EXHIBIT 10.1
Securities Exchange Agreement between the Company and Digital Card Systems, Inc.
SECURITIES EXCHANGE AREEMENT
BY AND AMONG
DIGITAL CARD SYSTEMS, INC.
DCS EUROPE, INC.
DCS AMERICA, INC.
DCS LATIN AMERICA, INC.
DIGITAL CARD SYSTEMS LATIN AMERICA SAC
COSMO ID, GMBH
AND
THE STOCKHOLDERS OF
DIGITAL CARD SYSTEMS, INC.
DCS EUROPE, INC.
DCS AMERICA, INC.
DCS LATIN AMERICA, INC.
AND
COSMO ID, GMBH
AND
▇▇▇▇▇ BIOMETRY, INC.
DATED: FEBRUARY 8 , 2006
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EXHIBITS:
Exhibit A
Exhibit B
SCHEDULES:
Schedule A Stockholder List
Corporations Disclosure Schedule
▇▇▇▇▇ Disclosure Schedule
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SECURITIES EXCHANGE AGREEMENT
This Securities Exchange Agreement (this "Agreement") is made and entered into
as of February __, 2006, by and among (A) DIGITAL CARD SYSTEMS, INC.. a Delaware
corporation ("DCS"); (B) DCS EUROPE, INC., a Delaware corporation ("DCS
Europe"); (C) DCS AMERICA, INC., a Delaware corporation ("DCS America"); (D) DCS
LATIN AMERICA, INC., a Delaware corporation ("DCS Latin America"); (E) COSMO ID
GMBH, a corporation organized under the laws of Germany ("Cosmo"); (F) ▇▇▇▇▇▇▇
BENZ, an individual ("Benz"), and the other Persons listed on SCHEDULE A annexed
hereto who have executed this Agreement on the signature page as the "DCS
Stockholders" (together with Benz, the "DCS Stockholders"); (G) ▇▇▇▇▇▇ ▇▇▇▇▇▇,
an individual ("▇▇▇▇▇▇") and the other Persons listed on SCHEDULE A annexed
hereto who have executed this Agreement on the signature page as the "DCS Europe
Stockholders" (together with ▇▇▇▇▇▇, the "DCS Europe Minority Stockholders");
(H) the Persons listed on SCHEDULE A annexed hereto who have executed this
Agreement on the signature page as the "DCS America Stockholders" (the "DCS
America Minority Stockholders"); (I) the Persons listed on SCHEDULE A annexed
hereto who have executed this Agreement on the signature page as the "DCS Latin
America Stockholders" (the "DCS Latin America Minority Stockholders"); (J)
▇▇▇▇▇▇ and the other Persons listed on SCHEDULE A annexed hereto who have
executed this Agreement on the signature page as the "Cosmo Stockholders" (the
"Cosmo Stockholders"); and (K) ▇▇▇▇▇ BIOMETRY, INC., a corporation formed under
the laws of the State of Florida ("▇▇▇▇▇ ").
DCS, DCS Europe, DCS America, DCS Latin America and Digital Card Systems Latin
America SAC, a 99%-owned subsidiary of DCS Latin America (the "Latin America
Sub") are sometimes hereinafter collectively referred to as the "DCS Group." The
DCS Stockholders, the DCS Europe Minority Stockholders, the DCS America Minority
Stockholders, the DCS Latin America Minority Stockholders and the Cosmo
Stockholders are hereinafter sometimes collectively referred to as the
"Stockholders." The DCS Group, Cosmo, the Stockholders and ▇▇▇▇▇ are referred to
herein individually as a "Party" and collectively as the "Parties."
PREAMBLE
WHEREAS, Benz and the other DCS Stockholders own 100% of the issued and
outstanding shares of capital stock of DCS (the "DCS Stock"); and
WHEREAS, (a) DCS owns 51% of the outstanding capital stock of DCS
Europe and the DCS Europe Minority Stockholders own 49% of the outstanding
capital stock of DCS Europe; (b) DCS owns 51% of the outstanding capital stock
of DCS America and the DCS America Minority Stockholders own 49% of the
outstanding capital stock of DCS America; (c) DCS owns 50% of the outstanding
capital stock of DCS Latin America and the DCS Latin America Minority
Stockholders own 50% of the outstanding capital stock of DCS Latin America; (d)
DCS Latin America owns 99% of the outstanding capital stock of Latin America
Sub; and (e) the Cosmo Stockholders own 100% of the outstanding capital stock of
Cosmo; and
WHEREAS, following the Closing Date, DCS shall increase its ownership
of the capital stock of DCS Latin America from 50% to 51%; and
WHEREAS, DCS is negotiating to acquire one or more synergistic
operating businesses ("Acquisition(s)") with revenues which, when combined with
DCS' revenues, shall aggregate to at least $8 million; and
WHEREAS, ▇▇▇▇▇ proposes to acquire the Acquired Stock solely in
exchange for the ▇▇▇▇▇ Exchange Stock, upon the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, the obligations of the Parties to effect the exchange of the
Acquired Stock for the ▇▇▇▇▇ Common Stock is subject to the conditions set forth
in Article V hereof;
WHEREAS, the Parties intend that the exchange of shares contemplated
hereby (the "Exchange") qualify as a tax free exchange transaction within the
meaning of Section 351 of the Code; and
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WHEREAS, the Parties are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) of the Securities Act.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations and warranties contained herein, the Parties hereto,
intending to be legally bound, hereby agree as follows:
CERTAIN DEFINITIONS
In addition to other terms defined elsewhere in this Agreement
(including, without limitation, the Caption and Preamble to this Agreement), as
used in this Agreement, the following additional terms shall have the meanings
set forth below:
"Acquired Stock" shall have the meaning as defined in Section 1.1 of this
Agreement.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, alone or together with other Persons, controls or is controlled by
or is under common control with such Person. "CONTROL" "controlled by" and
"under common control with", as and with respect to any Person, means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such Person.
"Agreement Date" means the date of this Agreement.
"Agreement" means this Agreement.
"Applicable Law" means any domestic or foreign law, statute, regulation, rule,
policy, guideline or ordinance applicable to the businesses of the Parties.
"Business Day" means any day, Monday through Friday, on which U.S. federally
chartered banks are open for business in New York, New York.
"Closing" shall mean the consummation of the exchange of the Acquired Stock for
the ▇▇▇▇▇ Exchange Stock, which exchange shall occur concurrently with
consummation of the consummation of the Acquisition and the ▇▇▇▇▇ Financing.
"Closing Date" shall mean the date and time as of which the Closing actually
takes place.
"Code" shall mean the United States Internal Revenue Code of 1986, as amended.
"Common Stock Equivalents" shall mean, with respect to the applicable Person,
any issued and outstanding notes, debentures or preferred stock that is
convertible into shares of common stock of such Person, any options, warrants or
securities exercisable for shares of common stock of such Person, or other
rights entitling the holder to purchase common stock of such Person or exchange
property or other assets for common stock of such Person.
"Commission" shall mean the United States Securities and Exchange Commission.
"Contract" shall mean any agreement, contract, obligation, promise, commitment
or undertaking of any kind (whether written or oral and whether express or
implied), other than those that have been terminated.
"Corporations" shall mean the collective reference to the DCS Group and Cosmo.
"Corporations Disclosure Schedule" means the disclosure schedule delivered by
the Corporations to ▇▇▇▇▇ concurrently with the execution and delivery of this
Agreement, as the same may be amended or supplemented by the Corporations.
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"Corporations Material Adverse Effect" shall mean any event or condition that
could reasonably be expected to have a material and adverse affect on the
business, results of operation, financial condition or prospects of either (a)
the DCS Group taken as a consolidated whole, or (b) the Acquisitions or Cosmo,
taken individually or as a consolidated whole with the DCS Group; provided,
however, that any such effect resulting from (i) any change in economic or
business conditions generally, or (ii) any change in generally accepted
accounting principles or interpretations thereof, shall not be considered when
determining if a Corporations Material Adverse Effect has occurred.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Employee Benefit Plan" shall mean any plan, policy, program, practice,
agreement, understanding or arrangement (whether written or oral) providing
compensation or other benefits (other than ordinary cash compensation) to any
current or former director, officer, employee or consultant (or to any dependent
or beneficiary thereof), of a Person, which are now, or were since inception of
such Person, maintained by such Person, or under which such Person has or could
have any obligation or liability, whether actual or contingent, including,
without limitation, all incentive, bonus, deferred compensation, vacation,
holiday, cafeteria, medical, disability, stock purchase, stock option, warrant,
stock appreciation, phantom stock, restricted stock or other stock-based
compensation plans, policies, programs, practices or arrangements.
"Environmental Claim" shall mean any accusation, allegation, notice of
violation, action, claim, encumbrance, Lien, demand, abatement or other Order or
direction (conditional or otherwise) by any Governmental Authority or any Person
for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects on the environment, or for fines,
penalties or restrictions resulting from or based upon (i) the existence, or the
continuation of the existence, of a release (including, without limitation,
sudden or non-sudden accidental or non-accidental releases) of, or exposure to,
any Hazardous Material or other substance, clinical, material, pollutant,
contaminant, odor, audible noise, or other release in, into or onto the
environment (including, without limitation, the air, soil, surface water or
groundwater) at, in, by, from or related to any real or other property or any
activities conducted thereon; (ii) the environmental aspects of the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with the operation of any real or other property; or (iii) the
violation, or alleged violation, of any Environmental Laws, Orders or
Governmental Permits of or from any Governmental Authority relating to
environmental matters connected with any real or other property.
"Environmental, Health and Safety Liabilities" shall mean any cost, damage,
expense, liability, obligation or other responsibility arising from or under any
Environmental Law, as well as any liability for torts and damages according to
general United States rules, regulations and ordinary principles, including case
law, or Occupational Safety and Health Law and consisting of or relating to: (a)
any environmental, health or safety matter or condition (including on-site or
off- site contamination, generation, handling and disposal of Hazardous
Materials, occupational safety and health, and regulation of chemical and
Hazardous Materials); (b) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, litigation, including
civil and criminal claims, demands and responses, investigative, remedial,
response or inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law; (c) financial responsibility under
Environmental Law or Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup, removal, containment or
other rededication or response actions required by applicable Environmental Law
or Occupational Safety and Health Law and for any natural resource damages; or
(d) any other compliance, corrective, investigative or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
"Environmental Law" shall mean any Law concerning the environment, or activities
that might threaten or result in damage to the environment or human health, or
any Law that is concerned in whole or in part with the environment and with
protecting or improving the quality of the environment and human and employee
health and safety, as such laws have been amended or supplemented, and the
regulations, statutory orders, local council waste by-laws, and other binding
by-laws and guidance and practice notes adopted under any of those laws.
"Exchange" shall mean the exchange of the Acquired Stock for the ▇▇▇▇▇ Exchange
Stock pursuant to this Agreement.
