SECURITIES EXCHANGE AGREEMENT
SECURITIES EXCHANGE AGREEMENT ("this Agreement") dated as of August 4,
2000 by and between GLOBAL iTECHNOLOGY, INC. , a Delaware corporation
("Purchaser"), and the individuals named on Schedule 1.1 hereto that have
executed this Agreement (the "Shareholders") being the shareholders of 1,775,000
shares of the capital stock of Certificate Express, Inc., a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, the Shareholders own 1,775,000 of 1,825,000 outstanding shares
(the "Company Shares") of common stock, $.001 par value of the Company (the
"Company Common Stock"); and
WHEREAS, the Shareholders wish to sell and Purchaser desires to
purchase the Company Shares pursuant to this Agreement in exchange for shares of
the common stock $0.01 par value ("Purchaser Stock") of the Purchaser
("Purchaser Shares"); and
WHEREAS, it is the intention of the parties hereto that, upon
consummation of the purchase and sale of the Company Shares pursuant to this
Agreement and the transfer of 50,000 shares of Common stock not owned by the
Shareholders, Purchaser shall own all of the outstanding shares of capital stock
of the Company;
NOW, THEREFORE, IT IS AGREED:
ARTICLE 1
REPRESENTATIONS OF THE SHAREHOLDERS
The Shareholders, individually, represent, warrant and agree as
follows:
1.1 Ownership of Stock. Such Shareholder is the lawful owner of the
number of shares of Company Shares listed opposite the name of such Shareholder
in Schedule 1.1 hereto, free and clear of all preemptive or similar rights,
liens, encumbrances, restrictions and claims of every kind. Such Shareholder has
full legal right, power and authority to enter into this Agreement and to sell,
assign, transfer and convey the Company Shares so owned by such Shareholder
pursuant to this Agreement and the delivery to Purchaser of the Company Shares
by such Shareholder pursuant to the provisions of this Agreement will transfer
to Purchaser valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of every kind. Such Shareholder is a resident or
incorporated under the laws of the state set forth opposite such Shareholder's
name in Schedule 1.1.
1.2 Authority to Execute and Perform Agreement; No Breach. Such
Shareholder has the full legal right and power and all authority and approval
required to enter into, execute and deliver this Agreement, and to sell, assign,
transfer and convey the Company Shares owned by such Shareholder and to perform
fully their respective obligations hereunder. This Agreement has been duly
executed and delivered by such Shareholder and, assuming due execution and
delivery by, and enforceability against, Purchaser, constitutes the valid and
binding obligation of such Shareholder enforceable in accordance with its terms,
subject to the qualifications that enforcement of the rights and remedies
created hereby is subject to (i) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors, and (ii) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law). No
approval or consent of, or filing with, any governmental or regulatory body, and
no approval or consent of, or filing with, any other person is required to be
obtained by such Shareholder or in connection with the execution and delivery by
such Shareholder of this Agreement and consummation and performance by them of
the transactions contemplated hereby, other than as set forth on Schedule 1.2.
The execution, delivery and performance of this Agreement by such Shareholder
and the consummation of the transactions contemplated hereby in accordance with
the terms and conditions hereof by such Shareholder will not:
(a) knowingly violate, conflict with or result in the breach of
any of the material terms of, or constitute (or with notice or
lapse of time or both would constitute) a material default
under, any contract, lease, agreement or other instrument or
obligation to which such Shareholder is a party or by or to
which any of the properties and assets of such Shareholder may
be bound or subject;
(b) violate any order, judgment, injunction, award or decree of
any court, arbitrator, governmental or regulatory body, by
which either such Shareholder or the securities, assets,
properties or business of such Shareholder is bound; or
(c) knowingly violate any statute, law or regulation.
1.3 Existence and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the power to own or lease its properties and assets
and to carry on its business as now being conducted. The Company is duly
qualified to do business and is in good standing in Maryland, which is the only
jurisdiction in which the character or location of the properties owned or
leased by the Company or the nature of the business conducted by the Company
makes such qualification necessary. However, the failure to be so qualified or
in good standing in any given jurisdiction will not be deemed to be a breach of
this Section 1.3 unless the failure of the Company to be in good standing in any
such jurisdiction individually or in all such jurisdictions collectively has or
is likely to have a material adverse effect on the Company or on the
transactions contemplated herein.
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1.4 Capital Stock. The Company has an authorized capitalization
consisting of 3,000,000 shares of Common Stock. There are 1,875,000 shares of
Common Stock issued and outstanding. All such outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth as Schedule 1.4 attached hereto, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements, commitments or arrangements of any character
providing for the purchase, subscription, issuance or sale of any shares of the
capital stock of the Company, other than the sale of the Company Shares as
contemplated by this Agreement.
1.5 Financial Statements and No Material Changes. Annexed hereto as
Schedule 1.5 are the unaudited consolidated balance sheet of the Company as of
June 30, 2000 (the "Financial Statements").
The Financial Statements were carefully prepared from the books and
records of the Company, and although the Financial Statements are not audited
and do not contain the footnotes which would be required in audited financial
statements, present fairly the financial position, assets and liabilities of the
Company and the results of its operations, for the respective periods indicated
and reflect all necessary accruals, all in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis. The Financial
Statements contain all adjustments (consisting of only normal recurring
accruals) required to be made by GAAP.
Since June 30, 2000 (the "Balance Sheet Date") there has been (a) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God
or other public force or otherwise and (b) no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of the Company and to the best
knowledge, information and belief of the Shareholders, no fact or condition
exists or is contemplated or threatened which might cause such a change in the
future.
1.6 Books and Records. The corporate materials supplied to the
Purchaser are true, correct and complete in all material respects.
1.7 Title to Properties; Encumbrances.
(a) Except as set forth on Schedule 1.7 attached hereto, the
Company has valid and marketable title to (a) all of its
properties and assets (real and personal, tangible and
intangible), including, without limitation, all of the
properties and assets reflected in the balance sheet included
as part of the Financial Statements, except as indicated in
the Schedules hereto; and (b) all of the properties and assets
purchased by the Company since the Balance Sheet Date all of
which purchases as of a date not more than two days prior to
the date of this Agreement, have been set forth on Schedule
1.7 attached hereto; in each case subject to no encumbrance,
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lien, charge or other restriction of any kind or character,
except for (i) liens reflected in the balance sheet, included
as part of the Financial Statements; (ii) liens consisting of
zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or
irregularities in title thereto which do not materially
detract from the value of, or impair the use of, such property
by the Company in the operation of its business; (iii) liens
for current taxes, assessments or governmental charges or
levies on property not yet due and delinquent; and (iv) liens
described on Schedule 1.7 attached hereto (liens of the type
described in clause (i), (ii) and (iii) above are hereinafter
sometimes referred to as "Permitted Liens").
(b) The rights, properties and other assets presently owned,
leased or licensed, by the Company reflected on the balance
sheet included in the Financial Statements or acquired since
the Balance Sheet Date include all rights, properties and
other assets necessary to permit the Company to conduct its
business in the same manner as its business has heretofore
been conducted. All such properties and assets owned or leased
by the Company are in satisfactory condition and repair, other
than ordinary wear and tear.
To the Shareholders' knowledge, no structure or improvement on
the real property leased by the Company, whether now existing
or intended to be constructed pursuant to existing plans and
specifications, violates, or if completed would violate, any
applicable zoning or building regulations or ordinances or
similar federal, state or municipal law.
With respect to the real property and structures and
improvements, whether now existing, under construction or
intended to be constructed pursuant to existing plans and
specifications, the Company has all governmental permits,
approvals, consents or similar authorizations necessary to own
or lease, construct and operate its properties, each of which
are listed on Schedule 1.7(b). Such governmental permits,
approvals, consents or similar authorizations will remain in
effect or, if due to expire by its terms, the Shareholders
have no reason to believe that they will not be renewable in
accordance with their terms.
To the Shareholders' knowledge, no violations of any easements
or restrictions relating to the real property exist.
To the Shareholders' knowledge, no material structural defects
in any of the buildings or other improvements erected on the
leased real property exist.
