SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Earliest Event Reported
October 8, 2002
US PATRIOT, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
South Carolina
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(STATE OR OTHER JURISDICTION OF INCORPORATION OF ORGANIZATION)
000-49865 57-1107699
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(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NUMBER)
101 Chares Drive
Bryn Mawr, Pennsylvania 19010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (610) 660-5906
5401 Forest Drive
Columbia, South Carolina 29206
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
______________________________
Exhibit Index appears on page 5 hereof.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On October 2, 2002, pursuant to a Share Exchange Agreement and Plan of
Reorganization (the "Share Exchange Agreement") by and among US Patriot, Inc.
("US Patriot") and Christopher Schwartz ("Schwartz"), an adult individual
resident of the Commonwealth of Pennsylvania, US Patriot acquired from Schwartz
all of the capital stock of Metropolitan Recording, Inc., a Pennsylvania
corporation ("Metropolitan Recording"). Metropolitan Recording owns all of the
membership interests of Ruffnation Films LLC, a Pennsylvania limited liability
company ("Ruffnation"), and all of the membership interests of Snipes
Productions, LLC, a Pennsylvania limited liability company ("Snipes"). In
connection with the share exchange between US Patriot and Schwartz, all of the
issued and outstanding shares of capital stock of Metropolitan Recording were
tendered by Schwartz to US Patriot and US Patriot issued to Schwartz 8,000,000
shares of US Patriot common stock, $.0001 par value per share and 1,000,000
shares of US Patriot Series A Convertible Preferred Stock, $.0001 par value per
share. Each share of Series A Convertible Preferred Stock is convertible into
10 shares of common stock at the option of the holder and is entitled to 10
votes in all matters submitted to a vote of US Patriot shareholders. Following
the closing of the transactions contemplated by the Share Exchange Agreement,
Schwartz was appointed as the President of US Patriot and was appointed as a
member of the Board of Directors of US Patriot. Thereafter the former officers
and directors of US Patriot resigned. Schwartz is currently employed by US
Patriot pursuant to an employment agreement. Schwartz beneficially owns
securities of US Patriot which entitle him to cast approximately 50% of the
votes in all matters submitted to the shareholders of US Patriot for a vote.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Disposition of Assets
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Prior to the closing of the transactions contemplated by the Share Exchange
Agreement, the former officers and directors of US Patriot conveyed all of the
assets and liabilities of US Patriot to a new entity which is unaffiliated with
US Patriot.
Acquisition of Assets
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As a result of the consummation of the transactions contemplated by the
Share Exchange Agreement, US Patriot acquired from Schwartz all of the capital
stock of Metropolitan Recording and all of the membership interests of each of
Ruffnation and Snipes in exchange for 8,000,000 shares of US Patriot common
stock par value $.0001 per share and 1,000,000 shares of US Patriot Series A
Preferred Stock par value $.0001 per share. Accordingly, US Patriot owns the
operations and all of the assets of: (i) Metropolitan Recording, including its
audio recording facility; (ii) Ruffnation, including its digital film and
editing facilities; and (iii) Snipes, which in 2002 produced and released the
first full length film project of Ruffnation which is entitled "Snipes". The
consideration exchanged pursuant to the Share Exchange Agreement was negotiated
between US Patriot and Schwartz. In determining the share exchange
consideration US Patriot evaluated the current and anticipated business plan and
operations of Metropolitan Recording, Ruffnation and Snipes and the business and
management experience and ability of Schwartz.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
It is impracticable at the time of the filing of this Current Report to
provide the historical financial information for Metropolitan Recording,
Ruffnation and Snipes required by Regulation S-X. Accordingly, US Patriot will
file the required historical financial statements under cover of an Amendment to
this Current Report on Form 8-K as soon as practicable, but in any event, not
later than 60 days after the date on which this Current Report must be filed
with the Commission.
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(b) Pro Forma Financial Statements of Business Acquired
It is impracticable at the time of the filing of this Current Report to
provide the pro forma financial information for Metropolitan Recording,
Ruffnation and Snipes required by Regulation S-X. Accordingly, US Patriot will
file the required pro forma financial statements under cover of an Amendment to
this Current Report on Form 8-K as soon as practicable, but in any event, not
later than 60 days after the date on which this Current Report must be filed
with the Commission.
(c) Exhibits.
1.1 Share Exchange Agreement and Plan of Reorganization dated as of October
2, 2002 by and among US Patriot, Inc. and Christopher Schwartz.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
US PATRIOT, INC.
By: /s/ Chris Schwartz
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Name: Chris Schwartz
Title: Chief Executive Officer
Date: October 17, 2002
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EXHIBIT INDEX
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Exhibit No.
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1.1 Share Exchange Agreement and Plan of Reorganization dated as of
October 2, 2002 by and among US Patriot, Inc. and Christopher
Schwartz
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EXHIBIT 1.1
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SHARE EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
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Share Exchange Agreement and Plan of Reorganization dated as of October 2,
2002 (this "AGREEMENT"), by and among US Patriot, Inc., a South Carolina
corporation ("PURCHASER"), and Christopher Schwartz, an individual resident of
the Commonwealth of Pennsylvania ("SCHWARTZ").
BACKGROUND
A. Purchaser and Schwartz have agreed to the acquisition by Purchaser
from Schwartz of the capital stock of Metropolitan Recording Inc., a
Pennsylvania corporation ("METROPOLITAN"), wholly owned by Schwartz, pursuant to
a voluntary share exchange transaction (the "SHARE EXCHANGE") between Purchaser
and Schwartz upon the terms and subject to the conditions set forth herein.
B. Metropolitan owns all of the membership interests of Ruffnation
Films LLC ("RUFFNATION"), a Pennsylvania limited liability company, and all of
the membership interests of Snipes Productions, LLC ("SNIPES"), a Pennsylvania
limited liability company.
C. In furtherance thereof, Schwartz and the Board of Directors of Purchaser
and the Board of Directors of Metropolitan have each approved a voluntary share
exchange transaction in accordance with the applicable provisions of the South
Carolina Business Corporation Act (the "SBCA") and upon the terms and subject to
the conditions set forth herein.
D. For federal income tax purposes, the parties intend that the Share
Exchange shall constitute a tax-free reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"). NOW,
THEREFORE, in consideration of the foregoing premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Purchaser and Schwartz hereby agree as follows:
ARTICLE I
THE SHARE EXCHANGE
Section 1.1 The Share Exchange. As of the Closing (as defined below), the
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parties hereto shall cause the Share Exchange to be consummated by taking all
appropriate actions to ensure that all of the issued and outstanding shares of
capital stock of Metropolitan (the "METROPOLITAN STOCK"), are tendered by
Schwartz to Purchaser in exchange for the issuance to Schwartz of (x) eight
million (8,000,000) newly issued shares of common stock, $.0001 par value per
share, of Purchaser ("PURCHASER COMMON STOCK") and (y) one million (1,000,000)
newly issued shares of Series A Convertible Preferred Stock, $.0001 par value
per share, of Purchaser ("PURCHASER PREFERRED STOCK") having rights and
preferences as set forth in the Certificate of Designations of Rights and
Preferences of Series A Convertible Preferred Stock attached as Exhibit "A"
hereto (the "CERTIFICATE OF DESIGNATIONS"). The Purchaser Common Stock and the
Purchaser Preferred Stock issuable under this Section 1.1(a) is sometimes
collectively referred to herein as the "SHARE EXCHANGE CONSIDERATION."
