Company upon the potential exercise of certain
warrants issued to Gibralter Publishing, Inc. ("Gibralter") in exchange for the
cancellation of debt as more fully described in Section 3(k) hereof, the Company
and the Buyers have agreed that WAG Holdings and Hammer will each receive
warrants to purchase 1,166,666 shares of Common Stock (on a post-Reverse Split
basis), at a price per share equal to the average closing price of one share of
Common Stock on the Principal Market over the five trading days commencing on
the first trading day following the effectiveness of the Reverse Split, which
warrants shall be in the form of Exhibit A (the "Ancillary Warrants" and
collectively with the Purchased Shares, the "Acquired Securities");
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Company
and the Buyers hereby agree as follows:
1. PURCHASE OF COMMON STOCK.
(a) Agreement to Sell and to Purchase Common Stock. At
the Closing (as hereinafter defined), and on the terms and subject to the
conditions set forth in this Agreement, the Company shall issue and sell to each
Buyer a portion of the Purchased Shares determined for such Buyer in accordance
with the allocation methodology set forth on Schedule 1(a), and such Buyer shall
purchase and accept such portion of the Purchased Shares from the Company.
(b) Purchase Price and Payment. The aggregate purchase
price for the Purchased Shares (the "Purchase Price") shall be $750,000. At the
Closing, the Purchase Price shall be paid to the Company as follows:
(i) Barkowitz shall pay to the Company an amount
equal to his pro-rata share of the Purchase Price, based upon the
number of Purchased Shares to be purchased by him as a fractional
portion of the total number of Purchased Shares to be purchased by all
of the Buyers ("Pro-Rata Share"), in immediately available funds by
wire transfer to a Company bank account to be designated by the Company
(such designation to occur no later than the third Business Day prior
to the Closing Date) (the "Company Account"), provided, that, at his
option, Barkowitz may pay all or a portion of such amount by
cancellation of indebtedness (principal and/or accrued but unpaid
interest) owed by the Company or ecom pursuant to the Loan Agreement
(as defined below), which indebtedness may have been assigned to him
prior to the Closing;
(ii) WAG Holdings and Hammer shall pay to the
Company the balance of the Purchase Price as follows:
(1) First, by cancellation of all indebtedness
(principal and accrued but unpaid interest) owed by the
Company or ecom to WAG Holdings and Hammer, pursuant to that
certain Loan and Security Agreement, dated as of August 29,
2002 (the "Loan Agreement"), by and among the Company, ecom
and Market Holdings, Inc., a Delaware corporation (f/k/a
Market Central, Inc, hereinafter "Market Holdings"), as
amended, which indebtedness has been assigned to WAG Holdings
and Hammer as co-lenders, and which has not been subsequently
assigned by them, with each of WAG Holdings and Hammer
receiving credit for fifty percent (50%) of such cancelled
indebtedness;
(2) Second, by the cancellation of all or a
portion of any obligations of the Company or any of its
subsidiaries currently due to third party obligees that are
purchased by WAG Holdings, Hammer or their respective
affiliates from such third party obligees prior to, or
simultaneously with, the Closing (with credit toward the
Purchase Price being given to WAG Holdings or Hammer, as the
case may be, for the face value of such obligations);
(3) Third, WAG Holdings shall pay to the Company
an amount, which when aggregated with the credits to which it
is entitled pursuant to clauses (1) and
(2) above, equals its Pro-Rata Share of the Purchase Price, in
immediately available funds by wire transfer to the Company
Account; and
(4) Fourth, Hammer shall pay to the Company an
amount, which when aggregated with the credits to which he is
entitled pursuant to clauses (1) and (2) above, equals his
Pro-Rata Share of the Purchase Price, in immediately available
funds by wire transfer to the Company Account.
(c) Closing and Closing Date. The consummation of the
purchase and sale of the Purchased Shares (the "Closing") shall take place at
the offices of Smith, Gambrell & Russell, LLP, 1230 Peachtree Street, Suite
3100, Atlanta, Georgia, at a time to be designated by Buyer, which time shall be
within two Business Days following the conclusion of the Special Meeting (as
defined in Section 4(a) below), or at such other place and time as the parties
may agree (the actual date on which the Closing occurs is hereinafter referred
to as the "Closing Date").
2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company that as of the date
hereof and as of the Closing Date:
(a) Organization. If such Buyer is a limited liability
company, it is duly organized and validly existing in good standing under the
laws of the jurisdiction in which it is organized, and has the requisite entity
power and authority to own its properties and to carry on its business as now
being conducted.
(b) Validity; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(c) Investment Purpose. Such Buyer is entering into this
Agreement and acquiring the Acquired Securities being acquired by such Buyer
hereunder for his or its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof; provided however, by making the representations herein, none of the
Buyers agrees to hold any of the Acquired Securities for any minimum or other
specific term.
(d) Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the 1933 Act.
(e) Reliance on Exemptions. Such Buyer understands that
the Acquired Securities being acquired by such Buyer hereunder are being offered
and, in the case of the Purchased Shares, sold to such Buyer in reliance on
specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
such Acquired Securities.
(f) Information. Such Buyer has been furnished with the
SEC Documents (as defined in Section 3(f) hereof). Such Buyer understands that
its investment in the Acquired Securities being acquired by such Buyer hereunder
involves a high degree of risk. Such Buyer (i) is able to bear the economic risk
of an investment in such Acquired Securities including a total loss, (ii) has
such knowledge and experience in financial and business matters that such Buyer
is capable of evaluating the merits and risks of the proposed investment in such
Acquired Securities and (iii) has had an opportunity to ask questions of and
receive answers from the officers of the Company concerning the financial
condition and business of the Company and other matters related to an investment
in such Acquired Securities. Neither such inquiries nor any other due diligence
investigations conducted by any Buyer or the Buyers' respective representatives
shall modify, amend or affect any Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Buyer has
sought such accounting, legal and tax advice as such Buyer has considered
necessary to make an informed investment decision with respect to such Buyer's
acquisition of the Acquired Securities being acquired by such Buyer hereunder.
(g) No Governmental Review. Such Buyer understands that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Acquired
Securities or the fairness or suitability of the investment in the Acquired
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Acquired Securities.
(h) Transfer or Resale. Such Buyer understands that
except as provided herein: (i) the Acquired Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder or (B) an exemption exists permitting such Acquired
Securities to be sold, assigned or transferred without such registration; and
(ii) any sale of the Acquired Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Acquired Securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to the Buyers to enter into this Agreement and
to consummate the transactions contemplated hereby, the Company represents and
warrants to the Buyers that as of the date hereof and as of the Closing Date:
(a) Organization and Qualification. The Company and each
of its Subsidiaries is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing could not
reasonably be expected to have a Material Adverse Effect. Schedule 3(a) sets
forth the name and jurisdiction of incorporation of each Subsidiary and the
jurisdictions in which each such Subsidiary is qualified to do business. Except
for each Subsidiary and except as set forth on Schedule 3(a), the Company does
not own, directly or indirectly, any capital stock or other equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any equity or similar interest in, any corporation or have any direct or
indirect equity or ownership interest in any business. Except as set forth on
Schedule 3(a), all the outstanding capital stock or other equity interests of
each Subsidiary is owned directly or indirectly by the Company, free and clear
of all liens, encumbrances or other interests of third parties, and is validly
issued, fully paid and non-assessable, and there are no outstanding options,
rights or agreements of any kind relating to the issuance, sale or transfer of
any capital stock or other equity securities of any such Subsidiary to any
person except the Company.
(b) Authorization; Enforcement; Validity. (i) The Company
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement and each of the other agreements entered into
by the parties on the Closing Date and attached hereto as exhibits to this
Agreement (collectively, the "Transaction Documents"), and, subject to
stockholder approval of the Reverse Split, to issue the Acquired Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation, the
reservation for issuance and the issuance of the Purchased Shares issuable under
this Agreement and the shares of Common Stock issuable upon exercise of the
Ancillary Warrant, have been duly authorized by the Company's Board of Directors
subject to and effective upon stockholder approval of the Reverse Split (iii)
this Agreement has been, and each other Transaction Document shall be on the
Closing Date, duly executed and delivered by the Company and (iv) this Agreement
constitutes, and each other Transaction Document upon its execution on behalf of
the Company, shall constitute, the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
(c) Capitalization. The authorized capital stock of the
Company consists of (i) 75,000,000 shares of Common Stock, of which 16,709,351
shares are issued and outstanding, none are held as treasury shares, 5,000,000
shares are reserved for issuance pursuant to the Company's stock option plans of
which only _________ shares remain available and _________ shares are issuable
and reserved for issuance pursuant to securities (other than stock options
issued pursuant to the Company's stock option plans) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 10,000,000 shares of
Preferred Stock, par value, $.001 per share, of which (A) 137,143 shares have
been designated as Series A Convertible Preferred Stock, all of which are
currently outstanding, (B) 1,800,000 shares have been designated as 8%
Cumulative Convertible Series C Preferred Stock, 1,000,101 of which are
currently outstanding, (C) 1,050,000 shares have been designated as 8%
Cumulative Convertible Series D Preferred Stock ("Series D Preferred Stock"),
1,000,000 of which are currently outstanding and held in the name of Gibralter
Publishing, Inc. ("Gibralter"), and (D) 7,012,857 shares are available for
designation and issuance by the Board of Directors. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act, (v) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Acquired Securities as described in this Agreement and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and are not subject to any
preemptive rights. The Company has furnished to the Buyers true and correct
copies of the Company's Certificate of Incorporation, as amended and as
currently in effect (the "Certificate of Incorporation"), and the Company's
By-laws, as amended and as currently in effect (the "By-laws"), and copies of
any documents containing the material rights of the holders of the Company's
outstanding debt and equity securities.