"Exchange Act" shall mean the United States Securities Exchange Act of 1934, as
amended, or any successor law.
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"GAAP" means generally accepted United States accounting principles in effect
from time to time.
"Governmental Authority" shall mean any court, tribunal, authority, agency,
commission, bureau, department, official or other instrumentality of the United
States, or any other country or any provincial, state, local, county, city or
other political subdivision.
"Governmental Permit" shall mean any license, franchise, permit or other
authorization of any Governmental Authority.
"Hazardous Materials" shall mean any substance, material or waste which is
regulated by any Environmental Law.
"Intellectual Property" shall mean all (i) patent and patent rights, trademarks
and trademark rights, trade names and trade name rights, copyrights and
copyright rights, service marks and service ▇▇▇▇ rights, and all pending
applications for and registration of the same; (ii) brand names, trade dress,
business and product names, logos and slogans, and (iii) proprietary technology,
including all know-how, trade secrets, quality control standards, reports
(including test reports), designs, processes, market research and other data,
computer software and programs (including source codes and related
documentation), formulae, inventions and other ideas, methodologies, and
technical information, (iv) claims of the owner of any intellectual property for
infringement of its rights by a third party, no matter when arising, and (v)
other intellectual property.
"Investor Group" shall mean collective any hedge fund, investment group or
similar financing source acceptable to ▇▇▇▇▇ and DCS which provides the
financing required by the ▇▇▇▇▇ Financing Obligation.
"Investor Group Securities" shall mean the securities of ▇▇▇▇▇ issued to the
Investor Group pursuant to the ▇▇▇▇▇ Financing.
"Investor Group Subscription Agreement" shall mean the subscription agreement
pursuant to which the Investor Group shall purchase, for not less than
$5,000,000 the Investor Group Securities.
"Law" shall mean any United States, state or local (including common law)
statute, code, directive, ordinance, rule, regulation or other requirement.
"Lien" shall mean any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Order" shall mean any order, consent, consent order, injunction, judgment,
decree, consent decree, ruling, writ, assessment or arbitration award.
"Organizational Documents" shall mean: (a) the articles or certificate of
incorporation, memorandum of association, articles of association and the
by-laws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) the
articles or certificate of formation and operating agreement of a limited
liability company; (e) any charter, trust certificate or document or similar
document adopted or filed in connection with the creation, formation or
organization of a Person; and (f) any and all amendments to any of the
foregoing.
"Person" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or governmental body or Governmental Authority.
"Proceeding" shall mean any claim, action, investigation, arbitration,
litigation or other judicial, administrative or regulatory proceeding.
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"Representatives" shall mean officers, directors, employees, agents, attorneys,
accountants, advisors and representatives.
"Registration Rights Agreement" means the registration rights agreement pursuant
to which ▇▇▇▇▇ shall agree to register for resale under the Securities Act the
Investor Group Securities.
"Related Party Obligation Releases" shall have the meaning set forth in Section
"▇▇▇▇▇ Common Stock" shall mean the authorized common stock, $0.00 par value per
share, of ▇▇▇▇▇ .
"▇▇▇▇▇ Common Stock Equivalents" shall mean Common Stock Equivalents applicable
to ▇▇▇▇▇ .
"▇▇▇▇▇ Disclosure Schedule" means the disclosure schedule delivered by ▇▇▇▇▇ to
DCS and the Stockholders concurrently with the execution and delivery of this
Agreement, as the same may be amended or supplemented by ▇▇▇▇▇ .
"▇▇▇▇▇ Exchange Stock" means those shares of ▇▇▇▇▇ Common Stock to be issued to
the Stockholders on the Closing Date in exchange for the Acquired Stock.
"▇▇▇▇▇ Financing" and "▇▇▇▇▇ Financing Obligation" shall mean a financing in
which ▇▇▇▇▇ receives gross proceeds of no less than $5,000,000 to be used to
complete the Acquisitions and as working capital for the DCS Group and the
obligation of ▇▇▇▇▇ to complete such Financing.
"▇▇▇▇▇ Material Adverse Effect" shall mean any event or condition that could
reasonably be expected to have a material and adverse affect on the business,
results of operation, financial condition or prospects of ▇▇▇▇▇ and its
Subsidiaries taken as a consolidated whole; provided, however, that any such
effect resulting from (i) any change in economic or business conditions
generally, or (ii) any change in generally accepted accounting principles or
interpretations thereof, shall not be considered when determining if a ▇▇▇▇▇
Material Adverse Effect has occurred.
"▇▇▇▇▇ SEC Reports" shall mean all filings required to be made by ▇▇▇▇▇ with, or
submitted by ▇▇▇▇▇ to, the Commission under the Securities Act and the Exchange
Act.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended, or any successor law.
"Subsidiary" shall mean with respect to any Person, any corporation, joint
venture, limited liability company, partnership, association or other business
entity of which 50% or more of the total voting power of stock or other equity
entitled to vote generally in the election of directors or managers or
equivalent Persons thereof is owned or controlled, directly or indirectly, by
such Person.
"Tax Authority" shall mean the Internal Revenue Service, and any state, local or
foreign government or any agency or subdivision thereof.
"Taxes" shall mean all taxes, charges, fees, customs, duties or other
assessments, however denominated, including all interest, penalties, additions
to tax or additional taxes that may become payable in respect thereof, imposed
by a Tax Authority, which shall include, without limitation, all income taxes,
payroll and employee withholding taxes, unemployment insurance, social security,
sales and use taxes, excise taxes, capital taxes, franchise taxes, gross receipt
taxes, occupation taxes, real and personal property taxes, value added taxes,
stamp taxes, transfer taxes, workers' compensation taxes, taxes relating to
benefit plans and other obligations of the same or similar nature.
ARTICLE I
EXCHANGE OF THE ACQUIRED STOCK
1.1 TRANSFER OF THE ACQUIRED STOCK. Subject to the terms and conditions
of this Agreement, at the Closing, each of the Stockholders shall transfer,
convey, assign, set over and deliver ("Transfer") to ▇▇▇▇▇ , and ▇▇▇▇▇ shall
acquire and accept from the Stockholders and DCS, that number of the shares of
capital stock of each member of the DCS Group and Cosmo (collectively, the
"Acquired Stock") as shall represent:
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a) 100% of the issued and outstanding shares of capital stock of
DCS;
b) 49% of the issued and outstanding shares of capital stock of
DCS Europe;
c) 49% of the issued and outstanding shares of capital stock of
DCS America;
d) 49% of the issued and outstanding shares of capital stock of
DCS Latin America; and
e) 90% of the issued and outstanding shares of capital stock of
Cosmo;
in each case, free and clear of all Liens. ▇▇▇▇▇ shall have no obligation to
consummate the transactions contemplated by this Agreement, unless it shall
acquire at the Closing, record and beneficial title to all, and not less than
all of the Acquired Stock; in each case, free and clear of all Liens and, at
such time, DCS shall continue to own the percentage of common stock of the other
Corporations set forth in the preamble and DCS Latin America shall continue to
own 99% of Latin America Sub.
1.2 ISSUANCE OF ▇▇▇▇▇ EXCHANGE STOCK IN CONSIDERATION FOR THE ACQUIRED
STOCK.
(a) At the Closing and in sole consideration for the Transfer of the
Acquired Stock, ▇▇▇▇▇ shall transfer, convey and deliver to the Stockholders in
the respective amounts indicated on SCHEDULE 1.2 (the "Stockholder Allocation
Schedule") the shares of ▇▇▇▇▇ Exchange Stock, which in the aggregate shall
equal to twenty-five million (25,000,000) shares of ▇▇▇▇▇ Common Stock
1.3 CLOSING AND CLOSING DATE. The Closing of Exchange shall take place at
the offices of ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇▇, ▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
after all of the conditions to Closing specified in this Agreement (other than
those conditions requiring the execution or delivery of a Document or the taking
of some action at the Closing) have been fulfilled or waived by the Party
entitled to waive that condition; provided, however, that (a) the Parties shall
use their best efforts to effect the Closing by March 31, 2006, or as soon
thereafter as is practicable, and (b) the Closing may take place by facsimile or
other means as may be mutually agreed upon in advance by the Parties. The date
on which the Closing is held is referred to in this Agreement as the "Closing
Date." Unless extended in writing by each of DCS and ▇▇▇▇▇ in the event the
Closing shall not occur by June 30, 2006 (the "Outside Closing Date") then
either DCS or ▇▇▇▇▇ may terminate this Agreement without any further liability
to the other. In addition to the Exchange, the Acquisition and the ▇▇▇▇▇
Financing shall be consummated at the Closing.
1.4 DELIVERIES AT CLOSING BY THE STOCKHOLDERS. At the Closing, subject to
the terms and conditions of this Agreement, the Stockholders shall execute and
deliver, or cause to be executed and delivered, to ▇▇▇▇▇ the documents and
instruments referred to in this Section 1.4:
(a) certificates evidencing all of the Acquired Stock, duly endorsed
by the Stockholders, as applicable, in blank or accompanied by stock powers,
duly endorsed in blank;
(b) resolutions of the board of directors of each of the
Corporations authorizing the execution and delivery of this Agreement and the
consummation of transactions contemplated hereby;
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(c) releases, in form and content satisfactory to ▇▇▇▇▇ and its
counsel, duly executed by each of the Corporations and the Stockholders,
pursuant to which such Persons shall covenant and agree that, except as
otherwise expressly provided in this Agreement, all amounts owed by any of the
Corporations to ▇▇▇▇▇▇▇ Benz, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or the other Stockholders set forth
on Schedule 1.4, for accrued compensation or remuneration, are deemed forgiven
and discharged in full as at the Closing Date (the "Related Party Obligation
Releases"); and
(d) such other Documents as may be reasonably requested by ▇▇▇▇▇ and
its counsel, that are necessary to effect the Closing.
1.5 DELIVERIES AT CLOSING By ▇▇▇▇▇. At the Closing, subject to the terms
and conditions of this Agreement, ▇▇▇▇▇ shall execute and deliver or cause to be
executed and delivered to the Stockholders:
(a) certificates evidencing all the ▇▇▇▇▇ Exchange Stock registered
in the names of the Stockholders in the amounts set forth on Schedule _A_;
(b) resolutions of the ▇▇▇▇▇ Board of Directors authorizing the
execution and delivery of this Agreement, the issuance of the ▇▇▇▇▇ Exchange
Stock and the consummation of the transactions contemplated hereby; and
(c) such other Documents as may be reasonably requested by the
Corporation and/or the stockholders and their respective counsel, that are
necessary or appropriate to effect the Closing.
(d) the net proceeds of the ▇▇▇▇▇ Financing and evidence of the
consummation of the ▇▇▇▇▇ Financing.
