-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BNiyiCmydmMxKU3TtpTGqi3MWpcHVtAIFM4XEVemV3Pl/4/ZzofPrh6/DvchihFJ k+hA2Rmgq8pexwK7SU/M9A== 0001108017-01-000065.txt : 20010312 0001108017-01-000065.hdr.sgml : 20010312 ACCESSION NUMBER: 0001108017-01-000065 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20010309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELITE TECHNOLOGIES INC /TX/ CENTRAL INDEX KEY: 0000835909 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 760252296 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-17597 FILM NUMBER: 1564236 BUSINESS ADDRESS: STREET 1: 6991 PEACHTREE INDUSTRIAL BLVD STREET 2: SUITE 350 CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 7703818089 MAIL ADDRESS: STREET 1: 700 CRESTWOOD PARKWAY STREET 2: SUITE 1000 CITY: DULUTH STATE: GA ZIP: 30096 FORMER COMPANY: FORMER CONFORMED NAME: CONCAP INC DATE OF NAME CHANGE: 19990826 FORMER COMPANY: FORMER CONFORMED NAME: ELITE TECHNOLOGIES INC/TX DATE OF NAME CHANGE: 19990825 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL CAPITAL RESOURCES INC DATE OF NAME CHANGE: 19920703 10-K/A 1 0001.txt ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 2000 Commission File Number: 0-17597 ELITE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) 76-025229 (IRS Employer Identification No.) Texas (State or other Jurisdiction of incorporation or organization) 30096 (Zip Code) 6991 Peachtree Industrial Blvd. Suite 320 Norcross Georgia (Address of principal executive offices) (770) 678-969-9146 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes | | No |X| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: | | The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant computed as of May 31, 2000 is $5,754,176. The number of issued and outstanding shares of the issuer's class of capital stock as of May 31, 2000, the latest practicable date, is as follows: 34,275,720 shares of Common Stock $.0001 par value. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ELITE TECHNOLOGIES, INC. May 2000 Annual Report TABLE OF CONTENTS PART I ITEM 1. BUSINESS ITEM 2. PROPERTY ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7a.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K This Annual Report contains various forward-looking statements that are based on management's belief as well as assumptions made by management based on information currently available to management. In some cases, you can identify forward-looking statements by the use of certain terminology, such as "may," "will," "should," "would," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of such terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties. These risks and uncertainties could affect the Company's future financial and operating results and cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by or on behalf of the Company. PART I ITEM 1. BUSINESS GENERAL Elite Technologies, Inc. (referred to herein as "Elite" or the "Company")is a full service technology company offering information technology ("IT")services to small, medium and large enterprises. IT services involve the facilitation of the flow of information within a company or between a company and external sources. These services typically involve computer hardware, software and "integration" efforts to allow diverse systems to communicate with one another. Elite was founded as a Georgia corporation in 1996 under the name Intuitive Technology Consultants, Inc. ("ITC"). In July, 1998, ITC Acquisition Group, LLP, consisting of management of ITC, acquired a majority interest, through a reverse merger, in CONCAP, Inc.. On April 22, 1999, the Company changed its name to Elite Technologies, Inc. The Company's charter was revoked on February 11, 2000 for the failure to file franchise tax returns in the State of Texas, however the Company is presently seeking to reinstate its charter. Although Elite, through its divisions offered a variety of services in fiscal 2000, Elite has suspended most of its operations following the acquisition of Ace Manufacturing Group, Ltd. ("AMG") in April 2000. See discussions below regarding the business operations of AMG. Elite intends to acquire other companies to fulfill the services of its divisions. As part of Elite's acquisition strategy, the Company has entered into an agreement to acquire substantially all of the capital stock of AC Travel, Inc. and International Electronic Technologies of Georgia, Inc. Elite does not presently have any other definitive agreements to acquire additional companies and there can be no assurance that it will do so. The Company's principal executive offices are located at 6991 Peachtree Industrial Blvd., Suite 320, Norcross, GA 30092 (Telephone: (678) 969-9146. The Company's Internet address is www.elitetech-usa.com. RECENT DEVELOPMENTS In June 2000, Elite has signed purchase agreements with AC Travel, Inc. and International Electronic Technologies of Georgia ("IET"). AC Travel is a wholesale and retail travel agency, including a website catering to the international business traveler who is traveling abroad or in the U.S. The purchase price for all the capital stock of AC Travel is 1,500,000 shares of common stock, and $300,000. IET provides wholesale and retail sales and distribution of computer related products. The purchase price for IET is 1,200,000 shares of common stock and $300,000. Elite's objective is to establish itself as a leading provider of internet connectivity and content solutions. The company intends to utilize acquisitions to support the growth of AMG's business, such as content and hardware providers. The Company intends to utilize AMG's content and advertising platform to serve as a means by which retailers and other connectivity solutions providers can access a viewer base with quantifiable online purchasing habits. THE INFORMATION TECHNOLOGY SERVICES INDUSTRY Many businesses today need ongoing technology improvement. Sole proprietorships and Fortune 1000 companies alike need to examine their IT processes regularly in order to maintain growth. The fast pace associated with the development of new technologies has created increased demand for IT solution services. Companies are often forced to rely on external experts for direction with respect to IT solution services and to lower their internal costs of implementation of new and upgraded systems. Corporations face increasing pressures to improve the quality of products, facilitate implementation of their products and reduce the cost in delivering "end to end" solutions, solutions which ensure the systems in place function correctly from start to finish. As a result, companies are using value added integrators to implement solutions that streamline business processes with their end users and customers, which improves the flow of critical data within the company, and outside the organization. These trends, with rapid advances in technology, are driving organizations from traditional "host-based" legacy computing systems to more flexible and functional technologies, including the Internet, Web-based user interfaces, Client / Server architectures, distributed database management systems and the latest networking and communications technologies. Companies are increasingly deploying custom designed software / hardware applications. These custom applications are designed specifically for the business needs and goals of each company, and may be composed of multiple operating systems, databases, programming languages and networking protocols throughout the corporate enterprise. In addition to the increasing demand for more responsive technologies, technology vendors are becoming more complex and individual product life-cycles are shortening at a faster rate. As a result, IT vendors are under increasing pressure to bring new products and new versions of proven technology to market faster and simultaneously to ensure that those products are implemented in a timely fashion. Thus, these software vendors are outsourcing their services to value added integrators with experience with multiple platform, application, integration, and networking support. The convergence of these trends has resulted in (i) an increasing need within the research and development departments of key technology vendors to outsource to software service firms a portion of the development, deployment and testing of their existing and new products and (ii) an increasing movement of companies toward joint projects with software service firms that have a high level of expertise in market leading technologies. Since many software vendors are already under-staffed, software vendors often prefer not to rely on their internal resources for the design and implementation of enterprise business systems. Accordingly, a growing number of corporations and IT vendors are seeking the help of value added integrators with strong technical expertise in critical emerging technologies to implement high value "end to end" solutions using a successful and cost-effective approach which utilizes available resources to complete specific technology plans. Industry Background - Internet Solutions Internet solutions have been introduced to corporations over the last 10 years. These Internet solutions (Intranet, Extranet and Corporate Web Sites) have provided organizations with a completely new set of tools to market, distribute and offer additional value to their end users who use their products and services. This new set of tools provides customers with more and improved ways to communicate, transmit critical data from organization to organization or organization to customer, create better methods for marketing and provide higher levels of customer service. The Intranet technology allows a company's employees to access corporate proprietary information more easily, obtain training on line, access corporate business applications from their own PC, and communicate via email. The Extranet is an even more powerful tool. The Extranet allows corporations to securely distribute critical data outside its corporate Intranet to customers and business partners. On the consumer side, Web sites offer a total "end to end" solution. Web sites allow customers to access product and service offerings more easily and allow businesses to present advertising, market new and improved products and services, offer products and services for sale on line, process transactions, complete orders on line, provide customers with rapid, accurate response time to their most important issues and ultimately, provide customers with a high level of customer interaction and support via the Web. Additionally, a business has the ability to increase its sales and marketing via e-commerce solutions on their Corporate Web Sites, virtually placing a "24 hour" sales ability within the company. Industry Background - Internet Connectivity and Content While the internet provides a variety of benefits to businesses and consumers alike, having access to the internet in multiple settings is a prerequisite for its success. This access, or "connectivity", has become an entire industry within the internet field. Connectivity at home and office is typically provided by an Internet Service Provider (ISP), which connects some type of telephone line or cable line to the user's personal computer or server. In public places such as airports, hotels, gas stations and retail stores, Internet Kiosks, which are similar to telephone booths with keyboards, screens and a connection to the web, have been installed. These kiosks initially served as simple connections to the web, whereas today the kiosks are being used as advertising media, information centers and entertainment stations. Kiosks are being installed throughout the United States and internationally, with focus on useful, demographically sensitive information, presented in a user-friendly and entertaining platform. In addition to the connectivity issue, consumers are really accessing the internet for the information and entertainment provided online. This information is known as content. Just as a television and cable line connect consumers to television services, it is the programming that interests the viewer. Content provision is also a quickly developing industry throughout the internet world. Industry Background - Internet Kiosks As a relatively new industry, Internet Kiosks provide a specific product to a specific marketplace. More than just a leisure activity, the internet has become a vital link to communications. In many instances, consumers (both business and residential) have a need to gain access to the internet while not at a "home computer". Although laptops continue to provide this service, many instances arise where the convenience of a laptop with a modem connection is not available. In this case, an Internet Kiosk is the solution to the need. Allowing a consumer to access the internet, retrieve e-mail, shop, make travel plans, or even play interactive games online, the kiosk unit provides inexpensive access to these any many other activities. Industry Background - Online Travel Services Travel services have been proven to be a major revenue center online. Much more than mere ticket provision, online travel services allow consumers to book travel, hotels, car rentals, compare rates and even take virtual tours of points of interest around the world. The travel industry has, in the past five years, reinvented itself as a result of decreasing commissions paid to travel agents by the major airlines. Travel agencies have redirected their efforts to concentrate more on providing value added services and leisure travel. The move to online services is seen as the critical step to achieve growth over the next decade in the travel industry. Industry Background - Computer Hardware and Peripherals Computer hardware sales was, for many years, the core profit center in the Information Technology industry. The focus was later shifted toward software. This shift toward software put pressure on smaller manufacturers and distributors, until such time as only a handful of major manufactures and wholesalers remained. Medium to large wholesalers and distributors continue to thrive, especially ones that use hardware provision as an entry into an organization's IT department to offer additional goods and services. OUR SERVICES Elite has offered diverse services with divisions in IT Staffing, Custom Software Development and Integration, Internet Hosting, Content and Technical Development, Hardware Sales and Service and Content Delivery Platforms. Elite suspended these operations in April 2000 in connection with its acquisition of AMG. The Company also served as an authorized solution provider and application developer for leading enterprise-level software products. Prior to April, 2000, the Company marketed its products and services to small, medium and large enterprises. Prior to April, 2000, Elite was organized into three divisions: Elite Integration, Elitetech.com, and Workstream Staffing. Elite Integration served as the outsource, integration and software Value Added Reseller for clients and software partners; Elitetech.com offered Internet Development and Internet Solutions; and Workstream Staffing offered full service IT Staffing services. AMG In April 2000, Elite suspended most of its operations, in anticipation of the acquisition of several companies in the internet kiosk industry. In April 2000, Elite acquired Ace Manufacturing Group, Ltd., ("AMG"). AMG designs, builds and markets an internet "pay by minute" browser (kiosk) used primarily in hotels, airports and entertainment establishments. Elite intends to utilize AMG to acquire additional companies to augment the internet kiosk marketed by AMG, including companies providing content, hardware and other related sectors of commerce. Elite purchased all of the capital stock of AMG for 2,000,000 shares of common stock, and $250,000.00. AMG sells a variety of internet kiosk units, customizable for their individual application and environment. The Company markets its kiosks through direct sales, web promotion and through corporate sponsorship programs. AMG is also developing a content and advertising platform that provides quick access to the most frequently used services online, such as travel services, email and e-commerce. AMG is marketing its kiosks to retailers, airports, municipalities, gas stations, hotels and other public areas where internet access is needed. The kiosks not only provide connectivity to the public, but allow advertisers and retailers to promote their offerings in an interactive format. AMG specializes in communication implementation of Public Internet pay stations. The Public Internet pay stations have three separate niche markets: (1) Automated Business Center, (2) Entertainment Access and (3) Advertising Kiosk. The Automated Business Center provides a solution for business travelers. The Automated Business Center allows business travelers to access E-mail, send or receive a fax, make color copies, or surf the Internet, in frequently traveled business locations. The Automated Business Center's are directed towards hotels, suites, convention centers, and airports. Payment options include cash, credit cards and optional coupons to make it easy to meet the versatile needs of today's traveler. The Automated Business Center's are in phase two of operation. These features include the following: - Internet Browsing - 2000 Hot Buttons offering single click access to stock quotes, new publications, search engines, government sites, etc. - - Send and retrieve E-mail - - Send and receive fax capabilities - - Color copy capabilities - - Full screen display advertising - - Scroll bar advertising with web site links - - Daily usage log of transactions - - Appwatch monitors the Browser software to ensure the application is always running - - Bootwatch enables the Automated Business Center to automatically re-boot itself daily - - Fortress allows the operation system to be password protected The following features are under development: - - Video E-mail - - Video conferencing - - Full screen display advertising with coupon program - - Internet usage destination log - - Microsoft word processing capabilities - - Document editing capabilities The multi-functional Automated Business Center has enough computing capabilities for future module add-ons to meet the ever-growing technology of today's fast advancing electronic revolution. AMG has telephony capabilities in the research and development process. The Entertainment Access Internet Terminal caters to restaurants, coffee shops, turnpike stations, auto service stations, grocery stores, shopping malls, convenient stores, roller rinks, arcades, movie theaters, and museums. The kiosk offers over 2000 1-click web sites. The Entertainment Access Internet Terminal is programmable, enabling custom programming, for the various sites. It also includes on-line sports books, trivia, car manufacturers, classifieds and dating services. The Advertising Kiosk implemented in the Automated Business Center scenario offers the business traveler the same functionality-access to e-mail, send and receive fax, color copies, or surf the Internet. The Advertising Kiosk implements a coupon program, allowing the hotel to issue each guest $10 dollars in coupons to be used at the kiosk. The Advertising Kiosk can be installed in the hotel free of charge to offer the guest free services via the coupon program-the owner of the Advertising Kiosk generates revenue from various companies advertising on the kiosk. The Advertising Kiosk can charge to print out the advertisements which may offer directions, discounts, phone numbers or the advertisements can be printed out free of charge. The advertisers vary in range from local to national companies. Elite Integration, Elitetech.com and Workstream Staffing The Elite Integration division was the "outsource services group" of Elite through April, 2000. Elite Integration offered custom software development, including Client/Server applications, design and development to small, medium and large enterprises. Elite maintains its partnership as a tier one integrator for Eastman Software and a premier provider for Hewlett-Packard. Elite expects to continue participating in these relationships throughout the next year. Elitetech.com, is capable of providing web development projects and Internet based server applications. Such services can include web site design, Internet deployment and strategies, web enabled applications, network solutions, e-commerce solutions, search engine placement services, and multimedia creation. Elitetech.com currently includes "Virtualbride.com." The Virtual Bride is intended to be a full service on-line wedding planner and bridal registry targeted for deployment in 30 US markets. Workstream Staffing Workstream Staffing was the Company's IT staffing augmentation division which located and offered permanent employees, temporary contractors and temp-to-perm (try before you hire) employees through April 2000. Workstream has developed proprietary software, the "RMS" Recruiting Management System, to manage the client-contractor relationship from pre-screening to renewal. The result was improved customer service and reduced collection times. INTEGRATION OF ACQUIRED COMPANIES Management believes that the market offers acquisition candidates in each of the three areas of interest to the Company (Integration, Staffing and Internet). The acquired companies are intended to operate with the standardized sales and marketing procedures of Elite, with senior level personnel heading an individual task force for each operations function. Standardized accounting, business practices and corporate culture will be implemented throughout the organization. It is also anticipated that, upon closing of the acquisitions, the respective presidents of each entity will also be elected to the board of directors of Elite. This is to insure that the proper level of communication and support exists between Elite and the subsidiaries as well as between and among the subsidiaries themselves. Since the acquisition strategy of Elite calls for the purchase of entities that add value to AMG in terms of content, manufacturing and distribution, the integrated companies will require standardized business practices and marketing efforts. SALES AND MARKETING The Company intends to utilize a consultative approach to the target market, whereby partnership relationships are preferred over vendor relationships. Elite sales representatives and those of our software partners will be encouraged to sell the services of each division of the Company. At such time as Elite completes the remaining acquisitions scheduled to close in first quarter of fiscal year 2001, the company intends to create and implement a specific sales and marketing strategy. Until such time as other acquisitions are completed the companies will continue to market as per their pre-existing strategies. Sales The Company does not currently have an active sales force. We anticipate that Elite's sales force will consist of division vice presidents, regional account executives, inside sales lead generators, project managers, presales technical support and executive level management to help assist with the sale of services and solutions. AMG utilizes the services of subcontracted Value Added Resellers (VAR) to sell its kiosk units. AMG allows a VAR to sell its products, giving the VAR a percentage of the net profit of the sale as compensation. This allows AMG to extend its market access without hiring additional workforce on a salaried basis. Elite's sales force will be responsible for creating referencable accounts and a high level customer satisfaction. The sales team will be given the task of uncovering additional sales opportunities within their assigned accounts. Elite's account executives will be assigned quarterly revenue quotas, and will be paid commissions based on the percentage level of attained quota. Project plans and implementation costs will be prepared by the project managers and the account executive. All project pricing will be approved by the divisional vice president, whose performance and compensation will be based solely on the division's total generated revenue. Marketing Elite intends to outsource its marketing requirements and collateral material development. These materials and efforts will be updated periodically to reflect new operations and acquisitions. Elite intends to strategically market its products and services through its executive staff and business partners. Elite intends to promote its corporate image through the use of customer testimonials and partner alliances. STRATEGY The Company is seeking growth through two individual strategies. First, the Company continues to seek acquisition targets to grow its business through the acquisition and roll up of synergetic companies who meet certain criteria. This criteria includes: (1) A minimum revenue stream of 5 million dollars annually; (2) Profitable or nearly profitable; (3) Strong management able to commit for a minimum of three years following Elite's purchase of the company; and (4) Products or services in line with the general direction of Elite. Secondly, Elite intends to grow its already acquired companies through strong management, cross marketing and repeat customer usage of multiple products and services of Elite. Although management intends to continue seeking acquisition targets, no guarantee can be made that any acquisitions will be completed. COMPETITION The information technology services industry is highly competitive with limited barriers to entry and rapid change. The industry is served by many national, regional and local companies, including full service agencies and specialized temporary services agencies. Elite's primary competitors include a variety of market segments, including: o medium to large sized hardware manufacturers and distributors o medium to large sized systems consulting and implementation firms; o medium to large sized management consulting firms. Many of Elite's competitors have significantly greater financial, technical and marketing resources and greater name recognition. In addition, Elite competes with its clients' internal resources, particularly where such resources represent a fixed cost to the client. Such competition may impose additional pricing pressures. Elite expects that the level of competition will remain high in the future. INTELLECTUAL PROPERTY RIGHTS Elite's success in the information technology services business will depend upon its software deployment and methodology and other proprietary intellectual property rights. Elite does not hold any patents or registered copyrights. Instead, Elite intends to rely on a combination of trade secret, nondisclosure and other contractual arrangements and technical measures, and copyright and trademark laws, to protect its proprietary rights. Elite generally enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to and distribution of its proprietary information, however, no guarantees can be made that infringement will not take place. Elite's businesses will include the development of custom software applications in connection with specific client engagements. Ownership of such software is typically assigned to the client. In addition, Elite intends to develop object-oriented software components that can be reused in software application development and certain foundation and application software products, or software "tools." Although Elite believes that its services and products do not infringe on the intellectual property rights of others, other parties may nevertheless make infringement claims against the Company in the future. GOVERNMENT REGULATION As of May 31, 2000, Elite had a workforce which includes information technology consultants who are foreign nationals working in the United States under H-1B permits. The number of these individuals is expected to rise in the coming months and years. Accordingly, Elite must comply with United States immigration laws. Due to the limited number of H-1B permits approved each year, Elite may not be able to recruit or retain enough information technology professionals to meet its personnel requirements. Furthermore, Congress and administrative agencies with jurisdiction over immigration matters periodically express concerns over the levels of legal and illegal immigration into the U.S. These concerns often result in proposed legislation, rules and regulations aimed at reducing the number of work permits that may be issued. Any reduction in the number of work permits that may be issued or change in immigration laws which impede the hiring or retention of foreign nationals could cause Elite to incur additional unexpected labor costs and expenses. EMPLOYEES As of May 31, 2000, Elite employed 15 full-time employees and consultants. Elite is not a party to any collective bargaining agreements and considers its relationships with its employees to be satisfactory. These employees consist of 8 administrative employees, and 7 technical employees. RISK FACTORS The Company's business operations and financial results are subject to various uncertainties and future developments that cannot be predicted. The principal risks and uncertainties are identified below. Changes in Quarterly Operating Results The Company has experienced fluctuations in its quarterly results. Revenues and gross margins in a particular quarter will vary depending upon a number of factors, including: o general economic conditions; o the number and requirements of client engagements; o employee hiring, utilization and turnover rates; o changes in billing rates; o the amount of billing days, consultant vacation days and paid time off; o the number, terms and size of acquisitions, if any, during a period. Volatility of Stock Price The Company's stock price has been volatile. Future revenues, earnings and stock prices may be subject to wide swings due to variations in operating and financial results, anticipated revenue and/or earnings growth rates, competitive pressures, market place conditions and other factors. The Company's stock price is predominantly based on current expectations of sustainable future revenue and earnings growth rates. Any failure to meet anticipated revenue and earnings levels in a period or any negative change in the Company's perceived long-term growth prospects would likely have a significant adverse effect on the Company's stock price. Termination of Client Contracts Fees from project-based contracts have been a fundamental component of the Elite Integration division revenues. If client information technology requirements or budgets were to decrease or their initiatives delayed and/or if such clients were to seek alternatives to relying upon the Company's current service offerings, the Company's revenues would be adversely impacted. Many of the Company's engagements are terminable without client penalty. An unanticipated termination of a major project can result in an increase in underutilized employees and a decrease in revenues and profits. Inability of Company to Retain Qualified Information Technology Consultants The Company's continued success will depend in large part on its ability to attract, retain and motivate highly-skilled employees, particularly project managers and other senior technical personnel. Qualified IT professionals are in high demand and are likely to remain in demand. Liability for Employee and Client Actions The Company may incur liability through its placement of consultants in client workplaces. Potential liability includes: o errors and omissions; o misuse of client proprietary information; o misappropriation of funds; o discrimination and harassment; o theft of client property; or o other criminal activity. Although the Company has not experienced any such material claims, it cannot be certain that it will not experience such claims in the future. To reduce its exposure, the Company maintains insurance covering general liability and errors and omissions. However, insurance may not cover all such claims, and insurance coverage may not continue to be available in an amount adequate to cover the above liabilities. Dependence on a Successful Acquisition Strategy Management expects the future growth of the Company will be based on future acquisitions. Competition for acquisition candidates may result in fewer potential acquisitions, as well as less advantageous acquisition terms, including, but not limited to, less advantageous price terms. Maintenance of Rapid Growth The Company cannot guarantee that it will be able to expand and successfully manage its growth. The Company's ability to grow will depend on a number of factors, including the following: o competition; o availability of capital; o ability to maintain margins; o ability to recruit and train additional qualified personnel; and o management of costs in a changing technological environment. ITEM 2. PROPERTIES The Company occupies approximately 3,000 square feet of office space in Norcross, Georgia on a month-to-month, verbal agreement, at monthly rate of $4,900. AMG occupies approximately 11,500 square feet of office and warehouse space in Doraville, Georgia under a renewable yearly lease at a monthly rate of $6,000. The current lease is scheduled for renewal December 2000. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and legal actions arising in the ordinary course of business. While the ultimate results and outcome cannot be determined, management does not expect that these matters will have a material effect on the Company's results of operations or financial position. Subsequent to May 31, 2000, actions involving the Company include claims which the Company intends to pursue vigorously. See the notes to the Consolidated audited financial statements of Elite Technologies, Inc., and Subsidiaries for the year ended May 31, 2000 for details. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of fiscal year 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS Elite's Common Stock was traded on the OTC Bulletin Board Market under the symbol "ETCH" (OTC: BB ETCH). In November, 2000, the company, due to its failure to comply with NASD Rule 6530, was "delisted" from the OTC and is now traded on the "Pink Sheets". Upon the company's filings, and compliance with Rule 6530, the company intends to file application for relisting on the OTC. (Formerly, under the name CONCAP, Inc., the Company's securities traded under the symbol "CNCG" on the OTC Bulletin Board Market until May, 1999). The Company's stock was not traded actively until the Second quarter of the fiscal year ended May 31, 1999. Such quotations may reflect inter-dealer prices without retail markup, markdown or commissions and may not necessarily represent actual transactions. The following table sets forth the range of the low and high closing prices of the Common Stock as reported on the OTC Bulletin Board for the last two fiscal years. During the 2000 fiscal year, Elite issued 2,439,500 shares without registering the shares under the Securities Act of 1933 as amended composed of the following: In fiscal year 2000 the company issued an aggregate of 2,439,500 shares to 76 investors pursuant to Regulation D. The average purchase price of the common shares was $0.34 per share.