(d) Issuance of Purchased Shares and Shares Subject to
Ancillary Warrants. Upon issuance and payment therefor in accordance with the
terms and conditions of this Agreement, the Purchased Shares shall be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders thereof being entitled to
all rights accorded to a holder of Common Stock. Upon issuance and payment
therefor in accordance with the terms and conditions of the Ancillary Warrants,
the shares of Common Stock issuable under the Ancillary Warrants shall be
validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders thereof being entitled to all rights accorded to
a holder of Common Stock.
(e) No Conflicts. Except as disclosed in Schedule 3(e),
the execution, delivery and performance of the Transaction Documents by the
Company and, subject to stockholder approval of the Reverse Split, the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the Reverse Split and the subsequent reservation
for issuance and issuance of the Acquired Securities and the shares of Common
Stock subject to the Ancillary Warrants) will not (i) result in a violation of
the Certificate of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations applicable to the Company or any of
its Subsidiaries) or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e), neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its respective organizational charter or by-laws. Except as disclosed in
Schedule 3(e), neither the Company nor any of its Subsidiaries is in violation
of any term of or is in default under any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries.
Except as specifically contemplated by this Agreement and as required under the
1933 Act or applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence shall be obtained or
effected on or prior to the Closing Date.
(f) SEC Documents; Financial Statements. Except as
disclosed in Schedule 3(f), since September 1, 2000, the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") applicable to it (all of the
foregoing and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). As of their respective dates
(except as they have been correctly amended), the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC (except
as they may have been properly amended), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates (except as they have been properly amended), the financial
statements of the Company and any consolidated Subsidiaries included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as listed in Schedule 3(f), the Company has received no
notices or correspondence from the SEC since September 1, 2000. The SEC has not
commenced any enforcement proceedings against the Company or any of its
subsidiaries.
(g) Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since May 31, 2002, there has been no material adverse change in
the business, properties, operations, financial condition or results of
operations of the Company or its Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any Bankruptcy Law nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy or insolvency proceedings.
(h) Absence of Liabilities. Except as disclosed in
Schedule 3(h), at the date of the most recent audited financial statements of
the Company and its consolidated Subsidiaries included in the SEC Documents,
neither the Company nor any of its Subsidiaries had, and since such date neither
the Company nor any of its Subsidiaries has incurred, any liabilities or
obligations of any nature (whether accrued, absolute, contingent, determinable
or otherwise, and whether or not required to be reflected or reserved against in
a consolidated balance sheet of the Company prepared in accordance with United
States generally accepted accounting principles) except liabilities incurred in
the ordinary and usual course of business and consistent with past practice,
liabilities expressly incurred in connection with the Transactions (as defined
below) and liabilities that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
(i) Proxy Statement. At the time the Proxy Statement (as
defined below) is mailed, the Proxy Statement will comply as to form in all
material respects with the 1934 Act and the regulations thereunder. The Proxy
Statement shall not, at the time it is mailed, at the time of the Special
Meeting (as defined below) or at the Closing Date, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, that, no
representation is made by the Company with respect to the information furnished
by the Buyers for inclusion therein. The letter to stockholders, notice of
meeting, proxy statement and form of proxy, or the information statement, as the
case may be, to be distributed to stockholders of the Company in connection
with the Special Meeting and the matters to be submitted for the approval of
stockholders of the Company at the Special Meeting, and the Schedule 14A and any
other schedule required to be filed with the SEC in connection therewith,
together with any amendments or supplements thereto, are collectively referred
to herein as the "Proxy Statement."
(j) Absence of Litigation. Except as set forth on
Schedule 3(j), there is no action, suit or proceeding, or to the knowledge of
the Company or any Subsidiary, any inquiry or investigation, before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any Subsidiary, threatened
against or affecting the Company, the Common Stock, any other class or series of
the Company's capital stock, or any of the Company's Subsidiaries or any of the
Company's or the Company's Subsidiaries' officers or directors in their
capacities as such. A description of each action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body which, as of the date of this Agreement, is
pending or threatened against or affecting the Company, the Common Stock or any
of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, is set forth in
Schedule 3(j).
(k) Cancellation of Existing Gibralter Debt. Prior to the
date hereof, Gibralter and ecom entered into an agreement pursuant to which the
Existing Gibralter Debt (as defined below) was cancelled in exchange for (i)
1,000,000 shares of Series D Preferred Stock, and (ii) a warrant to purchase
10,000,000 shares of Common Stock (equivalent to 1,000,000 shares upon the
effectiveness of the Reverse Split), a true and correct copy of which is
attached hereto as Schedule 3(k). As used herein, the term "Existing Gibralter
Debt" means all indebtedness (inclusive of both principal and accrued but unpaid
interest) owed to Gibralter by the Company or its Subsidiaries, including
without limitation, all such indebtedness owed pursuant to the terms of (i) that
certain Promissory Note A dated February 1, 2001, made by ecom in favor of
Gibralter in the original principal amount of $1,500,000, as amended, and (ii)
that certain Promissory Note B dated February 1, 2001, made by ecom in favor
Gibralter in the original principal amount of $3,500,000, as amended.
(l) No General Solicitation. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Acquired Securities.
(m) Intellectual Property Rights. Set forth on Schedule
3(m) is a list and brief description of all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, and copyrights, and all applications for
such which are in the process of being prepared, owned by, or registered in the
name of the Company. The Company and each of its Subsidiaries owns or possesses
adequate licenses or other rights to use all patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, inventions, invention disclosures, drawings, designs,
manufacturing processes, formulae, trade secrets, customer lists, computer
software, software programs (including source code and object code)
and know-how (collectively, "Intellectual Property") used in or required for its
respective business as currently conducted, and no claim is pending or, to the
best knowledge of the Company or any Subsidiary, threatened, to the effect that
the operations of the Company or any Subsidiary infringe upon or conflict with
the asserted rights of any other person under any Intellectual Property. No
claim is pending or, to the best knowledge of the Company or any Subsidiary,
threatened, to the effect that any such Intellectual Property owned or licensed
by the Company or any Subsidiary, or which the Company or any Subsidiary
otherwise has the right to use, is invalid or unenforceable by the Company or
such Subsidiary. Neither the Company nor any Subsidiary has any knowledge of any
basis for an infringement claim with respect to its Intellectual Property. None
of the Intellectual Property is owned by any current or former stockholder or
employee of the Company or any Subsidiary or was developed by any Person outside
the scope of his or her employment with the Company or a Subsidiary or, to the
knowledge of the Company or any of its Subsidiaries, in violation of any
noncompetition or nonsolicitation obligation with any prior employer.
(n) Compliance with Laws. To the knowledge of the Company
or any Subsidiary, the Company and the Subsidiaries (including each and all of
its and their operations, practices, properties, real or personal, owned or
leased, and assets) are in compliance with all applicable federal, state, local
and foreign laws, ordinances, orders, rules and regulations (collectively,
"Laws"), including without limitation, those applicable to registration for the
offer or sale of securities, discrimination in employment, the Americans with
Disabilities Act, occupational safety and health, trade practices, competition
and pricing, product warranties, zoning, building and sanitation, employment,
unemployment, retirement and labor relations and product advertising, except
where the failure to so comply has not had, and cannot reasonably be expected to
have, a Material Adverse Effect. Without limiting the generality of the
foregoing, neither the Company, nor any of its Subsidiaries, nor any director,
officer, or employee of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company or any of its
Subsidiaries, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee. Since September 1, 2000,
all reports and returns required to be filed by the Company or any Subsidiary
with any governmental authority have been filed and were accurate and complete
in all material respects when filed, except where the failure to file has not
had, and cannot reasonably be expected to have, a Material Adverse Effect.
(o) Personal Property. The Company and its Subsidiaries
have good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
Schedule 3(o). All personal property and assets owned or utilized by the Company
and the Subsidiaries are in normal operating condition and repair (ordinary wear
and tear excepted), free from any defects (except such minor defects as do not
interfere with the use thereof in the conduct of normal operations), have been
maintained in a
manner consistent with the standards generally followed in the Company's
industry and are sufficient to carry on the business of the Company and its
Subsidiaries as currently conducted.