1.8 Leases. Schedule 1.8 attached hereto, contains an accurate and
complete list and description of the terms of all leases to which the Company is
a party (as lessee or lessor). Each lease set forth on Schedule 1.8 (or required
to be set forth on Schedule 1.8) is in full force and effect; all rents and
additional rents due to date on each such lease have been paid; in each case,
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the lessee has been in peaceable possession since the commencement of the
original term of such lease and is not in default thereunder and no waiver,
indulgence or postponement of the lessee's obligations thereunder has been
granted by the lessor; and there exists no event of default or event,
occurrence, condition or act (including the consummation of the transactions
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any further event or condition, would become a default under such
lease. The Company has not violated any of the terms or conditions under any
such lease in any material respect. The property leased by the Company is in a
state of good maintenance and repair and is adequate and suitable for the
purposes for which it is presently being used.
1.9 Material Contracts. Except as set forth on Schedule 1.9 attached
hereto, the Company is not bound by:
(a) any agreement, contract or commitment relating to the
employment of any person by the Company, or any bonus,
deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit
plan;
(b) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other
distribution in respect of its capital stock;
(c) any loan or advance to, or investment in, any individual,
partnership, joint venture, corporation, trust, unincorporated
organization, government or other entity (each a "Person") or
any agreement, contract or commitment relating to the making
of any such loan, advance or investment;
(d) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person (other than the
endorsement of negotiable instruments for collection in the
ordinary course of business);
(e) any management service, consulting or any other similar type
contract;
(f) any agreement, contract or commitment limiting the freedom of
the Company or any subsidiary to engage in any line of
business or to compete with any Person;
(g) any agreement, contract or commitment not entered into in the
ordinary course of business which involves $25,000 or more and
is not cancelable without penalty or premium within 30 days;
or
(h) any agreement, contract or commitment which might reasonably
be expected to have a potential adverse impact on the business
or operations of the Company; or
(i) any agreement, contract or commitment not reflected in the
Financial Statement under which the Company is obligated to
make cash payments of, or deliver
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products or render services with a value greater than $10,000
individually or $30,000 in the aggregate, or receive cash
payments of, or receive products or services with a value
greater than $10,000 individually or $30,000 in the aggregate,
and any other agreement, contract or commitment which is
material to the conduct of the business of the Company.
Each contract or agreement set forth on Schedule 1.9 (or not required
to be set forth on Schedule 1.9) is in full force and effect and there exists no
default or event of default or event, occurrence, condition or act (including
the consummation of the transactions contemplated hereby) which, with the giving
of notice, the lapse of time or the happening of any other event or condition,
would become a default or event of default thereunder. The Company has not
violated any of the terms or conditions of any contract or agreement set forth
on Schedule 1.9 (or not required to be set forth on Schedule 1.9) in any
material respect, and, to the knowledge, of the Shareholders, all of the
covenants to be performed by any other party thereto have been fully performed.
Except as set forth on Schedule 1.9, the consummation of the transactions
contemplated hereby does not constitute an event of default (or an event, which
with notice or the lapse of time or both would constitute a default) under any
such contract or agreement.
1.10 Restrictive Documents. (a) Except as set forth on Schedule 1.10
attached hereto, the Company is not subject to, or a party to, any charter,
by-law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which could materially adversely affect
the business practices, operations or condition of the Company or any of its
assets or property, or which would prevent consummation of the transactions
contemplated by this Agreement, or the continued operation of the Company's
business after the date hereof or the Closing Date (as hereinafter defined) on
substantially the same basis as heretofore operated or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
(b) Except as set forth on Schedule 1.10 attached hereto, each Shareholder
represents that they individually are not subject to, or a party to, any
charter, by-law, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, or which would prevent consummation
of the transactions contemplated by this Agreement, compliance by such
Shareholder with the terms, conditions and provisions or which would restrict
the ability of the Company to acquire any property or conduct business in any
area.
1.11 Litigation. Except as set forth on Schedule 1.11 attached hereto,
there is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before (or to the knowledge of the
Shareholders any investigation by) any governmental or other instrumentality or
agency, pending, or, to the knowledge of the Shareholders, threatened, against
or affecting the Company, or any of its properties or rights, or any officer,
director or employee of the Company other than such items which are
insignificant and immaterial and which do not adversely affect (i) the right or
ability of the Company to carry on business as now conducted; (ii) the
condition, whether financial or otherwise, or properties of the Company; or
(iii) the consummation of the transactions contemplated hereby. To the knowledge
of the Shareholders there is no valid basis for any such action, proceeding or
investigation. To the knowledge of the Shareholders
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there are no outstanding orders, judgments, injunctions, awards or decrees of
any court, governmental or regulatory body or arbitration tribunal by which
either the Company, or any officer, director or employee of the Company, or the
securities, assets, properties or business of any of them is bound, other than
any such items which are insignificant and immaterial and which do not and will
not adversely affect (i) the right of the Company to carry on its business as
now conducted and as proposed to be conducted by the Purchaser after the
consummation of the transactions contemplated by this Agreement; (ii) the
condition, whether financial or otherwise, of properties of the Company; or
(iii) the consummation of the transactions contemplated hereby.
1.12 Taxes. Except as set forth on Schedule 1.12, the Company and every
member of the consolidated group of which the Company is a part has filed or
caused to be filed, within the times and within the manner prescribed by law,
all federal, state, local and foreign tax returns and tax reports which are
required to be filed by, or with respect to, the Company. Such returns and
reports reflect accurately all known liability for taxes of the Company for the
periods covered thereby. Except as set forth on Schedule 1.12, all federal,
state, local and foreign income, profits, franchise, employment, sales, use,
occupancy, excise and other taxes and assessments, stock and transfer taxes
(including interest and penalties) payable by, or shown to be due from, the
Company and any member of the consolidated group of which the Company is a part,
have been fully paid and fully provided for in the books and financial
statements of the Company. To the knowledge of the Shareholders, no examination
of any tax return of the Company or any member of a consolidated group of which
the Company is a part, is currently in progress. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of the Company.
1.13 Liabilities. Except as set forth on Schedule 1.13, the Company has
no outstanding claims, liabilities or indebtedness, contingent or otherwise,
which are not properly reflected in the Financial Statements in a manner
consistently with past practice, other than liabilities incurred subsequent to
the Balance Sheet Date in the ordinary course of business not exceeding $15,000
individually or $50,000 in the aggregate; the reserves reflected in the
Financial Statements are adequate, appropriate and reasonable. The Company is
not in default in respect of the terms or conditions of any indebtedness.
1.14 Intellectual Properties.
(a) Since its formation, to the Shareholders' knowledge, the
business of the Company has not utilized any Intellectual
Property (as hereinafter defined) except that which is listed
on Schedule 1.14 and rights granted to the Company pursuant to
the assignment and other ownership rights obtained by common
laws and work for hire employment agreements listed on
Schedule 1.14. Except as otherwise set forth on Schedule 1.14,
to the knowledge of the Shareholders, the Company owns all
right, title and interest in the Intellectual Property listed
on Schedule 1.14 including, without limitation, the rights to
use and license the same. Each item of Intellectual Property
listed on Schedule 1.14 has been duly registered with, filed
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in, or issued by the appropriate domestic or foreign
governmental agency, to the extent required, and each such
registration, filing and issuance remains in full force and
effect. Except as set forth on Schedule 1.14, no claim adverse
to the interests of the Company in the Intellectual Property
or agreements listed on Schedule 1.14 has been made. To the
knowledge of the Shareholders, no such claim has been
threatened or asserted, and no basis exists for any such
claim. To the knowledge of the Shareholders, no Person has
infringed or otherwise violated the rights of the Company in
any of the Intellectual Property or agreements listed on
Schedule 1.14. Except as set forth on Schedule 1.14, no
litigation is pending wherein the Company is accused of
infringing or otherwise violating Intellectual Property rights
of others, or of breaching a contract conveying rights under
Intellectual Property. To the knowledge of the Shareholders,
no such claim has been asserted or threatened against the
Company, nor is the Company or any Shareholder aware of any
facts that would give rise to such a claim. For purposes of
this Section 1.14, "Intellectual Property" means domestic and
foreign patents, patent applications, registered and
unregistered trade marks and service marks, trade names,
registered and unregistered copyrights, computer programs,
data bases, trade secrets, proprietary information, web sites,
web pages, domain names, and links. The Shareholders will
assign any Intellectual Property owned by them and used in the
Company's Business to the Company. To the knowledge of the
Shareholders, the operation of the business of the Company
requires no rights under Intellectual Property (as hereinafter
defined) other than rights under the Intellectual Property
listed on Schedule 1.14 attached hereto, and rights granted to
the Company pursuant to agreements listed on Schedule 1.14.
