EXHIBIT 7.1
STOCK PURCHASE AGREEMENT
by and among
FORTUNE DIVERSIFIED INDUSTRIES, INC.,
KINGSTON SALES CORPORATION
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into effective
as of 11:59 p.m. on July 31, 2002 ("Effective Date"), by and among KINGSTON
SALES CORPORATION, an Indiana corporation ("Company"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
("Seller"), and FORTUNE DIVERSIFIED INDUSTRIES, INC., a Delaware corporation
("Buyer").
BACKGROUND
Company is engaged in the business (the "Business") of being an independent
sales representative firm for consumer and commercial electronic products.
The parties hereto desire to provide for the acquisition by Buyer of
Company through the sale by Seller to Buyer of all the outstanding shares of
capital stock of Company, which are owned beneficially and of record by Seller,
all on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. ACQUISITION OF SHARES.
1.1 Sale and Purchase of Shares of Company. Subject to the terms and
conditions of this Agreement, at the Closing (as herein defined), Seller shall
sell, transfer and deliver to Buyer 1,000 shares of the common stock, no par
value, of Company, constituting all of the outstanding shares of Company's
capital stock (the "Shares"), and Buyer shall purchase the Shares for the
consideration set forth in Section 2.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Purchase Price. Subject to Section 2.2, the purchase price (the
"Purchase Price") for the Shares shall be $3,250,000 in cash of which $3,000,000
shall be paid by wire transfer pursuant to instructions previously given by
Seller to Buyer for that purpose at Closing. Subject to the following
contingencies, Buyer shall pay to Seller the remaining amount of $250,000 (the
"Post-Closing Payment") on or beforeDecember 15, 2004. The payment of the full
Post-Closing Payment amount is contingent upon Company attaining a cumulative
EBIT of at least $2,325,000 during the period September 1, 2002 to August 31,
2004. If Company does not attain a cumulative EBIT of at least $2,325,000 during
the period September 1, 2002 to August 31, 2004 but does attain a cumulative
EBIT of at least $2,125,000, Buyer shall pay to Seller a Post-Closing Payment in
the amount of $150,000 on or before December 15, 2004. If Company does not
attain a cumulative EBIT of at least $2,125,000 during the period September 1,
2002 to August 31, 2004, but does attain a cumulative EBIT of at least
$1,925,000, Buyer shall pay to Seller a Post-Closing Payment in the amount of
$100,000 on or before December 15, 2004. If Company does not attain a cumulative
EBIT of at least $1,925,000 during the period September 1, 2002 to August 31,
2004, Buyer shall not pay to Seller any Post-Closing Payment. Notwithstanding
the foregoing, Buyer shall not pay any Post-Closing Payment amount if Seller
exercises the Put Option with respect to twenty-five percent (25%) or more of
the FDI Stock; provided, however, that if Seller exercises the Put Option with
respect to twenty-five percent (25%) or more of the FDI stock and Seller remains
employed by Company, Buyer or any Affiliate of Company or Buyer for a period of
three (3) years following Closing, then notwithstanding Seller's exercise of the
Put Option, Buyer shall pay to Seller the Post-Closing Payment amount earned
under the immediately preceding sentence (if any) within thirty (30) days
following the third anniversary of Closing. As used in this Agreement,
"Affiliate" shall have the meaning specified in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended. "EBIT" shall
be defined as accrued earnings before any interest paid by Company as a result
of Buyer taking out part or all of Company's earnings and income taxes. For
example, if Buyer causes Company to distribute five hundred thousand dollars
($500,000) of Company's earnings to Buyer and Company borrows five hundred
thousand dollars ($500,000) on its line of credit in order to fund its
operations, the interest paid by Company on its
line of credit shall be added back to Company's earnings to calculate EBIT.
Buyer shall cause its outside accountant to calculate EBIT during the period of
September 1, 2002 to August 31, 2004, and shall provide a written explanation of
such calculation to Seller on or before October 15, 2004. Buyer's calculation of
EBIT shall be final and binding upon the Parties unless Seller objects to such
calculation within fifteen (15) days of the receipt thereof, in which case Buyer
and Seller shall exercise their respective best efforts to resolve such dispute
within fifteen (15) days of Seller's objection. If Buyer and Seller are unable
to agree on a final calculation of EBIT within this fifteen (15) day period,
then KPMG (the "Arbitrating Accounting Firm") shall make a final determination.
In such case, each of Buyer and Seller shall inform the Arbitrating Accounting
Firm of their respective calculations of EBIT, and each shall be granted the
opportunity to provide to the Arbitrating Accounting Firm verbal and written
explanations of their respective calculations. The Arbitrating Accounting Firm
shall be instructed to complete its calculations within thirty (30) days of its
engagement. The determination of the Arbitrating Accounting Firm shall be final
and binding upon the Parties. The fees of the Arbitrating Accounting Firm shall
be paid by the non-prevailing Party in any such dispute, as determined by the
Arbitrating Accounting Firm. Any deposit required by the Arbitrating Accounting
Firm shall be paid initially by Buyer, but if Buyer prevails in such dispute,
Seller shall reimburse Buyer for the deposit. The date for payment of the
Post-Closing Payment shall be extended beyond December 15, 2004 if application
of the foregoing dispute resolution mechanism extends beyond such date, to the
date that is ten (10) days following the date of final resolution of such
dispute. In addition, at Closing, Buyer shall issue to Seller, eight million
(8,000,000) shares of Buyer's common stock valued at a bid price of $.12 per
share on July 31, 2002 (the "FDI Stock").
2.2 Purchase Price Adjustment. If on the Effective Date, the Company's
Current Assets do not exceed the Company's Current Liabilities by at least
$2,200,000 ("Minimum Net Worth"), the Purchase Price shall be decreased in an
amount equal to the difference between the Minimum Net Worth and the actual
difference between Current Assets and Current Liabilities. Current Assets shall
be defined as cash, accounts receivable (net of a reserve for bad debt in the
amount of $439,000 (the "Bad Debt Reserve")) and inventory. Current Liabilities
shall be defined as accounts payable and notes payable (including but not
limited to the Bank One Line of Credit (as hereinafter defined)). On or about
the Closing Date, Seller and Buyer shall jointly take a physical inventory of
the Company. No obsolete (held by Company more than 180 days) or damaged items
shall be counted. The inventory shall be valued at Company's cost (net of all
discounts and rebates).
Within forty-five (45) days of the Closing, Buyer and Seller shall
reconcile and agree upon the cash, accounts receivable (net of the Bad Debt
Reserve), inventory, accounts payable and notes payable that existed on the
Closing Date. If upon reconciliation the Minimum Net Worth has not been
attained, Seller shall promptly refund to Buyer in cash an amount equal to the
amount of the deficiency. Additionally, within one hundred twenty (120) days of
Closing, Buyer and Seller shall reconcile and agree upon the amount of accounts
receivable that existed on the Closing Date and that Company could not collect
within ninety (90) days after the Closing Date after exerting commercially
reasonable collection efforts. If such amount of uncollected accounts receivable
shall exceed the Bad Debt Reserve, Seller shall pay promptly to Buyer an amount
equal to the amount of such excess, and contemporaneously with such payment
Company shall assign all such uncollected accounts receivable (in excess of the
Bad Debt Reserve) to Seller, who shall be free to collect such accounts
receivable personally.
If Buyer and Seller are unable to agree on a final calculation of the
difference between Current Assets and Current Liabilities, or a final
calculation of collected and uncollected accounts receivable, on or before the
respective deadlines therefor specified in the foregoing paragraph, then the
Arbitrating Accounting Firm shall make a final determination thereof. In such
case, each of Buyer and Seller shall inform the Arbitrating Accounting Firm of
their respective calculations of the amounts at issue, and each shall be granted
the opportunity to provide to the Arbitrating Accounting Firm verbal and written
explanations of their respective calculations. The Arbitrating Accounting Firm
shall be instructed to complete its calculations within thirty (30) days of its
engagement. The determination of the Arbitrating Accounting Firm shall be final
and binding upon the Parties. The fees of the Arbitrating Accounting Firm shall
be paid by the non-prevailing Party in any such dispute, as determined by the
Arbitrating Accounting Firm. Any deposit required by the Arbitrating Accounting
Firm shall be paid initially by Buyer, but if Buyer prevails in such dispute,
Seller shall reimburse Buyer for the deposit. The date for payment of
any amounts payable under the preceding paragraph shall be extended if
application of the foregoing dispute resolution mechanism extends beyond such
date, to the date that is ten (10) days following the date of final resolution
of such dispute.
2.3 Put Option. Subject to the limitations and restrictions described
below, Seller may, in his sole discretion, sell any or all of the FDI Stock to
Buyer and Buyer shall purchase any of the FDI Stock offered by Seller if any of
the following conditions are met (the "Put Option"):
If during the period September 1, 2002 to August 31, 2004, Cumulative
Company EBITDA is greater than $1,600,000: Buyer shall have a cash put at
$.125 per share. For example, 8,000,000 shares x $.125 = $1,000,000 cash.