(p) Real Property. Neither the Company nor any Subsidiary
owns, or has ever owned, any real property. Schedule 3(p) annexed hereto
contains a complete and accurate list of any real property lease binding the
Company or any of the Subsidiaries or to which the Company or any of the
Subsidiaries is a party (collectively, the "Leases") and all termination dates,
renewal options and dates by which notice of renewal or cancellation, as
applicable, must be given with respect to such Leases. Each such Lease is in
full force and effect, and the Company or the Subsidiary party to such Lease has
fully performed, in all respects material thereto, all of its obligations to be
performed to date under such Lease. Except as disclosed on Schedule 3(p), the
Company or the Subsidiary party to each such Lease is current with respect to
the payment of all rents and other charges due thereunder and their use and
occupancy of the premises which are the subject matter of such Lease do not
violate any of the terms of such Lease, is not in violation of the conditions of
any policy of insurance held by the Company or any Subsidiary, and to the
knowledge of Terrence J. Leifheit (without special inquiry), is in conformity
with all applicable building, zoning, health, fire, safety and other laws,
ordinances, codes and regulations. To the knowledge of the Company or any of its
Subsidiaries, all of the buildings, structures and appurtenances situated on any
premises that is subject to any of the Leases are, and as of the Closing Date,
will be, in good operating condition and state of maintenance and repair and
will be adequate and suitable for the purposes for which they are presently
being or are intended to be used, and the Company or the Subsidiary party to
such Lease has adequate rights of ingress and egress and utility services for
the operation of its business in the ordinary course. To the knowledge of the
Company or any of its Subsidiaries, no lessor or landlord under any Lease is in
default in the performance of its obligations thereunder and neither the Company
nor any Subsidiary has received notice from any such lessor or landlord of its
intention to exercise any option thereunder which would adversely affect or
terminate the use or occupancy of the demised premises under such Lease by the
Company or such Subsidiary. Except as specifically disclosed in Schedule 3(e),
all of the Leases permit the consummation of the Transactions contemplated
hereby without modification of the terms thereof and without the consent of the
applicable lessor or landlord.
(q) Insurance. Schedule 3(q) attached hereto contains a
complete and accurate list and brief description (specifying the insurer, the
policy number or covering note number with respect to binders and the amount of
any deductible, describing each pending claim thereunder of more than
$10,000.00, setting forth the aggregate amounts paid out under each such policy
through the date hereof and the aggregate limit, if any, of the insurer's
liability thereunder) of all policies or binders of fire, liability, product
liability, worker's compensation, automobile, unemployment and other insurance
held by or on behalf of the Company and/or any Subsidiary. The Company or a
Subsidiary has paid all premiums due on such policies, and neither the Company
nor any Subsidiary is in default with respect to any provision contained in any
such policy or binder. Except for claims set forth on Schedule 3(q), there are
no outstanding unpaid claims under any such policy or binder. Neither the
Company nor any Subsidiary has received any written notice of cancellation or
non-renewal of any such policy or binder. Except as disclosed on Schedule 3(q),
none of the policies listed on Schedule 3(q) provides that
premiums paid in respect of the periods prior to the Closing Date may be
adjusted or recomputed based on claims-paying experience of such policies or
otherwise. Neither the Company nor any Subsidiary has received any written
notice from any of their insurance carriers that any insurance coverage listed
on Schedule 3(q) will not be available in the future on the same terms as now in
effect or that any premium with respect thereto will be increased in the future.
To the best knowledge of the Company or any of its Subsidiaries, no notice to
such effect has been received by the Company or any of its Subsidiaries in
verbal or other non-written form.
(r) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess any such certificate,
authorization or permit has not had, and cannot reasonably be expected to have,
a Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any written notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit. To the best
knowledge of the Company or any of its Subsidiaries, no notice of such
proceedings has been received by the Company or any such Subsidiary in verbal or
other non-written form.
(s) Absence of Changes in Benefit Plans. Except as
disclosed in the SEC Documents, as required by applicable law, as contemplated
by this Agreement, or as set forth Schedule 3(s), since May 31, 2002, there has
not been any adoption or material amendment by the Company or any Subsidiary of
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding providing benefits to any
current or former employee, officer or director of the Company or any
Subsidiary. Except as disclosed in the SEC Documents, as required by applicable
law or as set forth on Schedule 3(s), there exist no severance, bonus, incentive
award, termination or indemnification agreements, arrangements or understandings
between the Company or any Subsidiary and any of its current or former officers
or directors or employees.
(t) ERISA Compliance.
(i) Schedule 3(t) sets forth a complete list of
all "employee benefit plans" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and all employment contracts, bonus programs, and pension, profit
sharing, deferred compensation, incentive compensation, excess benefit,
stock, stock option, severance, termination pay, change in control or
other employee benefit plans, programs or arrangements, whether written
or unwritten, qualified or unqualified, funded or unfunded, foreign or
domestic, currently maintained, or contributed to, or required to be
maintained or contributed to, by the Company or any other person or
entity that, together with the Company, is treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended (the
"Code") (each an "ERISA Affiliate") for the benefit of any current or
former employees, officers or directors of the Company or any
Subsidiary or with respect to which the Company or its
Subsidiary has any liability (collectively, the "Benefit Plans"). As
applicable with respect to each Benefit Plan, the Company has delivered
or made available to the Buyers, true and complete copies of (A) each
Benefit Plan, including all amendments thereto, and in the case of an
unwritten Benefit Plan, a written description thereof, (B) all trust
documents, investment management contracts, custodial agreements and
insurance contracts relating thereto, (C) the current summary plan
description and each summary of material modifications thereto, (D) the
most recent annual reports (Form 5500 and all schedules thereto) filed
with the Internal Revenue Service ("IRS"), (E) the most recent IRS
determination letter and each currently pending application to the IRS
for a determination letter, (F) the most recent financial statements
and trustee reports, (G) all records, notices and filings concerning
IRS or Department of Labor audits or investigations, "prohibited
transactions" within the meaning of Section 406 of ERISA or Section
4975 of the Code and "reportable events" within the meaning of Section
4043 of ERISA, (H) all personnel, payroll, and employment manuals and
policies; (I) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both
pension and welfare benefits) by the Company and the ERISA Affiliates,
and all collective bargaining agreements pursuant to which
contributions are being made or obligations are owed by such entities;
(J) all registration statements filed with respect to any Company Plan;
(K) all insurance policies purchased by or to provide benefits under
any Company Plan; (L) all contracts with third party administrators,
actuaries, investment managers, consultants, and other independent
contractors that relate to any Benefit Plan; (M) the most recent
reports submitted by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with respect to
any Benefit Plan; (N) all notices that were given by the Company or any
ERISA Affiliate or any Benefit Plan to the IRS, the Pension Benefit
Guaranty Corporation ("PBGC"), or any participant or beneficiary,
pursuant to statute, within the four years preceding the date of this
Agreement; and (O) with respect to Benefit Plans subject to Title IV of
ERISA, the Form PBGC-1 filed for the most recent plan year.
(ii) No event has occurred and, to the knowledge
of the Company, there exists no condition or set of circumstances in
connection with which the Company or any ERISA Affiliate is or would
reasonably be expected to be subject to any material liability under
the terms of any Benefit Plan, under ERISA, or, with respect to any
Benefit Plan, under the Code or any other applicable law, rule or
regulation, domestic or foreign. Neither the Company nor any ERISA
Affiliate has incurred or would reasonably be expected to incur any
material liability in respect of any employee benefit plan maintained
by an ERISA Affiliate but not included within the term "Benefit Plan"
or by any person other than the Company or any ERISA Affiliate. No
statement, either written or oral, has been made by the Company or an
ERISA Affiliate to any person with regard to any Benefit Plan that was
not in accordance with the terms of the Benefit Plan and that would
have a Material Adverse Effect on the Company or an ERISA Affiliate.
All filings required by ERISA and the Code as to each Benefit Plan have
been timely, completely and accurately filed, and all notices and
disclosures to participants required by either ERISA or the Code have
been timely, completely and accurately provided.
All contributions and payments made or accrued with respect to all
Benefit Plans are deductible under Section 162 or 404 of the Code. No
amount, or any asset of any Benefit Plan is subject to tax as unrelated
business taxable income. The Company has no material liability to the
IRS with respect to any Benefit Plan, including any liability imposed
by Chapter 43 of the Code.
(iii) Neither the Company nor any ERISA Affiliate
has, at any time, (A) maintained or contributed to any "employ pension
benefit plan" with the meaning of ERISA Section 3(2), (B) maintained or
contributed to any employee pension benefit plan subject to Title IV of
ERISA or Code Section 412, or (C) been required to contribute to, or
incurred any withdrawal liability within the meaning of ERISA Section
4201 to, any multiemployer plan as defined in ERISA Section 3(37).
(iv) Except as set forth on Schedule 3(t) or as
contemplated by this Agreement, the execution and delivery of this
Agreement do not, and the consummation of the Transactions will not (A)
require the Company or any ERISA Affiliate to pay greater compensation
or make a larger contribution to, or pay greater benefits or accelerate
payment or vesting of a benefit under, any Benefit Plan or (B) create
or give rise to any additional vested rights or service credits under
any Benefit Plan.
(v) Except for requirements under applicable
law, as set forth on Schedule 3(t) or as contemplated by this
Agreement, neither the Company nor any ERISA Affiliate is a party to or
is bound by any severance agreement, program or policy.
(vi) Except as set forth on Schedule 3(t), no
Benefit Plan provides benefits, including without limitation, death or
medical benefits, beyond termination of employment or retirement other
than (A) coverage mandated by law or (B) death or retirement benefits
under a Benefit Plan qualified under Section 401(a) of the Code.
Neither the Company nor any ERISA Affiliate is contractually obligated
to provide any person with life, medical, dental or disability benefits
for any period of time beyond retirement or termination of employment,
other than as required by the provisions of Sections 601 through 608 of
ERISA and Section 4980B of the Code.