(b) To the knowledge of the Shareholders, the Company has, at all
times, complied with all laws and regulations which relate to
the provision of e-commerce, content, information, or other
products or services over the World Wide Web.
1.15 Compliance with Laws. To the knowledge of the Shareholders,
neither the Company, nor to the knowledge of the Shareholders, any officer,
director or employee of the Company, is in violation of any applicable order,
judgment, injunction, award or decree, related to, arising out of or affecting
the business or operations of the Company or its properties or assets. To the
knowledge of the Shareholders, neither the Company, nor any officer, director or
employee of the Company is in violation of any federal, state, local or foreign
law, ordinance, regulation or any other requirement of any governmental or
regulatory body, court or arbitrator (including, without limitation, laws
relating to the environment and OSHA and the Americans with Disabilities Act)
other than insignificant or immaterial violations which do not and will not
adversely affect (i) the Company's business or property; (ii) the business
proposed to be conducted by the Purchaser after the consummation of the
transactions contemplated by this Agreement; or (iii) the consummation of the
transactions contemplated by this Agreement. To the knowledge of the
Shareholders, each permit, license, order or approval of any governmental or
regulatory body or other applicable authority ("Permits") that is material to
the conduct of the Company's business is in full force and effect, no violations
are or have been recorded in respect
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of any permit and no proceeding is pending or, to the knowledge of the
Shareholders, threatened, to revoke or limit any Permit, which revocation or
limitation could have an adverse effect on the Company's business or property or
the business to be conducted by the Purchaser after the consummation of the
transactions contemplated by this Agreement. Schedule 1.15 contains a list of
all Permits. Except as set forth on Schedule 1.15, no approval or consent of any
person is needed in order that the Permits continue in full force and effect
following the consummation of the transactions contemplated by this Agreement.
1.16 Employment Relations. The Company is in compliance with all
Federal, state or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and has not and is not engaged in any unfair labor practice.
1.17 Employee Benefit Plans. The Company has no employee welfare
benefit plan (an "Employee Welfare Plan"), as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
1.18 Interests in Clients, Suppliers, Etc. Except as set forth on
Schedule 1.18 attached hereto, no Shareholder nor any officer or director of the
Company possesses, directly or indirectly, any financial interest in, or is a
director, officer or employee of, any corporation, firm, association or business
organization which is a client, supplier, customer, lessor, lessee, or
competitor or potential competitor of the Company. Ownership of securities of a
company whose securities are registered under the Securities Exchange Act of
1934, as amended, not in excess of 1% of any class of such securities shall not
be deemed to be a financial interest for purposes of this Section 1.18.
1.19 Bank Accounts and Powers of Attorney. Set forth on Schedule 1.19
attached hereto is an accurate and complete list showing (a) the name and
address of each bank in which the Company has an account or safe deposit box,
the number of any such account or any such box and the names of all persons
authorized to draw thereon or to have access thereto; (b) the names of all
persons, if any, holding powers of attorney from the Company and a summary
statement of the terms thereof.
1.20 No Changes Since Balance Sheet Date. Since the Balance Sheet Date,
the Company has not on a consolidated basis:
(a) incurred any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise), except
liabilities and obligations in the ordinary course of business
and consistent with past practice and which have resulted in
an increase of liabilities since the date of the Balance Sheet
of not more than $50,000 in the aggregate;
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(b) permitted any of its assets to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or
charge of any kind (other than Permitted Liens);
(c) sold, transferred or otherwise disposed of any assets except
inventory sold in the ordinary course of business and
consistent with past practice;
(d) made any single capital expenditure or commitment therefor, in
excess of $10,000 or made aggregate capital expenditures and
commitments therefor in excess of $30,000;
(e) declared or paid any dividend or made any distribution on any
shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;
(f) made any bonus or profit sharing distribution or payment of
any kind;
(g) increased its indebtedness for borrowed money, or made any
loan to any Person;
(h) written off as uncollectible any notes or accounts receivable,
except immaterial write-downs or write-offs in the ordinary
course of business and consistent with past practice which do
not exceed $10,000 in the aggregate charged to applicable
reserves, and none of which individually or in the aggregate
is material to the Company;
(i) granted any increase in the rate of wages, salaries, bonuses
or other remuneration or benefits of any executive employee or
other employees or consultants, and no such increase is
customary on a periodic basis or required by agreement or
understanding;
(j) canceled or waived any claims or rights of substantial value;
(k) made any change in any method of accounting or auditing
practice;
(l) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in
the ordinary course of business and consistent with past
practices;
(m) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of
liabilities and obligations reflected and reserved against in
the Company's Financial Statements or incurred in the ordinary
course of business and consistent with past practice since the
Balance Sheet Date;
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(n) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets (real, personal or mixed,
tangible or intangible to, or entered into any agreement or
arrangement of any kind with, any of its officers, directors
or shareholders or any affiliate or associate of its officers,
directors or shareholders, except compensation to officers at
rates not exceeding the rate of compensation in effect as of
the Balance Sheet Date;
(o) suffered any material adverse changes in its working capital,
financial condition, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves, business operations or
prospects; or
(p) agreed, whether or not in writing, to do any of the foregoing.
1.21 Securities Matters. Each Shareholder hereby represents, warrants
and covenants to the Purchaser, as follows:
(a) Such Shareholder understands that the Purchaser Shares have
not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities act in
reliance on exemptions therefrom.
(b) The Purchaser Shares are being acquired solely for such
Shareholder's own account, for investment and are not being
acquired with a view to or for the resale, distribution,
subdivision or fractionalization thereof, the Shareholder has
no present plans to enter into any such contract, undertaking,
agreement or arrangement and such Shareholder further
understands that the Purchaser Shares, may only be resold
pursuant to a registration statement under the Securities Act,
or pursuant to some other available exemption;
(c) The Shareholder is an "accredited investor" as that term is
defined in Regulation D of the Securities Act and through its
officers and directors has sufficient knowledge and experience
in financial and business matters to be capable of evaluating
the merits and the risks of its investment in the Purchaser
Shares and is able to bear the economic risk of its investment
in the Purchaser Shares;
(d) Such Shareholder acknowledges, in connection with the purchase
of the Purchaser Shares, that no representation has been made
by representatives of the Purchaser regarding its business,
assets or prospects other than that set forth herein and that
it is relying upon the information set forth in the filings
made by Purchaser pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended and such other
representations and warranties as set forth in this Agreement.
(e) Such Shareholder agrees that the certificate or certificates
representing the Purchaser Shares will be inscribed with
substantially the following legend:
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933. The securities have been
acquired for investment and may not be sold, transferred assigned in
the absence of an effective registration statement for these securities
under the Securities Act of 1933 or an opinion of Purchaser's counsel
that registration is not required under said Act."
1.22 Certain Business Practices. No officer, director, shareholder,
employee, agent or other representative of the Company, or any person acting on
behalf of the Company has directly or indirectly, within the past five years,
given or agreed to give any illegal, unethical or improper gift or similar
benefit to any customer, supplier, governmental employee or other person who is
or may be in a position to help or hinder the Company or assist the Company in
connection with an actual or proposed transaction.
1.23 Subsidiaries. The Company has no subsidiaries or interest in any
corporation, partnership, joint venture or other entity.