If during the period September 1, 2002 to August 31, 2004, Cumulative
Company EBITDA is greater than $2,000,000: Buyer shall have a cash put at
$.175 per share. For example, 8,000,000 shares x $.175 = $1,400,000 cash.
If during the period September 1, 2002 to August 31, 2004, Cumulative
Company EBITDA is greater than $2,400,000: Buyer shall have a cash put at
$.225 per share. For example, 8,000,000 shares x $.225 = $1,800,000 cash.
If during the period September 1, 2002 to August 31, 2004, Cumulative
Company EBITDA is greater than $3,000,000: Buyer shall have a cash put at
$.300 per share. For example, 8,000,000 shares x $.300 = $2,400,000 cash.
Seller may only exercise the Put Option during the period October 15, 2004
to November 30, 2004. In addition, Seller may only exercise the Put Option if
the average bid price per share during the period October 1, 2004 to October 31,
2004 is less than the proposed put price, or if the FDI Stock is not listed on
the OTC Bulletin Board, the New York Stock Exchange, NASDAQ or another
nationally-recognized securities market or exchange during the period October 1,
2004 to October 31, 2004. Any closing on a sale of FDI Stock to Buyer shall
occur within ninety (90) days of Buyer's receipt of written notice from Seller
requesting exercise of his put option.
EBITDA shall be defined as accrued earnings before any interest paid by
Company as a result of Buyer taking out part or all of Company's earnings,
income taxes, depreciation and amortization. For example, if Buyer causes
Company to distribute five hundred thousand dollars ($500,000) of Company's
earnings to Buyer and Company borrows five hundred thousand dollars ($500,000)
on its line of credit in order to fund its operations, the interest paid by
Company on its line of credit shall be added back to Company's earnings to
calculate EBITDA. Buyer shall cause its outside accountant to calculate EBITDA
during the period of September 1, 2002 to August 31, 2004, and shall provide a
written explanation of such calculation to Seller on or before October 15, 2004.
Buyer's calculation of EBITDA shall be final and binding upon the Parties unless
Seller objects to such calculation within fifteen (15) days of the receipt
thereof, in which case Buyer and Seller shall exercise their respective best
efforts to resolve such dispute within fifteen (15) days of Seller's objection.
If Buyer and Seller are unable to agree on a final calculation of EBITDA within
this fifteen (15) day period, then the Arbitrating Accounting Firm shall make a
final determination. In such case, each of Buyer and Seller shall inform the
Arbitrating Accounting Firm of their respective calculations of EBITDA, and each
shall be granted the opportunity to provide to the Arbitrating Accounting Firm
verbal and written explanations of their respective calculations. The
Arbitrating Accounting Firm shall be instructed to complete its calculations
within thirty (30) days of its engagement. The determination of the Arbitrating
Accounting Firm shall be final and binding upon the Parties. The fees of the
Arbitrating Accounting Firm shall be paid by the non-prevailing Party in any
such dispute, as determined by the Arbitrating Accounting Firm. Any deposit
required by the Arbitrating Accounting Firm shall be paid initially by Buyer,
but if Buyer prevails in such dispute, Seller shall reimburse Buyer for the
deposit. The period for exercise of the Put Right shall be postponed if
application of the foregoing dispute resolution mechanism extends beyond
November 1, 2004, in which case the exercise period shall begin on the date that
is ten (10) days following the date of final resolution of
such dispute and shall continue until and including the date that is seventy-one
(71) days following the date of final resolution.
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLER.
Seller hereby represents and warrants to Buyer as of the date of this
Agreement as follows:
3.1 Power and Authorization. Seller has full capacity, legal right, power
and authority to enter into and perform his obligations under this Agreement and
under the other agreements and documents (the "Seller Transaction Documents")
required to be executed and delivered by him prior to or at the Closing. This
Agreement has been duly and validly executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws affecting the enforcement of creditor's rights in general, and except
that the enforceability of the Seller Transaction Documents is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or law). When executed and delivered as
contemplated herein, each of the Seller Transaction Documents shall constitute
the legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting the enforcement of creditor's rights in general, and except that the
enforceability of the Transaction Documents is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or law).
3.2 No Conflicts.
(a) The execution, delivery and performance of this Agreement and the
Transaction Documents do not and will not (with or without the passage of
time or the giving of notice):
(i) violate or conflict with any law binding upon Seller;
(ii) violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any
material agreement or other material obligation to which Seller is a
party or by which Seller or any of Seller's assets are bound, or give
to others any rights (including rights of termination, foreclosure,
cancellation or acceleration), in or with respect to Seller or any of
its assets including, without limitation, any of the Shares; or
(iii) result in, require or permit the creation or imposition of
any restriction, mortgage, deed of trust, pledge, lien, security
interest or other charge, claim or encumbrance of any nature upon or
with respect to the Shares.
(b) Each consent or approval of, or registration, notification, filing
and/or declaration with, any court, government or governmental agency or
instrumentality, creditor, lessor or other person required to be given or
made by Seller in connection with the execution, delivery and performance
of this Agreement and the other agreements and instruments contemplated
herein has been obtained or made, or will be obtained or made prior to the
Closing.
(c) There are no judicial, administrative or other governmental
actions, proceedings or investigations pending or, to the knowledge of
Seller, threatened, that question any of the transactions contemplated by,
or the validity of, this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would
have an adverse effect upon the ability of Seller to enter into or perform
his obligations under this Agreement or any such other agreements or
instruments. Seller has not received any request from any governmental
agency or instrumentality for information with respect to the transactions
contemplated hereby.
3.3 Ownership of the Shares. Seller owns the Shares beneficially and of
record, free and clear of any restriction, mortgage, deed of trust, pledge,
lien, security interest or other charge, claim or encumbrance. There are no
shareholder or other agreements affecting the right of Seller to convey the
Shares to Buyer or any other right of Seller with respect to the Shares, and
Seller has the absolute right, authority, power and capacity to sell, assign and
transfer the Shares to Buyer free and clear of any restriction, mortgage, deed
of trust, pledge, lien, security interest or other charge, claim or encumbrance
(except for restrictions imposed generally by applicable securities laws). Upon
delivery to Buyer of the certificates for the Shares at the Closing, Seller will
transfer good, valid and marketable title to the Shares, free and clear of any
restriction, mortgage, deed of trust, pledge, lien, security interest or other
charge, claim or encumbrance.
3.4 Brokers. No person acting on behalf of Seller or any of Seller's
Affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement.
3.5 Full Disclosure. All documents and other papers (or copies thereof)
delivered by or on behalf of Seller in connection with the transactions
contemplated by this Agreement are in the same form as they were maintained by
Seller, without alteration and are accurate and complete as to items in the
custody of Seller in all material respects.
3.6 Investment Representations and Covenants.
(i) Seller understands that as of the Closing Date the FDI Stock will
not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws on the grounds that the
issuance of the FDI Stock is exempt from registration pursuant to Section
4(2) of the Securities Act or Regulation D promulgated under the Securities
Act and applicable state securities laws, and that the reliance of Buyer on
such exemptions is predicated in part on Seller's representations,
warranties, covenants and acknowledgments set forth in this Section 3.6.
(ii) Seller represents and warrants that he is an "accredited
investor" as defined in Rule 501 promulgated as part of Regulation D under
the Securities Act.
(iii) Seller represents and warrants that the FDI Stock to be acquired
by him upon consummation of the transactions contemplated herein will be
acquired by him for his own account, not as a nominee or agent, and without
a view to resale or other distribution within the meaning of the Securities
Act and the rules and regulations thereunder, and that he will not
distribute all or any portion of the FDI Stock in violation of the
Securities Act.
(iv) Seller acknowledges that the shares of FDI Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired in a transaction not involving a public
offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act,
only in certain limited circumstances.
(v) Seller represents and warrants that he has such knowledge and
experience in financial and business matters such that he is capable of
evaluating the merits and risks of his investment in the FDI Stock.
(vi) Seller is in a financial position to afford to hold the FDI Stock
indefinitely, Seller's financial condition being such that he is not
presently under (and does not contemplate any future) necessity or
constraint to dispose of the FDI Stock to satisfy any existing or
contemplated debt or undertaking. Seller recognizes that it may not be
possible for him to liquidate his investment in the FDI
Stock and, accordingly, he may have to hold the FDI Stock, and bear the
economic risk of this investment, indefinitely.
(vii) Seller understands that neither the Securities and Exchange
Commission nor any other federal or state agency has recommended, approved
or endorsed the purchase of the FDI Stock as an investment.
(viii) Seller confirms that the FDI Stock was not offered to Seller by
any means of general solicitation or general advertising, and that Seller
has received no representations, warranties or written communications with
respect to the FDI Stock other than those contained or described in this
Agreement.