FISCAL YEAR ENDING MAY 31, 2000 Quarter Low High ---------------------------- ---------------------- -------------------------- First 3.25 6.38 Second 0.14 3.88 Third 0.13 1.31 Fourth 0.27 2.75 FISCAL YEAR ENDING MAY 31, 1999 Quarter Low High ---------------------------- ---------------------- -------------------------- First 1.00 5.937 Second 3.00 5.937 Third 6.00 10.25 Fourth 4.75 10.00
There were 568 holders of record of Common Stock as of September 8, 2000. The Company has not paid any cash dividends on its Common Stock and does not anticipate doing so in the foreseeable future. The decision to pay dividends will be made at the discretion of the Board of Directors of the Company and will depend upon the Company's operating results and other factors. ITEM 6. SELECTED FINANCIAL DATA The selected historical consolidated financial data presented below were derived from the Company's consolidated financial statements, which as of and for the year ended May 31, 2000 were audited by Kirschner & Associates, as of and for the year ended May 31, 1999 were audited by KPMG LLP, and for the year ended May 31, 1998 were audited by KPMG LLP. The selected financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, the consolidated financial statements, the related notes, and the independent auditors' reports for the years ended May 31, 2000, 1999 and 1998, which contains an explanatory paragraph that states the Company's recurring losses from operations and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern, appearing elsewhere in this Form 10-K. The consolidated financial statements and the selected data do not include any adjustments that might result from the outcome of that uncertainty.
Years Ended May 31, 2000, 1999 and 1998 Statement of Operations Data 2000 1999 1998 Revenue From Services (1) $298,230 $1,937,317 $1,516,088 Salaries, Wages and Benefits $571,121 $2,136,613 $1,190,609 Other Operating Expenses $1,481,216 $1,654,167 $681,335 Depreciation and Amortization $547,512 $116,846 $27,562 Stock Based Compensation $10,751,765 $827,431 $0 Investment Banking Fees $15,872,719 $0 $0 Operating Loss ($28,926,103) ($2,797,740) ($383,418) Other Expenses, Net $66,036 $90,624 $54,704 Interest Expense $16,100 $0 $0 Interest Income ($13,192) $0 $0 Settlement on Rescinded Acquisition $80,800 $0 $0 Loss Before Income Taxes ($29,075,847) ($2,888,364) ($438,122) Income Taxes $0 $0 $0 Net Loss Per Share Common Stock: Basic and Diluted (2) ($1.42) ($0.26) ($0.04) Number of Shares Used in Computing Diluted Earnings per Share 20,631,704 11,150,355 10,619,170 BALANCE SHEET DATA: May 31, 2000 and 1999 2000 1999 Total Assets $5,872,191 $2,331,198 Total Liabilities $3,174,935 $1,771,581 Working Capital Deficit ($1,192,782)($1,082,175) Stockholders' Equity $2,697,256 $559,617
(1) Revenues shown include only revenue since date of acquisitions of the subsidiaries, and do not reflect any revenue related to Temporary Help Connection which were accounted for on filings prior to year end May 31, 1999 by the Company because of the rescission of the acquisition further described in the May 31, 1999 "Notes to Consolidated Financial Statements." (2) Since inception, the Company has not declared or paid any cash dividends on its common stock. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Selected Financial Data and the Company's Consolidated Financial Statements included elsewhere herein. INTRODUCTION From its inception in June of 1988 as CONCAP, a Texas corporation, until July, 1998, the Company existed primarily as a development stage company created to seek, investigate, and if warranted, acquire domestic and foreign business opportunities. The Company intended to seek long-term growth potential as opposed to short-term earnings. In July of 1998, CONCAP merged with ITC. Following the transaction, former ITC shareholders held 72 percent of the shares of CONCAP. CONCAP changed its name to Elite Technologies, Inc. on April 22, 1999. All subsidiaries and holding companies were then merged into Elite, the Texas corporation. Through May 31, 2000, the Company completed five acquisitions in the IT sector. All acquisitions have been accounted for as purchases in this filing and are reflected as such on the Consolidated Financial Statements. This does not take into account the year to date financial information of these acquisitions, but only provides for results of operations since the date of acquisition of the individual companies. RESULTS OF OPERATIONS YEAR ENDED MAY 31, 2000 COMPARED WITH YEAR ENDED MAY 31, 1999 Revenues. Revenues from operations for 2000 decreased 84.6% from 1999. The decrease in revenues related to (i) the internal restructuring of the business and (ii) the subsequent decrease in resources available to fund existing operations during the restructuring. Two additional acquisitions in fiscal year 2001 were completed. These acquisitions are consistent with the new acquisition strategy and corporate focus of Elite as detailed in above "Recent Acquisitions" section. Salaries, Wages and Benefits. Salaries, Wages and Benefits decreased 73.3% from 1999. The decrease is due to terminations of staff related to the restructuring of the company. It is anticipated that with increased product lines resulting from the acquisition of AMG and the acquisitions consummated in FY 2001, additional salaries will be needed for operations. Management expects the return on salary and benefit expenditures in fiscal year 2001 to exceed the investment made in fiscal year 2000, although there is no assurance that it will do so. Other Operating Expenses. Other Operating Expenses decreased by 10.5% to $1,481,216 attributed to (i) reductions in legal and professional costs, and (ii) restructuring of the business. Depreciation and Amortization. Elite depreciates its assets, including goodwill, on a straight-line basis over three to five years. Depreciation and amortization increased by 369.00% over 1999. This is attributed to the amortization of goodwill recorded in connection with the acquisitions completed in 2000. Stock Based Compensation. Elite recorded $10,751,765 in stock based compensation during the fiscal year 2000. Management expects to continue with a stock based compensation bonus plan to attract and retain new talent for the Company. Operating Loss. Operating losses increased from $2,797,740 to $28,926,103 representing a 944.00% increase in the loss due to increased levels of stock based compensation, investment fees and depreciation and amortization. Other Expenses Net. Other Expenses net decreased 27.0% from $90,624 in 1999 to $66,036 in 2000. Loss Before Income Taxes (Net Loss). Net Loss increased 907.00% due to reasons mentioned above. YEAR ENDED MAY 31, 1999 COMPARED WITH YEAR ENDED MAY 31, 1998 Revenues. Revenues from operations for 1999 increased 27.78% from 1998. The increase in revenues related to (i) the internal growth of the business and (ii) inclusion of the operating results from the date of acquisition of the three businesses acquired in 1998 and 1999. The Company signed with Coleman and Company Securities as its investment banker in April, 1999. Accordingly, most operations were reduced or halted at Elite to allow the Company to restructure its divisional presence, corporate identity, marketing, and internal organization. This caused a dramatic reduction in the growth rate and an increase in corporate expenditures to complete the restructure. Management plans to maximize the new Company's new structure and growth through the acquisition of profitable companies. Salaries, Wages and Benefits. Salaries, Wages and Benefits increased 79.46% from 1998. The increase is due to (i) increases in cost of employees, insurance and benefit programs, (ii) continued investment in internal infrastructure employees supporting operations of the Company, (iii) increased management roles as a result of the acquisitions, and (iv) higher costs to support growth. With increased product lines, additional salaries are incurred while expanding divisional based selling, including retention of technical staff internally for R&D, as well as expanding resources for available project sales. Other Operating Expenses. Other Operating Expenses grew by 142.78% to $1,654,167, attributed to increased costs of legal, accounting, leases of equipment and property, advertising and other necessary expenditures. Management expects to recoup the majority of this expenditure in fiscal year 2000 as the acquired companies continue their operations and growth. The increase in other operating expenses was the result of one-time expenses incurred in connection with the restructuring of the Company and the implementation of new infrastructure to complement the restructuring. Depreciation and Amortization. Elite depreciates its assets, including goodwill, on a straight-line basis over three to five years. Depreciation and amortization increased by 323.94% over 1998. This is attributed to the amortization of goodwill recorded in connection with the acquisitions completed in 1999. Stock Based Compensation. Elite recorded $827,431 in stock based compensation during the fiscal year 1999 in connection with the options granted to certain officers of the Company. Management expects to continue with a stock based compensation bonus plan to attract and retain new talent for the Company. Operating Loss. Operating losses increased from $438,122 to $2,888,364, representing a 559.26% increase in the loss due to increased levels of salary and increased operating expenses as a result of the completion of those acquisitions, as well as the investment of the restructure of the company into three "branded" divisions. Other Expenses Net. Other Expenses net increased 65.66% to $90,624 in 1999 from $54,704 in 1998. Loss Before Income Taxes (Net Loss). Net Loss increased 559.26% due to reasons mentioned above. The following table summarizes the results of operating losses, interest cost, net loss, and per share amounts for the years ended May 31, 2000, and the two immediately preceding years.
2000 1999 1998 --------------------- --------------------- --------------------- Operating Losses ($28,926,103) ($2,797,740) ($383,418) Interest Costs on Additional Debt 16,100 0 0 Other Expenses, Net 133,644 90,624 54,704 --------------------- --------------------- --------------------- Net Loss ($29,075,847) ($2,888,364) ($438,122) ===================== ===================== ===================== Loss Per Share ($1.42) ($0.26) ($0.04) ===================== ===================== =====================
The significant changes in the loss amounts for 2000 are primarily attributable to Common stock valuation on newly issued shares for common stock based compensation, Using fair market value at the time of the transaction. See disclosures in the notes accompanying the consolidated financial statements of Elite Technologies, Inc. and Subsidiaries as of and for the year ended May 31, 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements have principally related to the acquisition of businesses, working capital needs and capital expenditures for growth. These requirements have been met through a combination of private placements and internally generated funds. Although the Company incurred direct costs for acquisitions, the Company completed these acquisitions primarily in stock for stock transactions. The Company currently lacks the working capital required to continue as a going concern and to achieve its acquisition program and internal growth objectives. Management expects to enter into agreements for debt or equity funding in the first or second quarter of fiscal year 2001 in order to meet the needs of internal growth and acquisitions. Management believes that such agreements for debt or equity funding will be sufficient to enable the Company to continue operating as a going concern. However, there is no assurance that agreement for such additional funding will be consummated. Prior to May 31, 2000 the Company completed a private placement of securities for a total of $841,000. Additional placements and the exercising of warrants available to private placement investors were completed subsequent to year-end. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement was effective for the Company beginning June 15, 2000. The new Statement requires all derivatives to be recorded on the balance sheet at fair value and establishes accounting treatment for various types of hedges. The Company has not invested in derivative instruments nor participated in hedging activities and therefore does not anticipate there will be a material impact on the results of operations or financial position from Statement No. 133. ITEM 7a. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes its exposure to interest rate risk and other relevant market risk is not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data required hereunder are included in this Annual Report as set forth in Item 14(a) hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE KPMG LLP had served as the auditors of the Company's financial statements for the fiscal years ended May 31, 1998 and 1999. On July 25, 2000 the Company dismissed KPMG LLP. August 2, 2000, the Company engaged the firm of Feldman, Scherb & Co., P.C. to audit its fiscal 2000 financial statements. The change to Feldman, Scherb & Co., P.C. was ratified by the Company's Board of Directors on August 2, 2000. Feldman, Sherb and Co., P.C. failed to complete the audit as they were hired to do by the Company, and therefore, were terminated as of November 9, 2000. The company had engaged other auditors (On October 20, 2000) having realized that Feldman, Sherb may not complete their assigned duties. As of November 9, 2000 the Company officially appointed Kirschner and Associates, P.C., as auditors, thereby replacing Feldman, Scherb & Co. In connection with the audits of the two fiscal years ended May 31, 1999 and the subsequent period through July 25, 2000, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. The reports of KPMG LLP on the Company's financial statements for each of the past two fiscal years ended May 31, 1999 did not contain an adverse opinion, a disclaimer of opinion or qualification or modification as to audit scope or accounting principles. The reports did include an explanatory paragraph that described substantial doubt about the Company's ability to continue as a going concern. Feldman Sherb & Co., P.C. was appointed as audit firm of Elite Technologies, Inc. on August 2, 2000. Kirschner & Associates was officially engaged as audit firm on November 9, 2000. This change of audit firms is due to lack of timely performance on the part of Feldman Sherb. Throughout the engagement of Feldman Sherb, the Company repeatedly demanded from Feldman Sherb the completion of the Company's audit. Feldman Sherb inexplicably delayed the completion of the audit. Kirschner and Associates was unofficially retained by the company substantially prior to the termination of Feldman Sherb. Kirschner and Associates was appointed official audit firm upon the termination of Feldman Sherb, due to the reasons stated above. Feldman Sherb, during their engagement with the Company, rendered no notification of disputes, scope limitations or other adverse audit findings. Following their termination by the Company in a written communication to the US Securities and Exchange Commission, Feldman Sherb has claimed that they were unable to satisfy themselves regarding the accounting of certain common stock issuances and that verbal representations were in conflict with documentation regarding these matters. The Company, in its written response to the US Securities and Exchange Commission, disputes this claim and affirms that the documentation provided was accurate and consistent with said verbal claims. Feldman Sherb & Co., P.C. disagrees with the aforementioned statements, however the Company affirms its position in these matters and has so responded via its 8-K filings with the US Securities and Exchange Commission. PART III Items 10. Directors and Officers of the Registrant. During the fiscal year 2000, there were the following directors, officers or beneficial owners of more than 10% of the company's equity securities: Scott Schuster Director, CEO Jason Kiszonak VP David Aksoy Director Randy Ragsdale Director EXECUTIVE OFFICERS The following table provides a summary of the Company's executive officers and directors as of May 31, 2000:
Name Age Position Held - ----------------------------------------- ---------- ------------------------------------------ Scott Schuster 36 Chairman of the Board, CEO and Director David Aksoy 36 Director Jason Kiszonak 28 Senior Vice President of Public Relations Stephen Randy Ragsdale 34 President, AMG and Director
Scott A. Schuster, age 36, has served as Chairman of the Board, Chief Executive Officer, President and Director of Elite since its formation. Prior to the formation of the Company, Mr. Schuster ran an IT consulting practice. Mr. Schuster has over 12 years experience in the IT industry. He has worked on, or designed IT solutions for the United States Postal Service, Delta Airlines, the Southern Company (for the Atlanta Olympic Games of 1996), and many other Fortune 500 companies. David Aksoy, M.D., age 36, has served as Director at Elite since 1998. Dr. Aksoy also retains his physician's office where he has served as a general practitioner for the last seven years. Jason Kiszonak, age 28, has served as Senior Vice President of Public Relations since he joined the Company in March of 1999 through the acquisition of Elevation Strategic Partners. Prior to joining Elite, for the period from 1995 until joining the Company Mr. Kiszonak worked as an independent television programming consultant in the US and abroad. Mr. Kiszonak is a graduate of Georgia Tech with a degree in international affairs. Stephen Randy Ragsdale, serves as President of AMG. Mr. Ragsdale began AMG in 1995. Prior to joining Elite, he was president of a company marketing products in the telecommunications industry. Based solely upon a review of (i) Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule 16a-3(e), promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act"), during the Company's fiscal year ended May 31, 2000, and (ii) Forms 5 and amendments thereto and/or written representations furnished to the Company by any director, officer or ten percent security holder of the Company (collectively, `Reporting Persons") stating that he or she was not required to file a Form 5 during the Company's fiscal year ended May 31, 2000, it has been determined that all of the above Reporting Persons are delinquent with respect to their reporting obligations set forth in Section 16(a) of the Exchange Act. ITEM 11. Executive Compensation
Annual Compensation Long Term Compensation Awards Payouts Names and Year Salary($) Bonus ($) Other Annual Restricted Securities LT. Payouts All Other Principal Compensation Stock Underlying Compensation Position ($) Award(s) Options ($) ($) - --------------- -------- ------------- -------------- --------------- ----------- ------------- ------------ ------------ Scott 2000 250,000* 1.5 Percent 0 0 0*** 0 0 Schuster, CEO of Net** Jason Kiszonak 2000 150,000 0 0 0 0 0 0 Scott 1999 250,000* 1.5 Percent 0 0 0*** 0 0 Schuster, CEO of Net** Jason Kiszonak 1999 150,000 0 0 0 0 0 0 Scott 1998 150,000 1.5 Percent 0 0 0 0 0 Schuster, CEO of Net
* Per Employment Agreement, but substantially waived salary during the year due to the financial condition of Company ** Per Employment Agreement, but no bonus paid *** Failed to exercise options during fiscal period OPTIONS No options were granted during the fiscal year ended May 31, 2000. EMPLOYMENT AGREEMENTS The company currently has employment agreements with Scott Schuster. The term of the contract is five years with a base salary of $250,000.00 annually and bonuses equal to 1.5 percent of the net profits of the company. During the past fiscal year, Schuster has waived a substantial portion of his salary in view of the company's financial condition. The employment agreements also provide for termination based on death, disability, voluntary resignation or material failure in performance and for severance payments upon termination under certain circumstances. The agreements contain certain provisions that will preclude each executive from competing with the Company for a period of two years from the date of termination of employment. The company has no stock option plans in place at this time. DIRECTORS COMPENSATION The company provides for compensation to each Board of Directors member in the amount 250,000 shares of common stock for each year served. ITEM 12. Security Ownership of Certain Beneficial Owners and Management
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER - ------------------------------- ----------------------------- ----------------------------- ----------------------------- COMMON Scott Schuster 5,900,000 17.22% 3885 Crestwood Pkwy. Duluth GA 30096 COMMON Jason Kiszonak 3,850,000 11.24% 3885 Crestwood Pkwy. Duluth GA 30096 COMMON David Aksoy 2,681,250 7.86% 3885 Crestwood Pkwy. Duluth GA 30096 COMMON Steve Kaye 4,500,000 13.13% 3885 Crestwood Pkwy. Duluth GA 30096 COMMON Randy Ragsdale 1,985,000 5.79% 3885 Crestwood Pkwy. Duluth GA 30096 All Executive Officers and Directors as a Group: (5 Persons) 18,916,250
ITEM 13. Certain Relationships and Related Transactions. The company issued 2,400,000 shares to Scott Schuster as replacement for shares he placed as collateral on behalf of the company to receive funds pending certain financing. During the fiscal year 2000, Mr. Schuster's loan with accrued interest as of May 31, 2000 and 1999 is $289,084 and $215,583, respectively. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a) The following documents are filed as part of this Annual Report or incorporated by reference: 1. Financial Statements See the Index to Financial Statements on page F-1 of this Annual Report. 2. Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are included in the consolidated financial statements or are inapplicable, and therefore have been omitted. 3. Exhibits EXHIBIT NUMBER EXHIBIT DESCRIPTION - - ------ ------------------- 1 Reports on Form 8-K incorporated by reference - -------------------------------------------------------------------------------- 2.1 Agreement dated June 24, 1998 by and among CONCAP, Inc., and Intuitive Technology Consultants, Inc. (Incorporated by Reference) 1 - -------------------------------------------------------------------------------- 2.2 Purchase Agreement dated November 15, 1998, by and among CONCAP, Inc., and Troxtel Holding Company d/b/a Temporary Help Connection (Incorporated by Reference) 2 - -------------------------------------------------------------------------------- 2.3 Purchase Agreement dated March 31, 1999 by and between CONCAP, Inc., and Elevation Strategic Partners, Inc., (Incorporated by Reference) 3 - -------------------------------------------------------------------------------- 2.4 Agreement dated November 5, 1998 by and between Scott Schuster and Scanlan Music, Inc. (Incorporated by Reference) - -------------------------------------------------------------------------------- 2.4.1 Assignment Agreement dated November 9, 1998 by and between Scott Schuster and CONCAP, Inc. 4 - -------------------------------------------------------------------------------- 2.5 Agreement dated April 1, 1999 by and between CONCAP, Inc. and Virtual Enterprise, Inc. (Incorporated by Reference) 7 - -------------------------------------------------------------------------------- 3 Amendment to Articles of Incorporation of CONCAP, inc. dated April 22, 1996 - -------------------------------------------------------------------------------- 10.1 Purchase Agreement with Ace Manufacturing Group, Inc. - -------------------------------------------------------------------------------- 10.2 Purchase Agreement with IET Startek of Georgia - -------------------------------------------------------------------------------- 10.3 Purchase Agreement with AC Travel - -------------------------------------------------------------------------------- 10.4 Employment Agreement of Scott Schuster - -------------------------------------------------------------------------------- 10.5 Employment Agreement of Randy Ragsdale - -------------------------------------------------------------------------------- (1) Incorporated by reference from the Registrant's Current Report on Form 8-K dated July 8, 1998 (2) Incorporated by reference from the Registrant's Current Report on Form 8-K dated November 15, 1998 (3) Incorporated by reference from the Registrant's Current Report on Form 8-K dated April 16, 1999 (4) To be filed by amendment (5) Included on the Signature page of this Annual Report (6) Incorporated by reference from the Registrant's Current Report on Form 10-K filed September 15, 1999 (7) Incorporated by reference from the Registrant's Current Report on Form 10-KA filed September 29, 1999 ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Financial Statements May 31, 2000, 1999 and 1998 With Independent Auditors' Report Thereon Report of Independent Auditors 2 Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6-7 Notes to Consolidated Financial Statements 8-23 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Elite Technologies, Inc., and Subsidiaries We have audited the accompanying consolidated balance sheet of Elite Technologies, Inc. and Subsidiaries (the "Company") as of May 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Elite Technologies, Inc. and Subsidiaries as of May 31, 1999 and for the years ended May 31, 1999 and 1998, were audited by other auditors whose report dated August 25, 1999, on those statements included an Explanatory paragraph that described the going concern uncertainty discussed in Note 1 to the financial statements. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2000 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Elite Technologies, Inc. and subsidiaries as of May31, 2000, and the results of their operations and their cash flows for the year ended May 31, 2000, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KIRSCHNER & ASSOCIATES, P.C. Marietta Georgia November 9, 2000, except for Note 13 As to which the date is February 21, 2001 F-2
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets May 31, 2000 and 1999 Assets Current assets: 2000 1999 Accounts receivable, less allowance for doubtful accounts of $ 0 and $26,000 at May 31, 2000 and $ -- $ 285,309 May 31, 1999, respectively Note receivable on convertible debt obligation 527,470 -- Receivable from officer 289,084 215,583 Other current assets 30,000 53,619 ----------- ------------ Total current assets 846,554 554,511 Property and equipment, net 31,004 66,304 Excess of cost over net assets of businesses acquired, less accumulated amortization of $597,198 and $ 87,181 at May 31, 2000, and May 31, 1999, respectively 4,987,844 1,688,415 Other assets 6,789 21,968 ------------ ------------- $5,872,191 $ 2,331,198 ============ ============= Liabilities and Stockholders' Equity Current liabilities: Cash overdrafts $ 35,106 $ 210,713 Notes payable 112,895 88,504 Accounts payable 523,541 245,811 Accrued expenses 114,292 33,942 Federal payroll taxes payable 931,888 629,415 State payroll taxes payable 321,614 251,177 Payable to factoring company -- 177,124 ------------ -------------- 2,039,336 1,636,686 ------------ -------------- Long-term liabilities: Notes payable 100,000 37,399 Deferred rent expense -- 97,496 Convertible note payable 1,035,599 -- ------------ -------------- Total liabilities 3,174,935 1,771,581 ------------ -------------- Stockholders' equity: Common stock, $.0001 par value; 500,000,000 shares authorized; 34,275,720 and 12,571,670 issued and outstanding at May 31, 2000 and 1999, respectively 3,427 1,257 Additional paid-in capital 35,206,634 3,995,318 Retained earnings (deficit) (32,512,805) (3,436,958) ------------- -------------- 2,697,256 559,617 ------------- -------------- $5,872,191 $ 2,331,198 ============= ===============
See accompanying notes to consolidated financial statements 3
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years Ended May 31, 2000, 1999 and 1998 2000 1999 1998 Revenues - net $ 298,230 $ 1,937,317 $ 1,516,088 Salaries, wages and benefits 571,121 2,136,613 1,190,609 Stock based compensation 10,751,765 827,431 -- Depreciation and amortization 547,512 116,846 27,562 Other operating expenses 1,481,216 1,654,167 681,335 Investment banking fees 15,872,719 -- -- -------------- -------------- -------------- Operating loss (28,926,103) (2,797,740) (383,418) Interest expense 16,100 -- -- Interest income (13,192) -- -- Settlement on rescinded acquisition 80,800 -- -- Other expenses, net 66,036 90,624 54,704 -------------- -------------- -------------- Loss before income taxes (29,075,847) (2,888,364) (438,122) Income taxes -- -- -- -------------- -------------- -------------- Net loss $(29,075,847) $(2,888,364) $ (438,122) ============== ============== ============== Net Loss Per Share of Common Stock: Basic and Diluted $ (1.41) $ (0.26) $ (0.04) ============== =============== ============== Weighted Average Number of Common Shares Used In Calculating Net Loss Per Share of Common Stock : Basic and Diluted 20,631,704 11,150,355 10,619,170 ============== =============== ===============
See accompanying notes to consolidated financial statements 4
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years Ended May 31, 2000, 1999 and 1998 Total Additional Retained stockholders' Common Stock paid-in earnings equity Shares Amount capital (deficit) (deficit) Balances at May 31, 1997 10,619,170 $1,062 $134,938 ($110,472) $25,528 Net loss -- -- -- (438,122) (438,122) ----------- ----------- ----------- ------------ ------------ Balances at May 31, 1998 10,619,170 1,062 134,938 (548,594) (412,594) Issuance of common stock in acquisitions 850,000 85 1,649,915 -- 1,650,000 Stock based compensation -- -- 827,431 -- 827,431 Issuance of common stock in private placements, net of issuance costs of approximately 50,000 shares and $352,000 1,102,500 110 852,390 -- 852,500 Commitment to issue common stock for investment banking services -- -- 126,667 -- 126,667 Contributed capital from THC -- -- 289,277 -- 289,277 Other capital contributed -- -- 114,700 -- 114,700 Net loss -- -- -- (2,888,364) 2,888,364) ------------ ---------- ----------- ------------ ------------- Balances at May 31, 1999 12,571,670 1,257 3,995,318 (3,436,958) 559,617 Stock based compensation 6,962,500 696 10,751,069 -- 10,751,765 Issuance of common stock in acquisitions 2,312,500 231 3,559,215 -- 3,559,446 Issuance of common stock in private placements 840,050 84 840,916 -- 841,000 Issuance of common stock for investment banking services 10,339,000 1,034 15,871,685 -- 15,872,719 Issuance of common stock in settlement of rescinded acquisition 1,250,000 125 80,675 -- 80,800 Contributed capital from AMG -- -- 107,756 -- 107,756 Net loss -- -- -- (29,075,847) (29,075,847) ------------ ---------- ----------- ------------ ------------- Balances at May 31, 2000 34,275,720 $3,427 $35,206,634 ($32,512,805) $2,697,256 ============ ========== =========== ============ =============
See accompanying notes to consolidated financial statements 5