1.24 Disclosure. Neither this Agreement, nor the Financial Statements
referred to in Section 1.5 hereof, any Schedule, Exhibit or certificate attached
hereto or delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of the Shareholders
or by or on behalf of any of the Company's directors or officers in connection
with the transactions contemplated by this Agreement contains any untrue
statement of a material fact, or omits any statement of a material fact
necessary in order to make the statements contained herein or therein not
misleading. To the knowledge of the Shareholders, there is no fact known to the
Shareholders which could materially and adversely affect the business, prospects
or financial condition of the Company or its properties or assets, which has not
been set forth in this Agreement, the Financial Statements referred to in
Section 1.5 hereof (including the footnotes thereto), any Schedule, Exhibit or
certificate attached hereto or delivered in accordance with the terms hereof or
any document or statement in writing which has been supplied by or on behalf of
the Company or by or on behalf of any of the Company's directors or officers in
connection with the transactions contemplated by this Agreement.
1.25 Broker's or Finder's Fees. No agent, broker, person or firm acting
on behalf of the Company or the Shareholders is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated by this
Agreement.
1.26 Copies of Documents. The Shareholders have caused to be made
available for inspection and copying by the Purchaser and its advisers, true,
complete and correct copies of all documents referred to in this Article 1 or in
any Schedule attached hereto.
12
ARTICLE 2
REPRESENTATIONS OF THE PURCHASER
The Purchaser represents, warrants and agrees as follows:
2.1 Organization and Corporate Power. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is duly qualified and in good standing to do business as
a foreign corporation in each jurisdiction in which such qualification is
required and where the failure to be so qualified would have a materially
adverse effect upon the Purchaser. The Purchaser has all requisite corporate
power and authority to conduct its business as now being conducted. The
Purchaser's Articles of Incorporation as amended to date, certified by the
Secretary of State of Delaware, and the By-laws of the Purchaser as amended to
date, certified by the President and the Secretary of the Purchaser, which have
been delivered to the Shareholders prior to the execution hereof, are true and
complete copies thereof as in effect as of the date hereof.
2.2 Authorization. The Purchaser has full power, legal capacity and
authority to enter into this Agreement, to execute all attendant documents and
instruments necessary to consummate the transaction herein contemplated, and to
issue and sell the Purchaser Shares to the Shareholders, and to perform all of
its obligations hereunder. This Agreement and all other agreements, documents
and instruments to be executed in connection herewith have been effectively
authorized by all necessary action, corporate or otherwise, on the part of the
Purchaser, which authorizations remain in full force and effect, have been duly
executed and delivered by the Purchaser, and no other corporate proceedings on
the part of the Purchaser are required to authorize this Agreement and the
transactions contemplated hereby, except as specifically set forth herein. This
Agreement constitutes the legal, valid and binding obligation of the Purchaser
and is enforceable with respect to the Purchaser in accordance with its terms,
except as enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, priority or other laws of court decisions relating to or
affecting generally the enforcements of creditors' rights or affecting generally
the availability of equitable remedies. Neither the execution and delivery of
this Agreement, nor the consummation by the Purchaser of any of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (i)
conflict with or result in a breach or, violation of, or default under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, lease, credit agreement or other agreement, document, instrument or
obligation (including, without limitation, any of its charter documents) to
which the Purchaser is a party or by which the Purchaser or any of its assets or
properties may be bound, or (ii) violate any judgment, order, injunction,
decree, statute, rule or properties of the Purchaser. No authorization, consent
or approval of any public body of authority or any third party is necessary for
the consummation by the Purchaser of the transactions contemplated by this
Agreement.
2.3 Capitalization. The authorized and outstanding capital stock of the
Purchaser as of April 19, 2000 is as set forth in the Purchaser's Form 10-KSB
Report for the fiscal year ended
13
December 31, 1999 ("Form 10-KSB") and Form 10-QSB for March 31, 2000. All of the
outstanding shares of the Purchaser's Common Stock have been, and all of the
Purchaser's Common Stock to be issued and sold to the Shareholders pursuant to
this Agreement, when issued and delivered as provided herein will be duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
or similar rights. Except as set forth in the Form 10-KSB or on Schedule 2.3
hereto, there are no options warrants or other rights to acquire securities of
the Purchaser or securities convertible into such securities.
2.4 Financial Statements.
(a) The Purchaser's financial statements contained in its Form
10-KSB and Form 10-QSB for the period ended March 31, 2000
(the "Purchaser's Financial Statements") are complete in
material respects and have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The
Purchaser's Financial Statements accurately set out and
describe the financial condition and operating results of the
Purchaser as of the dates, and for the periods indicated
therein, subject to normal year-end audit adjustments. Except
as set forth in the Purchaser's Financial Statements, the
Purchaser has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of
business subsequent to March 31, 2000 and (ii) obligations
under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted
accounting principles to be reflected in the Purchaser's
Financial Statements. The Purchaser maintains and will
continue to maintain a standard system of accounting
established and administered in accordance with generally
accepted accounting principles.
(b) Except as set forth in Schedule 2.4, since March 31, 2000
there has been (i) no material adverse change in the assets or
liabilities, or in the business or condition, financial or
otherwise, or in the results of operations or prospects, of
Purchaser whether as a result of any legislative or regulatory
change, revocation of any license or rights to do business,
fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation or act of God or other
public force or otherwise and (ii) no material adverse change
in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations or
prospects, of Purchaser and to the best knowledge, information
and belief of Purchaser, no fact or condition exists or is
contemplated or threatened which might cause such a change in
the future.
2.5 Subsidiaries. The Purchaser has no subsidiaries and no investments,
directly or indirectly, or other financial interest in any other corporation or
business organization, joint venture or partnership of any kind whatsoever
except set forth in Schedule 2.5.
14
2.6. Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the most recent balance sheet included in the
Purchaser's Financial Statements, the Purchaser has no liability(s) or
obligation(s) (whether accrued, to become due, contingent or otherwise) which
individually or in the aggregate could have a materially adverse effect on the
business, assets, properties, condition (financial or otherwise) or prospects of
the Purchaser. Except as disclosed on Schedule 2.6 hereto, there are no material
changes in the business of the Purchaser.
2.7 No Pending Material Litigation or Proceedings. Except as set forth
in the Purchaser's Form 10-KSB and Form 10-QSB, there are no actions, suits or
proceedings pending or, to the best of the Purchaser's knowledge, threatened
against or affecting the Purchaser (including actions, suits or proceedings
where liabilities may be adequately covered by insurance) at law or in equity or
before or by any federal, state, municipal or other governmental department,
commission, court, board, bureau, agency or instrumentality, domestic or
foreign, or affecting any of the officers or directors of the Purchaser in
connection with the business, operations or affairs of the Purchaser, which
might result in any adverse change in the business, properties or assets, or in
the condition (financial or otherwise) of the Purchaser, or which might prevent
the sale of the transactions contemplated by this Agreement. Except for the
proceeding of the Purchasers' subsidiaries disclosed in the Form 10-KSB and Form
10-QSB, the Purchaser is not subject to any voluntary or involuntary proceeding
under the United States Bankruptcy Code and has not made an assignment for the
benefit of creditors.
2.8 Disclosure. Neither this Agreement, nor any certificate, exhibit,
or other written document or statement, furnished to the Shareholders by the
Purchaser in connection with the transactions contemplated by this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to be stated in order to make the
statements contained herein or therein not misleading.
2.9 Tax Returns and Payments. Except as otherwise reflected in the
Financial Statements, Purchaser has timely filed or caused to be timely filed
(including allowable extensions) all material federal, state, local, foreign and
other tax returns for income taxes, sales taxes, withholding taxes, employment
taxes, property taxes, franchise taxes and all other taxes of every kind
whatsoever which are required by law to have been filed. Except as otherwise
reflected in the Financial Statements, Purchaser has paid or caused to be paid
all taxes, assessments, fees, penalties and other governmental charges which
were shown to be due pursuant to said returns and all other taxes, assessments,
fees, penalties and other governmental charges which have become due and payable
on said returns. The provisions for income and other taxes reflected in the
Financial Statements make adequate provision for all accrued and unpaid taxes of
Purchaser, whether or not disputed, and Purchaser has made and will continue to
make adequate provision for such taxes on its books and records. Except as
otherwise reflected in the Financial Statements, Purchaser is not party to any
action or proceeding pending or threatened by any governmental authority for
assessment or collection of taxes; no unresolved claim for assessment or
collection of such taxes has been asserted against Purchaser, and no audit or
investigation by state or local government authorities is under way. Purchaser
will make
15
available for review by the Shareholders or their representatives copies of the
federal income and state franchise tax returns of Purchaser as may be requested.