Section 1.2 Tax Free Reorganization. The parties hereto agree to use their
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best efforts and to cooperate with each other to cause the Share Exchange to be
a tax-free reorganization within the meaning of Section 368 of the Code.
ARTICLE II
THE CLOSING
Section 2.1 Closing. The closing of the transactions contemplated by this
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Agreement (the "CLOSING") shall take place at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers, LLP, 260 S. Broad Street, Philadelphia,
Pennsylvania, at such time as the parties shall agree. The date on which the
Closing actually occurs is referred to herein as the "CLOSING DATE."
Section 2.2 Deliveries by Schwartz.
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(a) At the Closing, Schwartz shall deliver to Purchaser (unless delivered
previously), the following:
(i) stock certificates endorsed in blank representing the Metropolitan Stock;
(ii) the certificate referred to in Section 5.4;
(iii) the opinion of counsel referred to in Section 5.5;
(iv) executed counterparts of any consents referred to in Section 5.7; and
(v) all other previously undelivered documents and instruments required to be
delivered by Schwartz to Purchaser at or prior to the Closing pursuant to
this Agreement or otherwise required in connection herewith.
Section 2.3 Deliveries by Purchaser.
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(a) At the Closing, Purchaser shall deliver to Schwartz (unless delivered
previously) the following:
(i) a certificate or certificates representing the Purchaser Common Stock;
(ii) a certificate or certificates representing the Purchaser Preferred
Stock;
(iii) resolutions of the Board of Directors of Purchaser electing Schwartz
as a director and CEO of Purchaser;
(iv) the certificates referred to in Sections 6.3 and 6.4; and
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(v) all other previously undelivered documents and instruments required to
be delivered by Purchaser to Schwartz at or prior to the Closing pursuant to
this Agreement or otherwise required in connection herewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SCHWARTZ
Schwartz represents and warrants to Purchaser as of the date hereof and as
of the Closing Date (except for representations and warranties that expressly
relate to a different date) as follows:
Section 3.1 Organization, Etc. Metropolitan is a corporation duly
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organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Ruffnation is a limited liability company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Snipes is a limited liability company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Metropolitan, Ruffnation and Snipes each have the
corporate power and authority to conduct its business as it is currently
being conducted and to own and lease the property and assets that it now owns
and leases. Neither Metropolitan, Ruffnation nor Snipes do business as a
foreign corporation in any jurisdiction where the failure to be qualified as a
foreign corporation would have a material adverse effect on their operations,
condition (financial or other), assets, liabilities, earnings or prospects (a
"MATERIAL ADVERSE EFFECT"). The copies of the articles of incorporation and
by-laws of Metropolitan and the certificates of formation of Ruffnation and
Snipes delivered to Purchaser by Schwartz are complete and correct copies of
such instruments as currently in effect. Except as set forth on Schedule 3.1,
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neither Metropolitan, Ruffnation nor Snipes directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest, in any corporation,
partnership, joint venture or other business association, entity or person.
Section 3.2 Authorization. Schwartz has all the power and authority to
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execute, deliver and consummate the transactions contemplated by this Agreement.
Schwartz is an adult individual with full power to own and dispose of his
property and to manage his fiscal affairs. Schwartz is not subject to any legal
disability that would prevent him from performing his obligations under this
Agreement. No order has been entered appointing a receiver for either Schwartz
or his spouse or any of his/their assets owned jointly or otherwise. This
Agreement is a valid and binding obligation of Schwartz, enforceable against him
in accordance with its terms. No other act on the part of Schwartz is necessary
to authorize this Agreement or the transactions contemplated hereby.
Section 3.3 Capitalization. The capitalization of Metropolitan, Ruffnation
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and Snipes as of the date hereof, including the authorized capital stock and the
number of shares issued and outstanding of each class of capital stock, or
membership interests, as applicable, is set forth on Schedule 3.3. Schwartz owns
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all of the issued and outstanding shares of capital stock of Metropolitan and
Metropolitan owns all of the issued and outstanding membership interest of
Ruffnation and Snipes as set forth on Schedule 3.3. Except as described on
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Schedule 3.3, each of Schwartz and Metropolitan has good and marketable title to
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all of the shares of capital stock and membership interests, as applicable, set
forth therein, free and clear of all encumbrances and restrictions, legal or
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equitable, of every kind, except for restrictions on transfer imposed by federal
or state securities laws. Schwartz has full and unrestricted legal right,
power, and authority to sell, assign, and transfer the shares of capital stock
of Metropolitan, without obtaining the consent or approval of any other person,
entity, or governmental authority and the delivery of the shares of capital
stock to Purchaser pursuant to this Agreement will transfer valid title thereto,
free and clear of all encumbrances, claims, and restrictions of every kind,
except for restrictions on transferability imposed by federal and state
securities laws. All of the shares of capital stock of Metropolitan and
membership interests of Ruffnation and Snipes have been duly authorized and
validly issued and are fully paid and non-assessable. There are no outstanding
subscriptions, stock options, warrants or other agreements or commitments
obligating Metropolitan to issue additional shares of its capital stock or
options, warrants or other securities convertible into or exchangeable for
shares of its capital stock, or obligating Ruffnation or Snipes to issue
additional units of their respective membership interests or options, warrants
or other securities convertible into or exchangeable for units of their
membership interests.
Section 3.4 No Violation. Neither the execution or delivery by Schwartz of
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this Agreement or any agreement contemplated hereby, nor the performance by
Schwartz of the transactions contemplated hereby or thereby (i) conflicts with,
or constitutes a breach or default under (A) the articles of incorporation or
by-laws of Metropolitan, (B) the certificate of formation or operating agreement
of Ruffnation, (C) the certificate of formation or operating agreement of
Snipes, (D) any applicable judgment, order, writ, injunction or decree of any
court or (E) any applicable law or any applicable rule or regulation of any
administrative agency or governmental or regulatory authority or (ii) except for
the consents required prior to the consummation of the transactions contemplated
by this Agreement as set forth on Schedule 3.14or except as set forth on
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Schedule 3.4, violates, conflicts with, or constitutes a default (or an event or
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condition that, with notice or lapse of time or both, would constitute a
default) under, or results in the termination of, or accelerates the performance
required by, or causes the acceleration of the maturity of any liability or
obligation pursuant to, or results in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the property or assets
of Metropolitan, Ruffnation or Snipes under any note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Metropolitan,
Ruffnation or Snipes is a party or by which Metropolitan, Ruffnation or Snipes
may be bound or affected or to which any of the property or assets of
Metropolitan, Ruffnation or Snipes may be subject.