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended May 31, 2000, 1999 and 1998 2000 1999 1998 Cash flows to operating activities: Net loss ($29,075,847) ($2,888,364) ($438,122) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 547,512 116,846 27,562 Stock based compensation 10,751,765 827,431 -- Commitment to issue stock for investment banking services 15,872,719 126,667 -- Settlement of rescinded acquisition 80,800 -- -- Decrease (increase) in: Accounts receivable 285,309 (5,975) (247,359) Unbilled revenues -- -- 66,562 Other assets 38,798 (38,312) (20,480) Increase (decrease) in: Accounts payable 277,730 195,327 44,141 Federal payroll taxes payable 302,473 186,842 381,945 State payroll taxes payable 70,437 161,367 89,810 Deferred rent expense (97,496) 55,910 41,586 Accrued expenses and other current liabilities 80,350 33,942 (5,452) --------------- -------------- --------------- Net cash used in operating activities (865,450) (1,228,319) (59,807) --------------- -------------- --------------- Cash flows to investing activities: Purchases of property and equipment -- (7,922) (17,552) Acquisition of businesses (250,000) (15,000) -- Receivable from officers (73,501) (130,584) (70,602) --------------- -------------- --------------- Net cash used in investing activities (323,501) (153,506) (88,154) --------------- -------------- --------------- Cash flows from financing activities: Proceeds from issuance of common stock 841,000 852,500 -- Proceeds from issuance of long-term debt 608,129 -- -- Repayment of long-term debt (68,000) -- -- Advances from (payments to) factoring company, net (177,124) (43,434) 220,558 Proceeds from (payment on) short-term notes 52,797 -- (101,250) Other capital contributions -- 114,700 -- Contributed capital 107,756 289,277 -- Increase in cash overdrafts (175,607) 190,855 19,858 Increase (decrease) in related party advances -- (22,073) 2,100 --------------- -------------- --------------- Net cash provided by financing activities 1,188,951 1,381,825 141,266 --------------- -------------- --------------- Net increase (decrease) in cash and cash equivalents -- -- (6,695) Cash and cash equivalents at beginning of year -- -- 6,695 --------------- -------------- --------------- Cash and cash equivalents at end of year -- -- -- =============== ============== ===============
See accompanying notes to consoliodated financial statements 6
ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended May 31, 2000, 1999 and 1998 2000 1999 1998 Supplemental disclosures of cash flow information cash paid during the year for: Interest -- $ 34,669 $ 9,280 ============ ============ =========== Income taxes -- -- -- ============ ============ =========== Acquisition of businesses: Fair value of assets acquired, including goodwill $ 3,809,446 $1,790,903 -- Fair value of liabilities assumed -- (90,903) -- Promissory note issued -- (35,000) -- Fair value of common stock issued (3,559,446) (1,650,000) -- ============ ============ =========== Net cash paid for acquisitions $ 250,000 $ 15,000 -- ============ ============ =========== Additional debt financing: Note payable -- stockholder $ 100,000 -- -- Convertible note payable 1,035,599 -- -- less receceivable on convertible debt (527,470) -- -- ============ ============ =========== Proceeds from issuance of long-term debt $ 608,129 -- -- ============ ============ ===========
7 ELITE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements May 31, 2000, 1999 and 1998 1. SUMMARY OF SIGNIGICANT ACCOUNTING POLICIES a) Description of Business Prior to April 2000, Elite Technologies, Inc. offered diverse services in IT Staffing, Custom Software Development and Integration, Internet Hosting, Content and Technical Development, Hardware Sales and Service and Content Delivery Platforms. The Company also served as an authorized solution provider and application developer for leading enterprise-level software products. These services were marketed to small, medium and large enterprises. Elite suspended these operations in April 2000 in connection with its acquisition of Ace Manufacturing Group, Ltd. (AMG). The current composition of core businesses is described in the Business Acquisitions Note to the Consolidated financial statements. AMG designs, builds and markets an internet "pay by the minute" browser (kiosk) used primarily in hotels, airports, and entertainment establishments. Elite intends to utilize AMG to acquire additional companies to augment the internet kiosk business as marketed by AMG, including companies providing content, hardware and other related sectors of commerce. b) Basis of Financial Statement Presentation The consolidated financial statements include the accounts of Elite Technologies, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, income and expenses for the period, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Business combinations, which have been accounted for under the purchase method of accounting, include the results of operations of the acquired business from the date of acquisition. Net assets of the companies acquired are recorded at their fair value at the date of acquisition. 8 (Continued) c) Recognition of Revenue and Expenses Prior to the suspension of operations, revenue related to the placement of temporary and permanent employees was recognized upon the delivery of the service. Contract revenue from software development and implementation was recognized under the percentage of completion method. Web site development and consulting services are generally performed on a time and materials basis and are recognized as the services are performed. All other revenue and expense is accrued as incurred. Revenues are reported net of cost of the goods sold. In settlement of factoring obligations, account receivable amounts as of the balance sheet date were written off in their entirety. d) Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Net cash overdrafts are included in liabilities section of the Company's balance sheet. Changes in cash overdrafts are shown in the financing section of the Company's statement of cash flows. e) Property and Equipment Property and equipment are carried at cost. Expenditures for maintenance and repairs that do not significantly extend the useful lives of the assets are expensed as incurred, while major replacements and betterments are capitalized. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets, generally five years for computer equipment and furniture and fixtures, and three to five years for purchased software. Cost of property sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income currently. f) Excess of Cost Over Net Assets of Business Acquired The excess of cost over net assets of businesses acquired (goodwill) is being amortized using the straight-line method over five years. The amortization period is based on, among other things, the nature of the products and markets, the competitive position of the acquired companies, and the adaptability of changing market conditions of the acquired companies. At each balance sheet date, the Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. 9 (Continued) The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate equal to the rate of return that would be required by the Company for a similar investment with like risks. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. g) Income Taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. h) Stock Option Plan The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its fixed plan stock options, in lieu of the fair value approach recommended by the Financial Accounting Standards Board in its Statement No. 123. Under the intrinsic value method, compensation expense would generally be recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. i) Financial Instruments and Risk Based on their short maturities and interest rates estimated to be available to the Company, management has determined that the carrying values of all financial instruments approximate fair value at May 31, 2000 and 1999. Management has evaluated the Company's credit risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of temporary cash investments and accounts receivable. The Company maintains cash balances at several Atlanta, Georgia area banks for general operations, payroll, and short-term investments. The FDIC insures cash balances up to $100,000. As no accounts receivable exist at May 31, 2000, the Company has no exposure to that credit risk on that day. 10 (Continued) j) Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount of fair value less costs to sell. k) Comprehensive Income On June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. The Company has no "other comprehensive income" to report for the years ended May 31, 2000, 1999 and 1998. l) Net Earnings (Loss) Per Common Share Basic earnings (loss) per common share available to common stockholders are based on the weighted-average number of common shares outstanding. Diluted earnings (loss) per common share available to common stockholders are based on the weighted-average number of common shares outstanding and dilutive potential common shares, such as dilutive stock options and convertible debt. Options to purchase 4,000,000 and 2,250,000 shares of common stock at May 31, 2000 and 1999, respectively, were excluded from the computation of diluted earnings per share because they were anti-dilutive. Convertible note payable, if converted, would generate savings of $82,848 in interest costs. The effect of the pro forma improvement in net loss exceeds the pro forma increase in the number of the shares. Accordingly, the loss per share of $1.41 rather than $1.38 is disclosed on the face of the Company's statement of operations, since the effect of the conversion would be antidilutive. m) Industry Segments On June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information. The Company's only operation with significant activity for the years ended May 31, 2000, 1999 and 1998 was its staffing operation. 11 (Continued) n) Management's Plans The Company has incurred significant recurring operating losses at May 31, 2000 and carries a working capital and a retained earnings deficit. Management's business philosophy is to increase market share by virtue of acquiring companies with inherent symmetry, autonomy and profitability. Management believes that this philosophy has been evidenced by the current acquisition of Ace Manufacturing Group. Ltd., as well as the post reporting acquisitions of International Electronic Technology of Georgia, Inc. and AC Travel, Inc. Management is actively pursuing new debt and equity financing arrangements. In addition, controls on operating efficiency and effectiveness are being considered. Management is continually evaluating capital budgeting opportunities and the Company's overall profitability. However, any results of their plans and actions cannot be assured. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. FORMATION OF THE COMPANY Intuitive Technology Consultants, Inc. ("ITC") was incorporated on August 9, 1996. On June 2, 1997, Phoenix International Industries, Inc. ("Phoenix") acquired 100% of the outstanding shares of ITC by issuing 1,500,000 shares of restricted common stock valued at $320,000. During the period that ITC was owned by Phoenix, the former owner of ITC agreed to rescind the transactions. As a result of the rescission, 100% of the common stock of ITC was returned to its former owner in exchange for the return of 1,413,000 Phoenix common shares, a cash payment of $60,000 and notes payable of $290,000 to Phoenix. The notes payable were to reimburse Phoenix for intercompany amounts receivable from the Company. Under provisions of the rescission agreement, the notes payable have been reduced to $-0- due to misrepresentations and breaches of contract on the part of Phoenix. Pushdown accounting has not been applied to the acquisition of ITC by Phoenix or to the unwinding, because the transactions were not considered "arms-length" with third parties. On July 8, 1998, ITC merged with Concap, Inc. ("Concap"). Former ITC shareholders received 7,200,000 shares of Concap common stock in exchange for all shares of ITC and gained control of Concap. Since ITC was a private operating company and Concap was a public shell company (i.e., public company with no operations), the merger was accounted for as if ITC was the acquirer. On April 30, 1999, the Company changed its name to Elite Technologies, Inc. 12 (Continued) 3. BUSINESS ACQUISITIONS a) Temporary Help Connection, Inc. ("THC") Effective November 15, 1998, the Company acquired a one hundred percent (100%) member interest in Troxtel Holding Company, LLC d/b/a Temporary Help Connection ("THC"), a Michigan company, in exchange for 1,250,000 shares of the Company's common stock. In addition, the Company agreed to provide to THC accounts receivable financing of up to 75% for approved accounts. THC is engaged in the business of light industrial temporary staffing. Due to misrepresentations and breaches of provisions of the purchase agreement on the part of THC, on April 12, 1999, the Company "unwound" the acquisition of THC as provided for in the purchase agreement. Litigation arising out of this transaction, which asserted claims against THC's former owner, for among other things, fraud and breach of contract, has been settled. Since the acquisition of THC was unwound, no assets, liabilities, or results of operations of THC are included in the accompanying consolidated financial statements. THC's cash receipts, which were remitted to ITC in excess of cash disbursements, made by ITC on behalf of THC during the period of THC's control by the Company have been credited to additional paid-in capital. Stock issued as part of this transaction, which was being held in escrow, was issued and sold pursuant to a court order. The proceeds were used to satisfy $80,800 in litigation costs. b) Scanlan Music, Inc. ("Scanlan") Effective November 5, 1998, the Chairman of the Company acquired all of the issued and outstanding shares of Scanlan, a retail seller of musical instruments, in exchange for a promissory note of $35,000. On November 9, 1998, the Chairman assigned all rights, titles, and inventory of Scanlan as well as the promissory note to the Company. The acquisition was treated as being made by the Company using the purchase method of accounting and, accordingly, the net assets acquired have been recorded at their estimated fair market value at the date of acquisition. During the year ended May 31, 2000 management suspended operations of Scanlan Music pending a review of its place in the Company's strategic future. At May 31, 2000, no decision had been reached regarding this matter. 13 (Continued) c) Elevation Strategic Partners, Inc. ("Elevation") Effective March 31, 1999, the Company acquired all of the issued and outstanding shares of Elevation Strategic Partners, Inc. a Delaware company, in exchange for approximately 1,000,000 shares of the Company's common stock (valued at $1.50 per share) and the assumption of debt of approximately $50,000. Elevation is engaged in the business of incubating and growing technology and Internet based companies. The acquisition was accounted for using the purchase method of accounting and, accordingly, the net assets acquired have been recorded at their estimated fair market value at the date of acquisition. Goodwill of approximately $1.550 million resulted from this March, 1999 transaction concurrent with the Company's issuance of 1,000,000 shares. During fiscal year ended May 31, 2000, an additional 62,500 shares were issued which correspondingly created goodwill of approximately $319,000. This transaction was instituted as a stock market hedge by virtue of a declining market price specific to that of Elite Technologies, Inc., and Subsidiaries. d) Virtual Enterprises, Inc. ("Virtual") Effective April 1, 1999, the Company acquired all of the issued and outstanding shares of Virtual, an internet portal that allows users to plan a wedding with links to various vendors in the industry, in exchange for 100,000 shares of the Company's common stock (valued at $1.50 per share) and the assumption of debt of approximately $41,000. The acquisition was accounted for using the purchase method of accounting and, accordingly, the net assets acquired have been recorded at their estimated fair market value on the date of acquisition. Goodwill of approximately $190,000 resulted from this transaction. e) Ace Manufacturing Group, Ltd. (AMG) Effective March 15, 2000 the Company acquired all of the issued and outstanding shares of AMG, in exchange for 2,000,000 shares of the Company's common stock (valued at $1.66 per share) plus $250,000. The acquisition was accounted for using the purchase method of accounting and, accordingly, the net assets acquired have been recorded at their estimated fair market value on the date of acquisition. Goodwill of approximately $3,490,000 resulted from this transaction. f) Pro-Forma Financial Information The results of operations of the acquired companies have been included in the Company's consolidated statements of operations beginning on the following dates: Scalan - November 5, 1998; Elevation - March 31, 1999; Virtual - April 1, 1999; and AMG - March 15, 2000. The unaudited pro forma results of operations of the Company for the year ended May 31, 2000 as if the acquisition of AMG, International Electronic Technology of Georgia, 14 (Continued) Inc., and AC Travel, Inc. (See disclosure "Other Events And Contingencies"), had been effected on June 1, 1999 are summarized as follows:
Unaudited ----------------- ----------------- Revenues - net $ 12,703,014 ----------------- ----------------- Net loss applicable to common shareholders $ (4,074,028) ----------------- ----------------- Basic E.P.S. (loss per share) $ ( .20) ----------------- ----------------- Diluted E.P.S. (loss per share) $ ( .20) -----------------
Generally accepted accounting principles usually call for comparative presentation and the relative pro forma effects on that of the preceding period. However, comparable summarized data for AC Travel, Inc. for the year ended May 31, 1999 are not available. Accordingly, no presentation is possible to show the unaudited pro forma results of operations of the Company with these acquisitions had they been effected on June 1, 1998. The unaudited pro forma results do not necessarily represent results which would have occurred if the acquisitions had taken place on the dates indicated nor are they necessarily indicative of the results of future operations. 4. ACCOUNTS RECEIVABLE An allowance for doubtful accounts is maintained at a level which management believes is sufficient to cover all potential credit losses including potential losses on receivables sold. The activity in the allowance for doubtful accounts for the three years ended May 31, 2000, 1999, and 1998 is a follows:
Allowance for Reductions doubtful Balance at taken against the Balance at accounts beginning Charged allowance end of of period to expense period - ------------------ ------------------ ---------------- ---------------------- ------------------ - ------------------ ------------------ ---------------- ---------------------- ------------------ 1998 $ -0- 90,791 (77,791) 13,000 1999 13,000 106,559 (93,559 26,000 2000 26,000 -0- (26,000) $ -0-
5. PAYROLL TAX LIABILITIES The amounts shown as due for federal and state payroll taxes payable on the Company's balance sheet are primarily amounts due from prior years and the first quarter of the year ended May 31, 2000. Management is meeting current payroll obligations and is pursuing a plan to fulfill its past obligations to federal and state governments. 15 (Continued) 6. DEBT AGREEMENTS o Stockholder Financing The Company's current liabilities include notes payable of $112,895. This debt was assumed in conjunction with the acquisitions of Elevation and Virtual and remains unpaid at May 31, 2000. There are no note agreements establishing terms for repayment of these debts in as much as the debts were immediately payable pursuant to the relative stock acquisition agreement. The Company's long-term liabilities include $100,000 payable to a stockholder in the total amount of $100,000. Interest is being accrued at the applicable federal rate. The proceeds are payable on demand. Management's understanding of stockholder intentions is that no demand will be made within the current year. o Other Financing The Company's long-term liabilities also include $1,035,599 of 8% convertible debentures. The Company entered into a financing agreement with a lending source on March 27, 2000. The total financing package included an authorized issue of $3,000,000 of convertible debentures. Conversion into common stock is based on a formula of the lesser of $2.00 per share or 75% of market value. The original stated maturity date was March 31, 2001, with interest accruing quarterly. The initial financing phase was to have been for $2,000,000, out of a total of $3,000,000, and to have been separated into two distinct parts. The Company received the first part of approximately $508,000 in the current reporting period. However, the second phase was not properly funded and escrowed. A notice of default was issued on behalf of the Company. Management is currently attempting to renegotiate details on the loan for future favorable financing. Management believes that the debt obligations will either be forgiven or an extension of debt maturities will exceed one year. Management is adamant that no amounts will be paid within the next twelve months. Accordingly, until ultimate disposition of the original obligation is resolved, the entire amount is classified as non-current on the Company's balance sheet. 16 (Continued) 7. PROPERTY AND EQUIPMENT Property and equipment consists of the following assets:
2000 1999 Computer equipment $ 74,416 $ 74,416 Purchased software 32,430 32,430 Furniture and fixtures 26,579 26,579 ------------- --------------- ------------- --------------- 133,425 133,425 ------------- --------------- Less accumulated depreciation 102,421 67,121 ------------- --------------- ------------- --------------- $ 31,004 $66,304 ============= ===============
8. OPERATING LEASES The Company leases office space on an informal month-to-month basis. Lease expense for the year ended May 31, 2000 was $107,360. Occasional equipment is also leased on a short-term basis. 9. RECEIVABLE FROM OFFICER The Company has made loans to a certain officer of the Company. These loans are to be evidenced by an employment agreement payable in not more than sixty monthly principal and interest installments starting with the first day of the month following the month in which the loan is made, with interest at the rate of three percent per year on the unpaid balance of the loan outstanding. In the event of default of any installment of principal and interest when due, the entire balance of principal and accrued interest becomes payable on demand. During the year ended May 31, 2000, the Company has extended additional borrowings to the officer, and has not yet received collections. Management is electing to waive the current default restrictions at the present time. Subsequent to the date of these financial statements, the officer has repaid over half of the obligation, and management believes the remaining amount will be collected within one year. Accordingly, the entire receivable of $289,084 is classified as a current asset on the Company's May 31, 2000 balance sheet. Interest is accrued on the entire receivable at the applicable federal rate. 17 (Continued) 10. INCOME TAXES The income tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at May 31, 2000 and 1999 are estimated and presented as follows:
2000 1999 Deferred income tax assets: Net operating loss carry forwards $3,196,911 $ 1,106,238 Other, net 595,899 425,889 ---------------- --------------- ---------------- --------------- Total gross deferred income tax assets 3,792,810 1,532,127 Less valuation allowance 3,787,333 1,528,215 ---------------- --------------- ---------------- --------------- Net deferred income tax assets 5,477 3,912 Deferred income liability- (5,477) (3,912) ---------------- --------------- ---------------- --------------- Net deferred income tax asset (liability) $ -- $ -- ================ =============== ================ ===============
Deferred income tax assets as of May 31, 2000 have been fully offset by valuation allowances. The increase in the valuation allowance during the year ended May 31, 2000 is $2,259,118. The valuation allowances have been established equal to the full amounts of the deferred tax assets net of deferred tax liabilities, since the Company is not assured that it is more likely than not that these benefits will be realized. At May 31, 2000, the Company had estimated operating loss carryforwards for income tax purposes of approximately $4,600,500, which are available to offset future federal and state taxable income, if any, through 2020. Due to the separate return limitation year rules of the consolidated return regulations, it is estimated that the use of approximately $943,000 of loss carry forwards is restricted. In addition, due to changes in the ownership of various members of the consolidated group, the use of an additional $468,000 of losses is restricted by virtue of Internal Revenue Code Section 382 limitations. 11. STOCKHOLDERS' EQUITY a) Completion of Reverse Merger As a result of the reverse merger completed on July 8, 1998 (see note 2), the equity of the 18 (Continued) Company reflects the historical equity of ITC retroactively restated to reflect the 7,200,000 Concap shares received in the merger. In addition, the common stock and additional paid-in capital accounts have been adjusted to reflect the par value of the outstanding stock of Concap after giving effect to the shares issued in the merger. b) Stock Options and Stock Based Compensation On July 15, 1998, as part of an employment agreement, an officer of the Company was granted the option to purchase 2,000,000 shares of common stock at an exercise price of $.10 per share. Of the stock options, 1,000,000 were scheduled to vest on August 31, 2000 with the remaining options vesting on August 31, 2001. The options expire one year from the vesting date. On March 15, 1999, as part of an employment agreement, another officer of the Company was granted the option to purchase 250,000 shares of common stock at an exercise price of $.10 per share. Of the stock options, 125,000 were scheduled to vest on August 31, 2000 with the remaining options vesting on August 31, 2001. The options expire one year from the vesting date. During the year ended May 31, 2000, employment agreements granting the option to purchase stock shares at an exercise price of $.10 per share were forfeited and cancelled. The Company applies the provisions of APB Opinion No. 25 and related interpretations in accounting for stock options. The Company recognized compensation expense of approximately $827,000 in connection with options granted during the year ended May 31, 1999 as the exercise price was less than the market price of the stock on the date of grant. A summary of the status of the employment stock option plans at May 31, 2000 and 1999, and the changes during the years then ended is presented below:
2000 1999 Weighted Shares Shares Average Underlying Underlying Exercise Options Options Price ------------------ ---------------- ---------------- ------------------ ---------------- ---------------- Outstanding, beginning of year 2,250,000 -0- $.10 Plus: Granted -- 2,250,000 .10 Less: Forfeited and cancelled (2,250,000) -- .10 ------------------ ---------------- ---------------- ------------------ ---------------- ---------------- Outstanding, end of year -0- 2,250,000 $-0- ================== ================ ================
19 (Continued) The weighted average fair value of options granted during 1999 and on the date of the grant was $1.38 per share using the Black Scholes option-pricing model with the following weighted average assumptions: expected volatility of 58.65%, expected dividend yield of 0%, risk-free interest rate of 5.5%, and an expected option life of 3.25 years. In addition, the Company has a separate plan awarding stock based compensation. In June, 1999, the Company issued 612,500 shares of restricted common stock to six employees as an incentive for these employees to continue employment. In June, 1999, the Company also issued 300,000 shares of common stock to a consultant for future consulting services and issued 250,000 shares of common stock to a former ITC stockholder. The Company applies the provisions of APB Opinion No. 25 and related interpretations in accounting for this compensation. The Company recognized stock based compensation expense, primarily for officer bonuses, of approximately $10,750,000 during the year ended May 31, 2000. c) Investor and Private Placement Activity In June and July 1998, a former officer of Concap purchased 400,000 shares of common stock of the Company for $200,000. In April, 1999, the Company entered an agreement to issue shares of the Company's common stock in exchange for investment banking services. The Company recorded expense and additional paid-in capital for the pro rata share of the fair value of the total agreement of $15,872,719 and $126,667 related to the services performed in the years ended May 31, 2000 and 1999, respectively. The fair value of the total agreement was determined based on the fair value of shares of the Company's common stock committed to be issued as part of the agreement. In April 1999, the Company commenced the sale of its common stock in a private placement offering. As of May 31, 1999, 652,000 shares of common stock had been sold for $652,500, net of issuance costs of approximately $352,000 and 50,000 shares of common stock issued to the investment banker. During the year ended May 31, 2000, 840,050 shares of common stock were issued through private placement with $84 and $840,916 credited to common stock and paid-in capital, respectively. 20 (Continued) d) Other Capital Contributions For the year ended May 31, 1999, an officer of the Company contributed $114,700 to the Company to fund operations. This contribution has been reflected as additional paid-in capital since it is required to be repaid in common stock of the Company based on the fair value of the stock on the date of the contribution, commencing two years from the date that the contribution was made. For the year ended May 31, 2000, $107,756 of paid-in capital resulted from the acquisition of AMG. 12. MAJOR CUSTOMERS For the year ended May 31, 2000, two customers accounted for approximately 62% and 71% of total revenues and cash collections, respectively. For the year ended May 31, 1999, two customers accounted for approximately 62% and 71% of total revenues and accounts receivable, respectively. For the year ended May 31, 1998, two different customers accounted for approximately 47% and 27% of total revenues and accounts receivable, respectively. 13. OTHER EVENTS AND CONTINGENCIES a) Subsequent Investing and Financing Transactions In June, 2000, the Company sold additional shares of its common stock in private placement offerings. Approximately 2,000,000 shares of common stock were sold at $0.25 per share. On June 27, 2000 the Company entered into an agreement to acquire 100% of outstanding shares of International Electronic Technology of Georgia, Inc., in exchange for 1,200,000 shares of the Company's common stock. In August, 2000, the Company issued the 1,200,000 shares of common stock called for in the agreement On June 1, 2000 the Company entered into an agreement to acquire 100% of the outstanding shares of AC Travel, Inc. in exchange for 2,000,000 shares of the Company's common stock and $300,000 in cash. The Company has advanced $175,000 on the agreement. b) Contingencies The Company is involved in various claims and legal actions arising in the ordinary course of business. While the ultimate results and outcome cannot be determined, management does not expect that the ultimate disposition of these matters will have a material adverse effect on the Company's results of operations or financial position. Subsequent to the date of these financial statements, actions involving the Company include the following claims, both of which the Company intends to pursue vigorously. 21 (Continued) On June 26, 2000, a complaint was filed against the Company alleging breach of contract in the amount of $28,256. Counsel believes it is impossible to ascertain the likelihood of success of either party on their claims and defenses. On October 24, 2000, an action was filed against Intuitive Technology Consultants, Inc. (ITC), the predecessor to the Company, for breach of contract by which ITC was sold by plaintiff. Counsel estimates that the amount at issue is less than $290,000 and believes it is impossible to determine the likelihood of success of plaintiff. On July 20 and August 17, 2000, the Company entered into legal actions against former stockholders and an investment firm for failure to follow Rule 144 in their premature sale of the Company's common stock on the open market. Management intends to pursue the matter to protect the integrity of market valuation of its stock and is attempting to recover the value of the stock from sellers and receive damages from the investment firm. c) Compliance Review Management received a compliance review letter from the United States Securities and Exchange Commission dated November 20, 2000. The principle provisions of the letter involve interpretation of valuation practices of the Company's common stock issued subsequent to May 31, 1999 as seen by management and contrasted with the views of the Commission. Management believes a per share price established by a concurrent private placement of $1 per share, less discounts for restriction and volume, is the appropriate measure. In accordance with generally accepted accounting principles, the SEC mandates a price per share commensurate with that of freely trading shares as of the date of specific transactions with the application of significantly limited discounts as the correct measure. Management has responded to the Commission in detail citing both theoretical and empirical evidence supporting the case of the May 31, 2000 financial statements and related Form 10-K as originally filed but has agreed to restate the financial statements in accordance with the wishes of the SEC staff. Accordingly, certain financial information triggered by stock issuance since May 31, 1999 has been restated. 22 (Continued) The following schedule summarizes the major differences between management and the Commission as impacting the Company's financial position as of May 31, 2000, and the results of operations for the year then ended:
Form 10-K and Form 10-K/A and financial statements financial statements as originally filed as amended Stock based compensation $904,125 $10,751,765 Depreciation and amortization 437,622 547,512 Investment banking fees 1,481,250 15,872,719 Net loss (4,726,848) (29,075,847) Loss per share (0.23) (1.41) Goodwill, net of amortization 2,609,609 4,987,844 Total assets 3,493,956 5,872,191 Additional paid-in capital 8,479,400 35,206,634 Retained earnings (deficit) (8,163,806) (32,512,805) Stockholders' equity 319,021 2,697,256
23 Independent Auditors' Report The Board of Directors and Stockholders Elite Technologies, Inc.: We have audited the consolidated balance sheet of Elite Technologies, Inc. and subsidiaries (the "Company") as of May 31, 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended May 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Elite Technologies, Inc. and subsidiaries as of May 31, 1999, and the results of their operations and their cash flows for each of the years in the two-year period ended May 31, 1999, in conformity with generally accepted accounting principles. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty. /s/ KPMG Atlanta, Georgia August 25, 1999 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 10, 2000 ELITE TECHNOLOGIES, INC. By:/s/ Scott Schuster Name: Scott Schuster Title: CEO By:/s/ Jason Kiszonak Name: Jason Kiszonak Title: Director By:/s/ David Aksoy Name: David Aksoy Title: Director By:/s/ Stephen Randy Ragsdale Name: Stephen Randy Ragsdale Title: Director Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated. - ----------------------------------------------------- EX-10.1 2 0002.txt Stock Purchase Agreement Made as of March 15, 2000, Between Elite Technologies, Inc., Buyer, and Ace Manufacturing Group, Ltd. S. Randy Ragsdale, Individually, Seller(s) Table of Contents Page 1. DEFINITIONS. 1 - -------------------------------------------------------------------------------- 1.1. "APPLICABLE CONTRACT" 1 1.2. "BREACH" 1 1.3. "BUYER" 1 1.4. "BUYER'S STOCK" 1 1.5. "CLOSING" 1 1.6. "CLOSING DATE" 1 1.8. "CONSENT" 1 1.9. "CONTEMPLATED TRANSACTIONS" 2 1.10. "CONTRACT" 2 1.11. "DAMAGES" 2 1.12. "DISCLOSURE SCHEDULE" 2 1.13. "ENCUMBRANCE" 2 1.14. "ENVIRONMENTAL REQUIREMENTS" 2 1.15. "ERISA" 2 1.16. "FACILITIES" 2 1.17. "GAAP" 3 1.18. "GOVERNMENTAL AUTHORIZATION" 3 1.19. "GOVERNMENTAL BODY" 3 1.20. "IRC" 3 1.21. "IRS" 3 1.22. "KNOWLEDGE" 3 1.23. "LEGAL REQUIREMENT" 3 1.24. "OPERATING INCOME" 3 1.25. "ORDER" 4 1.26. "ORDINARY COURSE OF BUSINESS" 4 1.27. "ORGANIZATIONAL DOCUMENTS" 4 1.28. "PERSON" 4 1.29. "PLAN" 4 1.30. "PROCEEDING" 4 1.31. "RELATED PERSON" 4 1.32. "REPRESENTATIVE" 5 1.33. "SECURITIES ACT" 5 1.34. "SELLER" 5 1.35. "SHARES" 5 1.36. "SUBSIDIARY" 6 1.37. "TAX RETURN" 6 1.38. "THREATENED" 6 2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6 - -------------------------------------------------------------------------------- 2.1. SHARES. ---- ------ 6 2.2. BUYER'S STOCK. ---- ------------- 6 2.3. CLOSING. ---- ------- 6 2.4. CLOSING OBLIGATIONS. ---- ------------------- 6 3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7 - -------------------------------------------------------------------------------- 3.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 7 3.2. AUTHORITY; NO CONFLICT. ---- ---------------------- 8 3.3. CAPITALIZATION. ---- -------------- 9 3.4. FINANCIAL STATEMENTS. ---- -------------------- 9 3.5. BOOKS AND RECORDS. ---- ----------------- 9 3.6. TITLE TO PROPERTIES; ENCUMBRANCES. ---- --------------------------------- 10 3.7. NO UNDISCLOSED LIABILITIES. ---- -------------------------- 10 3.8. TAXES. ---- ----- 11 3.9. NO MATERIAL ADVERSE CHANGE. ---- -------------------------- 11 3.10. EMPLOYEE BENEFITS MATTERS. ----- ------------------------- 11 3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. --------------------------------------------------------------- 12 3.12. LEGAL PROCEEDINGS; ORDERS. ----- ------------------------- 13 3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS. ----- ------------------------------------- 14 3.14. CONTRACTS; NO DEFAULTS. ----- ---------------------- 15 3.15. INSURANCE. ----- --------- 16 3.16. ENVIRONMENTAL MATTERS. ----- --------------------- 17 3.17. EMPLOYEE MATTERS. ----- ---------------- 17 3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY. ----- ------------------------------------------- 17 3.19. CERTAIN PAYMENTS. ----- ---------------- 19 3.20. DISCLOSURE. ----- ---------- 20 3.21. BROKERS OR FINDERS. ----- ------------------ 20 4. REPRESENTATIONS AND WARRANTIES OF BUYER. 20 - -------------------------------------------------------------------------------- 4.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 20 4.2. AUTHORITY. ---- --------- 20 4.3. INVESTMENT INTENT. ---- ----------------- 20 4.4. CERTAIN PROCEEDINGS. ---- ------------------- 21 4.5. BROKERS OR FINDERS. ---- ------------------ 21 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 21 - -------------------------------------------------------------------------------- 5.1. ACCESS AND INVESTIGATION. ---- ------------------------ 21 5.2. OPERATION OF THE BUSINESS OF THE COMPANY. ---- ---------------------------------------- 21 5.3. NEGATIVE COVENANT. ---- ----------------- 22 5.4. REQUIRED APPROVALS. ---- ------------------ 22 5.5. NOTIFICATION. ---- ------------ 22 5.6. NO NEGOTIATION. ---- -------------- 22 5.7. CLOSING OF BANK ACCOUNTS. ---- ------------------------ 23 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23 - -------------------------------------------------------------------------------- 6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS. ---- ----------------------------------------------------- 23 6.2. ACCESS AND INVESTIGATION. ---- ------------------------ 23 6.3. OPERATION OF THE BUSINESS OF THE COMPANY. ---- ---------------------------------------- 23 6.4. NOTIFICATION. ---- ------------ 24 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24 - -------------------------------------------------------------------------------- 7.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 24 7.2. SELLER'S PERFORMANCE. ---- -------------------- 24 7.3. CONSENTS. ---- -------- 24 7.4. ADDITIONAL DOCUMENTS. ---- -------------------- 24 7.5. NO PROCEEDINGS. ---- -------------- 25 7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. ---- --------------------------------------------------- 25 7.7. NO PROHIBITION. ---- -------------- 25 7.8. EMPLOYMENT AGREEMENT. ---- -------------------- 25 7.9. REGISTRATION OF SHARES FOR SELLER. ---- --------------------------------- 25 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 25 - -------------------------------------------------------------------------------- 8.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 25 8.2. BUYER'S PERFORMANCE. ---- ------------------- 25 8.3. CONSENTS. ---- -------- 26 8.4. ADDITIONAL DOCUMENTS. ---- -------------------- 26 8.5. NO INJUNCTION. ---- ------------- 26 9. TERMINATION. 26 - -------------------------------------------------------------------------------- 9.1. TERMINATION EVENTS. ---- ------------------ 26 9.2. EFFECT OF TERMINATION. ---- --------------------- 27 10. INDEMNIFICATION; REMEDIES. 27 - -------------------------------------------------------------------------------- 10.1. AGREEMENT BY SELLER TO INDEMNIFY. ----- -------------------------------- 27 10.2. AGREEMENTS BY BUYER TO INDEMNIFY. ----- -------------------------------- 28 10.3. MATTERS INVOLVING THIRD PARTIES. ----- ------------------------------- 29 11. POST-CLOSING AGREEMENTS. 30 - -------------------------------------------------------------------------------- 11.1. CONSISTENCY IN REPORTING. ----- ------------------------ 30 12. GENERAL PROVISIONS. 30 - -------------------------------------------------------------------------------- 12.1. EXPENSES. ----- -------- 30 12.2. PUBLIC ANNOUNCEMENTS. ----- -------------------- 30 12.3. CONFIDENTIALITY. ----- --------------- 30 12.4. NOTICES. ----- ------- 31 12.5. JURISDICTION; SERVICE OF PROCESS. ----- -------------------------------- 32 12.6. FURTHER ASSURANCES. ----- ------------------ 32 12.7. WAIVER. ----- ------ 32 12.8. ENTIRE AGREEMENT AND MODIFICATION. ----- --------------------------------- 32 12.9. DISCLOSURE SCHEDULE. ----- ------------------- 33 12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS. ------ ------------------------------------------------- 33 12.11. SEVERABILITY. ------ ------------ 33 12.12. SECTION HEADINGS; CONSTRUCTION. ------ ------------------------------ 33 12.13. TIME OF ESSENCE. ------ --------------- 33 12.14. GOVERNING LAW. ------ ------------- 33 12.15. COUNTERPARTS. ------ ------------ 33 Stock Purchase Agreement THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of March 15, 2000, by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and AMG, LTD., a Georgia Corporation, Stephen Randy Ragsdale, individually and collectively hereinafter referred to as ("Seller"). RECITALS: Seller desire to sell, and Buyer desires to purchase, all of the issued and outstanding shares (the "Shares") of capital stock of Ace Manufacturing Group, LTD. for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: DEFINITIONS. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.: "Applicable Contract" - any Contract (i) under which Seller or Company has or may acquire any rights; (ii) under which Seller or Company has or may become subject to any obligation or liability or (iii) by which Seller or Company or any of the assets owned or used by it is or may become bound. "Breach" - a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision or (ii) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence or circumstance. "Buyer" - as defined in the first paragraph of this Agreement. "Buyer's Stock" - 500,000 restricted shares of Seller's capital stock. "Closing" - as defined in Section 2.4. "Closing Date" - the date and time as of which the Closing actually takes place. 1.7 "Company" - Ace Manufacturing Group, Ltd. "Consent" - any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "Contemplated Transactions" - all of the transactions contemplated by this Agreement, including: A. The transfer of the Shares by Seller to Buyer; B. The execution, delivery, and performance of the Closing Obligations set forth in Section 2.5; C. The performance by Buyer and Seller of their respective covenants and obligations under this Agreement; D. Buyer's acquisition and ownership of the Shares and exercise of control over the Company; and E. The transfer of Buyer's Stock to Seller; and F. Payment by Buyer to Seller of the Reimbursement Amount. "Contract" - any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "Damages" - any loss, liability, claim, damages (including, without limitation, incidental and consequential damages), expense (including, without limitation, costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third party. "Disclosure Schedule" - the disclosure schedule delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. "Encumbrance" - any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "Environmental Requirements" - means federal, state and local laws relating to pollution or protection of the environment, including laws or provisions relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials, substances, or wastes into air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or wastes. "ERISA" - the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Facilities" - any real property, leaseholds, or other interests currently or formerly owned or operated by Seller and any buildings, plants, structures, or equipment (including motor vehicles) currently or formerly owned or operated by Seller. "GAAP" - generally accepted United States accounting principles, applied on a basis consistent with the basis on which the financial statements referred to in Section 3.4. were prepared. "Governmental Authorization" - any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body" - any: A. Nation, state, county, city, town, village, district, or other jurisdiction of any nature; B. Federal, state, local, municipal, foreign, or other government; C. Governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); D. Multi-national organization or body; or E. Body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "IRC" - the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS" - the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. "Knowledge" - an individual will be deemed to have "Knowledge" of a particular fact or other matter if: A. Such individual is actually aware of such fact or other matter; or B. A prudent individual given his position with the Company could be reasonably expected to discover or otherwise become aware of such fact or other matter. "Legal Requirement" - any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "Operating Income" - means the net income of the Company determined in accordance with GAAP before income taxes and after all other charges except: A. Unless otherwise approved by Buyer, any general and administrative expense (i.e., allocation of the Company's general corporate overhead) attributable to the Company and all subsidiaries of the Company that is not directly related to the operation of the Company in the Ordinary Course of Business; provided, however, Operating Income shall include reimbursement by Seller of expenses at a fair market price mutually agreed to by Buyer and Seller for expenses previously incurred by Seller, but that have for administrative convenience or efficiency reasons been centralized with Buyer; and B. Any amortization of goodwill of the Company and all Subsidiaries of the Company. C. In the event that certain expenses incurred by the Seller are for the principal or partial benefit of the Company or other subsidiaries of the Company, then the parties hereto shall endeavor to track and determine in a fair and equitable manner that portion of such expenses that should fairly and reasonably be allocated to the Company or such other subsidiaries of the Company, and therefore not included in arriving at Operating Income for purposes of this Agreement. "Order" - any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "Ordinary Course of Business" - an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: A. Such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; B. Such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and C. Such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "Organizational Documents" - (i) the Articles or Certificate of Incorporation and the Bylaws of a corporation; (ii) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person and (iii) any amendment to any of the foregoing. "Person" - 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. "Plan" - as defined in Section 3.10.1. "Proceeding" - any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "Related Person" - with respect to a particular individual: A.Each other member of such individual's Family; B.Any Person that is directly or indirectly controlled by such individual or one (1) or more members of such individual's Family; C.Any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and D. Any Person with respect to which such individual or one (1) or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: A. Any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; B. Any Person that holds a Material Interest in such specified Person; C. Each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); D. Any Person in which such specified Person holds a Material Interest; E. Any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and Any Related Person of any individual described in clause B. or C. For purposes of this definition, (i) the "Family" of an individual includes (1) the individual; (2) the individual's spouse and former spouses; (3) any other natural person who is related to the individual or the individual's spouse within the second degree and (4) any other natural person who resides with such individual and (2) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least [five percent (5%)] of the outstanding voting power of a Person or equity securities or other equity interests representing at least [five percent (5%)] of the outstanding equity securities or equity interests in a Person. "Representative" - with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Securities Act" - the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Seller" - as defined in the first paragraph of this Agreement. "Shares" - as defined in the Recitals of this Agreement. "Subsidiary" - with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one (1) or more of its Subsidiaries; [when used without reference to a particular Person, "Subsidiary" means a Subsidiary of the Company]. "Tax Return" - any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threatened" - a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. Shares. In exchange for the transfer of Buyer's Stock, as set forth in Section 2.2, and subject to the terms and conditions of this Agreement, at the Closing, Seller will transfer the Shares to Buyer. Buyer's Stock. In exchange for the transfer of Shares as set forth in Section 2.1, and subject to the terms and conditions of this Agreement, at the Closing, Buyer shall transfer to Seller the Buyer's Stock. Closing. The purchase and sale (the "Closing") provided for in this Agreement will take place at the offices of Morris, Manning & Martin, L.L.P., at 1600 Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326, at 10:00 a.m. (local time) on March 31, 2000, or at such other time and place as the parties may agree. Except as otherwise provided in Section 9., failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.3. will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. Closing Obligations. At the Closing: ------------------- A. Seller will deliver to Buyer: (i) Certificates. Certificates representing ------------ the Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer; (ii) Good Standing Certificate. Seller shall have -------------------------- delivered to Buyer a certificate evidencing the good standing of the Company as of a recent practicable date; (iii) Certificate. A certificate substantially in ----------- the form of Exhibit A hereto, executed by Seller representing and warranting --------- to Buyer that each of Seller's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedule that were delivered by Seller to Buyer prior to the Closing Date in accordance with Section 5.5.); and (iv) Mutual Release. Seller shall have delivered -------------- to Buyer a mutual release, executed by Seller, substantially in the form of Exhibit B to be attached at closing - ----------------------------------- (v) All Corporate records, organzational documents, minutes of Board of Director and Shareholder meetings and corporate seal. B. Buyer will deliver to Seller: (i) Certificates. Certificates representing ------------ Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers) for transfer to Seller, or a Board of Directors resolution signifying the order of the transfer of shares to Seller to be effectuated immediately, withou delay; (ii) Certificate. A certificate in the form of ----------- Exhibit C hereto executed by Buyer to the effect that, except as otherwise --------- stated in such certificate, each of Buyer's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date; and (iii) Mutual Release. Buyer shall have delivered -------------- to Seller a Mutual Release, executed by Buyer, substantially in the form of Exhibit B to be attached at closing. - ----------------------------------- REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: Organization and Good Standing. ------------------------------ A. Schedule 3.1 of the Disclosure Schedule contains a complete and accurate list of the Company's name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business, and its capitalization (including the identity of each stockholder and the number of shares held by each). The Company is a corporation duly organized, validly existing, and in good standing under the laws of Georgia, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under Applicable Contracts. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. B. Seller has made available to Buyer copies of the Organizational Documents of the Company, as currently in effect. Authority; No Conflict. ---------------------- A. This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms. Upon the execution and delivery by Seller of the closing documents set forth in Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's Closing Documents will constitute the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their respective terms. Seller has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Seller's Closing Documents and to perform his obligations under this Agreement and the Seller's Closing Documents. B. Except as set forth in Schedule 3.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) Contravene, conflict with, or result in a violation of (1) any provision of the Organizational Documents of the Company or (2) any resolution adopted by the board of directors or the stockholders of the Company; (ii) Contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Seller or the Company, or any of the assets owned or used by Seller, may be subject; (iii) Contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Seller or that otherwise relates to the business of, or any of the assets owned or used by, the Company; (iv) Cause Buyer or Seller to become subject to, or to become liable for the payment of, any Tax; (v) Contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (vi) Result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by Seller. Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller nor the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. Capitalization. The authorized equity securities of the Company consist of 1000 shares of common stock, .01 par value per share, of which 1000 shares are issued and outstanding and constitute the Shares. Seller is and will be on the Closing Date the record and beneficial owners and holders of the Shares, free and clear of all Encumbrances. With the exception of the Shares (which are owned by Seller), all of the outstanding equity securities and other securities of the Company are owned of record and beneficially by Seller, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company, including, but not limited to, stock options, warrants, convertible securities, redemption rights, registration rights and the like. None of the outstanding equity securities or other securities of the Company was issued in violation of the Securities Act or any other Legal Requirement. Financial Statements. Seller shall deliver to Buyer, at closing date to -------------------- be attached as Schedule 3.4: ------------ A. Unaudited balance sheets of Seller as of August, 1999, and as of, together with the related statements of income, changes in stockholder equity and cash flow (collectively, the "Financial Statements") for the periods referred to in such financial statements. B. The Financial Statements were prepared in accordance with this Agreement and with GAAP consistently applied. The Financial Statements and notes, if any, fairly present the financial condition and the results of operations, changes in stockholders' equity, and cash flow of the Company as at the respective dates of and for the periods referred to in such Financial Statements, all in accordance with GAAP, subject, in the case of interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes. Books and Records. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of the Company, and no meeting of any such stockholders, Board of Directors, or committee has been held for and no material action has been taken at any meeting for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of Seller. Title to Properties; Encumbrances. Seller owns (with good and marketable title in the case of real property, subject only to the Encumbrances permitted by this Section) all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own located in the facilities owned or operated by Seller or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Closing Date Financial Statements (except for assets held under capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of the Disclosure Schedule which shall be attached to this Agreement as Schedule 3.6 at the closing date.). All material properties and assets reflected in the Closing Date Financial Statements are free and clear of all Encumbrances and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except, with respect to all such properties and assets: A. Mortgages or security interests shown on the Closing Date Financial Statements as securing specified liabilities or obligations, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists; B. Liens for current taxes not yet due; and C. With respect to real property: (i) Minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company; and (ii) Zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. All buildings, plants, and structures owned by Seller lie wholly within the boundaries of the real property owned by Seller and do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person. All property and assets of the the Company shall be in the possession and control of Seller at Closing, including but not limited to, all Facilities. No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of the Disclosure Schedule, Seller has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Closing Date Financial Statements and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. Taxes. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has timely filed all tax returns and reports required to be filed by it, including, without limitation, all federal, state and local tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges which have become due or which are attributable to the conduct of Seller's business prior to Closing. Seller will continue to make adequate provision for all such taxes and other charges for all periods through the Closing Date. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller shall have no Knowledge of any tax deficiency proposed or threatened against Seller. There are no tax liens upon any property or assets of the Company. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty. Except as set forth on Schedule 3.8 to the Disclosure Schedule, all taxes and other assessments and levies which Seller was required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental entity. Except as set forth in Schedule 3.8 to the Disclosure Schedule, the federal and state income tax returns and local returns, if any, of Seller have never been audited by the income tax authorities, nor are any such audits in process. Except as set forth in Schedule 3.8, to the Disclosure Schedule there are no outstanding agreements or waivers extending the statute of limitations applicable to any federal or state income tax returns of the Company for any period. No Material Adverse Change. Since January, 1996 there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Company, and no event has occurred or circumstance exists that may result in such a material adverse change. Employee Benefits Matters. ------------------------- 3.10.1 Schedule 3.10.1 lists all plans, programs, and similar agreements, commitments or arrangements, whether oral or written, maintained by or on behalf of Seller or any other party that provide benefits or compensation to, or for the benefit of, current or former employees of the Company ("Plan" or "Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only current and former employees of the Company participate in the Plans. Copies of all Plans and, to the extent applicable, all related trust agreements, actuarial reports, and valuations for the most recent year, all summary plan descriptions, prospectuses, Annual Report Form 5500s or similar forms (and attachments thereto) for the most recent year, all Internal Revenue Service determination letters, and any related documents requested by Buyer, including all amendments, modifications and supplements thereto, have been delivered to Buyer, and all of the same are or will be true, correct and complete. 