2.10 Compliance with Law and Government Regulations. The Purchaser is
in compliance with all applicable statutes, regulations, decrees, orders,
restrictions, guidelines and standards, whether mandatory or voluntary, imposed
by the United States of America, any state, county, municipality or agency of
any thereof, and any foreign country or government to which the Purchaser is
subject. Without limiting the generality of the foregoing, the Purchaser has
filed all reports and statements required to be filed pursuant to the Securities
Act of 1933 (the "1933 Act") and Securities Exchange Act of 1934 (the "1934
Act") including all periodic reports required under the Section 13 or 15 of the
Exchange Act. Each of such reports was complete, did not contain any material
misstatement of or omit to state any material fact.
2.11 Broker's or Finder's Fees. No agent, broker, person or firm acting
on behalf of the Purchaser is, or will be, entitled to any commission or
broker's or finder's fees from the Shareholders or from any Person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein.
ARTICLE 3
SALE OF SHARES AND WARRANTS
3.1 Sale of Shares. Subject to the terms and conditions herein stated,
the Shareholders agree to sell, assign, transfer and deliver to Purchaser on the
Closing Date, and Purchaser agrees to purchase the Company Shares from the
Shareholders on the Closing Date. The certificates representing the Company
Shares shall be duly endorsed in blank, or accompanied by stock powers duly
executed in blank, by the Shareholders transferring the same, with all necessary
transfer tax and other revenue stamps, acquired at Shareholders' expense,
affixed and canceled. The Shareholders agree to cure any deficiencies with
respect to the endorsement of the certificates representing the Company Shares
owned by the Shareholders or with respect to the stock power accompanying any
such certificates.
3.2 Price for the Company Shares.
(a) In full consideration for the acquisition of the Company
Shares, the Purchaser will issue to the Shareholders an
aggregate of 1,130,000 Purchaser Shares and 218,000 three-year
warrants (the "Warrants') to purchase additional shares of the
Purchaser's Common Stock for $2.00 per share. The Warrants
shall be in the form annexed hereto as Exhibit A.
(b) The Purchaser further agrees to issue within ten (10) days of
the occurrence of the event:
16
(i) an aggregate 500,000 additional Purchaser Shares to
the Shareholders if the Company, prior to December
31, 2001, processes 25,000 "Transactions" (defined
below) during one calendar month; and
(ii) 450,000 additional Purchaser Shares to the
Shareholders if the Company is awarded a patent for
its gift certificate technology, entitled "Electronic
Buying Certificate" which application was filed on
May 27, 1999 (Serial No. 09/311,196) or on the
Continuation-in-Part filed August 2, 2000 on or prior
to June 30, 2003; and
(iii) The Purchaser will issue the additional 500,000
Purchaser Shares set forth in paragraph (b)(i) above
and the additional 450,000 Purchaser Shares set forth
in paragraph (b)(ii) above in the event the Company
offers shares in an underwritten public offering
before December 31, 2001 and June 30, 2003,
respectively.
(c) For the purposes of Section 3.2 (b) (i) of this Agreement, a
Transaction will be deemed to have occurred each time a person
or entity makes a request for a gift certificate(s) from the
Certificate Express website and the Certificate Express
software system fulfills the order so that the certificate can
be emailed or downloaded to a personal computer. It is not
required that the purchaser or recipient of the certificate
actually print or negotiate the certificate for a Transaction
to have occurred.
(d) In each case, the Purchaser will issue and deliver the
Purchaser Shares and Warrants to the Shareholders according to
the list on Schedule 1.1.
3.3 Antidilution Provisions.
(a) As of the date of this Agreement there are approximately
15,500,000 shares of the Purchaser's Common Stock outstanding.
If all of the Transaction Shares and Patent Shares are earned,
the Shareholders would acquire an aggregate of 2,150,000
Purchaser Shares as a result of this Agreement. The
Shareholders understand that the Purchaser plans a financing
transaction in which it will issue shares of Purchaser's
Common Stock for up to $1,500,000. At the time essential terms
of this Agreement were negotiated, the parties believed that
the price at which the shares of Purchaser's Common Stock
would be issued would not be less than $1.50 per share. If
that had occurred, the Shareholders would have owned a maximum
of 2,150,000 of 18,650,000 shares or 11%.
(b) In order to protect the Shareholders from dilution caused by
the issuance of shares of Purchaser's Common Stock for less
than $1.50 per share, the Purchaser agrees to issue additional
Purchaser Shares to the Shareholders determined by multiplying
the number of shares issued in excess of 1,000,000 to raise
$1.5
17
million by 0.11 (the "Adjustment Shares"). The Adjustment
Shares will be allocated as follows:
Initial Shares Adjustment Shares
Purchaser Shares (at Closing) 1,200,000 56%
Transaction Shares 500,000 23%
Patent Shares 450,000 21%
---------- -----
2,150,000 100%
(c) As an example, if the Purchaser issues 1,500,000 shares for
$1.00 per share, an additional 55,000 Purchaser Shares would
be due as follows:
Purchaser Shares 30,800
Transaction Shares 12,650
Patent Shares 11,550
------
55,000
(d) All Adjustment Shares will be deemed fully paid and
non-assessable without the receipt of further consideration of
the Purchaser.
3.4 Closing. The sales referred to in Sections 3.1 shall take place at
10:00 A.M. at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ at two business days after all the conditions
set forth in Articles 4 and 5 have been fulfilled or waived, but not later than
August 11, 2000, or at such other time and date as the parties hereto shall
agree in writing. Such time and date are herein referred to as the "Closing
Date."
ARTICLE 4
CONDITIONS TO PURCHASER'S OBLIGATIONS
The purchase of the Company Shares by Purchaser on the Closing Date is
conditioned upon satisfaction, on or prior to such date, of the following
conditions:
4.1 Reserved.
4.2 Good Standing and Other Certificates. The Shareholders shall
have delivered to the Purchaser:
(a) copies of the Company's charter including all amendments
thereto, in each case certified by the Secretary of State or
other appropriate official of its jurisdiction of
incorporation;
18
(b) a certificate from the Secretary of State or other appropriate
official of their respective jurisdictions of incorporation to
the effect that the Company is in good standing or subsisting
in such jurisdiction and listing all charter documents
including all amendments thereto, of the Company's charter
documents on file;
(c) a copy of the By-Laws of the Company, certified by the
respective Secretary of each entity as being true and correct
and in effect on the Closing Date.
(d) a resolution of the Company's Board of Directors certified by
their respective Secretary approving the transactions
contemplated hereby.
4.3 No Material Adverse Change. Prior to the Closing Date, there shall
be no material adverse change in the assets or liabilities, the business or
condition, financial or otherwise, the results of operations, or prospects of
the Company, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God
or other public force or otherwise, and the Shareholders shall have delivered to
the Purchaser a certificate signed by the Company's duly authorized
representative, dated the Closing Date, to such effect.
4.4 Reserved.
4.5 Truth of Representations and Warranties. The representations and
warranties of each Shareholder contained in this Agreement or in any Schedule
attached hereto shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date.
4.6 Performance of Agreements. All of the agreements of each
Shareholder to be performed on or before the Closing Date pursuant to the terms
hereof shall have been duly performed, and the Shareholders shall have delivered
to the Purchaser a certificate, signed by the Shareholders' duly authorized
representative dated the Closing Date, to such effect.
4.7 No Litigation Threatened. No action or proceedings shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby, and the Shareholders shall have delivered to the Purchaser a certificate
signed by the Shareholders' duly authorized representative, dated the Closing
Date, to such effect.
4.8 Chief Financial Officer's Letter. The Purchaser shall have received
a letter, dated the Closing Date, from the Company's Chief Financial Officer, in
form and substance satisfactory to them, to the effect set forth in Exhibit C
attached hereto.