(ix) Seller acknowledges that he has been provided or that Buyer has
made available to him copies of Buyer's most recent Form 10-KSB, Form
10-QSB and any Form 8-KS and Form 4s filed since the most recent Form
10-QSB was filed.
(x) Seller acknowledges that Buyer has given him a reasonable
opportunity to ask questions and receive answers concerning his receipt of
FDI Stock and to obtain any additional information which Buyer possesses or
can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of information.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING COMPANY.
Seller and Company hereby jointly and severally represent and warrant to
Buyer as of the date of this Agreement as follows:
4.1 Organization and Good Standing. Company is a corporation duly organized
and validly existing under the laws of the State of Indiana and has all
necessary corporate power and authority to carry on its business, to own and
lease the assets which it owns and leases, and to perform all its obligations.
Company is duly qualified to do business as a foreign corporation and is in good
standing (if and to the extent the concept of good standing is recognized) under
the laws of each jurisdiction in which its ownership or leasing of assets or
properties or the nature of its activities reasonably requires such
qualification.
4.2 Power and Authorization. Company has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents (the "Company Transaction Documents")
required to be delivered by it prior to or at the Closing. The execution,
delivery and performance by Company of this Agreement and the Company
Transaction Documents have been duly authorized by all necessary corporate
action. This Agreement has been duly and validly executed and delivered by
Company and constitutes its legal, valid and binding obligation, enforceable
against Company in accordance with its terms except as the same may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws affecting the enforcement of creditor's rights in general, and except
that the enforceability of the Transaction Documents is subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or law). When executed and delivered as contemplated
herein, each of the Company Transaction Documents shall constitute the legal,
valid and binding obligation of Company, enforceable against Company in
accordance with its terms except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting the enforcement of creditor's rights in general, and except that the
enforceability of the Transaction Documents is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or law).
4.3 No Conflicts.
(a) The execution, delivery and performance of this Agreement and the
Company Transaction Documents do not and will not (with or without the
passage of time or the giving of notice):
(i) violate or conflict with the Articles of Incorporation or
Bylaws (or other organizational documents) of Company or any law
binding upon Company;
(ii) violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any
material agreement or other material obligation to which Company is a
party or by which it or its assets are bound, or give to others any
right (including rights of termination, foreclosure, cancellation or
acceleration), in or with respect to Company or any of its assets; or
(iii) result in, require or permit the creation or imposition of
any restriction, mortgage, deed of trust, pledge, lien, security
interest or other charge, claim or encumbrance of any nature upon or
with respect to the Shares, Company or any of Company's assets.
(b) Each consent or approval of, or registration, notification, filing
and/or declaration with, any court, government or governmental agency or
instrumentality, creditor, lessor or other person required to be given or
made by Company in connection with the execution, delivery and performance
of this Agreement and the other agreements and instruments contemplated
herein has been made or will be obtained or made prior to the Closing.
There are no such consents, approvals, registrations, notifications,
filings or declarations which have been obtained or made involving payment
of premium or penalty by, or loss of benefit to, Company. Upon consummation
of the transactions contemplated by this Agreement, Company will be
entitled to continue to use all of the assets and properties now used by it
in the same manner such assets and properties were used prior to Closing.
(c) There are no judicial, administrative or other governmental
actions, proceedings or investigations pending or, to Seller's knowledge,
threatened that question any of the transactions contemplated by, or the
validity of, this Agreement or any of the other agreements or instruments
contemplated hereby or which, if adversely determined, would have an
adverse effect upon Company's ability to enter into or perform its
obligations under this Agreement or any of the other agreements or
instruments contemplated hereby. Company has not received any request from
any governmental agency or instrumentality for information with respect to
the transactions contemplated hereby at any office located outside of
Indiana.
4.4 Capitalization. Company's authorized, issued and outstanding capital
stock and its other securities are fully and accurately described in the
Disclosure Statement. No person has any preemptive or other right with respect
to any such equity interests or other securities and there are no offers,
options, warrants, rights, agreements or commitments of any kind (contingent or
otherwise) relating to the issuance, conversion, registration, voting, sale or
transfer of any equity interests or other securities of Company (including,
without limitation, the Shares) or obligating Company or any other person to
purchase or redeem any such equity interests or other securities. The Shares
constitute all of the issued and outstanding shares of capital stock of Company
and have been duly authorized and are validly issued and outstanding, fully paid
and nonassessable, and have been issued in compliance with applicable securities
and other laws.
4.5 Investments and Subsidiaries. The business of the Company is and has
been conducted solely by and through Company and no other person, and Company
does not directly or indirectly own, control or have any investment or other
interest in any corporation, partnership, joint venture, business trust or other
entity and Company has not agreed, contingently or otherwise, to share any
profit, loss, cost or liability, or to indemnify any person or entity or to
guaranty the obligations of any person or entity.
4.6 Compliance with Laws.
(a) Company is in material compliance with all applicable laws; and
neither Company nor Seller has received any notice, order or other
communication from any governmental agency or instrumentality of any
alleged, actual or potential violation of or failure to comply with any
law.
(b) All federal, foreign, state, local and other governmental
consents, licenses, permits, franchises, grants and authorizations
(collectively, "Authorizations") required for the operation of the Business
as currently conducted, are in full force and effect without any default or
violation thereunder by Company or, to the knowledge of Seller, by any
other party thereto, and Company has not received any notice of any claim
or charge that Company is in violation of or in default under any such
Authorization. No proceeding is pending or, to the knowledge of Seller,
threatened by any person to revoke or deny the renewal of any Authorization
of Company or Seller; and Company or Seller has not been notified that any
such Authorization may not in the ordinary course be renewed upon its
expiration or that by virtue of the transactions contemplated hereby any
such Authorization may not be granted or renewed.
4.7 Litigation. There are no claims, actions, suits, proceedings
(arbitration or otherwise) or, to Company's or Seller's knowledge,
investigations involving or affecting Company or its businesses or assets, or
its directors, officers or shareholders in their capacities as such, before or
by any court or governmental agency or instrumentality, or before an arbitrator
of any kind; and no pending claim, action, suit, proceeding or investigation, if
determined adversely, would either individually or in the aggregate have a
material adverse effect on the earnings, business, operations, or financial
condition of the Company. To Company's and Seller's knowledge, no such claim,
action, suit, proceeding or investigation is presently threatened or
contemplated. There are no unsatisfied judgments, penalties or awards against or
affecting Company or any of its businesses, properties or assets.
4.8 Financial Statements.
(a) The Disclosure Statement includes the unaudited balance sheet of
Company as of December 31, 2001 (including the notes thereto, if any, the
"Company December Balance Sheet"), and the related statement of income for
the calendar year then ended (the "Company Financial Statements"). The
Company Financial Statements accurately and fairly present the financial
condition and results of operations of Company as of the date thereof and
for the period referred to, all in accordance with GAAP consistently
applied.
(b) The Disclosure Statement includes the Company's unaudited balance
sheet as of --------------------- June 30, 2002 (the "Company June Interim
Balance Sheet") and the related statement of income for the six months then
ended (collectively the "Company June Interim Financial Statements"). The
Company June Interim Financial Statements accurately and fairly present the
financial condition and results of operations of Company as of the date
thereof and for the period referred to, all in accordance with GAAP
consistently applied.
(c) The Company June Interim Balance Sheet reflects all material
liabilities of Company, whether absolute, accrued or contingent, as of the
date thereof. As of the date of Closing, Company will not have any material
liability or material obligation of any nature that is not reflected on the
Company June Interim Balance Sheet other than current liabilities (within
the meaning of GAAP) incurred since the date thereof arising in the
ordinary course of business consistent with past practice.
4.9 Accounts Receivable. The Disclosure Statement includes a correct and
complete accounts receivable aging of Company as June 30, 2002 reflecting the
aggregate dollar amount of all accounts receivable of Company which have been
outstanding for: 30 days or less; more than 30 but less than 61 days; more than
60 but less than 91 days; and more than 90 days. All accounts receivable
existing as of the date of Closing (net of the Bad Debt Reserve) will be
collected by Company exerting commercially reasonable collection efforts within
90 days of the date of this Agreement.
4.10 Inventory. The Disclosure Statement includes a correct and complete
list of all inventory of Company as of June 30, 2002. Company values its
inventory for accounting purposes at Company's cost. Company's inventory does
not contain any obsolete (held for more than 180 days) or damaged items.
4.11 Real Property. The Disclosure Statement describes each interest in
real property owned or leased by Company, including the location and a brief
description thereof. Company owns all right, title and interest
in all leasehold estates and other rights purported to be granted to it by the
leases and other agreements listed in the Disclosure Statement, in each case
free and clear of any restriction, mortgage, deed of trust, pledge, lien,
security interest or other charge, claim, lien or encumbrance. All governmental
permits, approvals and licenses required in connection with the use by Company
of the real property leased by Company and all improvements thereon and the
conduct of the Company's business thereon have been duly obtained, are in full
force and effect and no proceedings are pending or, to Seller's knowledge,
threatened which could reasonably be expected to lead to a revocation or other
impairment of any thereof.