(vii) With respect to any Benefit Plan that is an
employee welfare benefit plan (as defined in Section 3(1) of ERISA),
(A) no such Benefit Plan is funded through a "welfare benefit fund", as
such term is defined in Section 419(e) of the Code, (B) each such
Benefit Plan that is a "group health plan", as such term is defined in
Section 5000(b)(l) of the Code, complies in all respects with the
applicable requirements of Sections 601 through 608 of ERISA and
Section 4980B(f) of the Code, and (iii) each such Benefit Plan
(including any such Plan covering retirees or other former employees),
as in effect on the date hereof, may be amended or terminated as to
future benefit accruals without material liability to the Company or
any ERISA Affiliate on or at any time after the Closing Date.
(viii) Except as disclosed on Schedule 3(t), and
except for the transactions contemplated by this Agreement, there is no
contract, agreement, Benefit
Plan or other arrangement covering any employee or former employee of
the Company or any of its Subsidiaries that would give rise to the
payment of any amount that would not be deductible under Section 280G
of the Code.
(ix) To the knowledge of the Company, no event
has occurred or circumstance exists that would result in a material
increase in premium costs of any Benefit Plan that is insured, or a
material increase in benefit costs of such Plan that is self-insured.
(x) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal proceeding
involving, any Benefit Plan is pending or, to the knowledge of the
Company, is threatened which, if adversely determined, would
individually or in the aggregate have a Material Adverse Effect.
(xi) Each current or former employee of the
Company who has taken a leave of absence under the Family and Medical
Leave Act of 1994, as amended, was, upon his or her return to
employment with the Company, placed in the same position with respect
to all eligibility requirements and benefits of any Benefit Plan as had
been applicable to such employee immediately before the leave
commenced, except where the failure to so comply would not have a
Material Adverse Effect.
(u) Tax Matters. Except as disclosed on Schedule 3(u),
the Company and each Subsidiary has filed all Tax Returns that the Company or
such Subsidiary has been required to file. All such Tax Returns were correct and
complete when filed, and the Company does not know of any facts or circumstances
that would require an amendment to be filed with respect to any such Tax
Returns. Except as disclosed on Schedule 3(u), all material Taxes owed by the
Company or any Subsidiary (whether or not shown on any Tax Return) have been
paid. Neither the Company nor any Subsidiary is currently the beneficiary of any
extension of time within which to file any Tax Return. Except as disclosed on
Schedule 3(u), no claim has ever been made by an authority in a jurisdiction
where the Company or any Subsidiary does not file Tax Returns that the Company
or such Subsidiary is or may be subject to taxation by that jurisdiction. Except
as disclosed on Schedule 3(u), there are no liens on any of the assets of the
Company or any Subsidiary that arose in connection with any failure (or alleged
failure) to pay any Tax. The Company and each Subsidiary has withheld and paid
all Taxes required to have been withheld and paid by it in connection with
amounts paid or owing to any employee.
(v) Contracts. Schedule 3(v) sets forth a list (sorted by
reference to the clauses of this subsection) of all contracts, agreements,
arrangements, guarantees, licenses, leases and executory commitments, other than
Benefit Plans and any contracts heretofore filed as an exhibit to any SEC
Document, that exist as of the date hereof to which the Company or any of its
Subsidiaries is a party or by which it is bound and which fall within any of the
following categories (each a "Contract"): (a) Contracts not entered into in the
ordinary course of the Company's or any of its Subsidiaries' respective
businesses; (b) joint venture, partnership or franchising agreements, (c)
Contracts containing covenants purporting to limit the freedom of the Company or
any of its Subsidiaries to compete in any line of business in any geographic
area or to hire any individual or group of individuals, (d) Contracts which
after the consummation of
any of the Transactions would have the effect of limiting the freedom of the
Company or any Subsidiary to compete in any line of business in any geographic
area or to hire any individual or group of individuals, (e) Contracts relating
to any outstanding commitment for capital expenditures in excess of $25,000, (f)
indentures, mortgages, promissory notes, loan agreements or guarantees of
borrowed money, letters of credit or other agreements or instruments of the
Company or any Subsidiary evidencing indebtedness for borrowed money or
providing for the creation of any charge, security interest, encumbrance or lien
upon any of the assets of the Company or any of its Subsidiaries, (g) License
Agreements, (h) Contracts with respect to which a change in the ownership
(whether directly or indirectly) of the shares of Company Common Stock or the
composition of the Board of Directors of the Company or any of its Subsidiaries
or any of the other Transactions may result in a violation of or default under,
or give rise to a right of termination, modification, cancellation or
acceleration of any obligation or loss of benefits under, such Contract, (i) any
other agreement of a type required to be filed under Item 601(b)(10) of
Regulation S-K promulgated by the SEC; or (j) Contracts (including employment
agreements and consulting agreements) pursuant to which the Company or any
Subsidiary is required to employ or obtain services from any Person otherwise
than on an "at-will" basis for any period of time. All Contracts to which the
Company or any of its Subsidiaries is a party or by which it is bound are valid
and binding obligations of the Company or its Subsidiary (as applicable) and, to
the knowledge of the Company, the valid and binding obligation of each other
party thereto. Neither the Company or its Subsidiary (as applicable) nor, to the
knowledge of the Company, any other party thereto is in violation of or 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 default by
the Company or its Subsidiary (as applicable) (or to its knowledge a default by
any other party thereto) under or permit the termination of, any such Contract,
except for such instances of default thereunder or terminations thereof that
would not individually or in the aggregate result in a Material Adverse Effect.
The Company has, prior to the date hereof, delivered or made available true,
complete and correct copies of the Contracts to the Buyers.
(w) Transactions With Affiliates. Except as set forth on
Schedule 3(w) and other than the grant or exercise of stock options disclosed on
Schedule 3(c), none of the officers or directors of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement (whether written or oral) providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer or
director or any corporation, partnership, trust or other entity in which any
officer or director has an interest or is an officer, director, trustee or
partner.
(x) Application of Takeover Protections. The Company and
its Board of Directors have taken or will take prior to the Closing Date all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to any of the Buyers as a result of the
transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Acquired
Securities, the exercise of the Ancillary Warrants and the ownership by any
Buyer of any of the Acquired Securities or any shares of Common Stock issuable
under the Ancillary Warrants.
4. COVENANTS.
(a) Special Meeting. As soon as practicable following the
date of this Agreement, the Company shall (i) call a special meeting of the
stockholders of the Company to be held no later than February 28, 2003 (the
"Special Meeting") for the purpose of obtaining the approval of the Company's
stockholders with respect to: (A) a reverse stock split of the Common Stock (the
"Reverse Split"), pursuant to which the issued and outstanding Common Stock
shall be converted into one-tenth (1/10) of the number of shares of Common Stock
outstanding immediately prior to the effectiveness of the Reverse Split, (B) the
transactions to be consummated pursuant hereto, including, without limitation,
the issuance and sale of the Purchased Shares and the issuance of the Ancillary
Warrants (collectively, the "Transactions"), and (C) a change in the name of the
Company to "Market Central, Inc." (the "Company Name Change" and collectively
with the Reverse Split and the Transactions, the "Approval Matters"); and shall
(ii) recommend that the Company's stockholders vote to approve each of the
Approval Matters, shall use its reasonable best efforts to solicit from
stockholders of the Company proxies in favor of approving each of the Approval
Matters, and shall take all other action necessary and appropriate to secure the
vote of stockholders approving each of the Approval Matters.
(b) Proxy Statement. The Company and the Buyers shall
furnish to each other all information concerning such Person or such Person's
business that is required for the Proxy Statement. The Company shall, as soon as
practicable after the date hereof, prepare and file (after providing the Buyers
with a reasonable opportunity to review and comment thereon) the Proxy Statement
with the SEC and shall use its reasonable best efforts to respond to any
comments of the SEC (after providing the Buyers with a reasonable opportunity to
review and comment thereon); provided, however, that in no event shall the
Company file the preliminary Proxy Statement with the SEC any later than twenty
(20) days following the date of this Agreement (unless the Buyers shall have
failed to cooperate with the preparation thereof as contemplated by this Section
4(b)). The Company shall cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable, but in any event no later than five (5)
Business Days after responding to all such comments to the satisfaction of the
staff of the SEC. The Company shall notify the Buyers promptly of the receipt of
any comments from the SEC and of any request by the SEC for amendments or
supplements to the Proxy Statement or for additional information and shall
supply the Buyers with copies of all correspondence between the Company or any
of its representatives, on the one hand, and the SEC, on the other hand, with
respect to the Proxy Statement or any Approval Matter. The Company will cause
the Proxy Statement to comply in all material respects with the applicable
provisions of the 1934 Act and the rules and regulations thereunder applicable
to the Proxy Statement and the solicitation of proxies for the Special Meeting
(including any requirement to amend or supplement the Proxy Statement). The
Buyers shall cooperate with the Company in the preparation of the Proxy
Statement, and without limiting the generality of the foregoing, the Company and
the Buyers shall promptly furnish to the other such information relating to it
and its affiliates and the
Approval Matters and such further and supplemental information as may be
reasonably requested by the other party and shall promptly notify the other
party of any change in such information. If at any time prior to the Special
Meeting there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company shall promptly prepare and mail
to its stockholders such an amendment or supplement; provided, however, that no
such amendment or supplement to the Proxy Statement will be made by the Company
without providing the Buyers the reasonable opportunity to review and comment
thereon and without the approval of the Buyers, which approval shall not be
unreasonably withheld. The Company and its counsel shall use reasonable efforts
to permit the Buyers and its counsel to participate in all communications with
the SEC and its staff, including all meetings and telephone conferences,
relating to the Proxy Statement, this Agreement or the Approval Matters;
provided, however, that in the event that such participation by the Buyers does
not take place, the Company shall promptly inform the Buyers of the content of
all such communications and the participants involved therein that specifically
relate to the Proxy Statement, this Agreement or the Approval Matters. The
Company agrees to include in the Proxy Statement the recommendation of the
Company's Board of Directors.