Section 3.5 Financial Statements. The balance sheets of Metropolitan,
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Ruffnation and Snipes at December 31, 2001 and March 31, 2002 (the balance sheet
of each of Metropolitan, Ruffnation and Snipes as of March 31, 2002, the
"Balance Sheet" of each company) and the statements of income, changes in
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stockholders' equity and cash flows for the period from January 1, 1999 through
December 31, 2001 and the three month period ended March 31, 2002 heretofore
provided to Purchaser are true, complete and accurate and, with respect to such
balance sheets and the notes thereto, fairly present the assets, liabilities and
financial condition of each of Metropolitan, Ruffnation and Snipes as of the
respective dates thereof and, with respect to such statements of income, changes
in stockholders' equity and cash flows and the notes thereto, fairly present the
results of operations of Metropolitan, Ruffnation and Snipes for the periods
referred to therein, all in accordance with generally accepted accounting
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principles consistently applied throughout the periods involved, except as
otherwise specifically disclosed therein.
Section 3.6 No Undisclosed or Contingent Liabilities. Neither Metropolitan,
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Ruffnation nor Snipes has any liabilities or obligations of any nature (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
that are not fully reflected on the Balance Sheet, except for liabilities and
obligations incurred in the ordinary course of business since the date thereof,
and there is no basis for the assertion against either Metropolitan, Ruffnation
or Snipes of any liability or obligation of any nature whatsoever not fully
reflected on the Balance Sheet.
Section 3.7 Absence of Certain Changes. Except as set forth on Schedule 3.7
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and except for the transfer of the ownership interests of Ruffnation and Snipes
to Metropolitan, since the date of the Balance Sheet, each of Metropolitan,
Ruffnation and Snipes has conducted its business only in the ordinary course and
consistent with past practice, and has not:
(a) Suffered any material adverse change in its operations, condition
(financial or otherwise), assets, liabilities, earnings, working capital or
prospects;
(b) Incurred any liabilities or obligations (absolute, accrued, contingent
or otherwise) except immaterial items incurred in the ordinary course of
business and consistent with past practice (including obligations or liabilities
arising from one transaction or a series of related or similar
transactions, and all periodic installments or payments under any lease or other
agreement providing for periodic installments or payments, as a single
obligation or liability), or increased, or experienced any change in any
assumptions underlying or methods of calculating, any bad debt, contingency or
other reserves;
(c) Paid, discharged or satisfied any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with past
practice of liabilities and obligations reflected or reserved against in the
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Balance Sheet;
(d) Permitted or allowed any of its assets to be subjected to any mortgage,
pledge, lien, security interest encumbrance, restriction or charge of any kind;
(e) Written down the value of any inventory or written off as uncollectible
any notes or accounts receivable;
(f) Canceled any debts or waived any claims or rights of substantial value;
(g) Sold, transferred or otherwise disposed of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(h) Disposed of or permitted to lapse any rights to the use of any patent,
trademark, trade name, service mark or copyright, or disposed of or disclosed to
any person any trade secret, formula, process or know-how not theretofore a
matter of public knowledge;
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(i) Granted any general increase in the compensation of employees (including
any such increase pursuant to any bonus, pension, profit sharing or other
plan or commitment) or any increase in the compensation payable or to become
payable to any employee, and no such increase is customary on a periodic basis
or required by agreement or understanding;
(j) Made any capital expenditure or commitment for additions to its
property, equipment or intangible capital assets;
(k) Made any change in any method of accounting or accounting practice or
failed to maintain its books, accounts and records in the ordinary course of
business and consistent with past practice;
(l) Failed to maintain any properties or equipment in good operating
condition and repair;
(m) Failed to maintain in full force and effect all existing policies of
insurance at least at such levels as were in effect prior to such date or
canceled any such insurance or taken or failed to take any action that would
enable the insurers under such policies to avoid liability for claims arising
out of occurrences prior to the Closing;
(n) Entered into any transaction or made or entered into any material
contract or commitment, or terminated or amended any material contract or
commitment, except in the ordinary course of business and consistent with past
practice, and not in excess of current requirements;
(o) Taken any action that could have a material adverse effect on its
business organization or its current relationships with its employees,
suppliers, distributors, advertisers, subscribers or others having business
relationships with it;
(p) Declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of its capital stock or other
securities; or
(q) Agreed in writing or otherwise to take any action with respect to any of
the matters described in this Section 3.7.
Section 3.8 Litigation, Orders. Except as set forth on Schedule 3.8 there
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are no claims, actions, suits, proceedings, investigations or inquiries pending
before any court, arbitrator or governmental or regulatory official or office,
or threatened against or affecting either Metropolitan, Ruffnation or Snipes or
questioning the validity of this Agreement, the transactions contemplated hereby
or any action taken or to be taken by Schwartz pursuant to this Agreement
or pursuant to any other agreement contemplated hereby, at law or in equity,
before or by any federal, state, local or foreign governmental authority; nor is
there any valid basis for any such claim, action, suit, proceeding, inquiry or
investigation. Neither Metropolitan, Ruffnation nor Snipes is subject to any
judgment, order or decree entered in any lawsuit or proceeding that has had or
may have a material adverse effect on Metropolitan's, Ruffnation's or Snipes'
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ability to acquire any property for the use or benefit of Metropolitan,
Ruffnation or Snipes or to conduct their respective businesses in any area.
Section 3.9 Title to Properties; Encumbrances. Except as set forth on
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Schedule 3.9, neither Metropolitan, Ruffnation nor Snipes owns or leases any
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real property. Except as set forth on Schedule 3.9, each of Metropolitan,
Ruffnation and Snipes has good, marketable and defensible title to all of its
properties and assets, including any vehicles, free and clear of all liens,
charges and encumbrances, except liens for taxes not yet due and payable and
such liens or other imperfections of title, if any, that do not materially
detract from the value of or interfere with the present use of the property
affected thereby or that would not and are not reasonably likely to have a
Material Adverse Effect; and all leases pursuant to which each of Metropolitan,
Ruffnation or Snipes leases other real or personal property, including any
vehicles, are in good standing, valid and effective in accordance with their
respective terms, and there is not under any such lease any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default).
Section 3.10 Equipment. The equipment of each of Metropolitan, Ruffnation
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and Snipes has no known material defects and is in good operating condition and
repair (ordinary wear and tear excepted) and is adequate for its current uses.
None of such equipment is in need of maintenance or repairs except for ordinary
routine maintenance and repairs that are not material in nature or cost.
Section 3.11 Compliance with Law. Each of Metropolitan, Ruffnation and
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Snipes is currently in compliance in all material respects with all applicable
laws (whether statutory or otherwise), rules, regulations, orders, ordinances,
judgments, decrees, writs and injunctions of all federal, state, local or
foreign governmental authorities (collectively, "LAWS"), including all Laws
relating to the safe conduct of their respective business, environmental
protection and conservation, antitrust, taxes, consumer protection, currency
exchange, equal opportunity, health, sanitation, fire, zoning, building,
occupational safety, pension, securities and trademark and copyright; and
neither Metropolitan, Ruffnation nor Snipes has received notification in the
last three years of any asserted present or past failure to so comply. Neither
Metropolitan, Ruffnation nor Snipes is required to obtain any permits, licenses
or other authorizations under the Laws for either of them to conduct their
respective business.