4.12 Personal Property. Except for liens filed by Bank One, Indiana
("Permitted Encumbrances"), Company has good and marketable title to all of its
properties and assets free and clear of any restriction, mortgage, deed of
trust, pledge, lien, security interest or other charge, claim or encumbrance.
4.13 List of Properties, Contracts, etc. The Disclosure Statement lists or
adequately describes the following:
(a) The Company's fixed asset depreciation schedule, which schedule
accurately represents the fixed assets owned by Company.
(b) A list of all assets leased by Company.
(c) Each outstanding loan or advance (excluding advances to employees
for ordinary and necessary business expenses made in the ordinary course of
business) by Company to any person (including Seller and any director,
officer, employee or shareholder of Company).
(d) Each policy and binder of insurance, (including, without
limitation, property, casualty, liability, life, health, accident, workers'
compensation and disability insurance and bonding arrangements) owned by,
or maintained for the benefit of, or respecting which any premium is paid
directly or indirectly by Company.
(e) Each outstanding power-of-attorney or similar power granted by
Company for any purpose whatsoever.
(f) Each evidence of indebtedness, note, advance, guaranty or letter
of credit entered into, issued or to be issued, contingently or otherwise,
by or for the benefit of Company, and all loan and other agreements
relating thereto, which are not released at Closing.
(g) Each restriction, deed of trust, pledge, lien, security interest
or other charge, claim and encumbrance of any nature relating to or
affecting any of the assets or properties of Company.
(h) Each bank or other financial institution in which Company has a
deposit account, line of credit or safe deposit box, the relevant account
or other identifying number, and the names of all persons authorized to act
or deal in connection therewith.
(i) Company and Seller have made available for inspection by Buyer
true and complete copies of each agreement, plan and other document which
is in Seller's custody and which is required to be disclosed on the
Disclosure Statement.
4.14 Contracts. Each contract, agreement and commitment to which Company is
a party or by which it or its assets are bound was made in the ordinary course
of business, is in full force and effect and is valid, binding and enforceable
against Company and, to the knowledge of Seller, the other parties thereto, each
in accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting the enforcement of creditor's rights in general, and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or law). Company has performed all material obligations
required to be performed by it under each such contract, agreement and
commitment as of the Closing Date, and no condition exists or event has occurred
which with notice or lapse of time would constitute a material default or a
basis for delay or non-performance by Company or, to the knowledge of Seller, by
any other party thereto. Each other party to each material contract, commitment
and agreement has consented or been given sufficient notice (where such consent
or notice is necessary) that the same shall remain in full force and effect
following the Closing. Any exceptions to the foregoing are reflected on the
Disclosure Statement.
4.15 Intellectual Property. Company does not currently utilize and has
never utilized any fictitious or assumed business name other than "Kingston
Sales Corporation" Company has no registered trademarks, copyrights or other
intellectual property rights. Company utilizes no proprietary or licensed
software other than commercially available word processing, accounting, database
and similar software programs, and Company has the right to use all such
software programs in the manner used on the date of this Agreement. To Seller's
knowledge, Company is the sole owner of all Company Intellectual Property (as
hereinafter defined), free and clear of any lien, security interest,
restriction, encumbrance or other adverse claim other than Permitted
Encumbrances; and the Company has not granted or licensed to any person any
right with respect to any Company Intellectual Property. The rights of Company
in and to any of the Company Intellectual Property will not be limited or
otherwise affected by reason of any of the transactions contemplated hereby. As
used in this Agreement, "Company Intellectual Property" means all unregistered
trademarks and service marks, unregistered copyrights, trade names (including
the name "Kingston Sales Corporation") or customer lists and proprietary trade
practices owned by Company as of Closing.
4.16 Taxes
(a) All federal, state, local and foreign returns and reports relating
to Taxes (as defined herein), or extensions relating thereto, required to
be filed by or with respect to Company on or before Closing have been
timely and properly filed, and all such returns and reports are materially
correct and complete as to the period then ending. After Closing, Buyer
will cause Company to prepare a short-year income tax return for the period
January 1, 2002 to July 31, 2002 (the "Short-Year Return"). Seller will be
allocated all of Company's earnings during such period and pay the
appropriate income taxes on such earnings.
(b) All federal, state, local and foreign income, profits, franchise,
sales, use, payroll, premium, occupancy, property, severance, excise,
withholding, customs, unemployment, transfer and other taxes, including
interest, additions to tax and penalties (collectively "Taxes") due or
properly shown to be due on any return referred to in Section 4.16(a) by
Company with respect to taxable periods ending on or prior to, and the
portion of any interim period up to, the date hereof have been fully and
timely paid or, in the case of Taxes not yet due, provided for on the June
Interim Balance Sheet, or in the case of Taxes accruing after the date of
the June Interim Balance Sheet date as reflected on the Disclosure
Statement; and there are no levies, liens, or other encumbrances relating
to Taxes existing, threatened or pending with respect to any asset of
Company.
(c) During the previous two (2) years, no audit letters have been
received (nor are any audits currently pending) from the Internal Revenue
Service ("IRS") or any other taxing authority in connection with any of the
returns and reports referred to in subsection (a) above and no waivers of
statutes of limitations have been given or requested with respect to any
such returns and reports or with respect to any Taxes.
4.17 Employee Benefits,
(a) The Disclosure Statement contains a complete and correct list of
all benefit --------------------- plans, arrangements, commitments and
payroll practices, (whether or not employee benefit plans ("Employee
Benefit Plans") as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), including, without
limitation, sick leave, vacation pay, severance pay, salary continuation
for disability, consulting or other compensation arrangements, retirement,
deferred compensation, bonus, incentive compensation, stock purchase, stock
option, health including hospitalization, medical and dental, life
insurance and scholarship programs maintained for the benefit of any
present or former employees of Company or to which Company has contributed
or is or was within the last three years obligated to make payments.
(b) With respect to each Employee Benefit Plan required to be listed
on the Disclosure Statement: (i) each Employee Benefit Plan has been
administered in material compliance with its terms, and is in compliance in
all material respects with the applicable provisions of ERISA, the Code and
all other applicable laws (including, without limitation, funding, filing,
termination, reporting and disclosure and continuation coverage obligations
pursuant to Title V of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA")); (ii) Company has made or provided for all
contributions required under the terms of such Plans; (iii) there have been
no "prohibited transactions" (as described in Section 4975 of the Code or
in Part 4 of Subtitle B of Title I of ERISA) with respect to any Employee
Benefit Plan; (iv) there are and during the past three years there have
been no inquiries, proceedings, claims or suits pending or, to Seller's
knowledge, threatened by any governmental agency or authority or by any
participant or beneficiary against any of the Employee Benefit Plans, the
assets of any of the trusts under such Plans or the Plan sponsor or the
Plan administrator, or against any fiduciary of any of such Employee
Benefit Plans with respect to the design or operation of the Employee
Benefit Plans; (v) any plans intended to be "qualified" within the meaning
of Section 401(a) of the Code have from their inception been so qualified,
and any trust created pursuant to such plans are exempt from federal income
tax under Section 501(a) of the Code and the Internal Revenue Service has
issued such plans a favorable determination letter, which is currently
applicable; and (vi) there is not any circumstance or event which would
reasonably be expected to jeopardize the tax-qualified status of the plans
or the tax-exempt status of any related trust, or which would cause the
imposition of any liability, penalty or tax under ERISA or the Code with
respect to any Employee Benefit Plan.
(c) Company does not maintain and has not ever maintained or been
obligated to contribute to a "Multi-employer Plan" (as such term is defined
by Section 4001(a)(3) of ERISA) or a money purchase plan or a defined
benefit plan which is subject to the minimum funding requirements of Part 3
of subtitle B of Title I of ERISA or subject to Section 412 of the Code.
(d) With respect to each Employee Benefit Plan maintained by Company,
no unsatisfied liabilities to participants, the IRS, the United States
Department of Labor ("DOL"), the PBGC or to any other person or entity have
been incurred as a result of the termination of any Employee Benefit Plan.
(e) All reports and information required to be filed with the DOL, IRS
and PBGC or with plan participants and their beneficiaries with respect to
each Employee Benefit Plan required to be listed on the Disclosure
Statement have been filed.
(f) All employee benefit plans required to be listed on the Disclosure
Statement may, without liability, be amended, terminated or otherwise
discontinued except as specifically prohibited by federal law.
(g) Any bonding required under ERISA with respect to any Employee
Benefit Plan required to be listed on the Disclosure Statement has been
obtained and is in full force and effect and no funds held by or under the
control of Seller are plan assets.
(h) Company does not maintain any retired life and/or retired health
insurance plans which provide for continuing benefits or coverage for any
employee or any beneficiary of an employee after such employee's
termination of employment.