(c) Voting Agreement. The parties acknowledge that
simultaneously with the execution and delivery of this Agreement, and as a
condition to Buyers' willingness to enter into this Agreement, Terrence Leifheit
has (i) executed and delivered to Hammer and WAG Holdings a Voting Agreement,
pursuant to which he has agreed to vote all shares of the Company's capital
stock owned by him or otherwise within his power to vote in favor of the
approval of each of the Approval Matters and against any transaction competing
with the Transactions, and (ii) granted to Hammer and WAG Holdings a proxy (with
the power of substitution) with respect to such shares of the Company's capital
stock.
(d) Satisfaction of Closing Conditions. From the date
hereof until the Closing, the Company shall use its best efforts to satisfy, or
cause the satisfaction of, each of the conditions set forth in Section 7 below
as soon as practicable following the date hereof.
(e) Compliance with Regulation D and Blue Sky. The
Company shall, on or before the Closing Date, take such action, if any, as is
necessary in order to obtain an exemption for or to qualify the Acquired
Securities for sale to the Buyers pursuant to this Agreement under Regulation D
promulgated under the 1933 Act and any applicable securities or "Blue Sky" laws
of the states of the United States, and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The Company
shall, prior to the Closing Date, make all filings and reports relating to the
offer and sale of the Acquired Securities that are necessary under Regulation D
promulgated under the 1933 Act and any applicable securities or "Blue Sky" laws
of the states of the United States, as the applicable, to perfect such
exemptions or qualifications.
(f) Due Diligence. Prior to the Closing Date, the Buyers
shall be entitled, through their respective employees and representatives,
including, without limitation, their legal counsel and accountants, to make such
investigation of the assets, properties, business and operations of the Company
and each Subsidiary, and such examination of the books, records and
financial condition of the Company and each Subsidiary as the Buyers wish. Any
such investigation and examination shall be conducted at reasonable times and
under reasonable circumstances, and the Company shall cooperate, and cause each
Subsidiary to cooperate, fully therein. No investigation by the Buyers (or
failure to conduct such an investigation) shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Company under this
Agreement, or the Buyers' respective rights under Section 8 below. In order that
the Buyers may have full opportunity to make such business, accounting and legal
review, examination or investigation as it may wish of the business and affairs
of the Company and each Subsidiary, the Company shall furnish, and shall cause
each Subsidiary to furnish, the representatives of the Buyers during such period
with all such information and copies of such documents concerning the affairs of
the Company and each Subsidiary as such representatives may reasonably request
and cause its officers, employees, consultants, agents, accountants and
attorneys to cooperate fully with such representatives in connection with such
review and examination. If this Agreement terminates, the Buyers, and their
respective employees and representatives shall keep confidential any information
or documents obtained from the Company concerning its assets, properties,
business and operations, unless readily ascertainable from public or published
information, or trade sources, or subsequently developed by the Buyers or any of
them independent of any investigation of the Company, or received from a third
party not under an obligation to the Company to keep such information
confidential. If this Agreement terminates, any documents obtained by the Buyers
from the Company shall be returned.
(g) Notice of Events; Settlement of Debts. The Company
shall promptly notify the Buyers of (i) any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
violation or breach of this Agreement, (ii) any event, occurrence, transaction
or other item which would have been required to have been disclosed on any
Schedule or statement delivered hereunder, had such event, occurrence,
transaction or item existed on the date hereof, other than items arising in the
ordinary course of business which would not render any representation or
warranty of the Company inaccurate or misleading, (iii) any lawsuits, claims,
proceedings or investigations which after the date hereof are, to the knowledge
of the Company or any Subsidiary, threatened or commenced against the Company or
any of its officers, directors or employees with respect to the affairs of the
Company, and (iv) any event, occurrence, transaction or other item that could
reasonably be deemed to require a filing by the Company with the SEC of a
Current Report on Form 8-K. The Company shall not settle, and shall cause each
of its Subsidiaries not to settle, any debts owed by the Company or any of its
Subsidiaries to their respective creditors and suppliers (except for cash
payments of debts that have become due in the ordinary course pursuant to their
original terms), unless the Company shall have obtained the Buyers' prior
written approval of such settlement.
(h) Fees and Expenses. In addition to its own fees and
expenses, the Company shall pay the fees and expenses (including the fees and
expenses of legal counsel, investment bankers, brokers or other representatives
or consultants) incurred by the Buyers in connection with the negotiation and
consummation of the transactions contemplated hereby. Such fees and
expenses shall be paid by the Company promptly upon submission of invoices
therefor by the Buyers and regardless of whether or not the Transactions are
consummated.
(i) No Solicitation. The Company agrees that, for a
period commencing on the date hereof and ending on February 28, 2003 (the
"Exclusivity Period"), neither the Company nor any of its representatives,
directors, officers, stockholders, agents or affiliates (collectively, "Company
Representatives") will (i) entertain or discuss any Acquisition Proposal with
any other party or provide any information to any other party in connection
therewith, or (ii) disclose to any other party the contents of this Agreement or
the details of the transactions contemplated herein, except for such disclosure
required by law or contained in the Proxy Statement; provided, however, that
nothing contained in this Agreement shall prohibit the Board of Directors of the
Company or Company Representatives from furnishing information to or entering
into discussions or negotiations with any person or group that makes an
unsolicited written, bona fide Acquisition Proposal, if, and only to the extent
that (i) the Board of Directors of the Company determines in good faith by a
majority vote, after consultation with a nationally reputed financial advisor
and with independent legal counsel that such proposal is, or is reasonably
likely to lead to, a Superior Proposal, (ii) the Board of Directors of the
Company determines in good faith by a majority vote after consultation with its
outside legal counsel that the failure to negotiate, or otherwise engage in
discussions, with such third party would be inconsistent with the Board's
fiduciary duties under applicable law, and (iii) such person or group, prior to
the disclosure of any non-public information, enters into a confidentiality
agreement with the Company that is not, in any material respect, less
restrictive as to such person or group than the confidentiality restrictions
imposed on the Buyers pursuant to Section 4(f), that contains a standstill
restriction prohibiting such third party and its affiliates from acquiring more
than five percent (5%) of the Company's outstanding Common Stock, and that does
not contain exclusivity provisions which would prevent the Company from
complying with its obligations hereunder. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section 4(i)
by any Company Representative, whether or not such person is purporting to act
on behalf of the Company or its directors or otherwise, shall be deemed to be a
breach of this Section 4(i) by the Company. Except as expressly permitted by
this Section 4(i), the Board of Directors of the Company (or any other committee
thereof) shall not (i) approve or recommend, or propose to approve or recommend,
any Acquisition Proposal, or (ii) cause the Company to accept such Acquisition
Proposal and/or enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Acquisition Proposal; provided, however, that the
Board of Directors of the Company may take such actions if, and only to the
extent that (A) such Acquisition Proposal is a Superior Proposal, (B) the Board
of Directors of the Company determines in good faith by a majority vote, after
consultation with its outside legal counsel, that the failure to do so would be
inconsistent with the fiduciary duty of the Board of Directors of the Company
under applicable law, (C) the Company is not in breach of this Section 4(i), and
(D) in the case of clause (ii) above, (I) the Company shall, prior to or
simultaneously with the taking of such action, have paid or pay to the Buyers or
their designee the break-up fee (including payment of Buyers' transaction costs
and expenses) set forth in Section 4(j)(ii) below, (II) the Company shall, prior
to or simultaneously with the taking of such action, have repaid or repay to
Hammer and WAG Holdings the aggregate outstanding principal balance of all loans
made to
the Company or ecom pursuant to the Loan Agreement, together with any accrued
but unpaid interest thereon, and (III) the Company shall have complied with its
obligations under Section 9(e). In addition, the Company agrees that it will
inform the Buyers of, and provide the Buyers with information regarding, any
Acquisition Proposal or other offers or expressions of interest for the Company.
(j) Break-Up Fees.
(i) Upon the first occurrence of any Adverse
Event (as defined below), the Company shall pay the Buyers an aggregate
amount of $100,000 in cash (allocated among the Buyers in proportion to
the number of Purchased Shares to be purchased by each of the
respectively hereunder unless otherwise agreed among the Buyers), plus
all transaction costs and expenses actually incurred by the Buyers in
connection with the negotiation and attempted consummation of the
transactions contemplated by this Agreement. As used herein, the term
"Adverse Event" means any of the following: (A) the occurrence of any
breach of the provisions of Section 4(i) above; or (B) the Buyers
elects to terminate this Agreement because the Buyers determine, in
their reasonable judgment, that (1) the Company does not own or have
licenses to use all of the Intellectual Property necessary to conduct
its business as it has been conducted, (2) there has occurred any
material adverse change in the business or assets of the Company since
May 31, 2002 that was not disclosed to the Buyers in writing prior to
the date hereof, or (C) any material adverse change in the business or
assets of the Company has occurred since the date hereof.