Section 3.12 Contracts and Commitments
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(a) Schedule 3.12(a)sets forth complete and accurate lists of the following:
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(i) all real property and the location thereof and the description of any
structures located thereon that are owned, leased or operated by either
Metropolitan, Ruffnation or Snipes together with the annual rental and unexpired
lease term and identity of the owner of any real property leased;
(ii) all employment, consulting or agency agreements to which either
Metropolitan, Ruffnation or Snipes is a party or is otherwise bound, other than
oral employment agreements relating to at-will employees which are terminable on
notice without payment of severance or other remuneration based on separation;
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(iii) all contracts or agreements, whether oral or written, which either
Metropolitan, Ruffnation or Snipes, or any of their affiliates listed on
Schedule 3.1, has entered into with any recording artists, musicians, engineers,
writers, publishers, producers, directors, actors, athletes, performers,
manufacturers, distributors or other third parties;
(iv) except for standard vendor invoices for which payment is due at least
thirty (30) days after the invoice date, each evidence of indebtedness, note,
advance, instrument or agreement defining the terms on which any debt of, or
guarantees by or letter of credit entered into or issued by either Metropolitan,
Ruffnation or Snipes and all security and other agreements related thereto;
(v) all contracts to which either Metropolitan, Ruffnation or Snipes is
party not denominated in U.S. dollars;
(vi) all contracts or agreements containing covenants that in any way
purport to restrict the business activity of or limit the freedom of either
Metropolitan, Ruffnation or Snipes to engage in any line of business or to
compete with any Person;
(vii) all contracts providing for payments to or by any individual,
corporation, limited liability company, limited liability partnership,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Securities Exchange Act of 1934, as amended)
(collectively, a "PERSON") based on sales, purchases, or profits, other than
direct payments for goods or involving a sharing of profits, losses, costs or
liabilities by either Metropolitan, Ruffnation or Snipes with any other Person;
(viii) all powers of attorney of either Metropolitan, Ruffnation or Snipes
that are currently effective and outstanding;
(ix) all contracts entered into other than in the ordinary course of
business consistent with past practices;
(x) all contracts that contain or provide for an express undertaking by
either Metropolitan, Ruffnation or Snipes to be responsible for consequential
damages;
(xi) all outstanding loans or advances (excluding advances for ordinary and
necessary business expenses) by either Metropolitan, Ruffnation or Snipes to any
of their respective officers, directors, stockholder or members or any member of
the immediate families of such officers, directors, stockholders or members of
either Metropolitan, Ruffnation or Snipes;
(xii) except for standard purchase orders for which payment or delivery is
due within 30 days, all contracts, commitments or agreements to which either
Metropolitan, Ruffnation or Snipes is a party or is otherwise bound and which
involve future payments, performance of services or delivery of goods to or by
either Metropolitan, Ruffnation or Snipes; and
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(xiii) any other contract agreement or commitment that is material to the
business of either Metropolitan, Ruffnation or Snipes.
(b) Each of Metropolitan, Ruffnation and Snipes and, to the best of
Schwartz's knowledge, all other parties to the contracts, commitments,
instruments and agreements required to be listed on Schedule 3.12(a)have
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complied with the provisions thereof in all material respects, no party is in
material default thereunder, and no event has occurred which, but for passage of
time or the giving of notice or both, would constitute a material default
thereunder. Except as set forth on Schedule 3.14, no contract, commitment,
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instrument or agreement listed on Schedule 3.12(a)requires the consent of any
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party thereto in order to consummate the transaction contemplated hereby, except
for such consents already obtained.
(c) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to either
Metropolitan, Ruffnation or Snipes under current or completed contracts with any
Person having the contractual or statutory right to demand or require such
renegotiation of no such Person has made written demand for such renegotiation.
(d) (i) Except as set forth on Schedule 3.12(d) neither Metropolitan,
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Ruffnation nor Snipes is a party to or bound by any contracts or commitments
that are not cancelable by Metropolitan, Ruffnation or Snipes on notice of not
longer than 30 days without payment of any penalty or other fee;
(ii) Subject to obtaining any requisite consents of third
parties, all of which have been identified on Schedule 3.14, the enforceability
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of the contracts and commitments referred to in Section 3.12(a) will not be
affected in any manner by execution and delivery of this Agreement or the
consummation of the transaction contemplated hereby or by the other agreements
referred to herein:
(iii) Except as set forth on Schedule 3.12(d) neither
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Metropolitan, Ruffnation nor Snipes is a party to or bound by any contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representative, distributors or dealers that are not cancelable by it on
notice of not longer than 30 days and without liability, penalty or premium, or
any agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings; and
(iv) Except set forth on Schedule 3.12(d) neither Metropolitan,
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Ruffnation nor Snipes is a party to or bound by any employment agreement or any
other agreement that contains any severance or termination pay, liabilities or
obligations.
Section 3.13 Taxes.
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(a) Each of Metropolitan, Ruffnation and Snipes has timely filed (including
any applicable extension periods) all tax reports, returns and forms required to
be filed by applicable federal, state, local or foreign tax laws, and all
such reports, returns and forms are correct and complete; copies of all tax
returns for each of Metropolitan, Ruffnation and Snipes in respect of all years
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not barred by the statute of limitations have been delivered by Schwartz to
Purchaser. None of Metropolitan's, Ruffnation's or Snipes' tax returns have
been examined or audited by the Internal Revenue Service or any other state or
local taxing authority.
(b) Each of Metropolitan, Ruffnation and Snipes has timely paid all federal,
state, local and foreign income, payroll, withholding, excise, sales, use,
real and personal property, use and occupancy, business and occupancy, business
and occupation, mercantile, real estate, capital stock and franchise or other
tax due or claimed to be due from either Metropolitan, Ruffnation or Snipes by
the Internal Revenue Service or any Authority. No tax liens have been filed on
any property or assets of either Metropolitan, Ruffnation or Snipes and no
claims are being asserted with respect to any taxes.
(c) Each of Metropolitan, Ruffnation and Snipes has complied with all
applicable laws, rules and regulations relating to the payment and withholding
of taxes and has withheld all amounts required by law to be withheld from the
wages or salaries of its employees, and is not liable for any taxes or other
charges for failure to comply with such laws, rules and regulations.
Section 3.14 Consents and Approvals. Except as set forth on Schedule 3.14,
---------------------- -------------
neither Schwartz, Metropolitan, Ruffnation nor Snipes is required to obtain,
transfer or cause to be transferred any consent, approval, license, permit or
authorization of, or make any declaration, filing or registration with, any
third party or any governmental or regulatory authority in connection with (a)
the execution and delivery of this Agreement, (b) the execution and delivery of
any agreement contemplated hereby, (c) the consummation of the transactions
contemplated hereby or thereby or (d) the ownership and operation by Purchaser
of either Metropolitan, Ruffnation or Snipes.
Section 3.15 Insurance. All policies of fire, medical, life, liability,
---------
product liability, workmen's compensation, health and other forms of insurance
currently in effect with respect to either Metropolitan's, Ruffnation's or
Snipes' business are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid,
and no notice of cancellation, termination or non-renewal has been received with
respect to any such policy. Such policies are sufficient for compliance with
all requirements of law and of all agreements to which either Metropolitan,
Ruffnation or Snipes is a party; are valid, outstanding and enforceable
policies; provide adequate insurance coverage for each of Metropolitan's,
Ruffnation's and Snipes' business; and the coverage provided thereby, with
respect to any act or event occurring on or prior to the Closing Date, will not
in any way be affected by or terminate or lapse by reason of the transactions
contemplated by this Agreement. No risks with respect to Metropolitan's,
Ruffnation's or Snipes' business are or have been designated by either
Metropolitan, Ruffnation or Snipes as being self-insured. Neither Metropolitan,
Ruffnation nor Snipes has been refused any insurance nor has its coverage been
limited by any insurance carrier to which it has applied for such insurance or
with which it has carried such insurance in the last three years.