(i) The consummation of the transactions contemplated by this
Agreement will not, alone or together with any other event, (i) entitle any
person to severance pay, unemployment compensation or any other payment;
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due to any such employee; or (iii) result in any liability
under Title IV of ERISA or otherwise.
(j) Any tax liability resulting from the classification of any
employees as leased employees or independent contractors shall be assumed
by Seller and paid by Seller in a timely manner.
(k) Any exceptions to the foregoing subsections (a) through (j) are
reflected on the Disclosure Statement.
4.18 Directors, Officers and Employees. The Disclosure Statement sets forth
the following information for each director and officer of Company: name, title
and compensation paid by Company. All agreements with its directors and officers
are terminable at will by Company. There are no contracts, arrangements or
agreements in place which would require the payment of any severance or change
of control payment.
4.19 Affiliate Agreements. Except as described in the Disclosure Statement,
there are no agreements, arrangements or understandings between Company on the
one hand and Seller or any present or former director, shareholder or officer of
Company or any member of the immediate family of or any person or entity
controlling or controlled by any of such persons (a "Related Party"). Except as
described in the Disclosure Statement, all agreements and arrangements between
Company and all Related Parties are terminable by Company, upon written notice,
without payment of penalty or premium of any kind. Seller does not have any
claim or right against Company except as described in the Disclosure Statement.
4.20 Absence of Certain Changes and Events
(a) Since the date of the Company June Interim Balance Sheet, Company
has conducted its businesses only in the usual and ordinary course
consistent with past practice and there has not been any:
(i) Declaration or payment of any dividend or other distribution
or payment in respect of the shares of capital stock of Company or any
repurchase or redemption of any such shares of capital stock or other
securities;
(ii) other than in the ordinary course, payment by Company of any
bonus or increase of any compensation payable to any shareholder,
director, officer or employee or entry into (or amendment of) any
written employment, severance or similar agreement with any
shareholder, director, officer or employee;
(iii) adoption of or change in any Employee Benefit Plan or labor
policy;
(iv) damage, destruction or loss to any material asset or
property of Company, whether or not covered by insurance;
(v) entry into, amendment, termination or receipt of notice of
termination of any material agreement or other material document or
commitment which is required to be disclosed in the Disclosure
Statement, or any material transaction (including, without limitation,
any such relating to capital expenditures);
(vi) sale (other than sales of inventory in the ordinary course
of business), assignment, conveyance, lease, or other disposition of
any asset or property of Company or mortgage, pledge, or imposition of
any material lien or other material encumbrance on any asset or
property of Company;
(vii) incurrence or repayment of any material liability or
material obligation (whether absolute or contingent) to any Related
Party or other affiliated person or, other than current liabilities
incurred and obligations under agreements entered into in the ordinary
course of business consistent with past practice, to any other person
or any discharge or satisfaction of any material lien, claim or
encumbrance, other than in the ordinary course of business consistent
with past practice;
(viii) write-down or write-off of the value of any material asset
except for write-downs and write-offs in the ordinary course of
business consistent with past practice, or any cancellation or waiver
of any other material claims or rights;
(ix) any material change in the business or operations of Company
or in the manner of conducting the same or entry by Company into any
material transaction, other than in the ordinary course of business;
(x) any material change in the accounting methods, principles or
practices followed by Company, except as required by GAAP, or any
material change in any of the assumptions underlying, or methods of
calculating, any bad debt, contingency or other reserves or
expenditures); or
(xi) agreement, whether or not in writing, to do any of the
foregoing by Company.
(b) Since the date of the Company June Interim Balance Sheet, there
has not been any material adverse change in the business, operations,
properties, assets, prospects, working capital, or condition (financial or
otherwise) of Company or any event, condition or contingency that is likely
to result in such a material adverse change.
4.21 Corporate Books.
(a) The copies of the Articles of Incorporation of Company, as
certified by the Secretary of State of its jurisdiction of incorporation,
and of its Bylaws (or of its other comparable organizational documents), as
certified by its secretary, which have been delivered to Buyer, are true,
complete and correct and are in full force and effect as of the date
hereof.
(b) The stock records of Company fairly and accurately reflect the
record ownership of all of its outstanding shares of capital stock. The
minute books of Company contain materially complete and accurate records of
all meetings held of, and corporate action taken by, the shareholders, the
board of directors and each committee of the board of directors of Company.
Complete and accurate copies, as of the date hereof, of all such minute
books and stock records have been made available to Buyer.
4.22 Brokers. No person acting on behalf of Company, any Related Party or
any of its Affiliates or under the authority of any of the foregoing is or will
be entitled to any brokers' or finders' fee or any other commission or similar
fee, directly or indirectly, from any of such parties in connection with any of
the transactions contemplated by this Agreement.
4.23 Product Lines. Company carries the product lines listed on the
Disclosure Statement. Company has an independent sales representative agreement
in place with each of its suppliers allowing it to sell each of the product
lines.
Company has not received any verbal or written notice from any of its
suppliers that the supplier has or intends to cancel its independent sales
representative agreement with Company. Company is not aware of any circumstances
that would reasonably be expected to cause any of its suppliers to cancel its
independent sales
representative agreement with Company. Company has a good working relationship
with each of its suppliers in all material respects, and is not aware of any
material dissatisfaction with Company by any of Company's suppliers.
4.24 Full Disclosure. All documents and other papers (or copies thereof)
delivered by or on behalf of Company in connection with the transactions
contemplated by this Agreement are in the same form as maintained by Company
internally, without alteration, except as provided in the Disclosure Statement,
and are accurate and complete as to items in the custody of Company in all
material respects.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as of the date of this
Agreement as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has all necessary corporate power and authority to carry on its business as
presently conducted, to own and lease the assets which it owns and leases and to
perform all its obligations under each agreement and instrument by which it is
bound.
5.2 Power and Authorization. Buyer has full capacity, legal right, power
and authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents (the "Buyer Transaction Documents")
required to be executed and delivered by it prior to or at the Closing. The
execution, delivery and performance by Buyer of this Agreement and the Buyer
Transaction Documents have been duly authorized by all necessary corporate
action. This Agreement has been duly and validly executed and delivered by Buyer
and constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms except as the same may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws affecting the enforcement of creditor's rights in general, and except
that the enforceability of the Transaction Documents is subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or law). When executed and delivered as contemplated
herein, each of the Buyer Transaction Documents shall constitute the legal,
valid and binding obligation of Buyer, enforceable against Seller in accordance
with its terms except as the same may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting the
enforcement of creditor's rights in general, and except that the enforceability
of the Transaction Documents is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law).
5.3 No Conflicts.
(a) The execution, delivery and performance of this Agreement and the
Buyer Transaction Documents do not and will not (with or without the
passage of time or the giving of notice):
(i) violate or conflict with Buyer's Certificate of Incorporation
or Bylaws or any law binding upon Buyer (ii) violate or conflict with,
result in a breach of, or constitute a default or otherwise cause any
loss of benefit under any material agreement or other material
obligation to which Buyer is a party or by which it or its assets are
bound, or give to others any right (including rights of termination,
foreclosure, cancellation or acceleration), in or with respect to
Buyer, its assets or any of its Affiliates' assets.
(b) Each consent or approval of, or registration, notification, filing
and/or declaration with, any court, government or governmental agency or
instrumentality, creditor, lessor or other person required to be given or
made by Buyer in connection with the execution, delivery and performance of
this Agreement and the other agreements and instruments contemplated herein
has been obtained or made, or will be obtained or made prior to the
Closing.
(c) There are no judicial, administrative or other governmental
actions, proceedings or investigations pending or, to the knowledge of
Buyer, threatened, that question any of the transactions contemplated by,
or the validity of, this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would
have a material adverse effect upon the ability of Buyer to enter into or
perform its obligations under this Agreement or any such other agreements
or instruments. Buyer has not received any request from any governmental
agency or instrumentality for information with respect to the transactions
contemplated hereby.
5.4 Compliance With Laws. Buyer is in compliance with all applicable laws,
orders, rules and regulations of all governmental bodies and agencies, except
where such noncompliance would not materially affect the ability of Buyer to
consummate the transactions contemplated by this Agreement. Buyer has not
received notice of any noncompliance with the foregoing.
5.5 Accuracy of Filings. All publicly-available filings made by Buyer with
the Securities and Exchange Commission since September 1, 2000 are true and
complete in all material respects, do not contain any untrue statement of
material fact and do not omit to state a material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
5.6 Compliance With Securities Law. The shares of FDI Stock to be issued to
Seller at Closing will be fully issued, non-assessable, valid and outstanding as
of the Closing, and will be validly issued in reliance upon an exemption from
registration under, and in material compliance with, applicable federal and
state securities laws, including without limitation the Securities Act of 1933,
as amended, and the Securities and Exchange Act of 1934, as amended.