19
4.9 Governmental Approvals. All governmental and other consents and
approvals, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
4.10 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to the Purchaser and their counsel,
and the Purchaser shall have received copies of all such documents and other
evidences as they or their counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
4.11 Employment Agreements. The Company shall have entered into
employment agreements with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
substantially in the form annexed hereto as Exhibits C1 and C2 with the
modifications set forth in Exhibit C3.
4.12 Lock-Up Agreements. Each Shareholder shall have entered into a
lock-up agreement with the Purchaser in the form annexed hereto as Exhibit D.
4.13 Patent Opinion. The Purchaser shall have received the complete
favorable opinion of Oblon, Spivak, McClelland, ▇▇▇▇▇ & Neustadt, P.C., to the
effect that the technology employed by the Company does not infringe upon a
specific existing patent. Further, as to patent issues, Purchaser shall have the
right not to proceed to closing only if Purchaser shall have received an adverse
opinion of competent patent counsel either that (a) the patent application does
not cover the process described in Schedule 1.14 or (b) that such process would
infringe on any existing patent.
4.14 Options and Warrants. All outstanding options or warrants to
purchase capital stock of the Company shall have been surrendered for
cancellation.
4.15 Financing. Reserved.
4.16 Assignment and Assu mption of Agreement with Qwest. United States
Check Company, Inc. ("U.S. Check") shall have entered into an assignment and
assumption agreement in the form annexed hereto as Exhibit H which shall provide
the Company with the benefit of the agreement between U.S. Check and Qwest
Communications Corporation dated November 29, 1999.
4.17 Other Shareholders. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ shall
have agreed to transfer all shares of the Company owned by them to Purchaser for
70,000 Purchaser Shares and 6,000 Warrants.
4.18 Part Time Counsel. ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. shall have entered into an
agreement, acceptable to the Purchaser to serve as counsel for the Company for
one year at compensation of $60,000, payable $5,000 per month, for 1/2of his
time.
20
4.19 Closing. The transactions contemplated by this Agreement shall
have been consummated by August 11, 2000.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF
THE SHAREHOLDERS
The obligations of the Shareholders on the Closing Date are conditioned
upon satisfaction, on or prior to such date, of the following conditions:
5.1 Reserved.
5.2 Good Standing Certificates. The Purchaser shall have delivered to
the Shareholders:
(a) copies of the Certificate of Incorporation of the Purchaser,
including all amendments thereto, certified by the Secretary
of State of the State of Delaware; and
(b) certificates from the Secretary of State of the State of
Delaware to the effect that Purchaser is in good standing in
such State and listing all charter documents, including all
amendments thereto, of Purchaser on file.
5.3 Truth of Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and
Purchaser shall have delivered to the Shareholder a certificate, dated the
Closing Date, to such effect.
5.4 Governmental Approvals. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
5.5 Performance of Agreements. All of the agreements of the Purchaser
to be performed on or before the Closing Date pursuant to the terms hereof shall
have been duly performed, and the Purchaser shall have delivered to the
Shareholder a certificate, dated the Closing Date, to such effect.
5.6 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Shareholders and
their counsel, and the Shareholders shall have received copies of all such
documents and other evidences as they or their counsel
21
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
5.7 Registration Rights Agreement. The Purchaser and Shareholders shall
have entered into a registration rights agreement, substantially in the form
annexed hereto as Exhibit F.
5.8 Loan and Security Agreement. The Purchaser shall have provided
$250,000 to the Company pursuant to a loan and security agreement substantially
in the form annexed hereto as Exhibit G (the "Loan Agreement").
5.9 Employment Agreements. The Purchaser shall have entered into the
employment agreements referred to in Section 4.11, above.
5.10 Financing. Reserved.
5.11 Stock Options. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, Jr. and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
shall be granted the options described in ▇▇▇ ▇▇▇▇▇▇▇▇▇▇'▇ memorandum of June
28, 2000 from the Purchaser's 1994 Performance Equity Plan, annexed hereto as
Exhibit Z.
5.12 Closing. The transactions contemplated by this Agreement shall
have been consummated by August 11, 2000.
ARTICLE 6
COVENANTS OF THE SHAREHOLDERS
6.1 Non-Competition; Non-Interference. In consideration of the purchase
of the Shares by Purchaser, each Shareholder individually agrees that from the
date of this Agreement until April 30, 2002, except as set forth in Article 6A
below, such Shareholder will not, whether for their own account or for the
account or any other person, directly or indirectly:
(a) engage or invest in, own, manage, operate, control or
participate in the ownership, management, operation or control
of, be employed by, associated or in any manner connected with
or render services or advice to, any business, the products or
services of which compete, in whole or in part, with the
products or activities of the Company in which the Company was
engaged at the time up to the Closing Date;
(b) solicit any potential customer or client to which the Company
has made a presentation, or with which the Company has been in
contact, not to hire the Company, or to hire another company
whether or not such Company Party had personal contact with
such person during or by reason of his or its association
22
with the Company; or
(c) solicit the business of any company which is a customer or
client of the Company, or was its customer or client within
two years prior to the date of this Agreement;
(d) persuade or attempt to persuade any employee of the Company,
or any individual who was its employee during the two years
prior to the date of this Agreement, to leave the Company's
employ, or to become employed by or otherwise be engaged as an
independent consultant or otherwise for, any person other than
the Company; or
(e) disclose or use any confidential information of the Company or
any of their clients and customers. For purposes of this
section "confidential information" with respect to any entity
shall mean trade secrets concerning such entity's operations,
future plans, projected and historical sales, marketing,
costs, production, growth and distribution, any customer
lists, customer information or other information relating to
the products or services, whether patentable or not,
concerning the business of such entity as conducted prior to
the Closing Date.
6.2 Construction. It is the desire and intent of the parties to this
Agreement that the provisions of Section 6.1 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If any particular provisions or
portion of Section 6.1 shall be adjudicated to be invalid or unenforceable, for
any reason, including, without limitation, the geographic or business scope or
duration thereof, such provision shall be construed in such a way as to make it
valid and enforceable to the maximum extent possible. Any validity or
unenforceability of any provision of this Agreement shall attach only to such
provision and shall not effect or render invalid any other provision of this
Agreement or any other agreement or instrument.
6.3 Enforcement. The parties recognize that the performance of the
obligations under Section 6 by each Shareholder is special, unique and
extraordinary in character, and that in the event of the breach by such
Shareholder of the terms and conditions of Section 6.1 to be performed, the
Company and/or the Purchaser would suffer irreparable harm for which there would
be no adequate remedy at law. Accordingly, each Shareholder agrees that in such
event, in addition to any other remedies which the Company and/or Purchaser may
have in law or equity for money damages or other relief, the Company and the
Purchaser shall be entitled to temporary and/or injunctive relief, without the
necessity of posting a bond therefor or of proving damages, to enforce the
provisions hereof.
23
ARTICLE 6A
LOAN AGREEMENT
6A.1 The Purchaser will provide a minimum of $900,000 to the Company
pursuant to the Loan Agreement, of which $250,000 will be provided at the
Closing. Of the $250,000 provided at Closing, $200,000 will be used to pay
outstanding obligations of the Company as of the Closing Date. The balance will
be available to the Company at the rate of not less than $100,000 per month on
the first of each month following the Closing during the period commencing
September 1, 2000 and continuing to February 1, 2001 and the remaining $50,000
will be avaible March 1, 2001. Any unused advance will be carried over to the
subsequent months and any advance in excess of the minimum monthly commitment of
$100,000 will be deducted ratably from the minimum advances.
6A.2 Notwithstanding other provisions herein, in the event the
Purchaser defaults in providing the advances under the loan agreement, upon
written demand of any of the Shareholders, the Purchaser shall transfer to
Shareholders: (a) any and all right, title and interest in the Intellectual
Property of the Company, including but not limited to any and all patent
applications, Continuations-in-Part, and trademarks (registered or common law);
and (b) any and all software, hardware, websites and URLs, developed or owned by
the Company; (c) any and all good will or assets owned or developed by the
Company. Assets as used herein shall include, but not be limited to, all service
and customer contracts entered into by the Company, and (d) the Shareholders
shall be release from their obligations under Section 6.1 (a), (b), (c) and (d).