(ii) Upon the first occurrence of any Triggering
Event (as defined below), the Company shall pay the Buyers a break-up
fee in cash in the amount of $100,000 (allocated among the Buyers in
proportion to the number of Purchased Shares to be purchased by each of
the respectively hereunder unless otherwise agreed among the Buyers),
plus all transaction costs and expenses actually incurred by the Buyers
in connection with the negotiation and attempted consummation of the
transactions contemplated by this Agreement. As used herein, the term
"Triggering Event" means (i) the failure of the Company's Board of
Directors to recommend to the stockholders of the Company, within
fifteen (15) days following the date of this Agreement, that the
stockholders of the Company approve the consummation of the
transactions contemplated by this Agreement, (ii) the withdrawal by the
Company's Board of Directors of any such recommendation, (iii) the
recommendation by the Company's Board of Directors that the
stockholders of the Company approve any Acquisition Proposal, (iv) the
execution by the Company of any Acquisition Agreement, or (v) the
termination of this Agreement by Buyer following a material breach by
the Company of any of the Company's representations, warranties or
covenants set forth herein, provided such breach has not been cured
within twenty (20) days after the Company receives written notice
specifying such breach.
(k) Lock-Up Option. The Company hereby grants the Buyers
an option (the "Option") to acquire a number of shares of the Common Stock of
the Company equal to 19.9%
of the number of issued and outstanding shares of the Company's Common Stock,
determined on a fully-diluted basis (assuming the conversion of all securities
convertible into Common Stock and the exercise of all options and warrants to
purchase Common Stock) immediately prior to the exercise of the Option, at an
exercise price of $0.07 per share, to be paid in cash (which price shall be
automatically adjusted in accordance with the Reverse Split in the event the
Reverse Split is effected). The Option shall be exercisable in the event that
the Buyers become entitled to a break-up fee or other payment pursuant Section
4(j)(i) or (ii) above, and shall expire upon the first to occur of (i) August
29, 2004, (ii) the date on which the Closing occurs, or (iii) a material breach
by the Buyers of their obligations under this Agreement, which breach shall not
have been cured by the Buyers within thirty (30) days following the Buyers
receipt from the Company of a written notice describing such material breach,
provided, that the Option shall be suspended until such breach is cured. Unless
otherwise agreed among the Buyers, the right to purchase shares of Common Stock
pursuant to the Option shall be allocated among the Buyers in proportion to the
number of Purchased Shares that would have been purchased by each of the
respectively hereunder had the transactions contemplated by this Agreement been
consummated on the date the Option is first exercisable. Each Buyer may assign
its rights under the Option to any person or entity in its sole discretion.
(l) Post-Closing Covenants.
(i) Following the Closing, the Buyers agree to
use commercially reasonable efforts to assist the Company in generating
new outbound telemarketing and/or mail opportunities for the Company in
an amount not less than $350,000 during the first twelve months after
the Closing.
(ii) Following the Closing, the Buyers agree to
cause the Company to adopt a new Stock Option Plan, pursuant to which
employees of the Company will be given new options to purchase Common
Stock.
(iii) Following the Closing, the Company shall, at
the request of the Buyers, register the Purchased Shares and the shares
of Common Stock issuable under the Ancillary Warrants, pursuant the
1933 Act for resale by the Buyers or their assigns.
(m) Make-Whole Covenant.
(i) If at any time following the Closing it is
determined by the Buyers that any of the representations and warranties
of the Company set forth in Section 3(a) or (c) above were inaccurate
as of the Closing, the Company shall thereafter, within three (3)
Business Days following the Company's receipt of a written demand from
the Buyers, and without requiring additional consideration to be paid
by the Buyers, issue to the Buyers (in proportion to the number of
Purchased Shares issued to each of them at the Closing) additional
shares of Common Stock such that the aggregate number of shares of
Common Stock issued to the Buyers pursuant to this Section 4(m) and
Section 1(a) above, if all such shares had been issued to the Buyers at
the Closing, would have been sufficient to give the Buyers a number of
shares of Common Stock equal to at least the Adjusted Percentage (as
defined below) of the number of shares of Common Stock
outstanding as of the Closing, determined on a fully-diluted basis
after considering the facts and circumstances upon which the Buyers
have determined that such representations and warranties were
inaccurate as of the Closing, but in all cases excluding the exercise
of any options or warrants to acquire Common Stock at a price equal to
or greater than $.55 per share (determined prior to the Reverse Split),
which options or warrants were outstanding as of the Closing, and the
conversion of any securities of the Company convertible into Common
Stock, which convertible securities were outstanding as of the Closing,
and where such conversion would have required the payment to the
Company of at least $.55 per share of Common Stock (determined prior to
the Reverse Split).
(ii) As used herein, the term "Adjusted
Percentage" shall initially mean seventy percent (70%); provided, that
such percentage shall be adjusted and readjusted, as of the date of any
demand by Buyers for such adjustment or readjustment, as follows: (A)
if it is discovered that the Company or ecom had, as of the Closing,
any contractual obligation to make cash payments or other distributions
based on the value of the Company and/or ecom (including, without
limitation, any obligation to redeem capital stock and any obligation
under outstanding stock appreciation, phantom stock or similar rights
granted by the Company or ecom), then the Adjusted Percentage shall be
adjusted or readjusted, as the case may be, to equal a percentage
equivalent to a fraction, (I) the numerator of which is equal to
seventy percent (70%) of the combined net book value of the Company and
ecom, ignoring the effect of such payments or distributions, and (II)
the denominator of which is equal to the combined net book value of the
Company and ecom reduced by the amount of all such payments or
distributions (assuming such payments or distributions are made as of
the date of such adjustment or readjustment); and (B) if it is
discovered that the Company does not own all of the issued and
outstanding capital stock ecom, on a fully-diluted basis, then the
Adjusted Percentage shall be adjusted to equal a percentage equivalent
to a fraction, (I) the numerator of which is equal to the Adjusted
Percentage (following any adjustment required pursuant to clause (A)
above), and (II) the denominator of which is equal to the actual
percentage of the issued and outstanding capital stock of ecom owned by
the Company as of the Closing, on a fully-diluted basis.
(iii) The Company acknowledges and agrees that,
pursuant to this Section 4(m), the Buyers may demand additional shares
or adjustment of the Adjustment Percentage at any time, and from time
to time. The covenant set forth in this Section 4(m) is not intended to
limit any obligation of the Company to indemnify the Buyers pursuant to
Section 8 below for any breach of the Company's representations or
warranties contained herein, and the limits on the Company's indemnity
obligations set forth in Section 8 below shall not be construed to
limit the Company's obligations under this Section 4(m). Any shares of
Common Stock issued to the Buyers pursuant to this Section 4(m) shall
be deemed to be "Purchased Shares" for all purposes under this
Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
On the Closing Date, the Company shall issue irrevocable instructions
to the Transfer Agent, in a form reasonably satisfactory to the Buyers, to issue
a certificate in the name of each Buyer for the Purchased Shares being purchased
by such Buyer hereunder (the "Irrevocable Transfer Agent Instructions"). The
Company warrants to the Buyers that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, will be given by the
Company to the Transfer Agent with respect to the Purchased Shares (other than
stop transfer orders enforcing the restrictions on transfer set forth in the
restrictive legend set forth below) and that the Purchased Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement. The certificates issued in the names
of the Buyers representing the Purchased Shares shall not bear any restrictive
legend except for the following:
THE SECURITIES EVIDENCED HEREBY WERE ISSUED AND SOLD WITHOUT
REGISTRATION UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE
"FEDERAL ACT"), OR THE SECURITIES LAWS OF ANY STATE, IN RELIANCE UPON
CERTAIN EXEMPTIVE PROVISIONS OF SAID ACTS, PARTICULARLY INCLUDING
SECTION 10-5-9(13) OF THE GEORGIA SECURITIES ACT OF 1973, AS AMENDED.
SAID SECURITIES CANNOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR
TRANSFER IS MADE: (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE FEDERAL ACT OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION; AND (2) IN A TRANSACTION WHICH IS EXEMPT UNDER APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH LAWS, OR IN A TRANSACTION WHICH IS OTHERWISE IN
COMPLIANCE WITH SUCH LAWS.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company hereunder to sell the Purchased Shares is
subject to the satisfaction of each of the following conditions on or before the
Closing Date; provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
the Buyers with prior written notice thereof:
(a) The Buyers shall have executed each of the
Transaction Documents and delivered the same to the Company.
(b) The representations and warranties of each Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and each Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION.
The obligation of the Buyers to purchase Purchased Shares under this
Agreement is subject to the satisfaction of each of the following conditions on
or before the Closing Date; provided that these conditions are for the Buyers'
benefit only and may be waived by the Buyers at any time in their absolute
discretion by providing the Company with prior written notice thereof:
(a) Trading in the Common Stock shall not have been
suspended by the SEC or the Principal Market.
(b) The stockholders of the Company shall have approved
the transactions contemplated by this Agreement, including without limitation,
the sale of the Purchased Shares pursuant to Section 1 above, the issuance of
the Ancillary Warrants, the Reverse Split and the Company Name Change.