1.6 RESTRICTIONS ON RESALE. The Parties acknowledge that the ▇▇▇▇▇
Exchange Stock and the Acquired Stock shall not be registered under the
Securities Act, or the securities laws of any state, and cannot be transferred,
hypothecated, sold or otherwise disposed of until; (i) a registration statement
with respect to such securities is declared effective under the Securities Act,
or (ii) ▇▇▇▇▇ or the applicable Corporation receives an opinion of counsel, in
form reasonably satisfactory, to the effect that an exemption from the
registration requirements of the Securities Act is available.
The certificates representing the ▇▇▇▇▇ Exchange Stock and the Acquired Stock
(collectively, the "Transaction Securities") shall contain a legend
substantially as follows:
"THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER
SUCH ACT, OR INTERACTIVE BRAND DEVELOPMENT, INC. RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO COUNSEL FOR CARE
CONCEPTS THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT IS AVAILABLE."
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇
Except as set forth in the ▇▇▇▇▇ SEC Reports or on the ▇▇▇▇▇ Disclosure
Schedule, disclosure in any one of which shall apply to any and all
representations and warranties made in this Agreement, and except as otherwise
disclosed in writing by ▇▇▇▇▇ to the Stockholders, ▇▇▇▇▇ hereby represents and
warrants to the Stockholders, as of the date of this Agreement and as of the
Closing Date, as follows:
2.1 ORGANIZATION, STANDING AND POWER. ▇▇▇▇▇ is a company duly
incorporated, validly existing and in good standing under the laws of the State
of Florida and has corporate power and authority to conduct its business as
presently conducted by it and to enter into and perform this Agreement and to
carry out the transactions contemplated by this Agreement. ▇▇▇▇▇ is duly
qualified to do business as a foreign corporation doing business in each state
where the failure to be so qualified and in good standing would have a ▇▇▇▇▇
Material Adverse Effect. Except as set forth in SCHEDULE 2.1 to the ▇▇▇▇▇
Disclosure Schedule, ▇▇▇▇▇ does not have an ownership interest in any
corporation, partnership (general or limited), limited liability company or
other entity, whether foreign or domestic (collectively such ownership interests
including capital stock).
2.2 CAPITALIZATION.
(a) The capitalization of ▇▇▇▇▇ and the number of shares of capital
stock of ▇▇▇▇▇ currently outstanding is as set forth on SCHEDULE 2.2(A) to the
▇▇▇▇▇ Disclosure Schedule.
(b) SCHEDULE 2.2(B) to the ▇▇▇▇▇ Disclosure Schedule sets forth the
names of each of the record and beneficial owners of five percent (5%) or more
of the shares of ▇▇▇▇▇'▇ Common Stock as at the date of this Agreement,
determined in a fully-diluted bases, including holders of ▇▇▇▇▇ Common Stock
Equivalents.
(c) Except as disclosed in SCHEDULE 2.2(C) to the ▇▇▇▇▇ Disclosure
Schedule, no shares of ▇▇▇▇▇ Common Stock have been reserved for issuance to any
Person, there are no ▇▇▇▇▇ Common Stock equivalents outstanding and there are no
outstanding rights, warrants, options or agreements for the purchase of ▇▇▇▇▇
Common Stock or ▇▇▇▇▇ Common Stock Equivalents.
(d) All outstanding shares of ▇▇▇▇▇ Common Stock are validly issued,
fully paid, non-assessable, not subject to pre-emptive rights and have been
issued in compliance with all state and federal securities laws or other
Applicable Law.
(e) As at the Closing Date, there shall be not more than 50 million
shares of ▇▇▇▇▇ Common Stock outstanding, on a fully diluted basis, excluding
DCS issue, and subsequent financing.
2.3 AUTHORITY FOR AGREEMENT. The execution, delivery, and performance of
this Agreement by ▇▇▇▇▇ have been duly authorized by all necessary corporate and
shareholder action, and this Agreement, upon its execution by the Parties, will
constitute the valid and binding obligation of ▇▇▇▇▇ enforceable against it in
accordance with and subject to its terms, except as enforceability may be
affected by bankruptcy, insolvency or other laws of general application
affecting the enforcement of creditors' rights. The execution, delivery and
performance of this Agreement and compliance with its provisions by ▇▇▇▇▇ will
not violate any provision of Applicable Law and will not conflict with or result
in any breach of any of the terms, conditions, or provisions of, or constitute a
default under (whether with or without notice or lapse of time or both), ▇▇▇▇▇
's Certificate of Incorporation or Bylaws, in each case as amended, or, in any
material respect, any Contract, indenture, lease, loan agreement or other
agreement or instrument to which ▇▇▇▇▇ is a party or by which it or any of its
properties are bound, or any decree, judgment, order, statute, injunction,
charge, rule or regulation or other restriction of any governmental agency
applicable to ▇▇▇▇▇ except to the extent that any breach or violation of any of
the foregoing would not constitute or result in a ▇▇▇▇▇ Material Adverse Effect.
Except as set forth in SCHEDULE 2.3 to the ▇▇▇▇▇ Disclosure Schedule, no
consent, filing with or notification to, or approval or authorization of any
governmental, regulatory or other authority is required on the part of ▇▇▇▇▇ in
connection with the execution, delivery and performance of this Agreement.
12
2.4 ISSUANCE OF ▇▇▇▇▇ COMMON STOCK. The ▇▇▇▇▇ Common Stock to be issued to
the Stockholders on the Closing Date, will when issued, pursuant to this
Agreement, be duly and validly authorized and issued, fully paid and
non-assessable.
2.5 FINANCIAL STATEMENTS.
(a) ▇▇▇▇▇ has made available to the Stockholders copies of its
audited financial statements at December 31, 2002, 2003 and 2004 and for the
three fiscal years then ended, and the unaudited financial statement as at
September 30, 2005 and for the nine months then ended (collectively, "▇▇▇▇▇
FINANCIAL STATEMENTS").
(b) The ▇▇▇▇▇ Financial Statements (i) are consistent in all
material respects with the books and records of ▇▇▇▇▇; (ii) have been or will be
prepared in accordance with GAAP consistently applied (except that the September
30, 2005 financials (the "Stub Financials") may not contain footnotes that
audited financial statements would be required to include under GAAP); (iii)
reflect and provide adequate reserves and disclosures in respect of all
liabilities of ▇▇▇▇▇, including all contingent liabilities, as of the respective
dates of the Financial Statements, and (iv) present fairly in all material
respects the financial position of ▇▇▇▇▇ at such dates and the results of
operations and cash flows of ▇▇▇▇▇ for the periods then ended, except that the
Stub Financials do not reflect the impact of normal recurring year-end
adjustments, which adjustments would not have a material impact on the financial
results reflected in the Stub Financials.
(c) Except as otherwise disclosed in the ▇▇▇▇▇ Disclosure Schedule
or in the ▇▇▇▇▇ Financial Statements, ▇▇▇▇▇ does not have any liabilities or
obligations that would be required to be set forth in ▇▇▇▇▇ Financial Statements
in accordance with GAAP.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2005, except
as set forth in the ▇▇▇▇▇ Disclosure Schedule:
(a) there has not been (i) any ▇▇▇▇▇ Material Adverse Effect or (ii)
any damage, destruction, or loss to ▇▇▇▇▇ (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties, assets,
or condition of ▇▇▇▇▇;
(b) ▇▇▇▇▇ has not (i) amended its articles of incorporation; (ii)
declared or made, or agreed to declare or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or purchased
or redeemed, or agreed to purchase or redeem, any outstanding capital stock;
(iii) waived any rights of value which in the aggregate are extraordinary or
material considering the business of ▇▇▇▇▇; (iv) made any material change in its
method of management, operation, or accounting; (v) entered into any other
material transaction; (vi) made any accrual or arrangement for payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer or employee; (vii) increased the rate of
compensation payable or to become payable by it to any of its officers or any of
its employees whose monthly compensation exceeds $15,000; or (viii) made any
increase in any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with its officers, directors, or employees;
(c) ▇▇▇▇▇ has not (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
or contingent) except liabilities incurred in the ordinary course of business,
apart from bridge financing associated with the transaction contemplated herein
("Bridge Financing"); (ii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected in or shown on the most
recent ▇▇▇▇▇ balance sheet, and current liabilities incurred since that date in
the ordinary course of business; (iii) sold or transferred, or agreed to sell or
transfer, any of its assets, properties, or rights (except assets, properties,
or rights not used or useful in its business which, in the aggregate have a
value of less than $5,000), or canceled, or agreed to cancel, any debts or
claims (except debts or claims which in the aggregate are of a value of less
than $5,000); (iv) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment or
termination is material, considering the business of ▇▇▇▇▇; or (v) issued,
delivered, or agreed to issue or deliver any stock, bonds or other corporate
securities including debentures or ▇▇▇▇▇ Common Stock Equivalents (whether
authorized and unissued or held as treasury stock);
13
(d) to the best knowledge of ▇▇▇▇▇, ▇▇▇▇▇ has not become subject to
any law or regulation which materially and adversely affects, or in the future
may adversely affect, the business, operations, properties, assets, or condition
of ▇▇▇▇▇; and
(e) as at the date of this Agreement and as at the Closing Date, the
▇▇▇▇▇ liabilities which would and will be required to be disclosed on a balance
sheet prepared in accordance with GAAP do not and will not exceed $500,000 in
the aggregate, apart from any liability related to the ▇▇▇▇▇ Financing
Obligation.
2.7 INTELLECTUAL PROPERTY AND INTANGIBLE ASSETS. To the knowledge of
▇▇▇▇▇, ▇▇▇▇▇ has full legal right, title and interest in and to all of the
Intellectual Property utilized in the operation of its business. No rights of
any other person are violated by the use by ▇▇▇▇▇ of any Intellectual Property.
None of the Intellectual Property utilized in the operation of the business of
▇▇▇▇▇ has ever been declared invalid or unenforceable, or is the subject of any
pending or, to the knowledge of ▇▇▇▇▇, threatened action for opposition,
cancellation, declaration, infringement, or invalidity, unenforceability or
misappropriation or like claim, action or proceeding.
2.8 APPROVALS AND CONSENTS. Except as shall be set forth in SCHEDULE 2.8
to the ▇▇▇▇▇ Disclosure Schedule, no consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
other foreign governmental authority, instrumentality, agency or commission or
any third party, including a party to any agreement with ▇▇▇▇▇ , is required by
or with respect to ▇▇▇▇▇ in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except as
provided herein.
2.9 LITIGATION. There is no action, suit, investigation, audit or
proceeding pending against, or to the best knowledge of ▇▇▇▇▇ threatened against
or affecting, ▇▇▇▇▇ or any of its assets or properties before any court or
arbitrator or any governmental or other body, agency or official which could
have a ▇▇▇▇▇ Material Adverse Effect.