All assets will be returned to Shareholders free and clear of all liens and
encumbrances in exchange for the Shareholders returning to Purchaser all
Purchaser Shares and Warrants Shareholders have received pursuant to this
Agreement.
ARTICLE 7
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
7.1. Conduct of Business of the Company. During the period from the
date of this Agreement to the Closing Date, the Shareholders shall cause the
Company and each of its subsidiaries to conduct their respective operations only
according to their ordinary and usual course of business and to use their best
efforts to preserve intact their respective business organizations, keep
available the services of their officers and employees and maintain satisfactory
relationships with licensors, suppliers, distributors, clients and others having
business relationships with them. Notwithstanding the immediately preceding
sentence, prior to the Closing Date, except as may be first approved by the
Purchaser or as is otherwise permitted or required by this Agreement, the
Shareholders will cause (a) the Company's and each of its subsidiaries'
respective Certificate of Incorporation and By-Laws to be maintained in their
form on the date of this Agreement, (b) the compensation payable or to become
payable by the Company and each of its subsidiaries to any officer, employee or
agent being paid
24
$50,000 per year or more on the Balance Sheet Date to be maintained at their
levels on the date of this Agreement, (c) the Company and each of its
subsidiaries to refrain from making any bonus, pension, retirement or insurance
payment or arrangement to or with any such persons except those that may have
already been accrued, (d) the Company and each of its subsidiaries to refrain
from entering into any contract or commitment except contracts in the ordinary
course of business, (e) the Company and each of its subsidiaries to refrain from
making any change affecting any bank, safe deposit or power of attorney
arrangements of the Company or any such subsidiary and (f) the Company and each
of its subsidiaries to refrain from taking any of the actions referred to in
Section 1.20 hereof. The Shareholders agree not to take any action, or omit to
take any action, which would cause the representations and warranties contained
in Article I hereof to be untrue or incorrect. During the period from the date
of this Agreement to the Closing Date, the Shareholders shall cause the Company
to confer on a regular and frequent basis with one or more designated
representatives of the Purchaser to report material operational matters and to
report the general status of ongoing operations. The Shareholders shall cause
the Company and each of its subsidiaries to notify Purchaser of any unexpected
emergency or other change in the normal course of its business or in the
operation of its properties and of any governmental complaints, investigations
or hearings (or communications indicating that the same may be contemplated),
adjudicatory proceedings, budget meetings or submissions involving any material
property of the Company and each of its subsidiaries, and to keep Purchaser
fully informed of such events and permit its representatives prompt access to
all materials prepared in connection therewith.
7.2. Exclusive Dealing. During the period from the date of this
Agreement to the Closing Date, the Shareholders shall not, and shall cause the
Company to refrain from taking any action to, directly or indirectly, encourage,
initiate or engage in discussions or negotiations with, or provide any
information to, any Person, other than the Purchaser, concerning any purchase of
the Stock or any merger, sale of substantial assets or similar transaction
involving the Company.
7.3. Review of the Company. The Purchaser may, prior to the Closing
Date, through their representatives, review the properties, books and records of
the Company and each of its subsidiaries and its financial and legal condition
as they deem necessary or advisable to familiarize themselves with such
properties and other matters; such review shall not, however, affect the
representations and warranties made by the Shareholders hereunder or the
remedies of the Purchaser for breaches of those representations and warranties.
The Shareholders shall cause the Company and each of its subsidiaries to permit
the Purchaser and their representatives to have, after the date of execution of
this Agreement, full access to the premises and to all the books and records of
the Company and its subsidiaries and to cause the officers of the Company and
each of its subsidiaries to furnish the Purchaser with such financial and
operating data and other information with respect to the business and properties
of the Company and its subsidiaries as the Purchaser shall from time to time
reasonably request. In the event of termination of this Agreement, the Purchaser
shall keep confidential any material information obtained from the Shareholders
or the Company or any subsidiary concerning the Company's and its subsidiaries'
respective properties, operations and business (unless readily ascertainable
from public or published information or trade sources) until the same ceases to
be material (or becomes so
25
ascertainable) and, at the request of the Shareholders, shall return to the
Company and its subsidiaries all copies of any schedules, statements, documents
or other written information obtained in connection therewith. The Shareholders
shall deliver or cause to be delivered such additional instruments as the
Purchaser may reasonably request for the purpose of consummating the
transactions contemplated by this Agreement.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS; INDEMNITY; SET-OFF
8.1 Survival of Covenants and Agreements. The respective
representations, warranties, covenants and agreements of the Shareholders and
the Purchaser contained in this Agreement, or any Schedule attached hereto or
any agreement or document delivered pursuant to this Agreement shall survive for
a period of two years from the consummation of the transactions contemplated
hereby; provided, however, that the representations, warranties and agreements
made with regard to taxes and ERISA matters shall survive until the applicable
statutes of limitations have expired; and provided further, however, that with
respect to any covenant, term or provision to be performed hereunder or in any
of the Schedules hereto or any documents or agreements delivered hereunder, the
right of indemnification under this Article 8 shall survive until such covenant,
term or provision has been fully paid, performed or discharged.
8.2 Indemnification.
(a) The Shareholders agree to indemnify and hold the Purchaser and
their officers, directors, shareholders, employees, affiliates
and agents harmless from damages, losses, liabilities,
assessments, judgments, costs or expenses (including, without
limitation, penalties, interest and reasonable counsel fees
and expenses), (each a "Claim"), in excess of $25,000 in the
aggregate, as a result of or arising out of the material
breach of any representation or warranty made by the
Shareholders, or the failure of any material representation or
warranty made by the Shareholders in this Agreement or in any
Schedule attached hereto or any document or agreement
delivered hereunder to be true and correct in all material
respects as of the date of this Agreement and as of the
Closing Date or the non-performance by the Shareholders of any
covenant, term or provision to be performed by it hereunder or
in any of the documents or agreements delivered hereunder
which may be imposed or sought to be imposed on Purchaser or
the Shareholders.
(b) The Purchaser agrees to indemnify and hold the Shareholders
and each of their officers, directors, shareholders,
employees, affiliates and agents harmless from damages, losses
or expenses (including, without limitation, reasonable counsel
fees and expenses) in excess of $25,000, in the aggregate,
suffered or paid, directly or indirectly, as a result of or
arising out of the failure of any representation or warranty
made by the Purchaser in this Agreement to be true and
26
correct in all respects as of the date of this Agreement and
as of the Closing Date.
8.3 Conditions of Indemnification.
(a) A party entitled to indemnification hereunder (the
"Indemnified Party") shall notify the party or parties liable
for such indemnification (the "Indemnified Party") in writing
of any Claim or potential liability for Taxes ("Tax Claim")
which the Indemnified Party has determined has given or could
give rise to a right of indemnification under this Agreement.
Such notice shall be given within a reasonable (taking into
account the nature of the Claim or Tax Claim) period of time
after the Indemnified Party has actual knowledge thereof. The
Indemnifying Party shall satisfy its obligations under this
Article 8 within forty days after receipt of subsequent
written notice from the Indemnified Party if an amount is
specified therein, or promptly following receipt of subsequent
written notice or notices specifying the amount of such Claim
or Tax Claim additions thereto; provided, however, that for so
long as the Indemnifying Party is in good faith defending a
Claim or Tax Claim pursuant to Section 8.3(b) hereof, its
obligation to indemnify the Indemnified Party with respect
thereto shall be suspended (other than with respect to any
costs, expenses or other liabilities incurred by the
Indemnified Party prior to the assumption of the defense by
the Indemnifying Party). Failure to provide a notice of Claim
or Tax Claim within the time period referred to above shall
not constitute a defense to a Claim or Tax Claim or release
the Indemnifying Party from any obligation hereunder to the
extent that such failure does not prejudice the position of
the Indemnifying Party.