Section 3.16 Customers and Suppliers. No material adverse change has
-------------------------
occurred in the business relationship of either Metropolitan, Ruffnation or
10
Snipes with any of their respective significant customers or suppliers and, to
Schwartz's knowledge, no facts exist and no events have occurred that could
reasonably be expected to result in a material adverse change to any such
relationship.
Section 3.17 Accounts Receivable. All accounts receivable of each of
--------------------
Metropolitan, Ruffnation and Snipes, whether reflected on the Balance Sheet or
subsequently created through the Closing Date, represent sales actually made or
services actually performed in the ordinary course of business and are current
and either have been collected in full or will be collectable in full, without
any setoff.
Section 3.18 Certain Interests. Schwartz does not have (a) any direct or
------------------
indirect interest (other than the ownership of less than one percent of the
outstanding securities of a publicly held company) in any corporation or
business that is involved in or competes with either Metropolitan, Ruffnation or
Snipes or (b) any direct or indirect interest in any property or assets used by,
or relating to, either Metropolitan or Ruffnation or their respective business,
except through the ownership of Metropolitan's capital stock, Ruffnation's
membership interests or Snipes' membership interests.
Section 3.19 Intellectual Property.
----------------------
(a) Except as set forth on Schedule 3.19 each of Metropolitan, Ruffnation
-------------
and Snipes owns, free and clear of all liens, mortgages, security interests,
charges and encumbrances and has good and marketable title to, or holds adequate
licenses or otherwise possesses all rights necessary to use, all patents,
trademarks, service marks, trade names, copyrights (including any applications
for any of the foregoing), inventions, discoveries, processes, know-how, trade
secrets, scientific, technical, engineering and marketing data, object and
source codes, and techniques used or proposed to be used in, or necessary for,
the conduct of their respective business as now conducted or proposed to be
conducted (collectively, the "INTELLECTUAL PROPERTY"). Schedule 3.19 includes a
-------------
list of all Intellectual Property owned or held by each of Metropolitan,
Ruffnation and Snipes.
(b) All patents, trademarks and copyrights constituting a part of the
Intellectual Property are valid, subsisting and enforceable, and are duly
recorded in the name of either Metropolitan, Ruffnation or Snipes or one of
their subsidiaries listed on Schedule 3.1.
-------------
(c) Each of Metropolitan, Ruffnation and Snipes has the sole and exclusive
right to use all of its respective Intellectual Property in all jurisdictions in
which it conducts or proposes to be conducting its business, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights.
(d) No claims have been asserted by any person challenging or questioning
the ownership, validity, enforceability or use by either Metropolitan,
Ruffnation or Snipes of any of the Intellectual Property and, to the knowledge
of Schwartz, there is no valid basis for any such claim, and the use or other
exploitation of the Intellectual Property by either Metropolitan, Ruffnation or
Snipes does not infringe on or dilute the rights of any person; and, to the
11
knowledge of Schwartz, no other person is infringing on the rights of either
Metropolitan, Ruffnation or Snipes with respect to any of the Intellectual
Property.
(e) Each of Metropolitan, Ruffnation and Snipes has taken reasonable
security measures to protect the secrecy, confidentiality and value of its trade
secrets and other confidential information.
(f) Schwartz has delivered to Purchaser all documents with respect to any
invention, process, design, computer program or other know-how or trade secret
included in the Intellectual Property, which documents are accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such invention, process, design, computer program or other know-how
or trade secret and to facilitate its full and proper use without reliance on
the special knowledge or memory of any person.
Section 3.20 Employee Benefit Plans.
------------------------
(a) Other than a plan pursuant to Section 401(k) of the Code and health and
life insurance policies (the "EMPLOYEE PLANS"), neither Metropolitan, Ruffnation
nor Snipes maintains any bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance or termination pay,
medical or life insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, agreements or arrangements and other similar fringe
or employee benefit plans, programs or arrangements, written or otherwise, for
the benefit of, or relating to, any current or former employee of either
Metropolitan, Ruffnation or Snipes. Neither Metropolitan, Ruffnation or Snipes
is required to make any contributions under such 401(k) plan, a true and correct
copy of which has been delivered to Purchaser.
(b) None of the Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person, (i) there has been no transaction
or failure to act with respect to any Employee Plan that could result in any
material liability of either Metropolitan, Ruffnation or Snipes; and (ii) all
Employee Plans are in compliance in all material respects with the requirements
prescribed by all statutes, orders or governmental rules and regulations
currently in effect with respect thereto, and each of Metropolitan, Ruffnation
and Snipes has performed all material obligations required to be performed by it
under, is not in any material respect in default under or in violation of, and
has no knowledge of any default or violation by any other party to, any of the
Employee Plans except as to which such non-compliance, non-performance or
default would not result and is not reasonably likely to result in a Material
Adverse Effect.
(c) There are no actions, suits or claims pending or threatened by former or
present employees of either Metropolitan, Ruffnation or Snipes (or their
beneficiaries) with respect to Employee Plans or the assets or fiduciaries
thereof (other than routine claims for benefits).
12
Section 3.21 Labor Matters.
--------------
(a) Each of Metropolitan, Ruffnation and Snipes has and is currently
complying in all material respects with all applicable laws relating to
employment and employment practices, terms and conditions of employment, and
wages and hours, and is not engaged in any unfair labor practice or unlawful
employment practice;
(b) There is no unfair labor practice charge or complaint against either
Metropolitan, Ruffnation or Snipes pending or threatened before the National
Labor Relations Board nor, to the knowledge of Schwartz, is there any basis for
any such charge or complaint;
(c) There is no labor strike, slowdown or work stoppage pending or
threatened against either Metropolitan, Ruffnation or Snipes;
(d) Neither Metropolitan, Ruffnation nor Snipes has experienced any
significant work stoppages or been a party to any proceedings before the
National Labor Relations Board involving any significant issues or been a party
to any arbitration proceeding arising out of or under collective bargaining
agreements; and
(e) There is no charge or complaint pending or threatened against either
Metropolitan, Ruffnation or Snipes before the Equal Employment Opportunity
Commission or the Department of Labor or any state or local agency of similar
jurisdiction. No employees of either Metropolitan, Ruffnation or Snipes are
represented by any labor union and there is no collective bargaining agreement
in effect with respect to such employees. To the knowledge of Schwartz, no
labor union has engaged in any organizing activities with respect to either
Metropolitan's, Ruffnation's or Snipes' employees.
Section 3.22 Personnel. Schedule 3.22 contains an accurate and complete
--------- --------------
list of (a) the names, titles and current salaries of all officers of each of
Metropolitan, Ruffnation and Snipes and (b) the wage rates for non-salaried and
non-executive salaried employees of each of Metropolitan, Ruffnation and Snipes
by classification. Neither Metropolitan, Ruffnation nor Snipes is in default
with respect to any obligation to any of its employees.