2.10 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.10
to the ▇▇▇▇▇ Disclosure Schedule, ▇▇▇▇▇ is not indebted to any stockholder,
officer or director of ▇▇▇▇▇ (except for compensation and reimbursement of
expenses incurred in the ordinary course of business and payment of which is not
overdue), and no such Person is indebted to ▇▇▇▇▇, except as disclosed in the
▇▇▇▇▇ SEC Reports.
2.11 COMPLIANCE WITH APPLICABLE LAWS. The business of ▇▇▇▇▇ has not been,
and is not being, conducted in violation of any Applicable Law, except for
possible violations which both individually and in the aggregate have not had
and are not reasonably likely to have a ▇▇▇▇▇ Material Adverse Effect. No
investigation or review by any governmental entity with respect to ▇▇▇▇▇ is
pending or, to the knowledge of ▇▇▇▇▇, threatened, nor has any governmental
entity indicated an intention to conduct the same, except for investigations or
reviews which, both individually and in the aggregate, would not have, nor be
reasonably likely to have, a ▇▇▇▇▇ Material Adverse Effect. ▇▇▇▇▇ is a fully
compliant reporting company under the Exchange Act, and has not been threatened
or subject to delisting on any exchange on which it is traded.
2.12 NO UNDISCLOSED LIABILITIES. Except as disclosed on the ▇▇▇▇▇
Financial Statements, there are no liabilities or debts of ▇▇▇▇▇ of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability or debt.
2.13 TAX RETURNS AND PAYMENT. ▇▇▇▇▇ has duly and timely filed all Tax
Returns required to be filed by it and has duly and timely paid all Taxes shown
thereon to be due, except as reflected in the ▇▇▇▇▇ Financial Statements. Except
as disclosed in the ▇▇▇▇▇ Financial Statements, there is no claim for Taxes that
is a lien against the property of ▇▇▇▇▇ other than liens for Taxes not yet due
and payable, none of which Taxes is material. ▇▇▇▇▇ has not received
notification of any audit of any Tax Return of ▇▇▇▇▇ being conducted or pending
by a Tax authority, no extension or waiver of the statute of limitations on the
assessment of any Taxes has been granted by ▇▇▇▇▇ which is currently in effect,
and ▇▇▇▇▇ is not a party to any agreement, contract or arrangement with any Tax
authority or otherwise, which may result in the payment of any amount in excess
of the amount reflected on the ▇▇▇▇▇ Financial Statements.
14
2.14 LABOR AND EMPLOYMENT MATTERS ▇▇▇▇▇ is not a party to or bound by
any collective bargaining agreement or any other agreement with a labor union,
and, to the knowledge of ▇▇▇▇▇, there has been no effort by any labor union or
any other person during the twenty-four (24) months prior to the date hereof to
organize any employees or consultants of ▇▇▇▇▇ who are not already members of a
collective bargaining unit into one or more collective bargaining units, nor, to
the knowledge of the ▇▇▇▇▇, are any such efforts being conducted. There is no
pending or, to the knowledge of ▇▇▇▇▇, threatened labor dispute, strike or work
stoppage which affects or which may affect the business of ▇▇▇▇▇, or which may
interfere with its continued operations. To the knowledge of ▇▇▇▇▇, neither
▇▇▇▇▇ nor any agent, representative or employee thereof, has within the last
twenty-four (24) months committed any unfair labor practice as defined in the
National Labor Relations Act, as amended, and there is no pending or threatened
charge or complaint against ▇▇▇▇▇ by or with the National Labor Relations Board
or any representative thereof. There has been no strike, walkout or work
stoppage involving any of the employees or consultants of ▇▇▇▇▇ during the
twenty-four (24) months prior to the date hereof. ▇▇▇▇▇ has complied, in all
material respects, with applicable laws, rules and regulations relating to
employment, civil rights and equal employment opportunities or other employment
practices, including but not limited to, the Civil Rights Act of 1964, the Fair
Labor Standards Act, the Americans with Disabilities Act, as amended and the
Immigration Reform and Control Act of 1986, as amended. ▇▇▇▇▇ has received no
notice of any claim before any governmental body brought by or on behalf of any
employee, prospective employee, former employee, retiree, labor organization or
other representative of employees or any governmental body or, to the knowledge
of ▇▇▇▇▇ s any such claim threatened against ▇▇▇▇▇. ▇▇▇▇▇ is not a party to, or
otherwise bound by, any order relating to its employees or employment practices.
▇▇▇▇▇ has paid in full to all of its employees all wages, salaries, commissions,
bonuses, benefits and other compensation due and payable to such employees. No
current or former employee of ▇▇▇▇▇ is (i) absent on a military leave of absence
and/or eligible for rehire under the terms of the Uniformed Services Employment
and Reemployment Rights Act, or (ii) absent on a leave of absence under the
Family and Medical Leave Act.
2.15 EMPLOYEE BENEFITS. There is no employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and (ii) no other benefit plan, program, contract or arrangement of
any kind whatsoever, covering the employees or consultants of ▇▇▇▇▇ or which is
sponsored, maintained or contributed to by ▇▇▇▇▇ or to which ▇▇▇▇▇ has an
obligation to contribute. Schedule 2.15 of ▇▇▇▇▇'▇ Sellers' Disclosure Schedule
lists each Employee Benefit Plan that ▇▇▇▇▇ maintains or to which it
contributes.
2.16 ENVIRONMENTAL LAWS. To the knowledge of ▇▇▇▇▇, it is in material
compliance with all Environmental Laws and has received no notice from any
Governmental Authority of any actual or potential Environmental Claim or any
Environmental Health and Safety Liabilities.
15
2.17 BROKERS' FEES. Except as disclosed on Schedule 2.17 of the ▇▇▇▇▇
Disclosure Schedule, ▇▇▇▇▇ has no liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which ▇▇▇▇▇, the Corporations or the
Stockholders could become liable or obligated
2.18 CONTRACTS. To the Knowledge of ▇▇▇▇▇, Schedule 2.18 of ▇▇▇▇▇'▇
Disclosure Schedule lists all Contracts and agreements to which ▇▇▇▇▇ is a
party, the performance of which will involve consideration in excess of $25,000.
▇▇▇▇▇ will make available to the Corporations for review and copying a correct
and complete copy of each such Contract or other agreement (as they may have
been amended to date). With respect to the Contracts on Schedule 2.18 (i) to the
knowledge of ▇▇▇▇▇, all Contracts are in full force and effect; (ii) to the
knowledge of ▇▇▇▇▇, ▇▇▇▇▇ is not is in material breach or material default, and
there has occurred no event, fact, or circumstance that, with the lapse of time
or the giving of notice, or both, would constitute such a material breach or
material default by ▇▇▇▇▇, with respect to the terms of any Contract; (iii) to
knowledge of ▇▇▇▇▇, no other party is in material breach or material default
with respect to the terms of any Contract; and (iv) neither ▇▇▇▇▇, nor, to
▇▇▇▇▇'▇ knowledge, any other party to any Contract has given or threatened to
give notice of any action to terminate, cancel, rescind, or procure a judicial
reformation of any Contract or any provisions thereof.
2.19 PERMITS. To the knowledge of ▇▇▇▇▇, ▇▇▇▇▇ has complied in all
material respects with all Laws and Governmental Permits relating to its
Business, other than those Laws and Governmental Permits the failure of which to
comply would not have a ▇▇▇▇▇ Material Adverse Effect. To the knowledge of
▇▇▇▇▇, ▇▇▇▇▇ has all Governmental Permits required in connection with the
ownership and operation of its Business, other than those Governmental Permits
the failure of which to obtain would not have a ▇▇▇▇▇ Material Adverse Effect,
and all such Permits and filings are in full force and effect. ▇▇▇▇▇ has not
received notice from any Governmental Authority that any such applicable law,
Permit, or filing has been violated or not complied with by ▇▇▇▇▇.
2.20 ▇▇▇▇▇ SEC REPORTS. ▇▇▇▇▇ has filed all forms, statements, reports and
documents required to be filed or, if permissible, furnished by it with the
Commission since May 30th, 2003. The ▇▇▇▇▇ SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations promulgated thereunder, and (ii)
did not, at the time they were filed, or, if amended, as of the date of such
amendment, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. As of its filing date, each ▇▇▇▇▇ SEC Report complied as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be.
There has not occurred any material adverse change, or any development
constituting a prospective material adverse change, in the condition, financial
or otherwise, or in the earnings, business or operations of ▇▇▇▇▇ since its
latest report on Form 10-QSB.
16
Neither the offer or sale of the ▇▇▇▇▇ Exchange Stock pursuant hereto nor the
consummation of the transactions as contemplated by this Agreement give rise to
any rights for or relating to the registration of shares of ▇▇▇▇▇ Common Stock
or other securities of ▇▇▇▇▇, except as may be granted incident to the ▇▇▇▇▇
Financing, or except as set forth on Schedule 2.20 of the ▇▇▇▇▇ Disclosure
Schedule.
▇▇▇▇▇ is not required to prepare and deliver to its shareholders and file with
the Commission any proxy, information statement or similar report in advance of
the consummation of the transactions contemplated hereby, except for such
reports as may need be filed in accordance with Form 8-KSB.
2.21 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in this Section 2, ▇▇▇▇▇ makes no representation or
warranty, express or implied, at law or in equity, in respect of any of its
assets, liabilities or operations, including, without limitation, and any such
other representations or warranties are hereby expressly disclaimed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATIONS AND STOCKHOLDERS
Except as set forth in the Corporations Disclosure Schedule, disclosure on
any one schedule of which shall apply to any and all representations and
warranties made in this Agreement, and except as otherwise disclosed in writing
to ▇▇▇▇▇, DCS and each of the Stockholders hereby jointly and severally
represent and warrant to ▇▇▇▇▇ as of the date of this Agreement and as of the
Closing Date:
3.1 ORGANIZATION, STANDING AND POWER. Except as set forth on SCHEDULE 3.1
to the Corporations Disclosure Schedule, each of the Corporations is a
corporation duly formed and in good standing under the laws of the state of
Delaware or other applicable jurisdictions. Each of the Corporations has all
requisite power and authority to conduct its respective businesses as presently
conducted by it and to enter into and perform this Agreement and to carry out
the transactions contemplated by this Agreement. Each of the Corporations is
duly qualified to do business as a foreign corporation doing business in each
state or other jurisdiction where the failure to be so qualified and in good
standing would have a Corporations Material Adverse Effect. Except as set forth
in SCHEDULE 3.1 to the Corporations Disclosure Schedule, none of the
Corporations has an ownership interest in any corporation, partnership (general
or limited), limited liability company or other entity, whether foreign or
domestic (collectively such ownership interests including capital stock).
3.2 CAPITALIZATION.
(a) The capitalization of each of the Corporations and the number of
shares of capital stock of each of the Corporations is as set forth on Schedule
3.2 to the Corporations Disclosure Schedule.