5.7. Brokers. No person acting on behalf of Buyer or any of its affiliates
or under the authority of any of the foregoing is or will be entitled to any
brokers' or finders' fee or any other commission or similar fee, directly or
indirectly, from any of such parties in connection with any of the transactions
contemplated by this Agreement.
5.8. Full Disclosure. All documents and other papers (or copies thereof)
delivered by or on behalf of Buyer in connection with the transactions
contemplated by this Agreement are in the same form as maintained by Buyer
internally, without alteration, and are accurate and complete as to items in the
custody of Buyer in all material respects.
SECTION 6. NON-COMPETITION.
For a period commencing on the Closing Date and ending on the fifth (5th)
anniversary of the Closing Date, without the prior written consent of Buyer
(which consent may be withheld in Buyer's sole and absolute discretion) Seller
shall not, directly or indirectly, for himself or for any other person,
proprietorship, partnership, corporation or trust, or any other entity, as an
individual or as an owner, employee, agent, officer, director, trustee, or in
any other capacity:
(a) for the purpose of selling electronic products the same as or
substantially similar to the products offered by Company as of the
Closing Date (including but not limited to any type or brand of
televisions, cable modems, direct TV systems, satellite dishes, DVD
players, direct TV receivers and VCRs) ("Restricted Products"), Seller
shall not solicit, participate or aid in the solicitation of orders
for Restricted Products, or sell any Restricted Products to any of
Company's customers who were serviced by Seller, solicited by Seller
or who became customers of Company as a result of any actions taken by
Seller;
(b) for the purpose of selling Restricted Products, Seller shall not
solicit, participate or aid in the solicitation of, or sell any
Restricted Products to any of Company's customers who were customers,
or had an ongoing business relationship with Company, at any time
during the six (6) month period preceding the Closing Date;
(c) contact, or aid or participate in the contact, including allowing the
use of Seller's name in connection with the contact of, any of
Company's customers who were customers, or had an ongoing business
relationship with Company, at any time during the six (6) month period
preceding the Closing Date, for the purpose of diverting their
purchases of Restricted Products from Company;
(d) for the purpose of selling Restricted Products, Seller shall not
solicit, participate or aid in the solicitation of, represent or sell
Restricted Products on behalf of any of the companies that Company
represented at any time during the six (6) month period preceding the
Closing Date.
(e) for the purpose of selling Restricted Products, Seller shall not sell
any of the product lines carried by Company at any time during the six
(6) month period preceding the Closing Date.
(f) solicit or contact or aid or participate in the contact, including
allowing the use of Seller's name in connection with the contact of,
Company's employees, for the purpose of inducing them to terminate
their employment with Company;
(g) engage in, conduct, promote, or participate in either as an owner,
investor, employee, officer, director, trustee, or agent, or in any
other capacity whatsoever, a business in competition with Company in
the sale and offering of Restricted Products either directly or
indirectly. The prohibitions and covenants enumerated in this Section
6(g) shall bind Seller in the following geographic area: All counties
in the State of Indiana.
Nothing in the foregoing provisions of this Section 6 shall prohibit Seller
from purchasing for investment purposes only any stock or corporate security
traded or quoted on a national securities exchange or national market system.
Notwithstanding the foregoing, the restrictions on competition contained in
this Section 6 shall terminate and be of no force and effect immediately if
Buyer terminates that certain Employment Agreement made by and between Seller
and Company and dated of even date herewith (the "Employment Agreement") without
"cause" (as such term is defined in the Employment Agreement) during the two
year period following Closing.
Buyer and Seller agree that in the event of a breach of any of the
covenants and prohibitions contained in this Section 6 by Seller, Buyer shall
suffer immediate, immeasurable and irreparable harm and damage, and accordingly,
the parties agree as follows:
(a) These covenants shall be construed as agreements independent of any
other provision of this Agreement, and the existence of any claim or
cause of action by Seller against Buyer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement of these covenants by Buyer;
(h) (b) In the event of a violation of any of these covenants the terms of
all covenants shall be automatically extended for a period equal to
the violation;Buyer shall be entitled to recover reasonable attorney's
fees incurred in the enforcement of these covenants;
(i) Each covenant is separate and distinct from every other covenant, and
in the event of the invalidity of any one covenant, the remaining
covenants shall be deemed independent and enforceable. Further,
although the parties agree that the scope, duration and territorial
restrictions herein are reasonable and necessary for the protection of
Buyer, the parties agree
that the obligations with respect to each county and the duration
thereof are a separate covenant, and in the event a Court should
consider the territorial restrictions or duration too extensive, the
Court shall consider the reasonableness and enforceability of the
covenants with respect to each individual county and the duration
thereof and shall modify the provisions so as to be valid and fully
enforceable for the maximum scope, duration and geographic areas (but
never for a larger scope, longer period or greater area than set forth
above) as the Court shall find to be reasonable, necessary valid and
legally enforceable;
(j) These covenants are reasonable and necessary for the protection of
Buyer's business interests, that irreparable injury will result to
Buyer if Seller breaches any of these covenants, and that in the event
of actual or threatened breach of any of these covenants, Buyer will
have no adequate remedy at law. Seller accordingly agrees that in the
event of any actual or threatened breach by Seller of any of these
covenants, Buyer shall be entitled to immediate temporary injunctive
and other equitable relief, without bond and without the necessity of
showing actual monetary damages, subject to hearing as soon thereafter
as possible. Nothing contained herein shall be construed as
prohibiting Buyer from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any
damages which it is able to prove; and
(k) Buyer would not have entered into this Agreement but for Seller's
agreement to be bound by and comply with the terms and conditions of
this Agreement, including, without limitation, Section 6 hereof, and
for Seller's agreement that the scope, duration and territorial
restrictions of these covenants are reasonable.
SECTION 7. CLOSING.
7.1 Time and Place of Closing. The closing of the purchase and sale of the
Shares (the "Closing") pursuant to this Agreement shall take place on August
___, 2002, at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Vornehm, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, commencing at 10:00 a.m. local
time or at such other date, time or place as may be agreed to by Buyer and
Seller (the "Closing Date"). The Closing shall be effective on the Effective
Date except as otherwise specified in this Agreement.
7.2 Deliveries at the Closing. At the Closing, in addition to the other
actions contemplated elsewhere herein:
(a) Seller shall deliver, or shall cause to be delivered, to Buyer the
following:
(i) certificates representing all of the Shares, duly endorsed
for transfer or with stock powers affixed thereto, executed in blank
in proper form for transfer;
(ii) a duly executed counterpart of the Employment Agreement, in
substantially the form of that attached hereto as Exhibit A;
(iii) a counterpart, duly executed by Kingston Design, LLC, of a
Lease for Company's offices in substantially the form of that attached
hereto as Exhibit B (the "Lease");
(iv) a duly executed counterpart of a Voting Agreement, wherein
certain stockholders of Buyer agree to vote their shares of stock of
Buyer in favor of election of Seller to Buyer's Board of Directors, in
substantially the form of that attached hereto as Exhibit C (the
"Voting Agreement");
(v) a duly executed counterpart of a Registration Rights
Agreement, wherein Buyer grants to Seller certain registration rights
with respect to the FDI Stock, in substantially the form of that
attached hereto as Exhibit D (the "Registration Rights Agreement")
(vi) such other documents and instruments as Buyer may reasonably
request to effectuate or evidence the transactions contemplated by
this Agreement.
(b) Company shall, and Seller shall cause Company to, deliver to Buyer
the following:
(i) a copy of Company's Articles of Incorporation, certified as
of a recent date by the Secretary of State of the State of Indiana and
by the Secretary of Company, and a copy of Company's By-laws certified
by the Secretary of Company, each including any and all amendments to
date;
(ii) a Certificate of Existence of a recent date for Company,
certified by the Secretary of State of the State of Indiana;
(iii) copies of the resolutions of the board of directors or
corresponding governing body of Company authorizing the execution,
delivery and performance of this Agreement and the other agreements
and instruments referred to herein, certified as of the Closing Date
by the Secretary or an Assistant Secretary of Company;
(iv) the original corporate seals, minute books and stock
transfer and record books of Company as they exist on the Closing and
such of its files, books and records as Buyer may reasonably request;
(v) a duly executed counterpart of the Lease;
(vii) a duly executed counterpart of the Employment Agreement;
(viii) such other documents and instruments as Buyer may
reasonably request to effectuate or evidence the transactions
contemplated by this Agreement.