3.10.2 With respect to each Plan to the extent applicable: A. No litigation or administrative or other proceeding is pending or threatened involving such Plan; B. To the Knowledge of Seller, such Plan has been administered and operated in substantial compliance with, and has been amended to comply with all applicable laws, rules, and regulations, including, without limitation, ERISA, the Internal Revenue Code, and the regulations issued under ERISA and the Internal Revenue Code; C.Seller and its predecessors, if any, have made and as of the Closing Date will have made or accrued, all payments and contributions required, or reasonably expected to be required, to be made under the provisions of such Plan or required to be made under applicable laws, rules and regulations, with respect to any period following, such amounts to be determined using the ongoing actuarial and funding assumptions of the Plan; D. Such Plan is fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the date hereof; E. On the Closing Date such Plan will be fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the Closing Date, or adequate reserves will be set up on the Company's books and records, or paid-up insurance will be provided, therefor; and F. Such Plan has been administrated and operated only in the ordinary and usual course and in accordance with its terms, and there has not been in the year prior hereto any increase in the liabilities of such Plan beyond increases typically experienced by employers similar to the Company. Compliance With Legal Requirements; Governmental Authorizations. --------------------------------------------------------------- A. Except as set forth in Schedule 3.11 of the Disclosure ------------- Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) No event has occurred or circumstance exists that (with or without notice or lapse of time) (1) may constitute or result in a violation by Seller of, or a failure on the part of Seller to comply with, any Legal Requirement or (2) may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal equirement or (2) any actual, alleged, possible, or potential obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. B. Schedule 3.11 Except as set forth in Schedule 3.11 of the ------------- ------------ Disclosure Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of any applicable Governmental Authorization; (ii) No event has occurred or circumstance exists that may with or without notice or lapse of time) (1) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any applicable Governmental Authorization or (2) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any applicable Governmental Authorization; (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or (2) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and (iv) All applications required to have been filed for the renewal of the Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Seller has obtained any Governmental Authorizations necessary to permit the Company to lawfully conduct and operate their businesses in the manner they currently conduct and operate such businesses and to permit the Company to own and use their assets in the manner in which they currently own and use such assets. Legal Proceedings; Orders. ------------------------- A. Except as set forth in Schedule 3.12 of the Disclosure -------------- Schedule, there is no pending Proceeding: (i) That has been commenced by or against Seller or that otherwise relates to or may affect the business of, or any of the assets owned or used by, Seller; or (ii) That challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Seller, (i) no such Proceeding has been Threatened and (ii) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. Seller shall have delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule. The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have a material adverse effect on the business, operations, assets, condition, or prospects of the Company. B. Except as set forth in Schedule 3.12 of the Disclosure ------------- Schedule: (i) There is no Order to which any of Seller, or any of the assets owned or used by the Company, is subject; (ii) Seller is not subject to any Order that relates to the business of, or any of the assets owned or used by, the Company; and (iii) No officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of the Company. C. Except as set forth in Schedule 3.12 of the Disclosure ------------- Schedule: (i) Seller is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject; (ii) No event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Seller, or any of the assets owned or used by Seller, is subject; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is or has been subject. Absence of Certain Changes and Events. Except as set forth in Schedule 3.13 of the Disclosure Schedule, since January, 1996, the Company has conducted its business only in the Ordinary Course of Business and there has not been any: A. Change in the Company's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; B. Amendment to the Organizational Documents of the Company; C. Payment or increase by Seller of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; D. Adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; E. Damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; F. Entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement or (ii) any Contract or transaction involving a total remaining commitment by or to the Company of at least Five Thousand and No/100 Dollars ($5,000.00); G. Sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Software and Intangibles; H. Cancellation or waiver of any claims or rights with a value to the Company in excess of Five Thousand and No/100 Dollars ($5,000.00); I. Material change in the accounting methods used by the Company; or J. Agreement, whether oral or written, by Seller to do any of the foregoing. Contracts; No Defaults. ---------------------- A. Except as set forth in Schedule 3.17(A) of the Disclosure ---------------- Schedule: (i) Other than as set forth or provided for on the Financial Statements, the Company has not or may not acquire any rights under, and the Company has not or may not become subject to any obligation or liability under, any Contract under which the Company is obligated to make payments totaling, or services having a value equal to, $5,000 or more ; and (ii) To the Knowledge of Seller, no officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (1) engage in or continue any conduct, activity, or practice relating to the business of the Company or (2) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. B. Except as set forth in Schedule 3.17 (B) of the ----------------- Disclosure Schedule, each material Contract is in full force and effect and is valid and enforceable in accordance with its terms. C. Except as set forth in Schedule 3.17(C) of the Disclosure ---------------- Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of each Contract under which such Seller has or had any obligation or liability or by which such Seller or any of the assets owned or used by the Company is or was bound; (ii) Each other Person that has or had any obligation or liability under any Contract under which the Company has or had any rights is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of such Contract; (iii) No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Seller or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and (iv) Seller has not given to or received from any other Person, at any time since January, 1996, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract. F. There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Seller under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation. G. The Contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. Insurance. --------- A. Seller have delivered to Buyer: (i) True and complete copies of all policies of insurance to which the Company or Seller is a party or under which the Company, or any director of the Company, is or has been covered at any time within the two (2) years preceding the date of this Agreement; (ii) True and complete copies of all pending applications for policies of insurance; and (iii) Any statement by the auditor of the Company's financial statements with regard to the adequacy of such entity's coverage or of the reserves for claims. B. Except as set forth on Schedule 3.15(B) of the Disclosure ---------------- Schedule: (i) All policies to which Seller is a party or that provide coverage to Seller, the Company, or any director or officer of an the Company: (1) Are valid, outstanding, and enforceable; (2) Taken together in the reasonable judgment of Seller, provide adequate insurance coverage for the assets and the operations of the Company for all risks to which the Company are normally exposed; (3) Are sufficient for compliance with all Legal Requirements and Contracts to which Seller is a party or by which it is bound; (4) Will continue in full force and effect following the consummation of the Contemplated Transactions; and (5) Do not provide for any retrospective premium adjustment or other experienced-based liability on the part of Seller. (ii) Neither Seller nor the Company has received (1) any refusal of coverage or any notice that a defense will be afforded with reservation of rights or (2) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. (iii) Seller has paid all premiums due, and have otherwise performed all of their respective obligations, under each policy to which Seller is a party or that provides coverage to the Company or director thereof. (iv) Seller has given notice to the insurer of all claims that may be insured thereby. Environmental Matters. Except as set forth in Schedule 3.16 of the Disclosure Schedule, at all times since January, 1996, Seller has obtained and is in compliance with all permits, licenses and other authorizations required to do business by Environmental Requirements. Employee Matters. ---------------- Except as set forth on Schedule 3.17, at all times since January, 1996, Seller has complied in all respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health and plant closing. Except as set forth on Schedule 3.17, Seller is not liable for the payment of any compensation, Damages, taxes, fines, penalties, or other amounts, however, designated, for failure to comply with any of the foregoing Legal Requirements. Intellectual Property Rights of the Company. ------------------------------------------- A. Definitions. As used in this Agreement, and in addition ----------- to any other terms defined in this Agreement, the following terms shall have the following meanings. (i) "Software" means any computer program, -------- operating system, applications system, firmware or software of any nature, whether operational, under development or inactive, including all object code, source code, technical manuals, compilation procedures, execution procedures, flow charts, programmers notes, user manuals and other documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature. (ii) "Owned Software" means all Software owned --------------- by the Company, whether purchased from a third party, developed by or on behalf of the Company, currently under development or otherwise. (iii) "Customer Software" means all Software, ----------------- other than the Owned Software, that is, directly or through Distributors, either (x) offered or provided to customers of the Company or (y) used by the Company to provide information or services to customers of the Company for a fee. (iv) "Seller Software" means the Owned Software --------------- and the Customer Software. (v) "Other Software" means all Software, other -------------- than the Company's Software, that is licensed by the Company from third parties or otherwise used by the Company for any purpose whatsoever. (vi) "Intangible" means: ---------- (1) Patents, patent applications, patent disclosures, all re-issues, divisions, continuations, renewals, extensions and continuation-in-parts thereof and improvements thereto; (2) Trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for Registration thereof and all goodwill associated therewith; (3) Copyrights, Registrations thereof and applications for Registration thereof; (4) Maskworks, Registrations thereof and applications for Registration thereof; (5) Trade secrets and confidential business information (including ideas, formulas, compositions, inventions, whether patentable or unpatentable and whether or not reduced to practice, know-how, manufacturing and production processes and techniques, research and development information, drawings, flow charts, processes, ideas, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information); (6) Other proprietary rights; (7) All income, royalties, Damages and payments due at Closing or thereafter with respect to the Owned Software, Customer Software, Other Software, or other Intangibles and all other rights thereunder including, without limitation, Damages and payments for past, present or future infringements or misappropriations thereof, the right to sue and recover for past, present or future infringements or misappropriations thereof; (8) All rights to use all of the foregoing forever; and (9) All other rights in, to, and under the foregoing in all countries. B. Ownership and Right to License. ------------------------------ (i) Except as set forth in Schedule 3.18 of -------------- the Disclosure Schedule, to the Knowledge of the Seller, at all times since January, 1996, Seller has good and marketable title to the Owned Software and Intangibles attributable to the Owned Software, and have the full right to use all of the Customer Software and Other Software, and Intangibles attributable thereto, as used or required to operate Seller's businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans, free and clear of any liens, claims, charges or encumbrances which would affect the use of such Software in connection with the operation of Seller's business as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (ii) To the Knowledge of Seller, no rights of any third party not previously obtained are necessary to market, license, sell, modify, update, and/or create derivative works for any Software as to which Seller take any such action in their respective businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (iii) To the Knowledge of Seller, none of the Software or Intangibles or their respective past or current uses by or through Seller have violated or infringed upon, or is violating or infringing upon, any Software, patent, copyright, trade secret or other Intangible of any Person. To the knowledge of Seller, Seller has adequately maintained all trade secrets and copyrights with respect to such Software. To the Knowledge of Seller, Seller has performed all obligations imposed upon them with regard to the Customer Software and Other Software which are required to be performed by them on or prior to the date hereof, and Seller nor, to the Knowledge of Seller, any other party, is in breach of or default thereunder in any respect, nor to the Seller's Knowledge is there any event which with notice or lapse of time or both would constitute a default thereunder. Certain Payments. Since January, 1996, neither Seller nor any director, officer, agent, or employee of the Company, nor to Seller's Knowledge any other Person associated with or acting for or on behalf of Seller, has directly or indirectly: A. Made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business; (ii) to pay for favorable treatment for business secured; (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Copmany or any affiliate of the Company or (iv) in violation of any Legal Requirement. B. Established or maintained any fund or asset that has not been recorded in the books and records of the Company. Disclosure. ---------- A. No representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. B. No notice given pursuant to Section 5.5. will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading. C. There is no fact known to Seller that has specific application to Seller or the Company (other than general economic or industry conditions) and that materially adversely affects or, as far as Seller can reasonably foresee, materially threatens, the assets, business, prospects, financial condition, or results of operations of the Company (on a consolidated basis) that has not been set forth in this Agreement or the Disclosure Schedule. Brokers or Finders. Seller and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: Organization and Good Standing. Buyer is a Texas corporation. ------------------------------ Authority. This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the closing documents set forth in Section 2.5.B (collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Buyer's Closing Documents and to perform its obligations under this Agreement and the Buyer's Closing Documents. Investment Intent. Buyer is acquiring the Shares for its own account ------------------ and not with a view to their distribution within the meaning of Section 2 (11) of the Securities Act. Certain Proceedings. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened. Brokers or Finders. Buyer and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 4.6. Full Disclosure. To the best knowledge of Buyer, it's officers, directors or agents, no representation, warranty or covenant of Buyer contained in this Agreement or in any other written statement or certificate delivered by Buyer pursuant to this Agreement or in connection with the transactions contemplated herein or in any SEC filing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. To the best knowledge of Buyer, it's officers, directors or agents, there is no fact which adversely affects, or in the future may adversely affect, the business, operations, cash flows, affairs, prospects, properties or assets or the condition, financial or otherwise of the Buyer which has not been disclosed in this Agreement, or in the documents, certificates and written statements furnished to Seller for use in connection with the transactions contemplated hereby or in any SEC filing. COVENANTS OF SELLER PRIOR TO CLOSING DATE. Access and Investigation. Between the date of this Agreement and the ------------------------- Closing Date, Seller will, and will cause the Company and its Representatives to: A. Afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, "Buyer's Advisors") full and free access to the Company's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Buyer and Buyer's Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request; and C. Furnish Buyer and Buyer's Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request. Operation of the Business of the Company. Between the date of this Agreement and the Closing Date, Seller will: A. Conduct the business of the Company only in the Ordinary Course of Business; B. Use its commercially reasonable efforts to preserve intact the current business organization of the Company, keep available the services of the current officers, employees, and agents of the Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Company or Seller; C. Confer with Buyer concerning operational matters of a material nature; and D. Otherwise report periodically to Buyer concerning the status of the business, operations, and finances of the Company. Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date of this Agreement and the Closing Date, Seller will not without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in Section 3.13. is likely to occur. Required Approvals. As promptly as practicable after the date of this Agreement, Seller will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Seller will, and will cause the Company to: A. Cooperate with Buyer with respect to all filings that Buyer reasonably elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Buyer in obtaining all required Consents. Notification. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller becomes aware of any fact or condition that causes or constitutes a Breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Schedule if the Disclosure Schedule were dated the date of the occurrence or discovery of any such fact or condition, Seller will promptly deliver to Buyer a supplement to the Disclosure Schedule specifying such change. During the same period, each Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Seller in this Section 5. or of the occurrence of any event that may make the satisfaction of the conditions in Section 7. impossible or unlikely. No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Section 9., Seller will not, and will cause its Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital stock of the Company, or any merger, consolidation, business combination, or similar transaction involving Seller. Closing of Bank Accounts. Seller shall cause the closing of all Company ------------------------- bank accounts for which Seller, or its officers and directors, have sole signature authority. COVENANTS OF BUYER PRIOR TO CLOSING DATE. Approvals of Governmental Bodies/Third Party Consents. As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by them to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Buyer will, and will cause each Related Person to: A. Cooperate with Seller with respect to all filings that Seller is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Seller in obtaining all consents identified in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. Access and Investigation. Between the date of this Agreement and the ------------------------- Closing Date, Buyer will, and will cause its Representatives to: A. Afford Seller and its Representatives and prospective lenders and their Representatives (collectively, "Seller's Advisors") full and free access to Buyer's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Seller and Seller's Advisors with copies of all such contracts, books and records, and other existing documents and data as Seller may reasonably request; and C. Furnish Seller and Seller's Advisors with such additional financial, operating, and other data and information as Seller may reasonably request. Operation of the Business of the Company. Between the date of this Agreement and the Closing Date, Buyer will: A. Conduct the business of Buyer only in the Ordinary Course of Business; B. Use commercially reasonable efforts to preserve intact the current business organization of Buyer; and A. Confer with Seller concerning operational matters of a material nature. Notification. Between the date of this Agreement and the Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a Breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): Accuracy of Representations. --------------------------- A. All of Seller's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. B. Each of Seller's representations and warranties in Article 3. must have been accurate in all respects as of the date of this Agreement, and must be accurate in all respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. Seller's Performance. -------------------- A. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects. B. Each document required to be delivered pursuant to Section 2.4. must have been delivered by closing, and each of the other covenants and obligations in Section 5. must have been performed and complied with in all respects. C. The results of any investigation performed by Buyer in connection with Section 5.1. shall be satisfactory to Buyer in its sole discretion. Consents. Each of the Consents identified in Schedule 3.2 of the -------- ------------- Disclosure Schedule must have been obtained and must be in full force and effect. Additional Documents. Seller shall deliver such other documents as Buyer may reasonably request for the purpose of (i) evidencing the accuracy of any of Seller's representations and warranties; (ii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by such Seller; (iii) evidencing the satisfaction of any condition referred to in this Section 7. or (iv) otherwise facilitating the consummation or performance of any of the Contemplated Transactions. No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking Damages or other relief in connection with, any of the Contemplated Transactions or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions. No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been made or Threatened by any Person any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, any of Seller or (ii) is entitled to all or any portion of the Purchase Price payable for the Shares, except as has been orally disclosed to Buyer. No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body. Employment Agreement. On or before the Closing Date, Seller(s) shall --------------------- have entered into an employment agreement with Buyer. Registration of Shares for Seller. Buyer hereby certifies that it intends to file a registration statement under exception rule SB-2, for a block of Buyers common stock. Buyer agrees to allow Seller "piggyback" registration rights of Buyers common stock in an amount so that Seller shall receive a benefit of two hundred fifty thousand dollars ($250,000.00). Seller agrees to sell the registered shares through Buyers Investment Banker only, and only in an amount of shares (as deemed by the Investment Banker of Buyer) as not to cause any adverse effect on stock price of Buyer. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): Accuracy of Representations. All of Buyer's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. Buyer's Performance. ------------------- A. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects. B. Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.5. Consents. Each of the Consents identified in Schedule 3.2 of the -------- ------------- Disclosure Schedule must have been obtained and must be in full force and effect. Additional Documents. Buyer must have caused the following documents to be delivered to Seller such other documents as Seller may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer; (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer; (iii) evidencing the satisfaction of any condition referred to in this Section 8. or (iv) otherwise facilitating the consummation of any of the Contemplated Transactions. No Injunction. There must not be in effect any Legal Requirement or any injunction or other Order that (i) prohibits the sale of the Shares by Seller to Buyer and (ii) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 8.6. 8.6 Employment Agreements. Buyer and Stephen R. Ragsdale shall enter into an Employment Agreement, in a form to be mutually agreed by the parties. 8.7 Performance of Buyer's Stock. Buyer shall use best efforts, at all times, to maintain promotion of Buyer's stock in the public market (AMEX, NYSE, Etc.). Should the stock price of Buyer fall below one dollar ($1.00) for the average of five business days from the date of the anniversary of this Agreement through five business days after the date of the anniversary of this Agreement, and the price of Buyers stock fail to rise above one dollar ($1.00), Seller shall have one of the following options: Seller may terminate this Agreement, and 100% of the stock of Seller shall be returned. Seller shall return 100% of the stock of Buyer. Provision 9.2 of this Agreement shall immedately take effect. B. Seller shall receive an additional five hundred thousand (500,000) shares of common stock of Buyer, with "piggy back" registration rights. TERMINATION. Termination Events. ------------------ This Agreement may, by notice given prior to or at the Closing, be terminated: A. By either Buyer or Seller if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived; B. (i) By Buyer if any of the conditions in Section 7. have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; (ii) By Seller, if any of the conditions in Section 7. have not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with their obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; or C. By mutual consent of Buyer and Seller; or D. By either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before March 31, 2000, or such later date as the parties may agree upon. Effect of Termination. Each party's right of termination under Section 9.1. is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1., all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 12.1. and 12.3. will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one (1) or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. INDEMNIFICATION; REMEDIES. Agreement by Seller to Indemnify. Seller (the "Seller Indemnifying Party"), agrees that they will indemnify and hold Buyer harmless in respect of the aggregate of all indemnifiable Damages of Buyer. For this purpose, "indemnifiable Damages" of Buyer means the aggregate of all Damages incurred or suffered by Buyer resulting from: A. Any inaccurate representation or warranty made by Seller in or pursuant to this Agreement; B. Any default in the performance of any of the covenants or agreements made by Seller in this Agreement; or C. The failure of any Seller to pay, discharge or perform any liability or obligation of Seller or of Seller resulting from the operation of Seller's business prior to the Closing Date. With respect to the measurement of "Indemnifiable Damages", Buyer shall have the right to be put in the same financial position as it would have been had each of the representations and warranties of Seller been true and correct and had each of the covenants of Seller been performed in full. The amount of any indemnifiable Damages otherwise payable to Buyer hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will provide Buyer with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Buyer as a result of such deductions or credits, discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Buyer at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Seller Indemnifying Party to indemnify Buyer shall be subject to each of the following principles or qualifications: 3. Each of the representations and warranties made by Seller in this Agreement or pursuant hereto, shall survive for a period of one (1) year after the Closing; provided, however, that the representations and warranties made by Seller to the extent they relate to Seller's title to the Shares shall survive forever and that the representations and warranties made by Seller and Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until the first (1st) anniversary of the later of: A. The date on which applicable period of limitation on assessment or refund of tax has expired; or B. The date on which the applicable taxable year (or portion thereof) has been closed. No claim for the recovery of indemnifiable Damages may be asserted by Buyer against Seller Indemnifying Party or their successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party") harmless in respect of the aggregate of all indemnifiable Damages of any of Seller Indemnified Parties. For this purpose, "indemnifiable Damages" of the of Seller Indemnified Party means the aggregate of all Damages incurred or suffered by the Seller Indemnified Party resulting from: A. Any inaccurate representation or warranty made by Buyer or pursuant to this Agreement; or B. Any default in the performance of any of the covenants or agreements made by Buyer in this Agreement. With respect to the measurement of "Indemnifiable Damages", the Seller Indemnified Party shall have the right to be put in the same financial position as they would have been had each of the representations and warranties of Buyer Indemnifying Party been true and correct and had each of the covenants of Buyer Indemnifying Party been performed in full. The amount of any indemnifiable Damages otherwise payable to any Seller Indemnified Party hereunder shall be reduced if the indemnifiable Damages incurred by Seller Indemnified Party will provide such Party with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Seller Indemnified Party as a result of such deductions or credits discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Seller Indemnified Party at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Buyer Indemnifying Party to indemnify Seller Indemnified Party shall be subject to each of the following principles or qualifications: 10.2.1 Each of the representations and warranties made by Buyer in Article 4 of this Agreement shall survive for a period of one (1) year after the Closing Date, and thereafter all such representations and warranties shall be extinguished. No claim for the recovery of indemnifiable Damages pursuant to clause (i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer Indemnifying Party or its successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. Matters Involving Third Parties. If any third party shall notify Buyer or Seller (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 10., then the Indemnified Party shall notify each Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent that) the Indemnifying Party thereby is Damaged. If any Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then: A. The Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice satisfactory to the Indemnified Party; B. The Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party concludes that the counsel the Indemnifying Party has selected has a conflict of interest); C. The Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld or delayed unreasonably); and D. The Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld or delayed unreasonably). If no Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it may deem appropriate. 