(b) No Acquired Stock, or other shares of capital stock of any of
the Corporations has been reserved for issuance to any Person, and there are no
other outstanding rights, warrants, options or agreements for the purchase of
shares of Acquired Stock or other shares of Corporations' capital stock on
Common Stock Equivalents. Except for DCS, none of the Corporations has any
Subsidiaries.
17
(c) All outstanding shares of capital stock of each of the
Corporations are validly issued, fully paid, non-assessable, not subject to
pre-emptive rights and have been issued in compliance with all state and federal
securities laws or other Applicable Law.
3.3 AUTHORITY FOR AGREEMENT. The execution, delivery, and performance of
this Agreement by Corporations and the Stockholders has been duly authorized by
all necessary corporate action, and this Agreement, upon its execution by such
Parties, will constitute the valid and binding obligation of Corporations and
the Stockholders enforceable against it or them in accordance with and subject
to its terms, except as enforceability may be affected by bankruptcy, insolvency
or other laws of general application affecting the enforcement of creditors'
rights. The execution, delivery and performance of this Agreement and compliance
with its provisions by the Corporations and the Stockholders will not violate
any provision of Applicable Law and will not conflict with or result in any
breach of any of the terms, conditions, or provisions of, or constitute a
default under (whether with or without notice or lapse of time or both), the
Certificate of Incorporation or Bylaws of any of the Corporations, in each case
as amended, or any indenture, lease, loan agreement or other agreement or
instrument to which Corporations or any of the Stockholders is a party or by
which it or them or any of its or their properties are bound, or any decree,
judgment, order, statute, injunction, charge, rule or regulation or other
restriction of any governmental agency applicable to the Stockholders or the
Corporations except to the extent that any breach or violation of any of the
foregoing would not constitute or result in a Material Adverse Effect on DCS,
the Corporations or the Stockholders. Except as set forth in the Corporations
Disclosure Schedule, no consent, filing with or notification to, or approval or
authorization of any governmental, regulatory or other authority is required on
the part of the Corporations or the Stockholders in connection with the
execution, delivery and performance of this Agreement.
3.4 ACQUIRED STOCK. The Stockholders are collectively the record and
beneficial owner of 100% of the Acquired Stock and upon delivery of such shares
to ▇▇▇▇▇, ▇▇▇▇▇ shall acquire all right, title and interest to the Acquired
Stock free and clear of any liens, claims and encumbrances.
3.5 FINANCIAL STATEMENTS AND FINANCIAL REPORTING.
(a) All financial statements which have been provided to ▇▇▇▇▇
regarding the businesses of the Corporations and the Acquisitions prior to the
date hereof (the "DCS Financials") (i) are consistent in all material respects
with the books and records of the Corporations and the Acquisitions, as the case
may be; (ii) have been or will be prepared on a consistent basis; (iii) reflect
and provide adequate reserves and disclosures in respect of all liabilities of
the Corporations and the Acquisitions, including all contingent liabilities, as
of the respective dates of the DCS Financials, and (iv) present fairly in all
material respects the financial position of the Corporations and the
Acquisitions at such dates and the results of operations and cash flows of the
Corporations and the Acquisitions for the periods then ended, except that
financials for periods other than fiscal years do not reflect the impact of
normal recurring year-end adjustments, which adjustments would not have a
material impact on the financial results reflected in such reports.
(b) The Corporations and the Stockholders shall provide to ▇▇▇▇▇ by
the Closing Date:
(i) the audited (A) balance sheet of each Corporation as of
December 31, 2005, and audited statements of operations and statements of cash
flows for each of the Corporations for the two years ended December 31, 2005,
and (B) balance sheet as of December 31, 2005, and statements of operations and
statements of cash flows for each of the Acquisition(s) for the two most recent
fiscal years (collectively, the "Audited Financial Statements"); and
(c) To the knowledge of the Stockholders, since September 30, 2005,
except as otherwise disclosed in the DCS Financials, the Corporations Disclosure
Schedule or to be disclosed in the applicable Audited Financial Statements,
there has been no Corporations Material Adverse Effect.
(d) Except as otherwise disclosed in the DCS Financials or on the
Corporations Disclosure Schedule or to be disclosed in the Audited Financials,
none of the Corporations or Acquisitions has or will have any liabilities or
obligations that would be required to be set forth in financial statements
audited in accordance with GAAP.
(e) The Audited Financial Statements shall be prepared by an
accountant qualified to practice before the Commission in accordance with GAAP
and Regulation S-X promulgated under the Securities Act.
18
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2005, except
as otherwise disclosed in the applicable Corporation's DCS Financials or on
SCHEDULE 3.6 to the Corporations Disclosure Schedule:
(a) there has not been (i) any Corporations Material Adverse Effect,
or (ii) any damage, destruction, or loss (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties, assets,
or condition of the Corporations;
(b) none of the Corporations has (i) amended its Articles of
Organization; (ii) declared or made, or agreed to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
stockholders or purchased or redeemed, or agreed to purchase or redeem, any
outstanding capital stock;
(c) none of the Corporations has (i) waived any rights of value
which in the aggregate are extraordinary or material in respect of its business;
(ii) made any material change in its method of management, operation, or
accounting; (iii) entered into any other material transaction; (iv) made any
accrual or arrangement for payment of bonuses or special compensation of any
kind or any severance or termination pay to any present or former officer or
employee; (v) increased the rate of compensation payable or to become payable by
it to any of officers or employees whose monthly compensation exceeds $5,000; or
(vi) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with officers, directors, or employees;
(d) Except as disclosed on the Corporations Disclosure Schedule,
none of the Corporations has (i) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
or contingent) except liabilities incurred in the ordinary course of business,
apart from DCS bridge financing of $50,000; (ii) paid any material obligation or
liability (absolute or contingent) other than current liabilities reflected in
or shown on the most recent Corporations' balance sheet, and current liabilities
incurred since that date in the ordinary course of business; (iii) sold or
transferred, or agreed to sell or transfer, any of its assets, properties, or
rights (except assets, properties, or rights not used or useful in its business
which, in the aggregate have a value of less than $5,000), or cancelled, or
agreed to cancel, any debts or claims (except debts or claims which in the
aggregate are of a value of less than $5,000); (iv) made or permitted any
amendment or termination of any contract, agreement, or license to which it is a
party if such amendment or termination is material, in respect of its business;
or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or
other corporate securities including debentures (whether authorized and unissued
or held as treasury stock); and
(e) to the best knowledge of the Corporations and Stockholders, none
of the Corporations have become subject to any law or regulation which
materially and adversely affects, or in the future may adversely affect, their
respective businesses, operations, properties, assets, or financial condition.
3.7 INTELLECTUAL PROPERTY AND INTANGIBLE ASSETS. Except as set forth on
the Corporations Disclosure Schedule, each of the Corporations has full legal
right, title and interest in and to all of the Intellectual Property utilized in
the operation of their respective businesses. No rights of any other person are
violated by the use by any of the Corporations of any Intellectual Property.
None of the Intellectual Property utilized in the operation of the businesses of
any of the Corporations has ever been declared invalid or unenforceable, or is
the subject of any pending or, to the knowledge of the Corporations and
Stockholders, threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like claim,
action or proceeding.
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3.8 APPROVALS AND CONSENTS. Except as contemplated by this agreement, no
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, county, local or other foreign governmental authority,
instrumentality, agency or commission or any third party, including a party to
any agreement with the Stockholders and Corporations, is required by or in
connection with the execution and delivery of this Agreement or the consummation
of the transaction contemplated hereby.
3.9 LITIGATION. Except as otherwise disclosed in the Corporations
Disclosure Schedule, there is no action, suit, investigation, audit or
proceeding pending against, or to the best knowledge of the Stockholders or
Corporations, threatened against or affecting, any of the Corporations or any of
its assets or properties before any court or arbitrator or any governmental or
other body, agency or official which could have a Corporations Material Adverse
Effect.
3.10 RELATED PARTY TRANSACTIONS. Except as disclosed in this Agreement or
in the Corporations Disclosure Schedule, none of the Corporations is indebted to
any officer or director of such Corporation, the Stockholders or any affiliate
of the Stockholders (except for compensation and reimbursement of expenses
incurred in the ordinary course of business and payment of which is not
overdue), and no such Person is indebted to the Corporations.
3.11 COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the
Corporations Disclosure Schedule, none of the Corporations or their respective
businesses have been, or are being, conducted in violation of any Applicable
Law, except for possible violations which both individually and in the aggregate
have not had and are not reasonably likely to have a Corporations Material
Adverse Effect. No investigation or review by any governmental entity with
respect to the Corporations is pending or, to the knowledge of the Stockholders
or Corporations after reasonable inquiry, threatened, nor has any governmental
entity indicated an intention to conduct the same, except for investigations or
reviews which both individually and also in the aggregate would not have, nor be
reasonably likely to have, a Corporations Material Adverse Effect.
3.12 NO UNDISCLOSED LIABILITIES. There are no material liabilities or
debts of the Corporations, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability or debt which has not been disclosed in the DCS Financials or the
Corporations Disclosure Schedule or which will not be disclosed in the Audited
Financial Statements.
3.13 TAX RETURNS AND PAYMENT. All Tax Returns with respect to the
Corporations required to be filed by has duly and timely filed and all Taxes
shown thereon to be due have been paid, except as reflected in the Corporations
Disclosure Schedule. Except for a $107,000 balance owed to the IRS for accrued
and unpaid Taxes for which an offer is compromise is being negotiated, or as
otherwise disclosed in the Corporations Disclosure Schedule or in the applicable
Corporations Financial Statements, there is no claim for Taxes that is a lien
against the property of the Corporations other than liens for Taxes not yet due
and payable, none of which Taxes is material. The Stockholders have not received
notification of any audit of any Tax Return of the Corporations being conducted
or pending by a Tax authority, no extension or waiver of the statute of
limitations on the assessment of any Taxes has been granted by the Stockholders
which is currently in effect, and the Corporations is not a party to any
agreement, contract or arrangement with any Tax authority or otherwise, which
may result in the payment of any amount in excess of the amount reflected on the
applicable Corporations Financial Statements.