(c) Buyer shall deliver, or shall cause to be delivered, to Seller the
items described below:
(i) the Purchase Price;
(ii) certificates representing the FDI Stock, duly and validly
issued in the name of Seller;
(iii) a copy of the resolutions of the Board of Directors of
Buyer authorizing the execution, delivery and performance by Buyer of
this Agreement and the other agreements and instruments referred to
herein, certified as of the Closing by the Secretary or an Assistant
Secretary of Buyer; (iv) a Certificate of Good Standing of a recent
date for Buyer, certified by the Secretary of State of the State of
Delaware;
(v) a copy of Buyer's Certificate of Incorporation, certified as
of a recent date by the Secretary of State of the State of Delaware
and by the Secretary or an Assistant Secretary of Buyer, and a copy of
Buyer's By-laws certified by the Secretary or an Assistant Secretary
of Buyer, each including any and all amendments to date;
(vi) a duly executed counterpart of the Registration Rights
Agreement;
(vii) one or more counterparts of the Voting Agreement, duly
executed by each of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇;
(ix) a duly executed Personal Guaranty, executed by ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, wherein ▇▇. ▇▇▇▇▇▇▇ guarantees Buyer's payment and
performance of its obligations with respect to the Put Option, in
substantially the form of that attached hereto as Exhibit E;
(x) a duly executed Personal Guaranty, executed by Carter
Fortune, in substantially the form of that attached hereto as Exhibit
F;
(xi) written verification of the payment in full and complete
satisfaction of all obligations of Company under and in connection
with its line of credit with Bank One Indianapolis, N.A. (the "Bank
One Line of Credit"); and
(xii) such other documents and instruments as Seller may
reasonably request to effectuate or evidence the transactions
contemplated by this Agreement.
7.3 Confidential Information. From and after the Closing, unless expressly
consented to in writing by Buyer, except in connection with Seller's performance
under the Employment Agreement, Seller and his Affiliates shall not directly or
indirectly use or disclose to any third person any trade secret, financial data,
customer list, pricing or marketing policies or plans or other proprietary or
confidential information relating to Buyer or Company.
7.4 Negotiations. Buyer acknowledges and agrees that it has negotiated on
behalf of Company, and has authorized the execution and delivery by Company at
Closing of, the Lease and the Employment Agreement.
SECTION 8. INDEMNIFICATION
8.1 Indemnification by Seller. Subject to Section 8.5, Seller shall
indemnify and hold Buyer and its officers, directors and shareholders harmless
against and in respect of any and all losses, costs, expenses, claims, damages,
obligations and liabilities, including interest, penalties and reasonable
attorneys' fees and disbursements ("Damages"), which Buyer or any such
indemnitee may suffer, incur or become subject to arising out of, based upon or
otherwise in respect of: (a) any inaccuracy in or breach of any representation
or warranty of Company or Seller made in or pursuant to this Agreement or any
Transaction Document; (b) any breach or nonfulfillment of any covenant or
obligation of Company or Seller contained in this Agreement or any Transaction
Document; (c) any liability or other obligation of Company existing on the
Closing Date, or arising thereafter based on facts and circumstances existing
prior to or on the Closing Date, and not disclosed in the Company June Interim
Balance Sheet, this Agreement or the Disclosure Statement, other than current
liabilities incurred in the ordinary course of business consistent with past
practice; (d) any matters described or required to be described on the
Disclosure Statement pursuant to Section 4.7; (e) all liability of Company for
Taxes that are due or accrue on or before the Closing Date, but only to the
extent such Tax liabilities exceed $6,500.00; (f) any liability or obligation of
Company (or of Buyer as successor) resulting from personal liability claims,
product liability claims or warranty claims (whether based in tort, contract or
otherwise) relating to any products sold or distributed by Company on or prior
to the Closing Date; (g) any failure of any Employee Benefit Plan (including,
without limitation, prior plans maintained by, or contributed to by, Company or
any ERISA Affiliate which are not listed on the Disclosure Statement) to comply
in form or in operation with the Code, ERISA or rules or regulations thereunder.
8.2 Indemnification by Buyer. Buyer shall indemnify and hold Seller and his
Affiliates, successors, heirs and assigns harmless against and in respect of any
and all Damages which Seller or any such indemnitee may suffer, incur or become
subject to arising out of, based upon or otherwise in respect of: (a) any
inaccuracy in or breach of any representation or warranty of Buyer made in or
pursuant to this Agreement or any Buyer Transaction Document; (b) any breach or
nonfulfillment of any covenant or obligation of Buyer contained in this
Agreement or any Buyer Transaction Document; and (c) the operation of Company
after the Closing Date except for any Damages resulting directly or indirectly
from any acts or omissions of Seller.
8.3 Inter-Party Claims. Any party seeking indemnification pursuant to this
Section (the "Indemnified Party") shall promptly notify the other party or
parties from whom such indemnification is sought (the "Indemnifying Party") of
the Indemnified Party's assertion of such claim for indemnification, specifying
the basis of such claim. The Indemnified Party shall thereupon give the
Indemnifying Party reasonable access to the books, records and assets of the
Indemnified Party which evidence or support such claim or the act, omission or
occurrence giving rise to such claim and the right, upon prior notice during
normal business hours, to interview any appropriate personnel of the Indemnified
Party related thereto.
8.4 Third Party Claims.
(a) Each Indemnified Party shall promptly notify the Indemnifying
Party of the assertion by any third party of any claim with respect to
which the indemnification set forth in this Section relates (which shall
also constitute the notice required by Section 8.3). The Indemnifying Party
shall have the right, upon notice to the Indemnified Party within twenty
(20) business days after the receipt of any such notice, to undertake the
defense of with counsel reasonably acceptable to the Indemnified Party, or,
with the consent of the Indemnified Party (which consent shall not
unreasonably be withheld), to settle or compromise such claim. The failure
of the Indemnifying Party to give such notice and to undertake the defense
of or to settle or compromise such a claim shall constitute a waiver of the
Indemnifying Party's rights under this Section 8.4(a) and shall preclude
the Indemnifying Party from disputing the manner in which the Indemnified
Party may conduct the defense of such claim or the reasonableness of any
amount paid by the Indemnified Party in satisfaction of such claim.
(b) The election by the Indemnifying Party, pursuant to Section
8.4(a), to undertake the defense of a third-party claim shall not preclude
the party against which such claim has been made also from participating or
continuing to participate in such defense, so long as such party bears its
own legal fees and expenses for so doing.
8.5 Limitations and Requirements.
(a) Seller shall have no obligation to indemnify Company, Buyer or any
other person against Damages pursuant to Section 8.1 of this Agreement
unless and until the aggregate of all such Damages suffered or incurred by
Company, Buyer and such persons exceeds $30,000; in which event Company,
Buyer and such persons shall be entitled to indemnification for the full
amount of all Damages suffered or incurred in excess of $30,000 (only).
Seller shall have no obligation to pay to Company or Buyer or any other
indemnitee hereunder any indemnification payment amounts in excess of
$3,000,000 in the aggregate.
(b) Except as may otherwise expressly be provided in this Agreement,
no claim arising out of or based upon any inaccuracy in or breach of any
representation or warranty contained in this Agreement or any Transaction
Document shall be made unless a claim arises and written notice pursuant to
Section 8.4 is delivered to the Indemnifying Party within two (2) years
after the Closing Date; provided that any such claim arising out of or
based upon any inaccuracy in or breach of any representation or warranty
made in or pursuant to: (i) Sections 3.1, 3.3, 4.2, 4.4, 5.1, 5.2 or 5.6
may be made at any time; and (ii) Sections 4.16 or 4.17 may be made at any
time before the expiration of the longest statute of limitations period
applicable to an action brought by the appropriate taxing or other
regulatory agency with respect to the matters forming the basis for such a
claim.
(c) Except as expressly provided herein, Seller shall have no rights,
hereunder or otherwise, to indemnification or contribution from Company
with respect to any matter arising prior to the date of this Agreement,
including, without limitation, any inaccuracy in or breach of any
representation or warranty of Company made in or pursuant to this Agreement
or any Transaction Document, or any breach or nonfulfillment of any
covenant or obligation of Company contained in this Agreement or any
Transaction Document, and Seller hereby irrevocably releases Company from
any liability for any such claim; provided, however, that the foregoing
shall not be deemed to release or waive (i) any claim for indemnification,
whether already arisen or yet to arrive, to which Seller otherwise would be
entitled by virtue of or in connection with his service as an officer and
director of Company pursuant to applicable statutes or as described in
Company's articles or by-laws; or (ii) any claim arising or yet to arise
under the Employment Agreement, the Lease or any other agreement,
arrangement or relationship existing by and between Seller (or Seller's
Affiliates) and Company after the date of this Agreement.
(d) The indemnification obligations of the parties contained herein
are not intended to waive or preclude any other claims, rights or remedies
which may exist at law (whether statutory or otherwise) or in equity with
respect to the matters covered by the indemnifications.
SECTION 9. TAX RETURNS
Buyer shall cause Company to prepare and file when due the Short-Year
Return. Buyer and Company shall permit Seller to review and comment on the
Short-Year Return within a reasonable period before the Short-Year Return is
filed. Buyer, Company and Seller shall cooperate fully, as and to the extent
required by any other party, in connection with the preparation and filing of
the Short-Year Return, and in connection with any audit, litigation or other
proceeding with respect to the Short-Year Return.
SECTION 10. MISCELLANEOUS.