(c) The Company shall have executed each of the
Transaction Documents and delivered the same to the Buyers.
(d) Prior to the effectiveness of the Reverse Split,
ninety five percent (95%) or more of the Company's convertible securities
(excluding the Series D Preferred Stock), determined on the basis of the number
of shares of Common Stock into which such convertible securities may be
converted immediately prior to Closing, shall have been cancelled or converted
to Common Stock in accordance with the terms thereof.
(e) Prior to the effectiveness of the Reverse Split,
Gibralter shall have converted all 1,000,000 shares of the Series D Preferred
Stock currently owned by it into 10,000,000 shares of Common Stock (equivalent
to 1,000,000 shares upon the effectiveness of the Reverse Split).
(f) The Company shall have effected the Reverse Split and
the Company Name Change by filing a Certificate of Amendment to the Certificate
of Incorporation, in form and substance reasonably satisfactory to the Buyers.
(g) Each of the former shareholders of ecom shall have
executed and delivered to the Company a written waiver of any rights such Person
may have under that certain Agreement and Plan of Merger, dated as of December
21, 2000 (as amended, the "ecom Merger Agreement"), or otherwise, to receive
additional shares of Common Stock upon the consummation of Company's sale of the
Purchased Shares pursuant to Section 1 hereof.
(h) The sum of the number of shares of Common Stock
outstanding and the number of shares of Common Stock issuable upon the
conversion of all securities convertible into, or exercisable for, shares of
Common Stock shall not exceed 54.5 million (ignoring the effect of the Reverse
Split).
(i) The Company shall have entered into an agreement with
Gibralter, which shall be for a term of not less than five (5) years, providing
for the continued provision of services to Gibralter by the Company, such
agreement to be at current market terms and in form and substance satisfactory
to the Buyers in their absolute discretion (including, without limitation, as to
allocation of overhead and costs). To the extent the parties cannot agree on an
acceptable contract, the parties shall select an arbitrator to determine current
market terms for said agreement.
(j) The Company shall have (i) terminated each employment
agreement or consulting agreement listed under item (j) on Schedule 3(v), and
(ii) entered into a new agreement with each Person employed or engaged under
such agreements upon terms and conditions satisfactory to the Buyers.
(k) The Company shall have entered into a fee agreement
with Atkisson, Carter & Company ("Atkisson"), in form and substance satisfactory
to the Buyers in their absolute discretion, relating to services provided by
Atkisson in connection with the transactions contemplated by this Agreement.
(l) [Intentionally omitted]
(m) The Buyers shall be satisfied, in their absolute
discretion, with the results of their due diligence investigation of the Company
and its Subsidiaries.
(n) There shall have been no material adverse change in
the financial condition, results of operations or business prospects of the
Company and its Subsidiaries, since May 31, 2002.
(o) The Buyers shall have received a legal opinion letter
of the Company's legal counsel, dated as of the Closing Date, in the form of
Schedule 7(o).
(p) The Company shall have executed and delivered to the
Transfer Agent the Irrevocable Transfer Agent Instructions, and the same shall
have been acknowledged in writing by the Company's Transfer Agent. The Company
shall have executed and delivered to Hammer and WAG Holdings the Ancillary
Warrants.
(q) The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyers shall have received a certificate, executed by the President of the
Company, dated as of the Closing Date, to the foregoing effect, in form and
substance satisfactory to the Buyers.
(r) All permits and approvals from any governmental or
regulatory body required for the lawful consummation of the transactions
contemplated herein and the continued operation of the business of the Company
and the Subsidiaries shall have been obtained.
(s) All consents, permits, waivers and approvals from
parties to material contracts or other agreements with the Company that may be
required in connection with the performance by the Company of its obligations
under this Agreement or the continuance of such contracts or other agreements
with the Company without material modification after the consummation of the
transactions contemplated herein shall have been obtained (with satisfactory
written evidence thereof, in recordable form where necessary, to be furnished to
the Buyers at the Closing).
(t) No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated by this Agreement or
to seek damages or a discovery order in connection with such transactions, or
that has or could reasonably be expected to have a materially adverse effect on
the assets, properties, business, operations or financial condition of the
Company or any Subsidiary.
(u) The Company shall have delivered to the Buyers a
certificate evidencing the incorporation and good standing of the Company in the
State of Delaware issued by the Secretary of State of the State of Delaware as
of a date within ten (10) Business Days of the Closing Date.
(v) The Company shall have delivered to the Buyers a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten (10) Business Days of the Closing
Date.
(w) The Company shall have delivered to the Buyers a
secretary's certificate executed by the Secretary of the Company, dated as of
the Closing Date, in form and substance satisfactory to the Buyers.
(x) The Company shall have obtained a policy of directors
and officers liability insurance issued by an insurer acceptable to Buyer and
having terms and coverage limits acceptable to the Buyers.
8. INDEMNIFICATION.
(a) In consideration of the Buyers' execution and
delivery of the Transaction Documents and their acquisition of the Purchased
Shares hereunder and in addition to all of the Company's other obligations under
the Transaction Documents, subject to the limits set forth in subsection (b)
below, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each Buyer's respective affiliates, officers, directors, managers and
employees, and any of the foregoing persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, or (iii) any cause of
action, suit or claim brought or made against such Indemnitee and arising out of
or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(b) The Company shall not be liable under subsection (a)
above unless the aggregate amount of Indemnified Liabilities subject to
indemnification pursuant to such section exceeds $50,000 (the "Threshold
Amount"). After the aggregate amount of such Indemnified Liabilities exceeds the
Threshold Amount, the Company shall be obligated to indemnify the Indemnitees
for all such Indemnified Liabilities, including those considered in determining
that the Threshold Amount has been exceeded. In no event shall the aggregate
liability of the Company under subsection (a) above exceed $1,500,000. In no
event shall the provisions of this Section 8(b) be construed to limit or
otherwise affect the obligations of the Company under Section 4(m) above.
9. TERMINATION.
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing Date, as follows:
(a) by mutual written agreement of the Company and the
Buyers; or
(b) by the Buyers or the Company if such party seeking
termination is not then in material breach of this Agreement and if the Closing
has not occurred on or before February 28, 2003 (the "Termination Date"); or
(c) by the Buyers, if the Buyers are not then in material
breach of this Agreement and the Company is then in material breach of this
Agreement, and such breach remains uncured for ten (10) days after the Company's
receipt of written notice thereof from Buyer; or
(d) by the Company, if the Company is not then in
material breach of this Agreement and the Buyers are then in material breach of
this Agreement, and such breach remains uncured for ten (10) days after the
Buyers' receipt of written notice thereof from the Company; or
(e) by the Company at any time prior to the Special
Meeting, by action of the Board of Directors of the Company, if the Company
shall have received after the date hereof an Acquisition Proposal from a third
party that was not initiated, solicited or encouraged by the Company in
violation of this Agreement and that does not materially violate or breach any
confidentiality or standstill agreement executed by such party with respect to
the Company and (i) the Board of Directors of the Company determines in good
faith by a majority vote after consultation with its financial and legal
advisors that such Acquisition Proposal is a Superior Proposal, (ii) the Board
of Directors of the Company determines in good faith by a majority vote after
consultation with its outside legal counsel that the failure to approve such
agreement would be inconsistent with the fiduciary duties of the Board of
Directors under applicable law, (iii) the Board of Directors of the Company has
received a written opinion, a copy of which has been delivered to the Buyers,
from a nationally reputed financial advisor that the Acquisition Proposal is
fair from a financial point of view to the stockholders of the Company (other
than any stockholders participating in the buying group in such transaction);
provided, however, that any such termination shall not be effective unless: (I)
the Board of Directors of the Company has provided the Buyers with written
notice that it intends to terminate this Agreement pursuant to this Section
9(e), identifying the Alternative Transaction (and the parties thereto) then
determined to be more favorable and delivering to the Buyers a copy of the
written agreement for such Alternative Transaction in the form to be entered
into (it being understood that if such form changes prior to termination of this
Agreement, the Board of Directors of the Company will notify the Buyers
thereof), (II) at least two (2) full Business Days after the Board of Directors
of the Company has provided the initial notice required by clause (I) above, the
Board of Directors of the Company delivers to the Buyers a written notice of
termination of this Agreement pursuant to this Section 9(e), and (III) upon
delivery of the termination notice referred to in clause (II) above, (A) the
Company has delivered to the Buyers checks or wire transfers of same day funds
in the aggregate amount of the break-up fee and the expense and cost
reimbursement required under Section 4(j)(ii) above and a written
acknowledgement from the Company that the Company has irrevocably waived any
right to contest or object to such payment, and (B) the Company has repaid to
Hammer and WAG Holdings the aggregate outstanding principal balance of all loans
made pursuant to the Loan Agreement, together with any accrued but unpaid
interest thereon.
If this Agreement is terminated pursuant to the foregoing, then except
as otherwise provided herein, all further obligations of the parties under or
pursuant to this Agreement shall immediately terminate without further liability
of any party to the other; provided, however, that (i) nothing in this Section 9
shall relieve the liability or obligations hereunder of any party (the
"Defaulting Party") to the other party or parties (each, a "Non-Defaulting
Party") on account of a breach by the Defaulting Party of any covenant,
agreement, representation or warranty of the Defaulting Party contained herein,
including, without limitation, any liability of the Company pursuant to Section
4(j) above; (ii) the option granted by the Company to the Buyers in Section 4(k)
above shall survive any such termination; and (iii) the Buyers' obligations of
confidentiality set forth in Section 4(f) shall survive any such termination.