3.14 LABOR AND EMPLOYMENT MATTERS. None of the Corporations are a party to
or bound by any collective bargaining agreement or any other agreement with a
labor union, and, to the knowledge of the Stockholders or Corporations, there
has been no effort by any labor union or any other person during the twenty-four
(24) months prior to the date hereof to organize any employees or consultants of
the Corporations who are not already members of a collective bargaining unit
into one or more collective bargaining units, nor, to the knowledge of the
Stockholders or Corporations, are any such efforts being conducted. There is no
pending or, to the knowledge of the Stockholders, threatened labor dispute,
strike or work stoppage which affects or which may affect the business of the
Corporations, or which may interfere with its continued operations. To the
knowledge of the Stockholders or Corporations, neither the Stockholders, nor any
of the Corporations nor any of their respective agents, representatives or
employees thereof has within the last twenty-four (24) months committed any
unfair labor practice as defined in the National Labor Relations Act, as
amended, and there is no pending or threatened charge or complaint against the
Stockholders or Corporations by or with the National Labor Relations Board or
any representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees or consultants of the Corporations during the
twenty-four (24) months prior to the date hereof. Each of the Corporations and
Stockholders have complied, in all material respects, with applicable laws,
rules and regulations relating to employment, civil rights and equal employment
opportunities or other employment practices, including but not limited to, the
Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with
Disabilities Act, as amended and the Immigration Reform and Control Act of 1986,
as amended. The Corporations have not received notice of any claim before any
governmental body brought by or on behalf of any employee, prospective employee,
former employee, retiree, labor organization or other representative of
employees or any governmental body or, to the knowledge of the Stockholders or
Corporations is any such claim threatened against the Corporations. The
Corporations are not a party to, or otherwise bound by, any order relating to
its employees or employment practices. The Corporations have paid in full to all
of its employees all wages, salaries, commissions, bonuses, benefits and other
compensation due and payable to such employees.
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3.15 EMPLOYEE BENEFITS. There is no employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and (ii) no other benefit plan, program, contract or arrangement of
any kind whatsoever, covering the employees or consultants of the Corporations
or which is sponsored, maintained or contributed to by any the Corporations or
to which any of the Corporations have an obligation to contribute. Schedule 3.15
of the Corporations Disclosure Schedule sets forth each Employee Benefit Plan
that any of the Corporations maintains or to which any of them contributes.
3.16 ENVIRONMENTAL LAWS. Except where non-compliance would not have a
Corporations Material Adverse Effect, each of the Corporations is in compliance
with all Environmental Laws and has received no notice from any Governmental
Authority of any actual or potential Environmental Claim or any Environmental
Health and Safety Liabilities.
3.17 BROKERS' FEES. Except as disclosed on Schedule 3.17 of the
Corporations Disclosure Schedule, none of the Corporations or Stockholders has
no liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement for
which ▇▇▇▇▇, the Corporations or the Stockholders could become liable or
obligated
3.18 CONTRACTS. To the knowledge of the Corporations, Schedule 2.19 of the
Corporations Disclosure Schedule lists all Contracts and agreements to which any
of the Corporations is a party, the performance of which will involve
consideration in excess of $25,000. The Corporations will make available to
▇▇▇▇▇ for review and copying a correct and complete copy of each such Contract
or other agreement (as they may have been amended to date). With respect to the
Contracts on Schedule 2.18 (i) to the knowledge of the Corporations, all
Contracts are in full force and effect; (ii) to the knowledge of the
Corporations, none of the Corporations is in material breach or material
default, and there has occurred no event, fact, or circumstance that, with the
lapse of time or the giving of notice, or both, would constitute such a material
breach or material default by any of the Corporations, with respect to the terms
of any Contract; (iii) to knowledge of the Corporations, no other party is in
material breach or material default with respect to the terms of any Contract;
and (iv) neither any of the Corporations, nor, to the Corporations' knowledge,
any other party to any Contract has given or threatened to give notice of any
action to terminate, cancel, rescind, or procure a judicial reformation of any
Contract or any provisions thereof
3.19 PERMITS. To the knowledge of the Corporations, each of the
Corporations has complied in all material respects with all Laws and
Governmental Permits relating to its business, other than those Laws and
Governmental Permits the failure of which to comply would not have a
Corporations Material Adverse Effect. To the knowledge of the Corporations, each
of the Corporations has all Governmental Permits required in connection with the
ownership and operation of its business, other than those Governmental Permits
the failure of which to obtain would not have a Corporations Material Adverse
Effect, and all such Permits and filings are in full force and effect. None of
the Corporations has received notice from any Governmental Authority that any
such applicable law, Permit, or filing has been violated or not complied with by
▇▇▇▇▇.
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3.20DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in this ▇▇▇▇▇▇▇ ▇, ▇▇▇▇ of the Stockholders or Corporations
makes any representation or warranty, express or implied, at law or in equity,
in respect of any of its assets, liabilities or operations, including, without
limitation, and any such other representations or warranties are hereby
expressly disclaimed.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES
4.1 ▇▇▇▇▇ FINANCINGOBLIGATION. ▇▇▇▇▇ covenants and agrees to use its best
efforts to consummate the ▇▇▇▇▇ Financing Obligation on or before the Closing
date on terms and conditions satisfactory to ▇▇▇▇▇ and DCS. In the event that
▇▇▇▇▇ is unable to secure the ▇▇▇▇▇ Financing Obligation, it will use its best
efforts to secure financing from other sources.
4.2 COMPLIANCE BY THE CORPORATIONS AND THE STOCKHOLDERS WITH OBLIGATIONS.
Subject to compliance by ▇▇▇▇▇ with the deliveries set forth in Section 1.5 of
this Agreement and consummation of the ▇▇▇▇▇ Financing Obligations, each of the
Corporations and the Stockholders covenants and agrees to comply with its and
their obligations under of this Agreement and to deliver to ▇▇▇▇▇ on the Closing
Date the items set forth in Section 1.4 and Section 5.
4.3 COMPLIANCE BY ▇▇▇▇▇. Subject to compliance by the Corporations with
the deliveries set forth in Section 1.4 of this Agreement, ▇▇▇▇▇ covenants and
agrees to comply with its and their obligations under of this Agreement and to
deliver to the Stockholders on the Closing Date the items set forth in Section
1.5 and Section 5.
4.4 THE ▇▇▇▇▇ BOARD OF DIRECTORS; EXECUTIVE OFFICERS.
(a) On the Closing Date and until the next annual meeting of the
stockholders of ▇▇▇▇▇ called, in whole or in part, to elect the board of
directors of ▇▇▇▇▇ , the board of directors of ▇▇▇▇▇ (the "▇▇▇▇▇ Board of
Directors") and each of its consolidated Subsidiaries (collectively, with the
▇▇▇▇▇ Board of Directors, the "▇▇▇▇▇ Boards" shall consist of five (5) Persons,
of which (i) ▇▇▇▇▇ shall designate three (3) members; and (ii) DCS shall
designate two (2) members, one of which will be ▇▇▇▇▇▇▇ Benz who shall serve as
Chairman of the Board. Further, ▇▇▇▇▇ covenants and agrees to use its best
efforts to re-elect such individuals to its Board of Directors at its annual
meetings held in 2006 and 2007.
(b) On the Closing Date, the senior executive officers of ▇▇▇▇▇
shall be ▇▇▇▇▇▇▇ Benz, CEO, ▇▇▇▇▇ ▇▇▇▇▇▇▇, President, and such other Persons
appointed by the ▇▇▇▇▇ Board of Directors; such Persons to hold office at the
pleasure of the ▇▇▇▇▇ Board of Directors, and one of which shall be a qualified
chief financial officer.
4.5 CERTAIN LIABILITIES OF THE CORPORATIONS.
(a) Each of ▇▇▇▇▇▇▇ Benz and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and the other
Stockholders named on Schedule _A__, agrees to forgive all accrued salaries and
other compensation owed by DCS and to arrange satisfaction of all accrued
compensation showing on the DCS balance sheets for all periods through the
Closing Date.
(b) The Parties acknowledge that, after forgiveness of the
obligations and liabilities referred to in Section 4.5(a) above, an aggregate of
approximately $750,000 of obligations and liabilities will continue to be owed
by the Corporations to ▇▇▇▇▇▇▇ Benz and his Affiliate, ISI International, Inc.
(the "Corporations Related Party Obligations"), of which approximately $500,000
are loans to DCS. The Parties agree that loans shall be repaid to ▇▇▇▇▇▇▇ Benz
and his Affiliate's in accordance with terms to be further negotiated by the
Parties.
4.6 ANNOUNCEMENTS. No Party shall issue any press release or otherwise
make any public statement with respect to this Agreement or the transactions
contemplated hereby without the prior consent of the other Parties hereto (which
consent shall not be unreasonably withheld or delayed), except as may be
required by Applicable Law. Notwithstanding anything in this Section 4.5 to the
contrary, the Parties will, to the extent practicable, consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any such press release or other public statements or disclosure with
respect to this Agreement and the transactions contemplated hereby.
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4.7 ACCESS TO INFORMATION. The Parties hereto will make available to one
another for inspection during normal business hours and in a manner so as not to
interfere with normal business operations, all of the records (including tax
records), books of account, premises, contracts and all other documents in their
possession or control that are reasonably requested with respect to the business
and affairs of the Corporations or ▇▇▇▇▇, as the case may be. The Corporations
and ▇▇▇▇▇ will cause their respective managerial employees and regular
independent accountants to be available upon reasonable advance notice to answer
questions concerning the business and affairs of the Corporations. Each party
will treat and hold as confidential any information they receive in the course
of the reviews contemplated by this Section 4.5. No examination by any party
will, however, constitute a waiver or relinquishment of such party's rights to
rely on covenants, representations and warranties made herein or pursuant
hereto.
4.8 GENERAL. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement.
4.9 OPERATION OF BUSINESS. Neither ▇▇▇▇▇ nor any of the Corporations will
engage in any practice, take any action, or enter into any transaction outside
their respective ordinary course of business. Without limiting the generality of
the foregoing, except as set forth in the respective Disclosure Schedule of the
Corporations and ▇▇▇▇▇ or as expressly contemplated by any other provision of
this Agreement, the Corporations and ▇▇▇▇▇ will use their best efforts to
preserve substantially intact their respective business organizations, maintain
their respective business and properties substantially intact, including their
present operations and facilities, keep available the services of their current
officers, employees and consultants, and preserve their respective current
relationships suppliers, purchasers, employees and other persons with which they
have significant business relations, and neither any of the Corporations nor
▇▇▇▇▇ will, directly or indirectly, do, or propose to do, any of the following
without the prior written consent of the other Party hereto: (i) amend or
otherwise change its articles of incorporation or bylaws; (ii) issue, sell,
pledge, dispose of, grant or encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, (1) any shares of any class of capital
stock, or any stock options, warrants, convertible securities or other rights of
any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), or (2) any
assets, except in the ordinary course of business; (iii) declare, set aside,
make or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock; (iv) reclassify,
combine, split, subdivide or redeem, or purchase or otherwise acquire, directly
or indirectly, any of its capital stock; (v) (1) acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or assets or any
other business combination) any corporation, partnership, limited liability
company, other business organization or any division thereof or any significant
amount of assets; (2) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise become responsible
for, the obligations of any person, or make any loans or advances, or grant any
security interest in any of its assets; (3) enter into any contract or agreement
other than in the ordinary course of business; (4) authorize, or make any
commitment with respect to, any capital expenditure in excess of $25,000 or (5)
enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this Section; (vi) increase the compensation
payable or to become payable or the benefits provided to its directors, officers
or employees, or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other employee,
or establish, adopt, enter into or amend any collective bargaining, bonus,
profit-sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee; (vi) fail to make in a timely manner any filings
with the SEC required under the Securities Act or the Exchange Act or the rules
and regulations promulgated thereunder; or (vii) announce an intention, enter
into any formal or informal agreement or otherwise make a commitment, to do any
of the foregoing.