Section 3.23 Bank Accounts. Schedule 3.23 sets forth the names and
-------------- --------------
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which either Metropolitan, Ruffnation or Snipes
has accounts or safe deposit boxes and the names of all persons authorized to
draw thereon or to have access thereto.
Section 3.24 Environmental.
-------------
(a) Neither Metropolitan, Ruffnation nor Snipes is required to obtain any
permits, licenses or other authorizations under federal, state and local laws,
rules and regulations relating to pollution or protection of the environment
(collectively, the "ENVIRONMENTAL LAWS").
(b) Each of Metropolitan, Ruffnation and Snipes is in full compliance with
all Environmental Laws and has not received any notice alleging non-compliance.
There is no civil, criminal or administrative action, suit, demand, claim,
13
investigation, proceeding, notice or demand letter pending or threatened against
each of Metropolitan, Ruffnation and Snipes relating in any way to any
Environmental Laws.
(c) There are no past or present events or conditions relating to either
Metropolitan, Ruffnation or Snipes that may interfere with or prevent compliance
with any Environmental Laws or that may give rise to any common law or other
legal liability thereunder.
Section 3.25 Disclosure. No representation or warranty by Schwartz
----------
contained in this Agreement, and no statement contained in any document, list,
certificate or other writing furnished or to be furnished by or on behalf of
either Metropolitan, Ruffnation, Snipes or Schwartz to Purchaser or any of its
representatives in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Schwartz as of the date hereof and as
of the Closing Date (except for representations and warranties that expressly
relate to a different date) as follows:
Section 4.1 Organization, Etc. Purchaser is a corporation duly organized,
------------------
validly existing and in good standing under the laws of the State of South
Carolina. A copy of the articles of incorporation of Purchaser has been
delivered to Schwartz, and such copy is complete and correct and in full force
and effect on the date of this Agreement.
Section 4.2 Authorization. Purchaser has all requisite power and authority
-------------
to execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement. Purchaser has taken all action required by law
and its articles of incorporation or otherwise to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. No other act or proceeding on the part of Purchaser is necessary
to authorize this Agreement or the transactions contemplated hereby. This
Agreement is a valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its terms.
Section 4.3 No Violation. Neither the execution or delivery of this
-------------
Agreement by Purchaser, nor the performance by Purchaser of the transactions
contemplated hereby (i) conflicts with, or constitutes a breach or default under
(A) the articles of incorporation of Purchaser, (B) any applicable law, or any
applicable rule, judgment, order, writ, injunction or decree of any court or (C)
any applicable rule or regulation of any administrative agency or other
governmental or regulatory authority or (ii) violates, conflicts with, or
constitutes a default (or an event or condition that, with notice or lapse of
time or both, would constitute a default) under, or results in the termination
of, or accelerates the performance required by, or causes the acceleration of
the maturity of any liability or obligation pursuant to, or results in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the property or assets of Purchaser under any note,
bond, mortgage, indenture, deed of trust, license, lease, contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which Purchaser is a party or by which Purchaser may be bound or affected or to
which any of the property or assets of Purchaser may be subject.
14
Section 4.4 Validity of Stock. The shares of Purchaser Common Stock and
-------------------
Purchaser Preferred Stock to be issued as the Share Exchange Consideration
pursuant to this Agreement shall be duly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, and will not be subject to preemptive rights.
Section 4.5 SEC Documents. Purchaser has filed all documents with the
--------------
Securities and Exchange Commission required to be filed by Purchaser under the
Securities Act of 1933, as amended ("SECURITIES ACT") or the Exchange Act of
1934, as amended (the "EXCHANGE ACT") (the "PURCHASER SEC DOCUMENTS"). As of
their respective dates, the Purchaser SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and as of their respective dates and as of the dates as amended or
supplemented prior to the date hereof, none of the Purchaser SEC Documents
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.
Section 4.6 No Undisclosed or Contingent Liabilities. Except as listed on
-----------------------------------------
Schedule 4.6, Purchaser does not have any liabilities or obligations of any
nature (whether absolute, accrued, contingent or otherwise and whether due or to
become due) that are not fully reflected on the Purchasers balance sheet dated
July 31, 2002, except for liabilities and obligations incurred in the ordinary
course of business since the date thereof, and there is no basis for the
assertion against Purchaser of any liability or obligation of any nature
whatsoever not fully reflected on such balance sheet.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
satisfaction, at or before the Closing, of each of the following conditions
(provided that such conditions are solely for the benefit of and may be waived
by, Purchaser):
Section 5.1 Representations and Warranties. The representations and
--------------------------------
warranties of Schwartz contained herein, and the statements contained in any
Schedule , instrument, list, certificate or writing delivered by Schwartz
pursuant to this Agreement, shall be true, complete and accurate as of the date
when made and as of the Closing Date as though such representations and
warranties were made at and as of such dates, unless otherwise expressly
provided in this Agreement.
Section 5.2 Performance. Schwartz shall have performed and complied in all
-----------
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by Schwartz at or prior to the
Closing.
15
Section 5.3 No Proceeding or Litigation. There shall not be threatened,
------------------------------
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or govern-mental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment, decree or injunction that restrains or prohibits the consummation of
any of the transactions contemplated hereby or could have a Material Adverse
Effect.
Section 5.4 Seller's Certificate. Schwartz shall have delivered to
---------------------
Purchaser a certificate, dated as of the Closing Date, certifying (i) the
fulfillment of the conditions specified in this Article V, (ii) Metropolitan's
articles of incorporation and by-laws attached thereto, (iii) Ruffnation's
certificate of organization and evidence of Metropolitan's ownership of all of
the membership interests of Ruffnation (iv) Snipes' certificate of organization
and evidence of Metropolitan's ownership of all of the membership interests of
Snipes.
Section 5.5 Opinion of Counsel to Schwartz. Purchaser shall have received
-------------------------------
an opinion of Erskine, Wolfson, Gibbon and Fisher, counsel to Schwartz, dated as
of the Closing Date, in form reasonably satisfactory to Purchaser.
Section 5.6 Documents. All other documents to be delivered by Schwartz to
---------
Purchaser at the Closing shall be satisfactory in form and substance to
Purchaser.
Section 5.7 Consents and Approvals. All licenses, permits, consents,
------------------------
approvals and authorizations of all third parties and governmental bodies and
agencies shall have been obtained that are necessary, in the opinion of counsel
to Purchaser, in connection with (a) the execution and delivery by Schwartz of
this Agreement, (b) the consummation by Schwartz of the transactions
contemplated hereby or (c) the ownership and operation by Purchaser of each of
Metropolitan, Ruffnation and Snipes and copies of all such licenses, permits,
consents, approvals and authorizations shall have been delivered to Purchaser.
Section 5.8 Employment Agreement. Schwartz shall have entered into an
---------------------
employment agreement with Purchaser with material terms that are equivalent to
the material terms set forth in the draft agreement attached as Exhibit "B"
hereto.