10.4. Limitations on Indemnification. Notwithstanding the provisions of Sections 10.1 or 10.2 hereof, neither party shall have any liability to indemnify the other until and to the extent that the aggregate amount of indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any indemnification claims hereunder shall in no event exceed an amount equal to one half of the value of Buyer's Stock transferred hereunder valued as of the Closing Date. POST-CLOSING AGREEMENTS. Consistency in Reporting. Each party hereto agrees that: (i) the transaction is intended to qualify as a tax-free transaction under the I.R.C.; (ii) the transaction shall be reported for Federal income tax purposes as a tax-free transaction; (iii) for purposes of all financial statements, tax returns and reports, and communications with third parties, the transactions contemplated in this agreement and ancillary or collateral transactions will be treated as a tax-free transaction; and (iv) if the characterization of any transaction contemplated in this agreement or any ancillary or collateral transaction is challenged, each party hereto will testify, affirm and ratify that the characterization contemplated in such agreement was with the characterization intended by the party; provided, however, that nothing herein shall be construed as giving rise to any obligation if the reporting position is determined to be incorrect by final decision of a court of competent jurisdiction. GENERAL PROVISIONS. Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants. Seller will cause the Company not to incur any out-of-pocket expenses in connection with the Contemplated Transactions. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party. Public Announcements. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Seller shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Seller and Buyer will consult with each other concerning the means by which the Company's employees, customers, and suppliers and others having dealings with Seller will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication. Confidentiality. Between the date of this Agreement and the Closing Date, Buyer and Seller will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, and not use to the detriment of another party or the Company any written, oral, or other information obtained in confidence from another party or an Seller in connection with this Agreement or the Contemplated Transactions, unless: A. Such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party; B. The use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions; or C. The furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings. If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. Whether or not the Closing takes place, Seller waives, and will upon Buyer's request cause Seller to waive, any cause of action, right, or claim arising out of the access of Buyer or its representatives to any trade secrets or other confidential information of the Company. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand (with written confirmation of receipt); (ii) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested or (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Seller: AMG, Ltd.. 4182 Winters Chapel Road Doraville, GA 30360 Attn: S. Randy Ragsdale, President With a copy to: Paul Suda, Esq. 1362 Salem Drive Alpharetta, GA 31141 Attn: Paul Suda Buyer: Elite Technologies, Inc. 3700 Crestwood Parkway Suite 1000 Duluth, GA 30096 With a copy to: Morris, Manning & Martin, L.L.P. 1600 Atlanta Financial Center 3343 Peachtree Road, N.E. Atlanta, Georgia 30326-1044 Attention: Bryan G. Harrison, Esq. Telecopy No.: (404) 365-9532 Jurisdiction; Service of Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Georgia, County of Gwinnett, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of Georgia, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. Further Assurances. The parties agree (i) to furnish upon request to each other such further information; (ii) to execute and deliver to each other such other documents and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law: A. No claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one (1) party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; B. No waiver that may be given by a party will be applicable except in the specific instance for which it is given; and C. No notice to or demand on one (1) party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the Letter of Intent between Buyer and Seller) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. Disclosure Schedule. ------------------- A. The disclosures in the Disclosure Schedule, and those in any Supplement thereto, must relate only to the representations and warranties in the Section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. B. In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. Assignments, Successors and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Section Headings; Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. Time of Essence. With regard to all dates and time periods set forth ---------------- or referred to in this Agreement, time is of the essence. Governing Law. This Agreement will be governed by the laws of the -------------- State of Georgia without regard to conflicts of laws principles. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. EX-10.2 3 0003.txt stock purchase agreement made as of June 27, 2000, Between Elite technologies, inc., buyer, and International electronic technology of georgia , Inc. d/b/a iet startek, inc. Frank Noori, Individually, seller(s) -iii- table of contents Page 1. DEFINITIONS. 1 1.1. "APPLICABLE CONTRACT" 1 1.2. "BREACH" 1 1.3. "BUYER" 1 1.4. "BUYER'S STOCK" 1 1.5. "CLOSING" 1 1.6. "CLOSING DATE" 1 1.8. "CONSENT" 1 1.9. "CONTEMPLATED TRANSACTIONS" 2 1.10. "CONTRACT" 2 1.11. "DAMAGES" 2 1.12. "DISCLOSURE SCHEDULE" 2 1.13. "ENCUMBRANCE" 2 1.14. "ENVIRONMENTAL REQUIREMENTS" 2 1.15. "ERISA" 2 1.16. "FACILITIES" 2 1.17. "GAAP" 3 1.18. "GOVERNMENTAL AUTHORIZATION" 3 1.19. "GOVERNMENTAL BODY" 3 1.20. "IRC" 3 1.21. "IRS" 3 1.22. "KNOWLEDGE" 3 1.23. "LEGAL REQUIREMENT" 3 1.24. "OPERATING INCOME" 3 1.25. "ORDER" 4 1.26. "ORDINARY COURSE OF BUSINESS" 4 1.27. "ORGANIZATIONAL DOCUMENTS" 4 1.28. "PERSON" 4 1.29. "PLAN" 4 1.30. "PROCEEDING" 4 1.31. "RELATED PERSON" 5 1.32. "REPRESENTATIVE" 5 1.33. "SECURITIES ACT" 5 1.34. "SELLER" 5 1.35. "SHARES" 6 1.36. "SUBSIDIARY" 6 1.37. "TAX RETURN" 6 1.38. "THREATENED" 6 2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6 - -------------------------------------------------------------------------------- 2.1. SHARES. ---- ------ 6 2.2. BUYER'S STOCK. ---- ------------- 6 2.3. CLOSING. ---- ------- 6 2.4. CLOSING OBLIGATIONS. ---- ------------------- 6 3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7 - -------------------------------------------------------------------------------- 3.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 7 3.2. AUTHORITY; NO CONFLICT. ---- ---------------------- 8 3.3. CAPITALIZATION. ---- -------------- 9 3.4. FINANCIAL STATEMENTS. ---- -------------------- 9 3.5. BOOKS AND RECORDS. ---- ----------------- 10 3.6. TITLE TO PROPERTIES; ENCUMBRANCES. ---- --------------------------------- 10 3.7. NO UNDISCLOSED LIABILITIES. ---- -------------------------- 11 3.8. TAXES. ---- ----- 11 3.9. NO MATERIAL ADVERSE CHANGE. ---- -------------------------- 11 3.10. EMPLOYEE BENEFITS MATTERS. ----- ------------------------- 11 3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. --------------------------------------------------------------- 12 3.12. LEGAL PROCEEDINGS; ORDERS. ----- ------------------------- 13 3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS. ----- ------------------------------------- 15 3.14. CONTRACTS; NO DEFAULTS. ----- ---------------------- 15 3.15. INSURANCE. ----- --------- 17 3.16. ENVIRONMENTAL MATTERS. ----- --------------------- 18 3.17. EMPLOYEE MATTERS. ----- --------------- 18 3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY. ----- ------------------------------------------- 18 3.19. CERTAIN PAYMENTS. ----- ---------------- 20 3.20. DISCLOSURE. ----- ---------- 20 3.21. BROKERS OR FINDERS. ----- ------------------ 21 4. REPRESENTATIONS AND WARRANTIES OF BUYER. 21 - -------------------------------------------------------------------------------- 4.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 21 4.2. AUTHORITY. ---- -------- 21 4.3. INVESTMENT INTENT. ---- ----------------- 21 4.4. CERTAIN PROCEEDINGS. ---- ------------------- 21 4.5. BROKERS OR FINDERS. ---- ------------------ 21 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 22 - -------------------------------------------------------------------------------- 5.1. ACCESS AND INVESTIGATION. ---- ------------------------ 22 5.2. OPERATION OF THE BUSINESS OF THE COMPANY. ---- ---------------------------------------- 22 5.3. NEGATIVE COVENANT. ---- ----------------- 22 5.4. REQUIRED APPROVALS. ---- ------------------ 22 5.5. NOTIFICATION. ---- ------------ 23 5.6. NO NEGOTIATION. ---- -------------- 23 5.7. CLOSING OF BANK ACCOUNTS. ---- ----------------------- 23 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23 - -------------------------------------------------------------------------------- 6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS. ---- ----------------------------------------------------- 23 6.2. ACCESS AND INVESTIGATION. ---- ------------------------ 24 6.3. OPERATION OF THE BUSINESS OF THE COMPANY. ---- --------------------------------------- 24 6.4. NOTIFICATION. ---- ------------ 24 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24 - -------------------------------------------------------------------------------- 7.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 24 7.2. SELLER'S PERFORMANCE. ---- -------------------- 25 7.3. CONSENTS. ---- -------- 25 7.4. ADDITIONAL DOCUMENTS. ---- -------------------- 25 7.5. NO PROCEEDINGS. ---- -------------- 25 7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. ---- --------------------------------------------------- 25 7.7. NO PROHIBITION. ---- -------------- 25 7.8. EMPLOYMENT AGREEMENT. ---- -------------------- 26 7.9. REGISTRATION OF SHARES FOR SELLER. ---- --------------------------------- 26 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 26 - -------------------------------------------------------------------------------- 8.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 26 8.2. BUYER'S PERFORMANCE. ---- ------------------- 26 8.3. CONSENTS. ---- -------- 26 8.4. ADDITIONAL DOCUMENTS. ---- -------------------- 26 8.5. NO INJUNCTION. ---- ------------- 26 9. TERMINATION. 27 - -------------------------------------------------------------------------------- 9.1. TERMINATION EVENTS. ---- ------------------ 27 9.2. EFFECT OF TERMINATION. ---- --------------------- 27 10. INDEMNIFICATION; REMEDIES. 27 - -------------------------------------------------------------------------------- 10.1. AGREEMENT BY SELLER TO INDEMNIFY. ----- -------------------------------- 27 10.2. AGREEMENTS BY BUYER TO INDEMNIFY. ----- -------------------------------- 29 10.3. MATTERS INVOLVING THIRD PARTIES. ----- ------------------------------- 29 11. POST-CLOSING AGREEMENTS. 30 - -------------------------------------------------------------------------------- 11.1. CONSISTENCY IN REPORTING. ----- ------------------------ 30 12. GENERAL PROVISIONS. 31 - -------------------------------------------------------------------------------- 12.1. EXPENSES. ----- -------- 31 12.2. PUBLIC ANNOUNCEMENTS. ----- -------------------- 31 12.3. CONFIDENTIALITY. ----- --------------- 31 12.4. NOTICES. ----- ------- 32 12.5. JURISDICTION; SERVICE OF PROCESS. ----- -------------------------------- 32 12.6. FURTHER ASSURANCES. ----- ------------------ 32 12.7. WAIVER. ----- ------ 33 12.8. ENTIRE AGREEMENT AND MODIFICATION. ----- --------------------------------- 33 12.9. DISCLOSURE SCHEDULE. ----- ------------------- 33 12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS. ------ ------------------------------------------------- 33 12.11. SEVERABILITY. ------ ------------ 34 12.12. SECTION HEADINGS; CONSTRUCTION. ------ ------------------------------ 34 12.13. TIME OF ESSENCE. ------ --------------- 34 12.14. GOVERNING LAW. ------ ------------- 34 12.15. COUNTERPARTS. ------ ------------ 34 Stock Purchase Agreement THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of April 28, 2000, by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and International Electronic Technology of Georgia, Inc., d/b/a IET Startek, a Georgia Corporation, Frank Noori, individually and collectively hereinafter referred to as ("Seller"). RECITALS: Seller desire to sell, and Buyer desires to purchase, all of the issued and outstanding shares (the "Shares") of capital stock of IET Startek, Inc. for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.: 1.1. "Applicable Contract" - any Contract (i) under which Seller or Company has or may acquire any rights; (ii) under which Seller or Company has or may become subject to any obligation or liability or (iii) by which Seller or Company or any of the assets owned or used by it is or may become bound. 1.2. "Breach" - a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision or (ii) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence or circumstance. 1.3. "Buyer" - as defined in the first paragraph of this Agreement. 1.4. "Buyer's Stock" - 1,200,000 restricted shares of Seller's capital stock. 1.5. "Closing" - as defined in Section 2.4. 1.6. "Closing Date" - the date and time as of which the Closing actually takes place. 1.7 "Company" - AC Travel, Inc. 1.7. "Consent" - any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). 1.9. "Contemplated Transactions" - all of the transactions contemplated by this Agreement, including: A. The transfer of the Shares by Seller to Buyer; B. The execution, delivery, and performance of the Closing Obligations set forth in Section 2.5; C. The performance by Buyer and Seller of their respective covenants and obligations under this Agreement; D. Buyer's acquisition and ownership of the Shares and exercise of control over the Company; and E. The transfer of Buyer's Stock to Seller; and F. Payment by Buyer to Seller of the Reimbursement Amount. 1.10. "Contract" - any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. 1.11. "Damages" - any loss, liability, claim, damages (including, without limitation, incidental and consequential damages), expense (including, without limitation, costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third party. 1.12. "Disclosure Schedule" - the disclosure schedule delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. 1.13. "Encumbrance" - any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. 1.14. "Environmental Requirements" - means federal, state and local laws relating to pollution or protection of the environment, including laws or provisions relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials, substances, or wastes into air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or wastes. 1.15. "ERISA" - the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 1.16. "Facilities" - any real property, leaseholds, or other interests currently or formerly owned or operated by Seller and any buildings, plants, structures, or equipment (including motor vehicles) currently or formerly owned or operated by Seller. 1.17. "GAAP" - generally accepted United States accounting principles, applied on a basis consistent with the basis on which the financial statements referred to in Section 3.4. were prepared. 1.18. "Governmental Authorization" - any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. 1.19. "Governmental Body" - any: A. Nation, state, county, city, town, village, district, or other jurisdiction of any nature; B. Federal, state, local, municipal, foreign, or other government; C. Governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); D. Multi-national organization or body; or E. Body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. 1.20. "IRC" - the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. 1.21. "IRS" - the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. 1.22. "Knowledge" - an individual will be deemed to have "Knowledge" of a particular fact or other matter if: A. Such individual is actually aware of such fact or other matter; or B. A prudent individual given his position with the Company could be reasonably expected to discover or otherwise become aware of such fact or other matter. 1.23. "Legal Requirement" - any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. 1.24. "Operating Income" - means the net income of the Company determined in accordance with GAAP before income taxes and after all other charges except: A. Unless otherwise approved by Buyer, any general and administrative expense (i.e., allocation of the Company's general corporate overhead) attributable to the Company and all subsidiaries of the Company that is not directly related to the operation of the Company in the Ordinary Course of Business; provided, however, Operating Income shall include reimbursement by Seller of expenses at a fair market price mutually agreed to by Buyer and Seller for expenses previously incurred by Seller, but that have for administrative convenience or efficiency reasons been centralized with Buyer; and B. Any amortization of goodwill of the Company and all Subsidiaries of the Company. C. In the event that certain expenses incurred by the Seller are for the principal or partial benefit of the Company or other subsidiaries of the Company, then the parties hereto shall endeavor to track and determine in a fair and equitable manner that portion of such expenses that should fairly and reasonably be allocated to the Company or such other subsidiaries of the Company, and therefore not included in arriving at Operating Income for purposes of this Agreement. 1.25. "Order" - any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. 1.26. "Ordinary Course of Business" - an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: A. Such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; B. Such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and C. Such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. 1.27. "Organizational Documents" - (i) the Articles or Certificate of Incorporation and the Bylaws of a corporation; (ii) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person and (iii) any amendment to any of the foregoing. 1.28. "Person" - 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. 1.29. "Plan" - as defined in Section 3.10.1. 1.30. "Proceeding" - any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. 1.31. "Related Person" - with respect to a particular individual: A. Each other member of such individual's Family; B. Any Person that is directly or indirectly controlled by such individual or one (1) or more members of such individual's Family; C. Any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and D. Any Person with respect to which such individual or one (1) or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: A. Any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; B. Any Person that holds a Material Interest in such specified Person; C. Each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); D. Any Person in which such specified Person holds a Material Interest; E. Any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and Any Related Person of any individual described in clause B. or C. For purposes of this definition, (i) the "Family" of an individual includes (1) the individual; (2) the individual's spouse and former spouses; (3) any other natural person who is related to the individual or the individual's spouse within the second degree and (4) any other natural person who resides with such individual and (2) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least [five percent (5%)] of the outstanding voting power of a Person or equity securities or other equity interests representing at least [five percent (5%)] of the outstanding equity securities or equity interests in a Person. 1.32. "Representative" - with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. 1.33. "Securities Act" - the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 1.34. "Seller" - as defined in the first paragraph of this Agreement. 1.35. "Shares" - as defined in the Recitals of this Agreement. 1.36. "Subsidiary" - with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one (1) or more of its Subsidiaries; [when used without reference to a particular Person, "Subsidiary" means a Subsidiary of the Company]. 1.37. "Tax Return" - any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. 1.38. "Threatened" - a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. 2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 2.1. Shares. In exchange for the transfer of Buyer's Stock, as set ------ forth in Section 2.2, and subject to the terms and conditions of this Agreement, at the Closing, Seller will transfer the Shares to Buyer. 2.2. Buyer's Stock. In exchange for the transfer of Shares as -------------- set forth in Section 2.1, and subject to the terms and conditions of this Agreement, at the Closing, Buyer shall transfer to Seller the Buyer's Stock. 2.3. Closing. The purchase and sale (the "Closing") provided for ------- in this Agreement will take place at the offices of Morris, Manning & Martin, L.L.P., at 1600 Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326, at 10:00 a.m. (local time) on June 28, 2000, or at such other time and place as the parties may agree. Except as otherwise provided in Section 9., failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.3. will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 2.4. Closing Obligations. At the Closing: ------------------- A. Seller will deliver to Buyer: (i) Certificates. Certificates representing ------------ the Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer; (ii) Good Standing Certificate. Seller shall have -------------------------- delivered to Buyer a certificate evidencing the good standing of the Company as of a recent practicable date; (iii) Certificate. A certificate substantially ----------- in the form of Exhibit A hereto, executed by Seller representing and --------- warranting to Buyer that each of Seller's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedule that were delivered by Seller to Buyer prior to the Closing Date in accordance with Section 5.5.); and (iv) Mutual Release. Seller shall have delivered -------------- to Buyer a mutual release, executed by Seller, substantially in the form of Exhibit B to be attached at closing - ----------------------------------- (v) All Corporate records, organzational documents, minutes of Board of Director and Shareholder meetings and corporate seal. B. Buyer will deliver to Seller: (i) Certificates. Certificates representing ------------ Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers) for transfer to Seller, or a Board of Directors resolution signifying the order of the transfer of shares to Seller to be effectuated immediately, without delay; (ii) Certificate. A certificate in the form of ----------- Exhibit C hereto executed by Buyer to the effect that, except as otherwise --------- stated in such certificate, each of Buyer's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date; and (iii) Mutual Release. Buyer shall have delivered -------------- to Seller a Mutual Release, executed by Buyer, substantially in the form of Exhibit B to be attached at closing. - ----------------------------------- 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: 3.1. Organization and Good Standing. ------------------------------ A. Schedule 3.1 of the Disclosure Schedule contains a complete and accurate list of the Company's name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business, and its capitalization (including the identity of each stockholder and the number of shares held by each). The Company is a corporation duly organized, validly existing, and in good standing under the laws of Georgia, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under Applicable Contracts. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. B. Seller has made available to Buyer copies of the Organizational Documents of the Company, as currently in effect. 3.2. Authority; No Conflict. ---------------------- A. This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms. Upon the execution and delivery by Seller of the closing documents set forth in Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's Closing Documents will constitute the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their respective terms. Seller has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Seller's Closing Documents and to perform his obligations under this Agreement and the Seller's Closing Documents. B. Except as set forth in Schedule 3.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) Contravene, conflict with, or result in a violation of (1) any provision of the Organizational Documents of the Company or (2) any resolution adopted by the board of directors or the stockholders of the Company; (ii) Contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Seller or the Company, or any of the assets owned or used by Seller, may be subject; (iii) Contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Seller or that otherwise relates to the business of, or any of the assets owned or used by, the Company; (iv) Cause Buyer or Seller to become subject to, or to become liable for the payment of, any Tax; (v) Contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (vi) Result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by Seller. Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller nor the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 3.3. Capitalization. The authorized equity securities of the -------------- Company consist of 1,000,000 shares of common stock, .01 par value per share, of which 1,000,000 shares are issued and outstanding and constitute the Shares. Seller is and will be on the Closing Date the record and beneficial owners and holders of the Shares, free and clear of all Encumbrances. With the exception of the Shares (which are owned by Seller), all of the outstanding equity securities and other securities of the Company are owned of record and beneficially by Seller, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company, including, but not limited to, stock options, warrants, convertible securities, redemption rights, registration rights and the like. None of the outstanding equity securities or other securities of the Company was issued in violation of the Securities Act or any other Legal Requirement. 3.4. Financial Statements. Seller shall deliver to Buyer, at --------------------- closing date to be attached as Schedule 3.4: - --------- A. Unaudited balance sheets of Seller as of May, 2000, and as of, together with the related statements of income, changes in stockholder equity and cash flow (collectively, the "Financial Statements") for the periods referred to in such financial statements. B. The Financial Statements were prepared in accordance with this Agreement and with GAAP consistently applied. The Financial Statements and notes, if any, fairly present the financial condition and the results of operations, changes in stockholders' equity, and cash flow of the Company as at the respective dates of and for the periods referred to in such Financial Statements, all in accordance with GAAP, subject, in the case of interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes. 3.5. Books and Records. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of the Company, and no meeting of any such stockholders, Board of Directors, or committee has been held for and no material action has been taken at any meeting for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of Seller. 3.6. Title to Properties; Encumbrances. Seller owns (with good and marketable title in the case of real property, subject only to the Encumbrances permitted by this Section) all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own located in the facilities owned or operated by Seller or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Closing Date Financial Statements (except for assets held under capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of the Disclosure Schedule which shall be attached to this Agreement as Schedule 3.6 at the closing date.). All material properties and assets reflected in the Closing Date Financial Statements are free and clear of all Encumbrances and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except, with respect to all such properties and assets: A. Mortgages or security interests shown on the Closing Date Financial Statements as securing specified liabilities or obligations, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists; B. Liens for current taxes not yet due; and C. With respect to real property: (i) Minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company; and (ii) Zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. All buildings, plants, and structures owned by Seller lie wholly within the boundaries of the real property owned by Seller and do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person. All property and assets of the the Company shall be in the possession and control of Seller at Closing, including but not limited to, all Facilities. 3.7. No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of the Disclosure Schedule, Seller has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Closing Date Financial Statements and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. 3.8. Taxes. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has timely filed all tax returns and reports required to be filed by it, including, without limitation, all federal, state and local tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges which have become due or which are attributable to the conduct of Seller's business prior to Closing. Seller will continue to make adequate provision for all such taxes and other charges for all periods through the Closing Date. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller shall have no Knowledge of any tax deficiency proposed or threatened against Seller. There are no tax liens upon any property or assets of the Company. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty. Except as set forth on Schedule 3.8 to the Disclosure Schedule, all taxes and other assessments and levies which Seller was required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental entity. Except as set forth in Schedule 3.8 to the Disclosure Schedule, the federal and state income tax returns and local returns, if any, of Seller have never been audited by the income tax authorities, nor are any such audits in process. Except as set forth in Schedule 3.8, to the Disclosure Schedule there are no outstanding agreements or waivers extending the statute of limitations applicable to any federal or state income tax returns of the Company for any period. 3.9. No Material Adverse Change. Since January, 1996 there has not --------------------------- been any material adverse c hange in the business, operations, properties, prospects, assets, or condition of the Company, and no event has occurred or circumstance exists that may result in such a material adverse change. 3.10. Employee Benefits Matters. ------------------------- 3.10.1 Schedule 3.10.1 lists all plans, programs, and similar agreements, commitments or arrangements, whether oral or written, maintained by or on behalf of Seller or any other party that provide benefits or compensation to, or for the benefit of, current or former employees of the Company ("Plan" or "Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only current and former employees of the Company participate in the Plans. Copies of all Plans and, to the extent applicable, all related trust agreements, actuarial reports, and valuations for the most recent year, all summary plan descriptions, prospectuses, Annual Report Form 5500s or similar forms (and attachments thereto) for the most recent year, all Internal Revenue Service determination letters, and any related documents requested by Buyer, including all amendments, modifications and supplements thereto, have been delivered to Buyer, and all of the same are or will be true, correct and complete. 