(b) If the facts giving rise to any such indemnification involve
any actual, threatened or possible Claim or demand or Tax
Claim by any person not a party to this Agreement against the
Indemnified Party, the Indemnifying Party shall be entitled to
contest or defend such Claim or demand Tax Claim at its
expense and through counsel of its own choosing, which counsel
shall be reasonably acceptable to the Indemnified Party, such
right to contest or defend shall only apply if the
Indemnifying Party gave written notice of its intention to
assume the contest and defense of such Claim or demand Tax
Claim to the Indemnified Party as soon as practicable, but in
no event more than thirty days after receipt of the notice of
Claims or Tax Claim, and provided the Indemnified Party with
appropriate assurances as to the creditworthiness of the
Indemnifying Party, and that the Indemnifying Party will be in
a position to pay all fees, expenses and judgments that might
arise out of such Claim or demand Tax Claim. The Indemnified
Party shall have the obligation to cooperate in the defense of
any such Claim or demand Tax Claim and the right, at its own
expense, to participate in the defense of any Claim or Tax
Claim. So long as the Indemnifying Party is defending in good
faith any such Claim or demand Tax Claim asserted by a third
party against the Indemnified Party, the Indemnified Party
shall not settle or compromise such Claim or demand Tax Claim.
The Indemnifying Party shall have the right to settle or
27
compromise any such Claim or demand Tax Claim without the
consent of the Indemnified Party at any time utilizing its own
funds to do so if in connection with such settlement or
compromise the Indemnified Party is fully released by the
third party and is paid in full any indemnification amounts
due hereunder. The Indemnified Party shall make available to
the Indemnifying Party or its agents all records and other
materials in the Indemnified Party's possession reasonably
required by it for its use in contesting any third party Claim
or demand Tax Claim and shall otherwise cooperate, at the
expense of the Indemnifying Party, in the defense thereof in
such manner as the Indemnifying Party may reasonably request.
Whether or not the Indemnifying Party elects to defend such
Claim or demand Tax Claim, the Indemnified Party shall have no
obligation to do so.
8.4 Limitations on Indemnification for Breaches of Representations and
Warranties. Notwithstanding anything contained in this Agreement to the
contrary, (a) the individual liability of the Shareholders under Section 8.2 for
any liability arising as a result of the failure of Shareholders representations
and warranties to be true and correct or arising for any other reason under
Section 8.2, shall not exceed the the number of shares received by the
shareholder at Closing multiplied by the price of the shares (NASDAQ:OTC BB) on
the day this Agreement is signed (the "Closing Value") and (b) the aggregate
liability of Purchaser and its affiliates under Section 8.2 for any liability
arising as a result of the failure of Purchaser's representations and warranties
to be true and correct, shall not exceed the Closing Value (the "Purchaser
Cap").
8.5 Payment of Indemnification Liabilities.
(a) Except as set forth in Section 8.5(b), all payments of claims
to an indemnified party may be made by wire transfer of
immediately available funds within 10 business days after the
date of the notice of sums due and owing provided for in
Section 8.2, each Shareholder or Purchaser may elect, at its
option, to pay any claims to an indemnified party in shares of
Purchaser Common Stock, and the number of shares of Purchaser
Common Stock to be transferred in satisfaction of such
liabilities, and the terms of any such satisfaction of such
liabilities, and the terms of any such transfer, shall be
determined as set forth in Section 8.5(b).
(b) In the event that Purchaser or a Shareholder, in accordance
with Section 8.5(a), elects or is required to pay any
liabilities owing by it in shares of Purchaser Common Stock,
the number of shares to be transferred with respect to any
such liability shall be determined by dividing the amount of
such liability by the Applicable Average Share Value. The
"Applicable Average Share Value" shall be equal to the average
of the Daily Closing Prices for each of the ten business days
immediately preceding the date of the notice provided for in
Section 8.2; and the "Daily Closing Price" for each such day
shall be average of the last bid and ask price of Purchaser
Common Stock quoted on such day on the SmallCap Market (or
such exchange or quotation system as shall report the trading
prices of Purchaser Common Stock at the relevant time).
28
(c) Purchaser covenants and agrees that, in the event it issues
any shares of Purchaser Common Stock to Shareholder in payment
of any claim of Shareholder ("Additional Shares") hereby, it
will take such actions as may be necessary to assure that,
upon issuance, such Additional Shares (i) will be duly
authorized, validly issued, fully paid and non-assessable and
free of preemptive rights, and will be registered on the stock
certificate books and stock transfer ledgers of Purchaser
solely in the name of Shareholder and (ii) will be approved
for quotation on the SmallCap Market, subject to official
notice of issuance. Shareholder will receive good and
marketable title to any Additional Shares within 10 business
days after the date of the notice provided for in Section 8.2,
free and clear of any and all liens.
(d) Shareholder covenants and agrees that, in the event it
transfers any shares of Purchaser Common Stock to Purchaser in
payment of any claims hereunder ("Adjustment Shares"), it will
take such actions as may be reasonably necessary to assure
that, upon such transfer, Seller shall have delivered to
Purchaser good and marketable title to such Adjustment Shares,
free and clear of any and all liens. Any such transfers of
Adjustment Shares will be made within 10 business days after
the date of the notice provided for in Section 8.2.
ARTICLE 9
MISCELLANEOUS
9.1 Knowledge of the Shareholders. Knowledge means, with respect to any
person, the actual or constructive knowledge of such person and, in the case of
a corporation, the actual or constructive knowledge of its executive officers
and directors.
9.2 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisers, except for the fees of Oblon, Spivak, McClelland, ▇▇▇▇▇ & Neustadt,
P.C. which will be reflected in the liabilities of the Company and which the
Company will pay from the funds provided by the Purchaser pursuant to the Loan
Agreement.
9.3 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Delaware applicable to agreements executed and to be performed solely
within such State without regard to conflicts of laws.
9.4 Jurisdiction. Any judicial proceeding brought against any of the
parties to this Agreement on any dispute arising out of this Agreement or any
matter related hereto may be
29
brought in the courts of the State of New York, or in the United States District
Court for the Eastern or Southern District of New York, and, by execution and
delivery of this Agreement, each of the parties to this Agreement accepts the
exclusive jurisdiction of such courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. The prevailing
party or parties in any such litigation shall be entitled to receive from the
losing party or parties all costs and expenses, including reasonable counsel
fees, incurred by the prevailing party or parties.
9.5 Captions. The Article and Section captions used herein for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
9.6 Publicity. Except as otherwise required by law, none of the parties
hereto shall issue any press release or make any other public statement, in each
case relating to, connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of Purchaser and the
Company to the contents and the manner of presentation and publication thereof.
The parties hereto agree that the execution of this Agreement requires the
release of information to the financial press concerning this acquisition and
accordingly agree to promptly issue a press release mutually acceptable to the
Company and the Purchaser.
9.7 Notices. Any notice or other communication required or permitted
hereunder shall be deemed sufficiently given when delivered in person, one
business day after delivery to a reputable overnight carrier, four business days
if delivered by registered or certified mail, postage prepaid or when sent by
telecopy with a copy following by hand or overnight carrier or mailed, certified
or registered mail, postage prepaid, addressed as follows:
If to the Purchaser:
Global iTechnology, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, CFO
with a required copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Shareholders:
▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
30
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
U.S. Check Company, Inc.
c/o ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The failure to give notice to one or more Shareholders shall not affect
the validity of notices otherwise properly given.
9.8 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts and delivered by facsimile all of which taken together shall
constitute one instrument.
9.10 Entire Agreement. This Agreement, including the Schedules hereto
and the other documents referred to herein which form a part hereof, contain the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
9.11 Amendments. This Agreement may not be changed orally, but only by
an agreement in writing signed by Purchaser and the Shareholders holding a
majority of the Company Shares.
9.12 Severability. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
9.13 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties
31
hereof.
9.14 Cooperation After Closing.From and after the Closing Date, each of
the parties hereto shall execute such documents and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, each of the Purchaser and Shareholders have
executed this Agreement, all as of the day and year first above written.
PURCHASER:
GLOBAL itechnology, inc.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------
Title: Chief Financial Officer
SHAREHOLDERS:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------
▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
----------------------
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
U.S. Check Co., Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
Title: Chairman
33