Section 5.9 Restrictive Covenants. Schwartz shall not be subject to any
----------------------
restrictive covenants prohibiting his participation, employment with or
ownership of any company that participates in the recorded music business or any
other industry in which either Metropolitan, Ruffnation, Snipes or the Purchaser
participates or plans to participate in subsequent to the Share Exchange.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SCHWARTZ
The obligations of Schwartz under this Agreement are subject to the
satisfaction, at or before the Closing, of each of the following conditions
(provided that such conditions are solely for the benefit of, and may be waived
by, Schwartz):
Section 6.1 Representations and Warranties. The representations and
--------------------------------
warranties of Purchaser contained herein shall be true, complete and accurate as
16
of the date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such date, except as
otherwise expressly provided in this Agreement.
Section 6.2 Performance. Purchaser shall have performed and complied in all
-----------
material respects with all agreements, obligations and conditions required
by this Agreement to be so performed or complied with by it at or prior to the
Closing.
Section 6.3 Officer's Certificate. Purchaser shall have delivered to
----------------------
Schwartz a certificate, dated as of the Closing Date, executed by an authorized
officer of Purchaser, certifying to the fulfillment of the conditions specified
in this Article VI.
Section 6.4 Secretary's Certificate. Purchaser shall deliver to Schwartz a
-----------------------
certificate, dated as of the Closing Date, executed by the secretary of
Purchaser certifying as to Purchaser's articles of incorporation, by-laws and
resolutions adopted by Purchaser's board of directors attached thereto.
Section 6.5 No Injunction. On the Closing Date, there shall be no effective
-------------
injunction, writ, preliminary restraining order or other order issued by a court
of competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated hereby.
ARTICLE VII
CONDUCT OF METROPOLITAN, RUFFNATION AND SNIPES BUSINESS
Section 7.1 Conduct of Businesses Prior to the Closing Date. During the
--------------------------------------------------
period from the date of this Agreement to the Closing Date, except as expressly
contemplated or permitted by this Agreement (including the Schedules), each of
Metropolitan, Ruffnation and Snipes shall (a) conduct its business in the
ordinary course, (b) use best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its key officers and key employees and (c) take no action
which would adversely affect or delay the ability of either Schwartz or
Purchaser to obtain any necessary approvals of any third party required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement or to consummate the transactions contemplated hereby or
thereby.
Section 7.2 Forbearances. During the period from the date of this Agreement
------------
to the Closing Date, except as expressly contemplated or permitted by this
Agreement, neither Metropolitan, Ruffnation nor Snipes shall, without the prior
written consent of Purchaser:
(a) other than in the ordinary course of business, incur any indebtedness
for borrowed money or any indebtedness that constitutes the deferred purchase
price of any property or assets, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance;
(b) adjust, split, combine or reclassify any capital stock;
(c) make, declare or pay any dividend (whether in cash or property), or make
any other distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
17
obligations convertible (whether currently convertible or convertible only after
the passage of time or the occurrence of certain events) into or exchangeable
for any shares of its capital stock;
(d) grant any stock appreciation rights or grant any individual, corporation
or other entity any right to acquire any shares of its capital stock;
(e) issue any additional shares of capital stock;
(f) sell, transfer, mortgage, encumber or otherwise dispose of any of its
material properties or assets (including, without limitation, cash) to any
individual, corporation or other entity, or cancel, release or assign any
indebtedness to any such person or any claims held by any such person, except in
the ordinary course of business or pursuant to contracts or agreements in
force at the date of this Agreement;
(g) except pursuant to contracts or agreements in force at the date of or
permitted by this Agreement, make any investment in, either by purchase of stock
or securities, contributions to capital, property transfers, or purchase of any
property or assets, any other individual, corporation or other entity;
(h) except for transactions in the ordinary course of business, terminate,
or waive any material provision of, any contract, or make any change in any
instrument or agreement governing the terms of any of its securities, or
material lease or contract, other than normal renewals of contracts and leases
without material adverse changes of terms;
(i) increase in any manner the compensation or fringe benefits of any of its
employees or pay any pension or retirement allowance not required by any
existing plan or agreement to any such employees or become a party to, amend or
commit itself to any pension, retirement, profit-sharing or welfare benefit plan
or agreement or employment agreement with or for the benefit of any employee
other than in the ordinary course of business, or accelerate the vesting of, or
the lapsing of restrictions with respect to, any stock options or other
stock-based compensation;
(j) solicit or encourage from any third party or enter into any
negotiations, discussions or agreement in respect of, or authorize any
individual, corporation or other entity to solicit or encourage from any third
party or enter into any negotiations, discussions or agreement in respect of, or
provide or cause to be provided any confidential information in connection with,
any inquiries or proposals relating to the conveyance, sale, lease, transfer or
other disposition of all or a substantial portion of its business, property or
assets, or the acquisition of its capital stock or securities convertible into
capital stock, or the share exchange, merger or consolidation, whether in one
transaction or a series of transactions, of it with any corporation or other
entity, other than as provided by this Agreement (and each party shall promptly
notify the other of all of the relevant details relating to all inquiries and
proposals which it may receive relating to any of these matters);
(k) settle any material claim, action or proceeding involving money damages,
except in the ordinary course of business;
18
(l) make any material capital expenditures, make any material changes in its
current method of conducting business, or liquidate, dissolve or suffer any
liquidation or dissolution;
(m) make any material payment of principal of any debt, with a maturity of
more than one year, for borrowed money or for the deferred purchase price of
property or services except at the stated maturity of the debt or as required by
mandatory prepayment provisions relating thereto (subject to any
subordination provisions applicable thereto);
(n) enter into any material agreement or become liable under any material
agreement for the lease, hire or use of any real or personal property, or enter
into any material sale/leaseback arrangement with respect to any real or
personal property which now owned or hereafter acquired;
(o) incur or make any optional prepayment of, or purchase, redeem or
otherwise acquire, or amend any provision pertaining to the subordination, or
the terms of payment of, any subordinated debt;
(p) create, incur, assume or suffer to exist any lien or encumbrance of any
kind upon any of its properties, assets, income or profits, whether borrowed or
hereafter acquired;
(q) amend its articles of incorporation or its by-laws or certificate of
organization or operating agreement, as applicable;
(r) take any action that is intended or expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Closing Date, or in any
of the conditions to the Share Exchange not being satisfied or in a violation of
any provision of this Agreement, except, in every case, as may be required
by applicable law;
(s) implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by general accepted accounting
principles or regulatory guidelines; or
(t) agree to take, make any commitment to take, or adopt any resolutions of
its board of directors in support of, any of the actions prohibited by this
Section 7.2.
ARTICLE VIII
ADDITIONAL COVENANTS
Section 8.1 Repayment of Existing Indebtedness. Metropolitan is presently
-----------------------------------
indebted to Founders Bank in the amount of approximately $150,000 as evidenced
by a promissory note dated August 21, 2001 (the "FOUNDERS LOAN"); Ruffnation is
indebted to Schwartz in the amount of approximately $1,100,000 as evidenced by a
promissory note dated May 1, 2002 (the "SCHWARTZ LOAN"); and Snipes is
indebted to various other lenders in the amount of approximately $435,000,
19
$400,000 of which is evidenced by a promissory note dated June 27, 2002 (the
"SNIPES LOANS"). The Purchaser and Schwartz each hereby agree that if any sales
of the Purchaser's equity or debt securities are consummated subsequent to the
Closing Date the proceeds thereof will be used to repay the indebtedness
described above as follows:
(a) First, up to one-hundred (100%) of such proceeds, in the discretion of
the CEO of the Purchaser, will be used to repay the Founders Loan;
(b) Second, up to fifty percent (50%) of such proceeds, in the discretion of
the CEO of the Purchaser, will be used to repay the Schwartz Loan; and
(c) Third, subsequent to repayment in full of the Schwartz Loan, fifty
percent (50%) of such proceeds will be used to repay the Snipes Loans.