3.10.2 With respect to each Plan to the extent applicable: A. No litigation or administrative or other proceeding is pending or threatened involving such Plan; B. To the Knowledge of Seller, such Plan has been administered and operated in substantial compliance with, and has been amended to comply with all applicable laws, rules, and regulations, including, without limitation, ERISA, the Internal Revenue Code, and the regulations issued under ERISA and the Internal Revenue Code; C. Seller and its predecessors, if any, have made and as of the Closing Date will have made or accrued, all payments and contributions required, or reasonably expected to be required, to be made under the provisions of such Plan or required to be made under applicable laws, rules and regulations, with respect to any period following, such amounts to be determined using the ongoing actuarial and funding assumptions of the Plan; D. Such Plan is fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the date hereof; E. On the Closing Date such Plan will be fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the Closing Date, or adequate reserves will be set up on the Company's books and records, or paid-up insurance will be provided, therefor; and F. Such Plan has been administrated and operated only in the ordinary and usual course and in accordance with its terms, and there has not been in the year prior hereto any increase in the liabilities of such Plan beyond increases typically experienced by employers similar to the Company. 3.11. Compliance With Legal Requirements; Governmental Authorizations. --------------------------------------------------------------- A. Except as set forth in Schedule 3.11 of the ------------- Disclosure Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) No event has occurred or circumstance exists that (with or without notice or lapse of time) (1) may constitute or result in a violation by Seller of, or a failure on the part of Seller to comply with, any Legal Requirement or (2) may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement or (2) any actual, alleged, possible, or potential obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. B. Schedule 3.11 Except as set forth in Schedule 3.11 of ------------- ------------- the Disclosure Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of any applicable Governmental Authorization; (ii) No event has occurred or circumstance exists that may (with or without notice or lapse of time) (1) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any applicable Governmental Authorization or (2) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any applicable Governmental Authorization; (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or (2) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and (iv) All applications required to have been filed for the renewal of the Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Seller has obtained any Governmental Authorizations necessary to permit the Company to lawfully conduct and operate their businesses in the manner they currently conduct and operate such businesses and to permit the Company to own and use their assets in the manner in which they currently own and use such assets. 3.12. Legal Proceedings; Orders. ------------------------- A. Except as set forth in Schedule 3.12 of the -------------- Disclosure Schedule, there is no pending Proceeding: (i) That has been commenced by or against Seller or that otherwise relates to or may affect the business of, or any of the assets owned or used by, Seller; or (ii) That challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Seller, (i) no such Proceeding has been Threatened and (ii) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. Seller shall have delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule. The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have a material adverse effect on the business, operations, assets, condition, or prospects of the Company. B. Except as set forth in Schedule 3.12 of the ------------- Disclosure Schedule: (i) There is no Order to which any of Seller, or any of the assets owned or used by the Company, is subject; (ii) Seller is not subject to any Order that relates to the business of, or any of the assets owned or used by, the Company; and (iii) No officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of the Company. C. Except as set forth in Schedule 3.12 of the ------------- Disclosure Schedule: (i) Seller is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject; (ii) No event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Seller, or any of the assets owned or used by Seller, is subject; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is or has been subject. 3.13. Absence of Certain Changes and Events. Except as set forth in -------------------------------------- Schedule 3.13 of the Disclosure Schedule, since January, 1996, the Company - -------------- has conducted its business only in the Ordinary Course of Business and there has not been any: A. Change in the Company's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; B. Amendment to the Organizational Documents of the Company; C. Payment or increase by Seller of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; D. Adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; E. Damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; F. Entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement or (ii) any Contract or transaction involving a total remaining commitment by or to the Company of at least Five Thousand and No/100 Dollars ($5,000.00); G. Sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Software and Intangibles; H. Cancellation or waiver of any claims or rights with a value to the Company in excess of Five Thousand and No/100 Dollars ($5,000.00); I. Material change in the accounting methods used by the Company; or J. Agreement, whether oral or written, by Seller to do any of the foregoing. 3.14. Contracts; No Defaults. ---------------------- A. Except as set forth in Schedule 3.17(A) of the Disclosure ---------------- Schedule: (i) Other than as set forth or provided for on the Financial Statements, the Company has not or may not acquire any rights under, and the Company has not or may not become subject to any obligation or liability under, any Contract under which the Company is obligated to make payments totaling, or services having a value equal to, $5,000 or more ; and (ii) To the Knowledge of Seller, no officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (1) engage in or continue any conduct, activity, or practice relating to the business of the Company or (2) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. B. Except as set forth in Schedule 3.17(B) of the Disclosure ----------------- Schedule, each material Contract is in full force and effect and is valid and enforceable in accordance with its terms. C. Except as set forth in Schedule 3.17(C) of the Disclosure ---------------- Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of each Contract under which such Seller has or had any obligation or liability or by which such Seller or any of the assets owned or used by the Company is or was bound; (ii) Each other Person that has or had any obligation or liability under any Contract under which the Company has or had any rights is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of such Contract; (iii) No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Seller or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and (iv) Seller has not given to or received from any other Person, at any time since January, 1996, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract. F. There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Seller under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation. G. The Contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. 3.15. Insurance. --------- A. Seller have delivered to Buyer: (i) True and complete copies of all policies of insurance to which the Company or Seller is a party or under which the Company, or any director of the Company, is or has been covered at any time within the two (2) years preceding the date of this Agreement; (ii) True and complete copies of all pending applications for policies of insurance; and (iii) Any statement by the auditor of the Company's financial statements with regard to the adequacy of such entity's coverage or of the reserves for claims. B. Except as set forth on Schedule 3.15(B) of the Disclosure ---------------- Schedule: (i) All policies to which Seller is a party or that provide coverage to Seller, the Company, or any director or officer of an the Company: (1) Are valid, outstanding, and enforceable; (2) Taken together in the reasonable judgment of Seller, provide adequate insurance coverage for the assets and the operations of the Company for all risks to which the Company are normally exposed; (3) Are sufficient for compliance with all Legal Requirements and Contracts to which Seller is a party or by which it is bound; (4) Will continue in full force and effect following the consummation of the Contemplated Transactions; and (5) Do not provide for any retrospective premium adjustment or other experienced-based liability on the part of Seller. (ii) Neither Seller nor the Company has received (1) any refusal of coverage or any notice that a defense will be afforded with reservation of rights or (2) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. (iii) Seller has paid all premiums due, and have otherwise performed all of their respective obligations, under each policy to which Seller is a party or that provides coverage to the Company or director thereof. (iv) Seller has given notice to the insurer of all claims that may be insured thereby. 3.16. Environmental Matters. Except as set forth in Schedule 3.16 ---------------------- of the Disclosure Schedule, at all times since January, 1996, Seller has obtained and is in compliance with all permits, licenses and other authorizations required to do business by Environmental Requirements. 3.17. Employee Matters. ---------------- Except as set forth on Schedule 3.17, at all times since January, 1996, Seller has complied in all respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health and plant closing. Except as set forth on Schedule 3.17, Seller is not liable for the payment of any compensation, Damages, taxes, fines, penalties, or other amounts, however, designated, for failure to comply with any of the foregoing Legal Requirements. 3.18. Intellectual Property Rights of the Company. ------------------------------------------- A. Definitions. As used in this Agreement, and in ----------- addition to any other terms defined in this Agreement, the following terms shall have the following meanings. (i) "Software" means any computer program, -------- operating system, applications system, firmware or software of any nature, whether operational, under development or inactive, including all object code, source code, technical manuals, compilation procedures, execution procedures, flow charts, programmers notes, user manuals and other documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature. (ii) "Owned Software" means all Software owned --------------- by the Company, whether purchased from a third party, developed by or on behalf of the Company, currently under development or otherwise. (iii) "Customer Software" means all Software, ----------------- other than the Owned Software, that is, directly or through Distributors, either (x) offered or provided to customers of the Company or (y) used by the Company to provide information or services to customers of the Company for a fee. (iv) "Seller Software" means the Owned Software --------------- and the Customer Software. (v) "Other Software" means all Software, other -------------- than the Company's Software, that is licensed by the Company from third parties or otherwise used by the Company for any purpose whatsoever. (vi) "Intangible" means: ---------- (1) Patents, patent applications, patent disclosures, all re-issues, divisions, continuations, renewals, extensions and continuation-in-parts thereof and improvements thereto; (2) Trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for Registration thereof and all goodwill associated therewith; (3) Copyrights, Registrations thereof and applications for Registration thereof; (4) Maskworks, Registrations thereof and applications for Registration thereof; (5) Trade secrets and confidential business information (including ideas, formulas, compositions, inventions, whether patentable or unpatentable and whether or not reduced to practice, know-how, manufacturing and production processes and techniques, research and development information, drawings, flow charts, processes, ideas,specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information); (6) Other proprietary rights; (7) All income, royalties, Damages and payments due at Closing or thereafter with respect to the Owned Software, Customer Software, Other Software, or other Intangibles and all other rights thereunder including, without limitation, Damages and payments for past, present or future infringements or misappropriations thereof, the right to sue and recover for past, present or future infringements or misappropriations thereof; (8) All rights to use all of the foregoing forever; and (9) All other rights in, to, and under the foregoing in all countries. B. Ownership and Right to License. ------------------------------ (i) Except as setforth in Schedule 3.18 of the -------------- Disclosure Schedule, to the Knowledge of the Seller, at all times since January, 1996, Seller has good and marketable title to the Owned Software and Intangibles attributable to the Owned Software, and have the full right to use all of the Customer Software and Other Software, and Intangibles attributable thereto, as used or required to operate Seller's businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans, free and clear of any liens, claims, charges or encumbrances which would affect the use of such Software in connection with the operation of Seller's business as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (ii) To the Knowledge of Seller, no rights of any third party not previously obtained are necessary to market, license, sell, modify, update, and/or create derivative works for any Software as to which Seller take any such action in their respective businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (iii) To the Knowledge of Seller, none of the Software or Intangibles or their respective past or current uses by or through Seller have violated or infringed upon, or is violating or infringing upon, any Software, patent, copyright, trade secret or other Intangible of any Person. To the knowledge of Seller, Seller has adequately maintained all trade secrets and copyrights with respect to such Software. To the Knowledge of Seller, Seller has performed all obligations imposed upon them with regard to the Customer Software and Other Software which are required to be performed by them on or prior to the date hereof, and Seller nor, to the Knowledge of Seller, any other party, is in breach of or default thereunder in any respect, nor to the Seller's Knowledge is there any event which with notice or lapse of time or both would constitute a default thereunder. 3.19. Certain Payments. Since January, 1996, neither Seller nor ----------------- any director, officer, agent, or employee of the Company, nor to Seller's Knowledge any other Person associated with or acting for or on behalf of Seller, has directly or indirectly: A. Made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business; (ii) to pay for favorable treatment for business secured; (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Copmany or any affiliate of the Company or (iv) in violation of any Legal Requirement. B. Established or maintained any fund or asset that has not been recorded in the books and records of the Company. 3.20. Disclosure. ---------- A. No representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. B. No notice given pursuant to Section 5.5. will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading. C. There is no fact known to Seller that has specific application to Seller or the Company (other than general economic or industry conditions) and that materially adversely affects or, as far as Seller can reasonably foresee, materially threatens, the assets, business, prospects, financial condition, or results of operations of the Company (on a consolidated basis) that has not been set forth in this Agreement or the Disclosure Schedule. 3.21. Brokers or Finders. Seller and its agents have incurred no ------------------ obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: 4.1. Organization and Good Standing. Buyer is a Texas corporation. ------------------------------ 4.2. Authority. This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the closing documents set forth in Section 2.5.B (collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Buyer's Closing Documents and to perform its obligations under this Agreement and the Buyer's Closing Documents. 4.3. Investment Intent. Buyer is acquiring the Shares for its ------------------ own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. 4.4. Certain Proceedings. There is no pending Proceeding that -------------------- has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened. 4.5. Brokers or Finders. Buyer and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 4.6. Full Disclosure. To the best knowledge of Buyer, it's officers, directors or agents, no representation, warranty or covenant of Buyer contained in this Agreement or in any other written statement or certificate delivered by Buyer pursuant to this Agreement or in connection with the transactions contemplated herein or in any SEC filing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. To the best knowledge of Buyer, it's officers, directors or agents, there is no fact which adversely affects, or in the future may adversely affect, the business, operations, cash flows, affairs, prospects, properties or assets or the condition, financial or otherwise of the Buyer which has not been disclosed in this Agreement, or in the documents, certificates and written statements furnished to Seller for use in connection with the transactions contemplated hereby or in any SEC filing. 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 5.1. Access and Investigation. Between the date of this Agreement ------------------------- and the Closing Date, Seller will, and will cause the Company and its Representatives to: A. Afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, "Buyer's Advisors") full and free access to the Company's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Buyer and Buyer's Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request; and C. Furnish Buyer and Buyer's Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request. 5.2. Operation of the Business of the Company. Between the date ------------------------------------------- of this Agreement and the Closing Date, Seller will: A. Conduct the business of the Company only in the Ordinary Course of Business; B. Use its commercially reasonable efforts to preserve intact the current business organization of the Company, keep available the services of the current officers, employees, and agents of the Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Company or Seller; C. Confer with Buyer concerning operational matters of a material nature; and D. Otherwise report periodically to Buyer concerning the status of the business, operations, and finances of the Company. 5.3. Negative Covenant. Except as otherwise expressly permitted ----------------- by this Agreement, between the date of this Agreement and the Closing Date, Seller will not without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in Section 3.13. is likely to occur. 5.4. Required Approvals. As promptly as practicable after the date of this Agreement, Seller will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Seller will, and will cause the Company to: A. Cooperate with Buyer with respect to all filings that Buyer reasonably elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Buyer in obtaining all required Consents. 5.5. Notification. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller becomes aware of any fact or condition that causes or constitutes a Breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Schedule if the Disclosure Schedule were dated the date of the occurrence or discovery of any such fact or condition, Seller will promptly deliver to Buyer a supplement to the Disclosure Schedule specifying such change. During the same period, each Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Seller in this Section 5. or of the occurrence of any event that may make the satisfaction of the conditions in Section 7. impossible or unlikely. 5.6. No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Section 9., Seller will not, and will cause its Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital stock of the Company, or any merger, consolidation, business combination, or similar transaction involving Seller. 5.7. Closing of Bank Accounts. Seller shall cause the closing of ------------------------- all Company bank accounts for which Seller, or its officers and directors, have sole signature authority. 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 6.1. Approvals of Governmental Bodies/Third Party Consents. As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by them to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Buyer will, and will cause each Related Person to: A. Cooperate with Seller with respect to all filings that Seller is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Seller in obtaining all consents identified in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. 6.2. Access and Investigation. Between the date of this Agreement ------------------------- and the Closing Date, Buyer will, and will cause its Representatives to: A. Afford Seller and its Representatives and prospective lenders and their Representatives (collectively, "Seller's Advisors") full and free access to Buyer's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Seller and Seller's Advisors with copies of all such contracts, books and records, and other existing documents and data as Seller may reasonably request; and C. Furnish Seller and Seller's Advisors with such additional financial, operating, and other data and information as Seller may reasonably request. 6.3. Operation of the Business of the Company. Between the date ------------------------------------------- of this Agreement and the Closing Date, Buyer will: A. Conduct the business of Buyer only in the Ordinary Course of Business; B. Use commercially reasonable efforts to preserve intact the current business organization of Buyer; and A. Confer with Seller concerning operational matters of a material nature. 6.4. Notification. Between the date of this Agreement and the ------------ Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a Breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 7.1. Accuracy of Representations. --------------------------- A. All of Seller's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. B. Each of Seller's representations and warranties in Article 3. must have been accurate in all respects as of the date of this Agreement, and must be accurate in all respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. 7.2. Seller's Performance. -------------------- A. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects. B. Each document required to be delivered pursuant to Section 2.4. must have been delivered by closing, and each of the other covenants and obligations in Section 5. must have been performed and complied with in all respects. C. The results of any investigation performed by Buyer in connection with Section 5.1. shall be satisfactory to Buyer in its sole discretion. 7.3. Consents. Each of the Consents identified in Schedule 3.2 of -------- ------------ the Disclosure Schedule must have been obtained and must be in full force and effect. 7.4. Additional Documents. Seller shall deliver such other --------------------- documents as Buyer may reasonably request for the purpose of (i) evidencing the accuracy of any of Seller's representations and warranties; (ii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by such Seller; (iii) evidencing the satisfaction of any condition referred to in this Section 7. or (iv) otherwise facilitating the consummation or performance of any of the Contemplated Transactions. 7.5. No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking Damages or other relief in connection with, any of the Contemplated Transactions or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions. 7.6. No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been made or Threatened by any Person any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, any of Seller or (ii) is entitled to all or any portion of the Purchase Price payable for the Shares, except as has been orally disclosed to Buyer. 7.7. No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body. 7.8. Employment Agreement. On or before the Closing Date, Seller(s) --------------------- shall have entered into an employment agreement with Buyer. 7.9. Registration of Shares for Seller. Buyer hereby certifies that it intends to file a registration statement under exception rule SB-2, for a block of Buyers common stock. Buyer agrees to allow Seller "piggyback" registration rights of Buyers common stock in an amount so that Seller shall receive a benefit of three hundred thousand dollars ($300,000.00), with half, or $150,000 payable at closing and the remaining $150,000 payable within 90 days after closing. Seller agrees to sell the registered shares through Buyers Investment Banker only, and only in an amount of shares (as deemed by the Investment Banker of Buyer) as not to cause any adverse effect on stock price of Buyer. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 8.1. Accuracy of Representations. All of Buyer's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 8.2. Buyer's Performance. ------------------- A. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects. B. Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.5. 8.3. Consents. Each of the Consents identified in Schedule 3.2 of -------- ------------ the Disclosure Schedule must have been obtained and must be in full force and effect. 8.4. Additional Documents. Buyer must have caused the following --------------------- documents to be delivered to Seller such other documents as Seller may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer; (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer; (iii) evidencing the satisfaction of any condition referred to in this Section 8. or (iv) otherwise facilitating the consummation of any of the Contemplated Transactions. 8.5. No Injunction. There must not be in effect any Legal -------------- Requirement or any injunction or other Order that (i) prohibits the sale of the Shares by Seller to Buyer and (ii) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 8.6. 8.6 Employment Agreements. Buyer and Frank Noori shall enter into an Employment - ----------------------- Agreement, in a form to be mutually agreed by the parties. 9. TERMINATION. 9.1. Termination Events. ------------------ This Agreement may, by notice given prior to or at the Closing, be terminated: A. By either Buyer or Seller if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived; B. (i) By Buyer if any of the conditions in Section 7. have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; (ii) By Seller, if any of the conditions in Section 7. have not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with their obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; or C. By mutual consent of Buyer and Seller; or D. By either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before June 29, 2000, or such later date as the parties may agree upon. 9.2. Effect of Termination. Each party's right of termination under Section 9.1. is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1., all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 12.1. and 12.3. will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one (1) or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION; REMEDIES. 10.1. Agreement by Seller to Indemnify. Seller (the "Seller --------------------------------- Indemnifying Party"), agrees that they will indemnify and hold Buyer harmless in respect of the aggregate of all indemnifiable Damages of Buyer. For this purpose, "indemnifiable Damages" of Buyer means the aggregate of all Damages incurred or suffered by Buyer resulting from: A. Any inaccurate representation or warranty made by Seller in or pursuant to this Agreement; B. Any default in the performance of any of the covenants or agreements made by Seller in this Agreement; or C. The failure of any Seller to pay, discharge or perform any liability or obligation of Seller or of Seller resulting from the operation of Seller's business prior to the Closing Date. With respect to the measurement of "Indemnifiable Damages", Buyer shall have the right to be put in the same financial position as it would have been had each of the representations and warranties of Seller been true and correct and had each of the covenants of Seller been performed in full. The amount of any indemnifiable Damages otherwise payable to Buyer hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will provide Buyer with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Buyer as a result of such deductions or credits, discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Buyer at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Seller Indemnifying Party to indemnify Buyer shall be subject to each of the following principles or qualifications: 2. Each of the representations and warranties made by Seller in this Agreement or pursuant hereto, shall survive for a period of one (1) year after the Closing; provided, however, that the representations and warranties made by Seller to the extent they relate to Seller's title to the Shares shall survive forever and that the representations and warranties made by Seller and Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until the first (1st) anniversary of the later of: A. The date on which applicable period of limitation on assessment or refund of tax has expired; or B. The date on which the applicable taxable year (or portion thereof) has been closed. No claim for the recovery of indemnifiable Damages may be asserted by Buyer against Seller Indemnifying Party or their successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. 10.2. Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party") harmless in respect of the aggregate of all indemnifiable Damages of any of Seller Indemnified Parties. For this purpose, "indemnifiable Damages" of the of Seller Indemnified Party means the aggregate of all Damages incurred or suffered by the Seller Indemnified Party resulting from: A. Any inaccurate representation or warranty made by Buyer or pursuant to this Agreement; or B. Any default in the performance of any of the covenants or agreements made by Buyer in this Agreement. With respect to the measurement of "Indemnifiable Damages", the Seller Indemnified Party shall have the right to be put in the same financial position as they would have been had each of the representations and warranties of Buyer Indemnifying Party been true and correct and had each of the covenants of Buyer Indemnifying Party been performed in full. The amount of any indemnifiable Damages otherwise payable to any Seller Indemnified Party hereunder shall be reduced if the indemnifiable Damages incurred by Seller Indemnified Party will provide such Party with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Seller Indemnified Party as a result of such deductions or credits discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Seller Indemnified Party at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Buyer Indemnifying Party to indemnify Seller Indemnified Party shall be subject to each of the following principles or qualifications: 10.2.1 Each of the representations and warranties made by Buyer in Article 4 of this Agreement shall survive for a period of one (1) year after the Closing Date, and thereafter all such representations and warranties shall be extinguished. No claim for the recovery of indemnifiable Damages pursuant to clause (i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer Indemnifying Party or its successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. 