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4.10 NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to
the other Parties of any development causing a breach of any of its
representations and warranties in this Agreement or a violation of any of its
covenants set forth in this Agreement. No disclosure by any Party pursuant to
this Section, however, shall be deemed to amend or supplement such Party's
Disclosure Schedule or to prevent or cure any misrepresentation or breach of
warranty.
4.11 EXCLUSIVITY. Neither ▇▇▇▇▇ nor any of the Corporations will solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of all or a substantial portion of its respective
assets or capital stock (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that the directors and
officers of ▇▇▇▇▇ and the Corporations will remain free to participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing to the extent that such
actions are consistent with their fiduciary duties.
4.12 FURTHER ASSURANCES. ▇▇▇▇▇ and each of the Stockholders and
Corporations each agree that, from time to time, whether before, at or after any
Closing Date, each of them will execute and deliver or cause their respective
Affiliates to execute and deliver such further instruments of conveyance and
transfer and take such other action as may be necessary to carry out the
purposes and intents of this Agreement.
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ARTICLE V
CONDITIONS TO EXCHANGE OF ACQUIRED STOCK
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ▇▇▇▇▇. Consummation of the
acquisition of the Acquired Stock on the Closing Date by ▇▇▇▇▇ and issuance of
the ▇▇▇▇▇ Exchange Stock to the Stockholders is subject to the fulfillment on or
prior to the Closing Date of each of the following conditions:
(a) The representations and warranties of the Corporations and the
Stockholders contained in Article III hereof (with specific reference, inclusive
of the Corporations Disclosure Schedule) shall be true and correct as of the
Agreement Date and shall be true and correct in all material respects at and as
of the Closing Date as if made on the Closing Date.
(b) Each of the Corporations and the Stockholders shall have
performed or complied in all material respects with all obligations, agreements
and covenants required to be performed by it hereunder prior to or on the
Closing Date;
(c) DCS shall have arranged for the consummation of one or more
Acquisition(s) which shall result in operating revenues when combined with DCS
of at least $8 million, all upon such terms and conditions as shall be
reasonably satisfactory to ▇▇▇▇▇;
(d) The Stockholders shall have made the deliveries required to be
made in Section 1.4 above.
(e) If and to the extent that final Corporations Disclosure
Schedules shall not have been delivered, all such the Corporations Disclosure
Schedules shall have been completed and any information included thereon after
the date hereof shall differ materially from the information provided to ▇▇▇▇▇
on or prior to the date hereof;
(f) The Corporations will be have obtained the Audited Financial
Statements contemplated by Section 3.5(a) of this Agreement;
(g) There shall not have occurred since September 30, 2005, any
Corporations Material Adverse Effect, other than as disclosed in the
Corporations Disclosure Schedule;
(h) There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(i) The Stockholders and the Corporations shall have delivered to
▇▇▇▇▇ a certificate to the effect that each of the conditions specified above in
Section 5.1(a) and (b) are satisfied in all respects;
(j) The Stockholders shall have received an opinion from counsel to
▇▇▇▇▇ in form and substance reasonably satisfactory to the Stockholders as to
such matters as the Stockholders may reasonably request; and
(k) All actions to be taken by the Stockholders and Corporations in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to ▇▇▇▇▇.
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5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS. Consummation
of the Exchange by the Stockholders of the Acquired Stock to ▇▇▇▇▇ is subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
(a) The representations and warranties of ▇▇▇▇▇ contained in Article
II hereof (with specific reference, inclusive of the ▇▇▇▇▇ Disclosure Schedule)
shall be true and correct as of the Agreement Date and shall be true and correct
in all material respects at and as of the Closing Date as if made on the Closing
Date;
(b) ▇▇▇▇▇ shall have complied in all material respects with all
obligations, agreements and covenants required to be performed by it hereunder
prior to or on the Closing Date of the Transaction, including all covenants and
agreements on their part to be performed, as set forth in Article IV above;
(c) ▇▇▇▇▇ shall have made the deliveries required to be made in
Section 1.5 above;
(d) ▇▇▇▇▇ shall have closed the ▇▇▇▇▇ Financing Obligations or
arranged financing from other sources on terms satisfactory to ▇▇▇▇▇ and the
Stockholders;
(e) There shall not have occurred since September 30, 2005, any
event giving rise to a ▇▇▇▇▇ Material Adverse Effect;
(f) There shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;
(g) The Stockholders and the Corporations shall have delivered to
▇▇▇▇▇ a certificate to the effect that each of the conditions specified above in
Section 5.2 (a) and (b) are satisfied in all respects;
(h) ▇▇▇▇▇ shall have received an opinion from counsel to the
Stockholders and Corporations in form and substance reasonably satisfactory to
▇▇▇▇▇ as to such matters as the Stockholders may reasonably request; and
(i) All actions to be taken by ▇▇▇▇▇ in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Stockholders.
ARTICLE VI
MISCELLANEOUS
6.1 TERMINATION. The Parties may terminate this Agreement as provided
below:
(a) ▇▇▇▇▇ and the Stockholders may terminate this Agreement by
mutual written agreement at any time prior to the Closing of the purchase of the
Acquired Stock.
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(b) ▇▇▇▇▇ may terminate this Agreement by giving written notice to
DCS and the Stockholders at any time prior to the Closing (i) if DCS, the
Corporations or the Stockholders have breached any material representation,
warranty, or covenant contained in this Agreement, ▇▇▇▇▇ has notified DCS and
the Stockholders in writing of the breach, and the breach has continued without
cure until the later of the scheduled Closing Date and 10 days after the notice
of breach, (ii) if all of the conditions to ▇▇▇▇▇'▇ obligation to consummate the
Closing shall not have been satisfied by June 30, 2005 (the "Outside Closing
Date"), or (iii) if the Closing of the Exchange shall not have occurred on or
before the Outside Closing Date, unless in any such case (a) the failure results
from a breach by ▇▇▇▇▇ of any material representation, warranty, or covenant on
its part contained in this Agreement or (b) from ▇▇▇▇▇'▇ failure to expend its
best efforts to cause any Closing Condition of any party to be satisfied.
(c) DCS or the Stockholders may terminate this Agreement by giving
written notice to ▇▇▇▇▇ at any time prior to the Closing (i) if ▇▇▇▇▇ has
breached any material representation, warranty, or covenant contained in this
Agreement, DCS or the Stockholders has notified ▇▇▇▇▇ in writing of the breach,
and the breach has continued without cure until the later of the scheduled
Closing date or 10 days after the notice of breach (ii) if all of the conditions
to the Stockholders's obligations to consummate the Closing shall not have been
satisfied by the Outside Closing Date, (iii) if the Closing shall not have
occurred on or before the Outside Closing Date, unless in any such case (a) the
failure results from the breach by the Stockholders or the Corporations of any
material representation, warranty, or covenant contained in this Agreement or
(b) from the Stockholders failure to expend their best efforts to cause any
Closing Condition of any party to be satisfied.
6.2 EFFECT OF TERMINATION.
(a) If any Party terminates this Agreement pursuant to Section 6.1,
all rights and obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except that if such termination is as
a result of a breach by any Party, such Party shall remain liable for any
damages resulting from such breach).
(b) ▇▇▇▇▇, the Corporations and the Stockholders each acknowledges
that, notwithstanding anything contained elsewhere in this Agreement, if this
Agreement is terminated prior to Closing due to any Party's breach, the
non-breaching Party or Parties' shall have no adequate remedy at law.
Accordingly, in addition to any claim for monetary damages, the non-breaching
Party or Parties shall have the right to seek specific enforcement of this
Agreement.
6.3 ENTIRE AGREEMENT.
(a) This Agreement, and the documents referred to in it, constitute
the entire agreement and understanding of the Parties and supersede any previous
agreements made or existing between the Parties or any of them before or
simultaneously with this Agreement and relating to the subject matter of this
Agreement (all of which shall be deemed to have been terminated by mutual
consent as of the date of this Agreement).
(b) Each of the Parties acknowledges and agrees that in entering
into this Agreement it has not relied on, and shall have no remedy in respect
of, any statement, representation, warranty or understanding (whether
negligently or innocently made) of any person (whether party to this Agreement
or not) other than as expressly set out in this Agreement.
(c) No amendment or waiver of this Agreement shall be effective
unless it is in writing and signed by or on behalf of each of the Parties.
6.4 JURISDICTION AND GOVERNING LAW.
(a) This Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware.
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(b) Irrespective of conflict of law or choice of law issues or
provisions, each of the Parties hereby submits to the exclusive jurisdiction of
the state and federal courts located in the City of New York for the resolution
of all claims or controversies arising out or related to this Agreement.
6.5 SCHEDULES; TABLES OF CONTENTS AND HEADINGS, NOTICES. Any section of
either Disclosure Schedule required to be attached and not attached to this
Agreement on the Agreement Date shall be deemed to have been attached thereto
with the following thereon: "None." Unless such schedule indicates that it is
"subject to completion," in which case such schedule shall be delivered as
quickly as practicable. The table of contents and section headings of this
Agreement and titles given to Schedules to this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement. All notices and other communications under
this Agreement shall be in writing and shall be deemed given when (a) delivered
personally (including by confirmed legible facsimile transmission and
contemporaneous first-class mailing for overnight delivery), (b) delivered by a
responsible overnight courier service, or (b) five business days after being
deposited first class, or airmail class if to a different country, in the mails,
in each such case delivered or mailed to the Parties at the addresses set forth
on Schedule 6.5 attached hereto (or to such address as a Party may have
specified by notice given to the other Parties pursuant to this provision).
6.6 SEPARABILITY. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect (a) such provision
shall be enforced to the maximum extent permissible under applicable law, and
(b) the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect, provided that as so
modified, this Agreement provides to the respective Parties substantially all of
the benefits contemplated hereby.
6.7 MISCELLANEOUS PROVISIONS.
(a) Subject and without prejudice to Section 6.2(a), all rights and
remedies of any Party under any provision of this Agreement shall be in addition
to any other rights and remedies provided for by any law of any kind (including
all forms of legal and equitable relief, including specific performance), all
rights and remedies contemplated in the preceding part of this sentence shall be
independent and cumulative, and may, to the extent permitted by law, be
exercised concurrently or separately, and the exercise of any one right or
remedy shall not be deemed to be an election of such right or remedy or to
preclude or waive the exercise of any other right or remedy.