10.1 Knowledge. All references to Seller's "knowledge" shall be deemed to
refer to the actual knowledge of Seller, after a reasonable comprehensive
inquiry. All references to Buyer's "knowledge" shall be deemed to refer to the
actual knowledge of ▇▇. ▇▇▇▇▇▇▇ and/or ▇▇. ▇▇▇▇▇▇▇, after a reasonable
comprehensive inquiry.
10.2 Survival of Representations and Warranties. The representations and
warranties made by the parties in this Agreement and in the certificates,
documents and schedules delivered pursuant hereto shall survive the consummation
of the transactions herein contemplated for a period of two years following
Closing; provided, however, that (a) the representations and warranties
contained in Sections 3.1, 3.3, 4.2, 4.4, 5.1, 5.2 or 5.6 shall not terminate,
and (b) the representations and warranties contained in Sections 4.16 and 4.17
shall survive Closing for a period equal to the period of applicability of the
longest statute of limitation applicable to an action brought by the appropriate
taxing or other regulatory agency with respect to the matters described therein.
10.3 Further Assurances. Each party hereto shall, from time to time and
without further consideration, either before or after the Closing, execute such
further instruments and take such other actions as any other party hereto shall
reasonably request in order to fulfill its obligations under this Agreement and
to effectuate the purposes of this Agreement and to provide for the orderly and
efficient transition of the ownership of Company to Buyer.
10.4 Costs and Expenses. Except as otherwise expressly provided herein,
each party shall bear its own expenses in connection herewith. Any and all legal
and accounting fees, transfer, sales, use, documentary and similar taxes and
recording and filing fees, incurred in connection with the transactions
contemplated herein on behalf of Seller or Company prior to Closing shall be
paid by Seller and not by Company.
10.5 Public Announcements. After Closing, none of Company, Seller or Buyer
shall make any public announcement or disclosure relating to the transactions
contemplated herein without the prior agreement of each other party hereto,
provided that each party shall use best efforts to consult with the other in
advance of any disclosure required by law, but the agreement of the other
parties hereto shall not be required.
10.6 Notices. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if and
when hand delivered to the persons set forth below or if sent by documented
overnight delivery service or registered or certified mail, postage prepaid,
return receipt requested, or by facsimile, receipt acknowledged, addressed as
set forth below or to such other person or persons and/or at such other address
or addresses as shall be furnished in writing by any party hereto to the others.
Any such notice or communication shall be deemed to have been given as of the
date received, in the case of personal delivery, or on the date shown on the
receipt or confirmation therefor in all other cases.
To Seller:
---------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Bose ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Buyer:
--------
Fortune Diversified Industries, Inc.
Attention: Carter Fortune
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & VORNEHM, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
10.7 Assignment and Benefit.
(a) Buyer may assign this Agreement in whole or in part to any
subsidiary or to any person which becomes a successor in interest (by
purchase of assets or membership interests, or by merger, or otherwise) to
Buyer; provided, however, that, notwithstanding any such assignment, Buyer
shall remain liable for its obligations hereunder. Seller shall not assign
this Agreement or any rights hereunder, or delegate any obligations
hereunder, without prior written consent of Buyer. Subject to the
foregoing, this Agreement and the rights and obligations set forth herein
shall inure to the benefit of, and be binding upon, the parties hereto, and
each of their respective successors, heirs and assigns.
(b) This Agreement shall not be construed as giving any person, other
than the parties hereto and their permitted successors, heirs and assigns,
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any of the provisions herein contained, this Agreement and all
provisions and conditions hereof being intended to be, and being, for the
sole and exclusive benefit of such parties, and permitted successors, heirs
and assigns and for the benefit of no other person or entity.
10.8 Arbitration
(a) All disputes arising out of or relating to this Agreement, the
Company Transaction Documents, the Seller Transaction Documents or the
Buyer Transaction Documents which cannot be settled by the parties shall
promptly be submitted to and determined in arbitration in Indianapolis,
Indiana by a panel of three arbitrators (unless otherwise agreed by the
parties), of whom Buyer shall select one, the Seller shall select one and
the third shall be selected by the two previously selected, pursuant to the
rules and regulations then obtaining of the American Arbitration
Association; provided that nothing herein shall preclude either party from
seeking, in any court of competent jurisdiction, injunctive relief or other
equitable remedies in the case of any breach or threatened breach by Seller
of Section 1 hereof. The decision of the arbitrators shall be final and
binding upon the parties and judgment upon such decision may be entered in
any court of competent jurisdiction.
(b) Discovery shall be allowed pursuant to the United States Federal
Rules of Civil Procedure and as the arbitrators determine appropriate under
the circumstances.
(c) Such arbitrators shall be required to apply the contractual
provisions hereof in deciding any matter submitted to them and shall not
have any authority, by reason of this Agreement or otherwise, to render a
decision that is contrary to the mutual intent of the parties as set forth
in this Agreement. THE ARBITRATORS SHALL APPLY THE SUBSTANTIVE LAWS OF THE
STATE OF INDIANA IN ANY ARBITRATION CONDUCTED PURSUANT TO THIS PROVISION.
10.9 Amendment. Modification and Waiver. The parties may amend or modify
this Agreement in any respect. Any such amendment, modification, extension or
waiver shall be in writing and signed by all parties hereto. The waiver by a
party of any breach of any provision of this Agreement shall not constitute or
operate as a waiver of any other breach of such provision or of any other
provision hereof, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof.
10.10 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of the State of Indiana (and
United States federal law, to the extent applicable), irrespective of the
principal place of business, residence or domicile of the parties hereto, and
without giving effect to otherwise applicable principles of conflicts of law.
Nothing contained herein or in any Transaction Document shall prevent or delay
Buyer from seeking, in any court of competent jurisdiction, specific performance
or other equitable remedies in the event of any breach or intended breach by
Seller of any of its obligations hereunder.
10.11 Section Headings and Defined Terms. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement. The terms defined herein and in
any agreement executed in connection herewith include the plural as well as the
singular and the singular as well as the plural, and the use of masculine
pronouns shall include the feminine and neuter. Except as otherwise indicated,
all agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith.
10.12 Severability. The invalidity or unenforceability of any particular
provision, or part of any provision, of this Agreement shall not affect the
other provisions or parts hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions or parts were omitted.
10.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument.
10.14 Entire Agreement. This Agreement, together with the Disclosure
Statement and the agreements, exhibits, schedules and certificates referred to
herein or delivered pursuant hereto, constitute the entire agreement between the
parties hereto with respect to the purchase and sale of the Shares and supersede
all prior agreements and understandings. Disclosure of any matter, fact or
circumstance in one part of the Disclosure Statement shall be deemed to be a
disclosure thereof for purposes of any other part of the Disclosure Statement.
The submission of a draft of this Agreement or portions or summaries thereof
does not constitute an offer to purchase or sell the Shares, it being understood
and agreed that neither Buyer or Seller shall be legally obligated with respect
to such a purchase or sale or to any other terms or conditions set forth in such
draft or portion or summary unless and until this Agreement has been duly
executed and delivered by all parties.
10.15 Rights of First Refusal. Subject to the terms and conditions
specified in this Section, Buyer hereby grants to Seller a right of first
refusal with respect to future sales of Kingston (as hereinafter defined). In
the event that Company or Buyer or any Affiliate thereof desires to sell or
otherwise transfer all or substantially all of the assets of Company including
all or substantially all of the stock or other equity interest in Company
(collectively, "Kingston"), in a single transaction or a series of transactions,
and whether through the sale or other transfer of assets, merger, consolidation,
sale of stock or otherwise, Buyer shall first obtain a bona fide, arms'-length
written offer (a "Third Party Offer") from the proposed purchaser describing in
detail the assets to be transferred, the proposed structure of the transfer
transaction, the purchase price and the other terms upon which the proposed
purchaser proposes to purchase Kingston. Buyer shall deliver a notice in
accordance with Section 10.6 (each a "Kingston Sale Notice") to Seller (a)
stating its bona fide intention to sell Kingston, and (b) describing in detail
the terms of the Third Party Offer. By written notice delivered to Buyer, within
30 calendar days after receipt of the Kingston Sale Notice, Seller may elect to
purchase or obtain Kingston, at the price and upon substantially the same terms
as those specified in the Third Party Offer and the Kingston Sale Notice. If
Seller does not elect to purchase Kingston within this 30 day period, Buyer may,
during the following 60 day period, sell Kingston to the original third party
proposed purchaser on the terms provided in the Kingston Sale Notice. If Buyer
does not enter into an agreement for the sale of Kingston within such period, or
if such agreement is not consummated within 180 days of the execution thereof,
the right provided hereunder shall be deemed to be revived and Kingston shall
not be offered unless first reoffered to Seller in accordance herewith.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, under seal, all as of the date first above written.
FORTUNE DIVERSIFIED, INDUSTRIES, INC.
By:________________________________
Carter Fortune, CEO
KINGSTON SALES CORPORATION
By:________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