10. CERTAIN DEFINED TERMS.
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "Acquisition Proposal" means an inquiry, offer or
proposal regarding any of the following (other than the Transactions
contemplated by this Agreement) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, liquidation, dissolution,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 15% or more of the
assets of the Company in a single transaction or series of related transactions;
(iii) any tender offer (including a self tender offer) or exchange offer that,
if consummated, would result in any person or group beneficially owning more
than 15% of the outstanding shares of any class of equity securities of the
Company (or in the case of a person or group which beneficially owns more than
15% of the outstanding shares of any class of equity securities of the Company
as of the date hereof, would result in such person or group increasing the
percentage or number of shares of such class beneficially owned by such person
or group) or the filing of a registration statement under the 1933 Act in
connection therewith; (iv) any acquisition of 15% or more of the outstanding
shares of capital stock of the Company or the filing of a registration statement
under the 1933 Act in connection therewith or any other acquisition or
disposition the consummation of which would prevent or materially diminish the
benefits to the Buyers of the Transactions; or (v) any public announcement by
the Company or any third party of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(c) "Alternative Transaction" means any of the
transactions contemplated in the definition of Acquisition Proposal.
(d) "Bankruptcy Law" means Title 11, U.S. Code, or any
similar federal or state law for the relief of debtors.
(e) "Business Day" means any day that is not a Saturday,
a Sunday or a day on which banks are required or permitted to be closed in the
State of Georgia or the State of North Carolina.
(f) "License Agreements" means any and all agreements
(whether oral or written) to which Company or any of its Subsidiaries is a party
or otherwise bound, (i) granting or obtaining any right to use or practice any
rights under any Intellectual Property, or (ii) restricting the Company's (or
such Subsidiary's) rights to use any Intellectual Property, including license
agreements, development agreements, distribution agreements, settlement
agreements, consent to use agreements, and covenants not to sue.
(g) "Material Adverse Effect" means any material adverse
effect on any of: (i) the business, properties, assets, operations, results of
operations or financial condition of the Company and its Subsidiaries, taken as
a whole, or (ii) the authority or ability of the Company to perform its
obligations under the Transaction Documents.
(h) "Person" means an individual or entity including any
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.
(i) "Principal Market" means the OTC Bulletin Board.
(j) "SEC" means the United States Securities and Exchange
Commission.
(k) "Subsidiary" or "Subsidiaries" means each entity in
which the Company, directly or indirectly, owns 50% or more of the voting stock
or capital stock or other similar equity interests).
(l) "Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or other similar
transaction, not less than 51% of the shares of Company Common Stock then
outstanding or all or substantially all of the assets of the Company which the
Board of Directors of the Company determines in good faith (A) is more favorable
to the stockholders of the Company from a financial point of view than the
transactions contemplated by this Agreement (including any adjustment to the
terms and conditions proposed in writing by the Buyers in response to such
Acquisition Proposal), (B) is not subject to any material contingency, to which
the other party thereto has not reasonably demonstrated in its written offer its
ability to overcome or address, including the receipt of government consents or
approvals, and (C) is reasonably likely to be consummated and is in the best
interests of the stockholders of the Company.
(m) "Tax" or "Taxes" means all federal, state, local and
foreign income, gross receipts, profits, windfall profits, capital gains,
franchise, sales, use, license, occupation, property, property transfer, capital
stock, premium, excise, ad valorem, employment, payroll, withholding, estimated,
severance, stamp, environmental, fuel, customs duties, social security,
unemployment, disability, registration, value added, alternative or add-on
minimum and other taxes, assessments or governmental charges of any nature, kind
or character, and including any interest, additions to tax and penalties
thereon.
(n) "Tax Returns" means all returns, declarations,
reports and forms, claims for refunds, or information returns and reports
relating to Taxes, including any schedule or attachment thereto, and including
any amendments thereof.
(o) "Transaction Documents" has the meaning set forth in
Section 3(b) above.
(p) "Transfer Agent" means the transfer agent of the
Company as set forth in Section 11(f) hereof or such other person who is then
serving as the transfer agent for the Company in respect of the Common Stock.
11. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the other Transaction Documents shall be governed by the
internal laws of the State of Delaware, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware. Each party hereby irrevocably
submits to the jurisdiction of the state and federal courts sitting in the City
of Atlanta, Georgia, for the adjudication of any dispute hereunder or under the
other Transaction Documents or in connection herewith or therewith, or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original.
(c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyers
make any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Buyers, and no provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is sought.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to WAG Holdings to:
WAG Holdings, LLC
1150 Hammond Drive
Suite A1200
Atlanta, Georgia 30328
Telephone: 770-522-1890
Facsimile: 770-730-2870
Attention: William A. Goldstein
With a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E., Suite 3100
Atlanta, Georgia 30309-3592
Telephone: 404-815-3632
Facsimile: 404-685-6932
Attention: A. Jay Schwartz
If to Hammer to:
Glen H. Hammer
c/o Warranty Corporation of America, Inc.
3110 Crossing Park Road
Norcross, GA 30071-1323
Telephone: 770-416-9222
Facsimile: 770-840-2071
With a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E., Suite 3100
Atlanta, Georgia 30309-3592
Telephone: 404-815-3632
Facsimile: 404-685-6932
Attention: A. Jay Schwartz
If to Barkowitz to:
A. Randall Barkowitz
c/o Warranty Corporation of America, Inc.
3110 Crossing Park Road
Norcross, GA 30071-1323
Telephone: 770-416-9222
Facsimile: 770-840-2073
If to the Company to:
Paladyne Corp.
1650A Gum Branch Road
Jacksonville, NC 28540
Telephone: 888-773-3501 ext. 6006
Facsimile: 910-455-1937
Attention: Terrence Leifheit
With a copy to:
Thelen Reid & Priest LLP
875 Third Avenue
New York, NY 10022
Telephone: 212-603-6780
Facsimile: 212-603-2001
Attention: Bruce A. Rich
If to the Transfer Agent to:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Telephone: 212-936-5100
Facsimile: 212-921-8326
Attention: Karen Lazar
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Business Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally recognized
overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the Buyers,
including by merger or consolidation. The Buyers may not assign their respective
rights or obligations under this Agreement.
(h) No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
(i) Publicity. The Buyers shall have the right to approve
before issuance any press releases or any other public disclosure (including any
filings with the SEC) with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyers, to make any press release or other public disclosure
(including any filings with the SEC) with respect to such transactions as is
required by applicable law and regulations (although the Buyers shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
(j) Further Assurances. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) No Financial Advisor, Placement Agent, Broker or
Finder. The Company represents and warrants to the Buyers that except for
Atkisson it has not engaged any financial advisor, placement agent, broker or
finder in connection with the transactions contemplated hereby. Each Buyer
represents and warrants to the Company that such Buyer has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Company shall be responsible for the
payment of any fees or commissions, if any, of any financial advisor, placement
agent, broker or finder relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold the Buyers harmless
against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
(l) No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
(m) Remedies. The Buyers' remedies provided in this
Agreement shall be cumulative and in addition to all other remedies available to
the Buyers under this Agreement, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy of the Buyers
contained herein shall be deemed a waiver of compliance with the provisions
giving rise to such remedy and nothing herein shall limit the any Buyer's right
to pursue actual damages for any failure by the Company to comply with the terms
of this Agreement.
(n) Changes to the Terms of this Agreement. This
Agreement and any provision hereof may only be amended by an instrument in
writing signed by the Company and the Buyers. The term "Agreement" and all
references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
(o) Enforcement Costs. If: (i) this Agreement is placed
by any Buyer in the hands of an attorney for enforcement or is enforced by any
Buyer through any legal proceeding; or (ii) an attorney is retained to represent
any Buyer in any bankruptcy, reorganization, receivership or other proceedings
affecting creditors' rights and involving a claim under this Agreement; or (iii)
an attorney is retained to represent any Buyer in any other proceedings
whatsoever in connection with this Agreement, then the Company shall pay to such
Buyer, as incurred by such Buyer, all reasonable costs and expenses, including
attorneys' fees, incurred in connection therewith, in addition to all other
amounts due hereunder; provided, that in the case of payments pursuant to clause
(ii) above, the court in which the applicable proceedings are pending shall have
approved such payments. In each instance, the Company shall use its reasonable
best efforts to obtain such approval from such court.
(p) Failure or Indulgence Not Waiver. No failure or delay
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
* * * * *
IN WITNESS WHEREOF, the Buyers and the Company have caused this Stock
Purchase Agreement to be duly executed as of the date first written above.
THE COMPANY:
PALADYNE CORP.
By:/s/ Terrence Leifheit
-------------------------
Name: Terrence Leifheit
Title: President
BUYERS:
/s/ A. Randall Barkowitz
----------------------------
A. RANDALL BARKOWITZ
WAG HOLDINGS, LLC
By:/s/ William A. Goldstein
-------------------------
Name: William A. Goldstein
Title: Manager
/s/ Glen H. Hammer
----------------------------
GLEN H. HAMMER