(b) Any Party may waive compliance by another with any of the
provisions of this Agreement provided that (i) no waiver of any provision shall
be construed as a waiver of any other provision, (ii) any waiver must be in
writing and shall be strictly construed, and (iii) a waiver in any one instance
shall not be deemed a waiver in any subsequent instance.
(c) This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors and permitted assigns. The
provisions of this Agreement (i) are for the sole benefit of the Parties, and
(ii) shall not create or be deemed to create any third party beneficiary rights
in any Person not a party to this Agreement and consequently no term of this
Agreement is enforceable by any Person who is not a party to it. No assignment
of this Agreement or of any rights or obligations hereunder, and no declaration
of trust in respect of any such rights or the benefit of this Agreement, may be
made by any Party (by operation of law or otherwise) without the prior written
consent of the other Parties and any attempted assignment or declaration of
trust without the required consent shall be void.
This Agreement may be executed via fax and in counterparts, each of which shall
be an original, but which together shall constitute one and the same Agreement.
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(d) Each of the Stockholders and the Corporations hereby constitutes
and appoints ▇▇▇▇▇▇▇ ▇. Benz as its true and lawful attorney-in-fact, agent and
representative (the "DCS Representative"), with full power of substitution and
resubstitution, for him and in his name, place and ▇▇▇▇▇, in any and all
capacities, to negotiate and sign all amendments to this Agreement and all other
documents in connection with the transactions contemplated by this Agreement,
including without limitation those instruments called for by this Agreement and
all notices, waivers, consents, instructions, authorizations and other actions
called for, contemplated or that may otherwise be necessary or appropriate in
connection with this Agreement or any of the foregoing agreements or
instruments, granting unto the DCS Representative full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such Stockholder or Corporation might or
could do in person, hereby ratifying and confirming all that the DCS
Representative, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof, including without limitation the power and authority to
deliver and convey such Stockholder's portion of the Acquired Stock in
accordance with the terms hereof, to receive and give receipt for all
consideration due such Stockholder pursuant to this Agreement and to receive all
notices, requests and demands that may be made under and pursuant to this
Agreement. Should the DCS Representative be unable or unwilling to serve or to
appoint his successor to serve in such Stockholder's stead, and unless the
Stockholders shall appoint a successor to serve in his stead, such Stockholders
shall be deemed to be represented by ___________. ▇▇▇▇▇ shall be entitled to
rely and protected in relying on the authority, actions and decisions of the DCS
Representative, and ▇▇▇▇▇ will have no liability to and shall be held harmless
by any and all of the Stockholders and Corporations and their successors and
assigns with respect to any matter arising out of, either directly or
indirectly, ▇▇▇▇▇'▇ good faith reliance upon such authority, actions or
decisions of the DCS Representative.
6.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
(a) Survival of Representations and Warranties. The representations
and warranties set forth in this Agreement, in any Exhibit or Schedule hereto
and in any certificate or instrument delivered in connection herewith shall
survive for a period of twelve (12) months after the Closing Date or with
respect only to representations and warranties regarding Taxes, ERISA matters,
and environmental matters shall survive for a period of twenty-four (24) months
after the Closing Date (the "Warranty Period") and shall thereupon terminate and
expire and shall be of no further force or effect thereafter whatsoever, except
(i) with respect to any claim, written notice of which shall have been delivered
to the Stockholders or ▇▇▇▇▇, as the case may be, in accordance with this
Section and prior to the end of the Warranty Period, such claim shall survive
the termination of such Warranty Period for as long as such claim is unsettled,
and (ii) with respect to any litigation which shall have been commenced to
resolve such claim on or prior to such date.
(b) Indemnification by the ▇▇▇▇▇. Liskas shall indemnify each
Stockholder and Corporation and each of their respective directors, officers,
employees, successors and assigns (individually, a "DCS Indemnified Party"), and
hold them, and each of them, harmless from, against and in respect of any and
all costs, losses, claims, liabilities (including for Taxes), fines, penalties,
damages (other than special, consequential or punitive damages) and expenses
(including interest, if any, imposed in connection therewith, court costs and
reasonable fees and disbursements of counsel) (collectively, "Damages") incurred
by any of them resulting from any breach of any representation or warranty in
this Agreement or the non-fulfillment in any material respect of any agreement,
covenant or obligation by ▇▇▇▇▇ made in this Agreement (including without
limitation any Exhibit or Schedule hereto and any certificate or instrument
delivered in connection herewith).
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(c) Indemnification by the Corporations. The Corporations shall
indemnify ▇▇▇▇▇ and each of the shareholders, directors, partners, employees,
Affiliates and "associates" (as that term is defined in Rule 405 promulgated by
the SEC under the Securities Act) of ▇▇▇▇▇ and their respective successors and
assigns (individually a "▇▇▇▇▇ Indemnified Party") and hold them, and each of
them, harmless from, against and in respect of any and all Damages incurred by
such ▇▇▇▇▇ Indemnified Party resulting from any misrepresentation, breach of any
representation or warranty in this Agreement or the non-fulfillment in any
material respect of any agreement, covenant or obligation by the Stockholders or
the Corporations made in this Agreement (including without limitation any
Exhibit or Schedule hereto and any certificate or instrument delivered in
connection herewith).
(d) Limitations on Indemnification. Neither the DCS Indemnified
Parties nor the ▇▇▇▇▇ Indemnified Parties shall be entitled to assert any claim
for indemnification under this Section unless and until such time as all claims
of the DCS or ▇▇▇▇▇ Indemnified Parties, as the case may be, for indemnification
hereunder exceed $300,000 (the "Basket") in the aggregate, at which time any and
all claims of the DCS or ▇▇▇▇▇ Indemnified Parties, as the case may be, for
indemnification in excess of the Basket may be asserted. Notwithstanding
anything to the contrary contained in this Section, in no event will any ▇▇▇▇▇
be liable to the Corporations and the Stockholders, or will the Stockholders be
liable to ▇▇▇▇▇, under this Section 8 or otherwise (A) in an amount in excess of
$3,000,000 or (B) for any incidental, consequential or other special damages,
including, without limitation, lost profits.
(e) Right to Defend. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a DCS Indemnified Party or ▇▇▇▇▇ Indemnified Party (referred to herein
as an "Indemnified Party"), then the Indemnified Party will give prompt written
notice of any such claim to the indemnifying party, which notice shall set forth
in reasonable detail the nature, basis and amount of such claim (the "Notice of
Third Party Claim"). It is a condition precedent to the applicable indemnifying
party's obligation to indemnify the applicable Indemnified Party for such claim
that such Indemnified Party timely provide to such indemnifying party the
applicable Notice of Third Party Claim, provided that the failure to provide
such Notice of Third Party Claim shall only relieve such indemnifying party of
its or his obligation to indemnify for such claim only to the extent that such
indemnifying party has been prejudiced by such Indemnified Party's failure to
give the Notice of Third Party Claim as required. The indemnifying party
receiving such Notice of Third Party Claim may (without prejudice to the right
of any Indemnified Party to participate at its own expense through counsel of
its own choosing) undertake the defense of such claims or actions at its expense
with counsel chosen and paid by its giving written notice (the "Election to
Defend") to the Indemnified Party within thirty (30) days after the date the
Notice of Third Party Claim is deemed received; provided, however, that the
indemnifying party receiving the Notice of Third Party Claim may not settle such
claims or actions without the consent of the Indemnified Party, which consent
will not be unreasonably withheld or delayed, except if the sole relief provided
is monetary damages to be borne solely by the indemnifying party; and, provided
further, if the defendants in any action include both the indemnifying party and
the Indemnified Party, and the Indemnified Party shall have reasonably concluded
that counsel selected by the indemnifying party has a conflict of interest
because of the availability of different or additional defenses to the parties,
the Indemnified Party shall cooperate in the defense of such claim and shall
make available to the indemnifying party pertinent information under its control
relating thereto, but the Indemnified Party shall have the right to its own
counsel and to control its defense and shall be entitled to be reimbursed for
all reasonable costs and expenses incurred in such separate defense. In no event
will the provisions of this Section reduce or lessen the obligations of the
parties under this Section, if prior to the expiration of the foregoing thirty
(30) day notice period, the Indemnified Party furnishing the Notice of Third
Party Claim responds to a third party claim if such action is reasonably
required to minimize damages or avoid a forfeiture or penalty or because of any
requirements imposed by law. If the indemnifying party receiving the Notice of
Third Party Claim does not duly give the Election to Defend as provided above,
then it will be deemed to have irrevocably waived its right to defend or settle
such claims, but it will have the right, at its expense, to attend, but not
otherwise to participate in, proceedings with such third parties; and if the
indemnifying party does duly give the Election to Defend, then the Indemnified
Party giving the Notice of Third Party Claim will have the right at its expense,
to attend, but not otherwise to participate in, such proceedings. The parties to
this Agreement will not be entitled to dispute the amount of any damages
(including reasonable attorney's fees and expenses) related to such third party
claim resolved as provided above.
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(f) Subrogation. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action against third parties for
the recovery thereof, including under any insurance policies, and the
Indemnified Party agrees to assist and cooperate in good faith with the
indemnifying party and to take any action reasonably required by such
indemnifying party, at the expense of such indemnifying party, in enforcing such
rights.
6.9 REPRESENTATION BY COUNSEL. The parties hereby acknowledge that each
has had the opportunity to review the Agreement with legal counsel and that the
Stockholders and the Corporations have been represented by legal counsel of
their choosing who has reviewed this Agreement and advised such Stockholders and
the Corporations in connection with the transactions contemplated hereby.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK - SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
▇▇▇▇▇ BIOMETRY, INC.
By:____________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
DIGITAL CARD SYSTEMS, INC.
By:____________________________________
▇▇▇▇▇▇▇ Benz,
Chairman and Chief Executive
Officer
DCS EUROPE, INC.
By:____________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
DCS AMERICA, INC.
By:____________________________________
▇▇▇▇▇▇▇ Benz,
Chairman and Chief Executive
Officer
DCS LATIN AMERICA, INC.
By:____________________________________
▇▇▇▇▇▇▇ Benz,
Chairman and Chief Executive
Officer
DIGITAL CARD SYSTEMS LATINOAMERICA SAC
By:____________________________________
▇▇▇▇▇▇▇ Benz,
Chairman and Chief Executive
Officer
COSMO ID, GMBH
By:____________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President
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THE STOCKHOLDERS:
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▇▇▇▇▇▇▇ BENZ
ISI INTERNATIONAL, INC.
BY:_____________________________________
▇▇▇▇▇▇▇ BENZ, PRESIDENT
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THE STOCKHOLDERS
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TRIJAY TECHNOLOGIES INTERNATIONAL, INC.
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Signature Page of Securities Exchange Agreement.
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