Section 8.2 Issued and Outstanding Common Stock. As of the Closing Date,
-------------------------------------
Purchaser will have no more than eighteen million (18,000,000) shares of its
common stock issued and outstanding on a fully diluted basis (excluding the
Purchaser Common Stock).
Section 8.3 Consulting Agreement. Purchaser shall enter into a consulting
---------------------
agreement with HMA Associates, Inc. effective as of the Closing Date, pursuant
to which HMA Associates, Inc. will continue to provide consulting services to
Purchaser in exchange for a consulting fee of $180,000, payable in increments of
five thousand dollars ($5,000) per month over a period of thirty-six (36)
months from the Closing Date.
Section 8.4 Further Action. Upon the terms and subject to the conditions
---------------
hereof, each of the parties hereto shall in good faith use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement, to make in a timely manner all necessary filings, and to
otherwise satisfy or cause to be satisfied all conditions precedent to the
obligations under this Agreement.
Section 8.5 Public Announcements. Neither Purchaser nor Schwartz shall,
---------------------
without the prior consent of the other party hereto, issue any press release or
otherwise make any public statements with respect to the Share Exchange or this
Agreement except to the extent advisable under state and federal securities laws
(which determination shall be made in consultation with such party's counsel).
Section 8.6 Employment Agreement. Schwartz agrees that upon the Closing
---------------------
Date he shall become a full-time employee of Purchaser and that he shall enter
into an employment agreement with Purchaser with material terms that are
equivalent to the material terms set forth in the draft agreement attached as
Exhibit "B" hereto.
- ------------
Section 8.7 Cooperation of Schwartz. Schwartz hereby covenants that,
-------------------------
subsequent to the date of this Agreement, he shall use his best efforts to
ensure that all property rights to each of the assets listed on Schedule 8.7 are
------------
transferred to Purchaser and that the individuals listed on Schedule 8.7 enter
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into either service agreements, representation agreements or consulting
agreements with the Purchaser or one of its subsidiaries on terms and conditions
that are favorable to Purchaser.
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ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time prior
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to the Closing Date, notwithstanding any stockholder approvals thereof:
(a) by mutual written consent duly authorized by the Board of Directors of
Purchaser and Schwartz; or (b) by either Purchaser or Schwartz if the Share
Exchange shall not have been consummated by October 31, 2002 (provided that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been, in full or in part, the cause of or resulted in, in full or
in part, the failure of the Share Exchange to occur on or before such date).
Section 9.2 Effect of Termination. In the event of the termination of this
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Agreement pursuant to Section 9.1, this Agreement shall become null and void and
there shall be no liability on the part of any party hereto or any of their
affiliates, directors, officers or stockholders except (i) as set forth in
Section 10.1, and (ii) nothing herein shall relieve any party from liability for
any willful breach hereof.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival. All statements contained in any certificate or other
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instrument delivered by or on behalf of Schwartz or Purchaser pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement shall be considered representations and warranties by Schwartz or
Purchaser, as the case may be, with the same force and effect as if contained in
this Agreement. All representations, warranties, covenants and agreements by
Schwartz or Purchaser shall survive the Closing Date for a period of two years
after the Closing Date notwithstanding any investigation at any time by or on
behalf of any party to which such representation or warranty was given, and
shall not be considered waived by the consummation of the Share Exchange
contemplated by this Agreement with knowledge of any breach or misrepresentation
by any of the parties hereto.
Section 10.2 Notices. All notices and other communications given or made
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pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is confirmed by the carrier) and upon transmission by telecopy,
confirmed received, to the parties at the following addresses (or at such other
address for a party as shall be specified by like changes of address):
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If to Purchaser:
US Patriot, Inc.
111 Presidential Boulevard
Suite 158
Bala Cynwyd, PA 19004
Attention: Cecile Coady
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Telecopier No.:(215) 568-6603
Attention: Michael C. Forman, Esq.
If to Schwartz:
Christopher Schwartz
101 Charles Drive, 2nd Building
Bryn Mawr, PA 19010
Telecopier No. (610) 520-3066
With a copy to:
Erskine, Wolfson, Gibbon and Fisher
2010 Chancellor Street
Philadelphia, PA 19103
Telecopier No. (215) 563-9332
Attention: Daniel J. Gibbon, Esq.
Section 10.3 Amendment. This Agreement may not be amended except by an
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instrument in writing signed by the parties hereto.
Section 10.4 Waiver. Any party hereto may with respect to any other party
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hereto (a) extend the time for the performance of any of the obligations or
other acts, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
Section 10.5 Headings. The headings contained in this Agreement are for
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reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.6 Severability. If any term or other provision of this Agreement
------------
is held to be invalid, illegal or incapable of being enforced under any rule of
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law or public policy by a court of competent jurisdiction, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
Section 10.7 Entire Agreement. This Agreement constitutes the entire
-----------------
agreement among the parties and supersedes all prior agreements and undertakings
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
Section 10.8 Assignment. This Agreement shall not be assigned by operation
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of law or otherwise, except by the mutual written consent of the parties hereto.
Section 10.9 Parties In Interest. This Agreement shall be binding upon and
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inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
Section 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No
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failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
Section 10.11 Governing Law. This Agreement shall be governed by, and
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construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to conflict of law principles.
Section 10.12 Jurisdiction. The parties hereto irrevocably consent to the
------------
jurisdiction of the United States federal courts and the state courts located in
the Commonwealth of Pennsylvania in any suit or proceeding based on or arising
under this Agreement and irrevocably agree that any and all claims arising out
of this Agreement or related to the transactions contemplated by this Agreement
shall be determined exclusively in such courts. The parties hereto irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding.
Section 10.13 Fees and Expenses. Each party to this Agreement shall bear
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its own costs and expenses in connection with the transactions contemplated by
this Agreement, including without limitation, attorney's fees, accounting fees
and fees of any investment bankers or other financial advisors.
Section 10.14 Counterparts. This Agreement may be executed in one or more
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counterparts and by facsimile, each of which when executed shall be deemed an
original and all of which taken together shall constitute one and the same
Agreement.
Section 10.15 Joint Participation. Purchaser and Schwartz have participated
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in the drafting of this Agreement and hereby expressly acknowledge such joint
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participation. No provision of this Agreement shall be construed against any
party because such party drafted such provision.
Section 10.16 Exhibits and Schedules. All Exhibits and Schedules attached
-----------------------
hereto or delivered pursuant to this Agreement are incorporated by reference
into, and made a part of, this Agreement.
IN WITNESS WHEREOF, Purchaser and Schwartz have caused this Agreement to be
executed as of the date first written above.
US Patriot, Inc.
By:--------------------------
Name:
Title: President
-----------------------------
Chris Schwartz
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