10.3. Matters Involving Third Parties. If any third party shall notify Buyer or Seller (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 10., then the Indemnified Party shall notify each Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent that) the Indemnifying Party thereby is Damaged. If any Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then: A. The Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice satisfactory to the Indemnified Party; B. The Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party concludes that the counsel the Indemnifying Party has selected has a conflict of interest); C.The Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld or delayed unreasonably); and D. The Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld or delayed unreasonably). If no Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it may deem appropriate. 10.4. Limitations on Indemnification. Notwithstanding the provisions of Sections 10.1 or 10.2 hereof, neither party shall have any liability to indemnify the other until and to the extent that the aggregate amount of indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any indemnification claims hereunder shall in no event exceed an amount equal to one half of the value of Buyer's Stock transferred hereunder valued as of the Closing Date. 11. POST-CLOSING AGREEMENTS. 11.1. Consistency in Reporting. Each party hereto agrees that: -------------------------- (i) the transaction is intended to qualify as a tax-free transaction under the I.R.C.; (ii) the transaction shall be reported for Federal income tax purposes as a tax-free transaction; (iii) for purposes of all financial statements, tax returns and reports, and communications with third parties, the transactions contemplated in this agreement and ancillary or collateral transactions will be treated as a tax-free transaction; and (iv) if the characterization of any transaction contemplated in this agreement or any ancillary or collateral transaction is challenged, each party hereto will testify, affirm and ratify that the characterization contemplated in such agreement was with the characterization intended by the party; provided, however, that nothing herein shall be construed as giving rise to any obligation if the reporting position is determined to be incorrect by final decision of a court of competent jurisdiction. 12. GENERAL PROVISIONS. 12.1. Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants. Seller will cause the Company not to incur any out-of-pocket expenses in connection with the Contemplated Transactions. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party. 12.2. Public Announcements. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Seller shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Seller and Buyer will consult with each other concerning the means by which the Company's employees, customers, and suppliers and others having dealings with Seller will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication. 12.3. Confidentiality. Between the date of this Agreement and the Closing Date, Buyer and Seller will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, and not use to the detriment of another party or the Company any written, oral, or other information obtained in confidence from another party or an Seller in connection with this Agreement or the Contemplated Transactions, unless: A. Such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party; B. The use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions; or C. The furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings. If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. Whether or not the Closing takes place, Seller waives, and will upon Buyer's request cause Seller to waive, any cause of action, right, or claim arising out of the access of Buyer or its representatives to any trade secrets or other confidential information of the Company. 12.4. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand (with written confirmation of receipt); (ii) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested or (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Seller: IET Startek, Inc. 5050 Oakbrook Parkway, Suite 100 Norcross, GA 30093 Attn: Frank Noori With a copy to: Bill Nesbitt, Esq. Buyer: Elite Technologies, Inc. 6991 Peachtree Industrial Blvd. Suite 320 Norcross, GA 30092 With a copy to: Morris, Manning & Martin, L.L.P. 1600 Atlanta Financial Center 3343 Peachtree Road, N.E. Atlanta, Georgia 30326-1044 Attention: Bryan G. Harrison, Esq. Telecopy No.: (404) 365-9532 12.5. Jurisdiction; Service of Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Georgia, County of Gwinnett, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of Georgia, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 12.6. Further Assurances. The parties agree (i) to furnish upon request to each other such further information; (ii) to execute and deliver to each other such other documents and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 12.7. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law: A. No claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one (1) party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; B. No waiver that may be given by a party will be applicable except in the specific instance for which it is given; and C. No notice to or demand on one (1) party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12.8. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the Letter of Intent between Buyer and Seller) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 12.9. Disclosure Schedule. ------------------- A. The disclosures in the Disclosure Schedule, and those in any Supplement thereto, must relate only to the representations and warranties in the Section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. B. In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. 12.10. Assignments, Successors and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 12.11. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12.12. Section Headings; Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 12.13. Time of Essence. With regard to all dates and time periods ---------------- set forth or referred to in this Agreement, time is of the essence. 12.14. Governing Law. This Agreement will be governed by the laws -------------- of the State of Georgia without regard to conflicts of laws principles. 12.15. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. EX-10.3 4 0004.txt Stock Purchase Agreement made as of JUNE 1, 2000, Between Elite technologies, inc., buyer, and AC TRAVEL, Inc. ASIF BALAGAMWALA, Individually, seller(s) Table of Contents Page 1. DEFINITIONS. 1 1.1. "APPLICABLE CONTRACT" 1 1.2. "BREACH" 1 1.3. "BUYER" 1 1.4. "BUYER'S STOCK" 1 1.5. "CLOSING" 1 1.6. "CLOSING DATE" 1 1.8. "CONSENT" 1 1.9. "CONTEMPLATED TRANSACTIONS" 2 1.10. "CONTRACT" 2 1.11. "DAMAGES" 2 1.12. "DISCLOSURE SCHEDULE" 2 1.13. "ENCUMBRANCE" 2 1.14. "ENVIRONMENTAL REQUIREMENTS" 2 1.15. "ERISA" 2 1.16. "FACILITIES" 2 1.17. "GAAP" 3 1.18. "GOVERNMENTAL AUTHORIZATION" 3 1.19. "GOVERNMENTAL BODY" 3 1.20. "IRC" 3 1.21. "IRS" 3 1.22. "KNOWLEDGE" 3 1.23. "LEGAL REQUIREMENT" 3 1.24. "OPERATING INCOME" 3 1.25. "ORDER" 4 1.26. "ORDINARY COURSE OF BUSINESS" 4 1.27. "ORGANIZATIONAL DOCUMENTS" 4 1.28. "PERSON" 4 1.29. "PLAN" 4 1.30. "PROCEEDING" 5 1.31. "RELATED PERSON" 5 1.32. "REPRESENTATIVE" 5 1.33. "SECURITIES ACT" 6 1.34. "SELLER" 6 1.35. "SHARES" 6 1.36. "SUBSIDIARY" 6 1.37. "TAX RETURN" 6 1.38. "THREATENED" 6 2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 6 - -------------------------------------------------------------------------------- 2.1. SHARES. ---- ------ 6 2.2. BUYER'S STOCK. ---- ------------- 6 2.3. CLOSING. ---- ------- 6 2.4. CLOSING OBLIGATIONS. ---- ------------------- 7 3. REPRESENTATIONS AND WARRANTIES OF SELLER. 7 - -------------------------------------------------------------------------------- 3.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 7 3.2. AUTHORITY; NO CONFLICT. ---- ---------------------- 8 3.3. CAPITALIZATION. ---- -------------- 9 3.4. FINANCIAL STATEMENTS. ---- -------------------- 9 3.5. BOOKS AND RECORDS. ---- ----------------- 10 3.6. TITLE TO PROPERTIES; ENCUMBRANCES. ---- -------------------------------- 10 3.7. NO UNDISCLOSED LIABILITIES. ---- -------------------------- 11 3.8. TAXES. ---- ---- 11 3.9. NO MATERIAL ADVERSE CHANGE. ---- -------------------------- 11 3.10. EMPLOYEE BENEFITS MATTERS. ----- ------------------------- 11 3.11. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. --------------------------------------------------------------- 12 3.12. LEGAL PROCEEDINGS; ORDERS. ----- ------------------------- 14 3.13. ABSENCE OF CERTAIN CHANGES AND EVENTS. ----- ------------------------------------- 15 3.14. CONTRACTS; NO DEFAULTS. ----- ---------------------- 15 3.15. INSURANCE. ----- --------- 17 3.16. ENVIRONMENTAL MATTERS. ----- -------------------- 18 3.17. EMPLOYEE MATTERS. ----- ---------------- 18 3.18. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY. ----- ------------------------------------------- 18 3.19. CERTAIN PAYMENTS. ----- ---------------- 20 3.20. DISCLOSURE. ----- ---------- 20 3.21. BROKERS OR FINDERS. ----- ------------------ 21 4. REPRESENTATIONS AND WARRANTIES OF BUYER. 21 - -------------------------------------------------------------------------------- 4.1. ORGANIZATION AND GOOD STANDING. ---- ------------------------------ 21 4.2. AUTHORITY. ---- --------- 21 4.3. INVESTMENT INTENT. ---- ----------------- 21 4.4. CERTAIN PROCEEDINGS. ---- ------------------- 21 4.5. BROKERS OR FINDERS. ---- ------------------ 21 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 22 - -------------------------------------------------------------------------------- 5.1. ACCESS AND INVESTIGATION. ---- ----------------------- 22 5.2. OPERATION OF THE BUSINESS OF THE COMPANY. ---- ---------------------------------------- 22 5.3. NEGATIVE COVENANT. ---- ----------------- 22 5.4. REQUIRED APPROVALS. ---- ------------------ 22 5.5. NOTIFICATION. ---- ------------ 23 5.6. NO NEGOTIATION. ---- -------------- 23 5.7. CLOSING OF BANK ACCOUNTS. ---- ------------------------ 23 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 23 - -------------------------------------------------------------------------------- 6.1. APPROVALS OF GOVERNMENTAL BODIES/THIRD PARTY CONSENTS. ---- ----------------------------------------------------- 23 6.2. ACCESS AND INVESTIGATION. ---- ------------------------ 24 6.3. OPERATION OF THE BUSINESS OF THE COMPANY. ---- ---------------------------------------- 24 6.4. NOTIFICATION. ---- ------------ 24 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 24 - -------------------------------------------------------------------------------- 7.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 24 7.2. SELLER'S PERFORMANCE. ---- -------------------- 25 7.3. CONSENTS. ---- -------- 25 7.4. ADDITIONAL DOCUMENTS. ---- -------------------- 25 7.5. NO PROCEEDINGS. ---- -------------- 25 7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. ---- --------------------------------------------------- 25 7.7. NO PROHIBITION. ---- -------------- 26 7.8. EMPLOYMENT AGREEMENT. ---- ------------------- 26 7.9. REGISTRATION OF SHARES FOR SELLER. ---- --------------------------------- ERROR! BOOKMARK NOT DEFINED. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. 1 - -------------------------------------------------------------------------------- 8.1. ACCURACY OF REPRESENTATIONS. ---- --------------------------- 1 8.2. BUYER'S PERFORMANCE. ---- ------------------- 1 8.3. CONSENTS. ---- -------- 1 8.4. ADDITIONAL DOCUMENTS. ---- -------------------- 1 8.5. NO INJUNCTION. ---- ------------- 1 9. TERMINATION. 1 - -------------------------------------------------------------------------------- 9.1. TERMINATION EVENTS. ---- ------------------ 1 9.2. EFFECT OF TERMINATION. ---- --------------------- 1 10. INDEMNIFICATION; REMEDIES. 1 - -------------------------------------------------------------------------------- 10.1. AGREEMENT BY SELLER TO INDEMNIFY. ----- -------------------------------- 1 10.2. AGREEMENTS BY BUYER TO INDEMNIFY. ----- -------------------------------- 1 10.3. MATTERS INVOLVING THIRD PARTIES. ----- ------------------------------- 1 11. POST-CLOSING AGREEMENTS. 1 - -------------------------------------------------------------------------------- 11.1. CONSISTENCY IN REPORTING. ----- ------------------------ 1 12. GENERAL PROVISIONS. 1 - -------------------------------------------------------------------------------- 12.1. EXPENSES. ----- -------- 1 12.2. PUBLIC ANNOUNCEMENTS. ----- -------------------- 1 12.3. CONFIDENTIALITY. ----- --------------- 1 12.4. NOTICES. ----- ------- 1 12.5. JURISDICTION; SERVICE OF PROCESS. ----- -------------------------------- 1 12.6. FURTHER ASSURANCES. ----- ------------------ 1 12.7. WAIVER. ----- ------ 1 12.8. ENTIRE AGREEMENT AND MODIFICATION. ----- -------------------------------- 1 12.9. DISCLOSURE SCHEDULE. ----- ------------------- 1 12.10. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS. ------ ------------------------------------------------ 1 12.11. SEVERABILITY. ------ ------------ 1 12.12. SECTION HEADINGS; CONSTRUCTION. ------ ------------------------------ 1 12.13. TIME OF ESSENCE. ------ --------------- 1 12.14. GOVERNING LAW. ------ ------------- 1 12.15. COUNTERPARTS. ------ ------------ 1 Stock Purchase Agreement THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of April 28, 2000, by Elite Technologies, Inc., a Texas corporation, ("Buyer"), and Al-Hamdd, Inc., d/b/a/ AC Travel, Inc., a Georgia Corporation, Asif Balagamwala, individually and collectively hereinafter referred to as ("Seller"). RECITALS: Seller desire to sell, and Buyer desires to purchase, all of the issued and outstanding shares (the "Shares") of capital stock of AC Travel, Inc. for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.: 1.1. "Applicable Contract" - any Contract (i) under which Seller or Company has or may acquire any rights; (ii) under which Seller or Company has or may become subject to any obligation or liability or (iii) by which Seller or Company or any of the assets owned or used by it is or may become bound. 1.2. "Breach" - a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision or (ii) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence or circumstance. 1.3. "Buyer" - as defined in the first paragraph of this Agreement. 1.4. "Buyer's Stock" - 2,000,000 restricted shares of Seller's capital stock. 1.5. "Closing" - as defined in Section 2.4. 1.6. "Closing Date" - the date and time as of which the Closing actually takes place. 1.7 "Company" - AC Travel, Inc. 1.7. "Consent" - any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). 1.9. "Contemplated Transactions" - all of the transactions contemplated by this Agreement, including: A. The transfer of the Shares by Seller to Buyer; B. The execution, delivery, and performance of the Closing Obligations set forth in Section 2.5; C. The performance by Buyer and Seller of t heir respective covenants and obligations under this Agreement; D. Buyer's acquisition and ownership of the Shares and exercise of control over the Company; and E. The transfer of Buyer's Stock to Seller; and F. Payment by Buyer to Seller of the Reimbursement Amount. 1.10. "Contract" - any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. 1.11. "Damages" - any loss, liability, claim, damages (including, without limitation, incidental and consequential damages), expense (including, without limitation, costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third party. 1.12. "Disclosure Schedule" - the disclosure schedule delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement. 1.13. "Encumbrance" - any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. 1.14. "Environmental Requirements" - means federal, state and local laws relating to pollution or protection of the environment, including laws or provisions relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials, substances, or wastes into air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials, substances, or wastes. 1.15. "ERISA" - the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 1.16. "Facilities" - any real property, leaseholds, or other interests currently or formerly owned or operated by Seller and any buildings, plants, structures, or equipment (including motor vehicles) currently or formerly owned or operated by Seller. 1.17. "GAAP" - generally accepted United States accounting principles, applied on a basis consistent with the basis on which the financial statements referred to in Section 3.4. were prepared. 1.18. "Governmental Authorization" - any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. 1.19. "Governmental Body" - any: A. Nation, state, county, city, town, village, district, or other jurisdiction of any nature; B. Federal, state, local, municipal, foreign, or other government; C. Governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); D. Multi-national organization or body; or E. Body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. 1.20. "IRC" - the Internal Revenue Code of 1986 or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. 1.21. "IRS" - the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. 1.22. "Knowledge" - an individual will be deemed to have "Knowledge" of a particular fact or other matter if: A. Such individual is actually aware of such fact or other matter; or B. A prudent individual given his position with the Company could be reasonably expected to discover or otherwise become aware of such fact or other matter. 1.23. "Legal Requirement" - any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. 1.24. "Operating Income" - means the net income of the Company determined in accordance with GAAP before income taxes and after all other charges except: A. Unless otherwise approved by Buyer, any general and administrative expense (i.e., allocation of the Company's general corporate overhead) attributable to the Company and all subsidiaries of the Company that is not directly related to the operation of the Company in the Ordinary Course of Business; provided, however, Operating Income shall include reimbursement by Seller of expenses at a fair market price mutually agreed to by Buyer and Seller for expenses previously incurred by Seller, but that have for administrative convenience or efficiency reasons been centralized with Buyer; and B. Any amortization of goodwill of the Company and all Subsidiaries of the Company. C. In the event that certain expenses incurred by the Seller are for the principal or partial benefit of the Company or other subsidiaries of the Company, then the parties hereto shall endeavor to track and determine in a fair and equitable manner that portion of such expenses that should fairly and reasonably be allocated to the Company or such other subsidiaries of the Company, and therefore not included in arriving at Operating Income for purposes of this Agreement. 1.25. "Order" - any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. 1.26. "Ordinary Course of Business" - an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: A. Such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; B. Such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and C. Such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. 1.27. "Organizational Documents" - (i) the Articles or Certificate of Incorporation and the Bylaws of a corporation; (ii) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person and (iii) any amendment to any of the foregoing. 1.28. "Person" - 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. 1.29. "Plan" - as defined in Section 3.10.1. 1.30. "Proceeding" - any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. 1.31. "Related Person" - with respect to a particular individual: A. Each other member of such individual's Family; B. Any Person that is directly or indirectly controlled by such individual or one (1) or more members of such individual's Family; C. Any Person in which such individual or members of such individual's Family hold (individually or in the aggregate) a Material Interest; and D. Any Person with respect to which such individual or one (1) or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity). With respect to a specified Person other than an individual: A. Any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; B. Any Person that holds a Material Interest in such specified Person; C. Each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity); D. Any Person in which such specified Person holds a Material Interest; E. Any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and Any Related Person of any individual described in clause B. or C. For purposes of this definition, (i) the "Family" of an individual includes (1) the individual; (2) the individual's spouse and former spouses; (3) any other natural person who is related to the individual or the individual's spouse within the second degree and (4) any other natural person who resides with such individual and (2) "Material Interest" means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least [five percent (5%)] of the outstanding voting power of a Person or equity securities or other equity interests representing at least [five percent (5%)] of the outstanding equity securities or equity interests in a Person. 1.32. "Representative" - with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. 1.33. "Securities Act" - the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 1.34. "Seller" -as defined in the first paragraph of this Agreement. 1.35. "Shares" - as defined in the Recitals of this Agreement. 1.36. "Subsidiary" - with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one (1) or more of its Subsidiaries; [when used without reference to a particular Person, "Subsidiary" means a Subsidiary of the Company]. 1.37. "Tax Return" - any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. 1.38. "Threatened" - a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. 2. TRANSFER OF SHARES; REIMBURSEMENT AMOUNT; CLOSING. 2.1. Shares. In exchange for the transfer of Buyer's Stock, as ------ set forth in Section 2.2, and subject to the terms and conditions of this Agreement, at the Closing, Seller will transfer the Shares to Buyer. 2.2. Buyer's Stock. In exchange for the transfer of Shares as -------------- set forth in Section 2.1, and subject to the terms and conditions of this Agreement, at the Closing, Buyer shall transfer to Seller the Buyer's Stock. 2.3. Closing. The purchase and sale (the "Closing") provided for ------- in this Agreement will take place at the offices of Morris, Manning & Martin, L.L.P., at 1600 Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326, at 10:00 a.m. (local time) on May 28, 2000, or at such other time and place as the parties may agree. Except as otherwise provided in Section 9., failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this Section 2.3. will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 2.4. Closing Obligations. At the Closing: ------------------- A. Seller will deliver to Buyer: (i) Certificates. Certificates representing the ------------ Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer; (ii) Good Standing Certificate. Seller shall have -------------------------- delivered to Buyer a certificate evidencing the good standing of the Company as of a recent practicable date; (iii) Certificate. A certificate substantially in ----------- the form of Exhibit A hereto, executed by Seller representing and warranting --------- to Buyer that each of Seller's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedule that were delivered by Seller to Buyer prior to the Closing Date in accordance with Section 5.5.); and (iv) Mutual Release. Seller shall have delivered -------------- to Buyer a mutual release, executed by Seller, substantially in the form of Exhibit B to be attached at closing - ----------------------------------- (v) All Corporate records, organzational documents, minutes of Board of Director and Shareholder meetings and corporate seal. B. Buyer will deliver to Seller: (i) Certificates. Certificates representing ------------ Buyer's Stock, duly endorsed (or accompanied by duly executed stock powers) for transfer to Seller, or a Board of Directors resolution signifying the order of the transfer of shares to Seller to be effectuated immediately, without delay; (ii) Certificate. A certificate in the form of ----------- Exhibit C hereto executed by Buyer to the effect that, except as otherwise --------- stated in such certificate, each of Buyer's representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date; and (iii) Mutual Release. Buyer shall have delivered -------------- to Seller a Mutual Release, executed by Buyer, substantially in the form of Exhibit B to be attached at closing. - ----------------------------------- 3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: 3.1. Organization and Good Standing. ------------------------------ A. Schedule 3.1 of the Disclosure Schedule contains a complete and accurate list of the Company's name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business, and its capitalization (including the identity of each stockholder and the number of shares held by each). The Company is a corporation duly organized, validly existing, and in good standing under the laws of Georgia, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under Applicable Contracts. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. B. Seller has made available to Buyer copies of the Organizational Documents of the Company, as currently in effect. 3.2. Authority; No Conflict. ---------------------- A. This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms. Upon the execution and delivery by Seller of the closing documents set forth in Section 2.4A (collectively, the "Seller's Closing Documents"), the Seller's Closing Documents will constitute the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their respective terms. Seller has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Seller's Closing Documents and to perform his obligations under this Agreement and the Seller's Closing Documents. B. Except as set forth in Schedule 3.2 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) Contravene, conflict with, or result in a violation of (1) any provision of the Organizational Documents of the Company or (2) any resolution adopted by the board of directors or the stockholders of the Company; (ii) Contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Seller or the Company, or any of the assets owned or used by Seller, may be subject; (iii) Contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Seller or that otherwise relates to the business of, or any of the assets owned or used by, the Company; (iv) Cause Buyer or Seller to become subject to, or to become liable for the payment of, any Tax; (v) Contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (vi) Result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by Seller. Except as set forth in Schedule 3.2 of the Disclosure Schedule, Seller nor the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 3.3. Capitalization. The authorized equity securities of the -------------- Company consist of 1000 shares of common stock, .01 par value per share, of which 1000 shares are issued and outstanding and constitute the Shares. Seller is and will be on the Closing Date the record and beneficial owners and holders of the Shares, free and clear of all Encumbrances. With the exception of the Shares (which are owned by Seller), all of the outstanding equity securities and other securities of the Company are owned of record and beneficially by Seller, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of the Company, including, but not limited to, stock options, warrants, convertible securities, redemption rights, registration rights and the like. None of the outstanding equity securities or other securities of the Company was issued in violation of the Securities Act or any other Legal Requirement. 3.4. Financial Statements. Seller shall deliver to Buyer, at --------------------- closing date to be attached as Schedule 3.4: --------- A. Unaudited balance sheets of Seller as of August, 1999, and as of, together with the related statements of income, changes in stockholder equity and cash flow (collectively, the "Financial Statements") for the periods referred to in such financial statements. B. The Financial Statements were prepared in accordance with this Agreement and with GAAP consistently applied. The Financial Statements and notes, if any, fairly present the financial condition and the results of operations, changes in stockholders' equity, and cash flow of the Company as at the respective dates of and for the periods referred to in such Financial Statements, all in accordance with GAAP, subject, in the case of interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes. 3.5. Books and Records. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of the Company, and no meeting of any such stockholders, Board of Directors, or committee has been held for and no material action has been taken at any meeting for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of Seller. 3.6. Title to Properties; Encumbrances. Seller owns (with good and marketable title in the case of real property, subject only to the Encumbrances permitted by this Section) all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own located in the facilities owned or operated by Seller or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Closing Date Financial Statements (except for assets held under capitalized leases disclosed or not required to be disclosed in Schedule 3.6 of the Disclosure Schedule which shall be attached to this Agreement as Schedule 3.6 at the closing date.). All material properties and assets reflected in the Closing Date Financial Statements are free and clear of all Encumbrances and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature except, with respect to all such properties and assets: A. Mortgages or security interests shown on the Closing Date Financial Statements as securing specified liabilities or obligations, both, would constitute a default) exists; B. Liens for current taxes not yet due; and C. With respect to real property: (i) Minor imperfections of title, if any, none of which is substantial in amount, materially detracts from the value or impairs the use of the property subject thereto, or impairs the operations of the Company; and (ii) Zoning laws and other land use restrictions that do not impair the present or anticipated use of the property subject thereto. All buildings, plants, and structures owned by Seller lie wholly within the boundaries of the real property owned by Seller and do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person. All property and assets of the the Company shall be in the possession and control of Seller at Closing, including but not limited to, all Facilities. 3.7. No Undisclosed Liabilities. Except as set forth in Schedule 3.7 of the Disclosure Schedule, Seller has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Closing Date Financial Statements and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. 3.8. Taxes. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has timely filed all tax returns and reports required to be filed by it, including, without limitation, all federal, state and local tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges which have become due or which are attributable to the conduct of Seller's business prior to Closing. Seller will continue to make adequate provision for all such taxes and other charges for all periods through the Closing Date. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller shall have no Knowledge of any tax deficiency proposed or threatened against Seller. There are no tax liens upon any property or assets of the Company. Except as set forth on Schedule 3.8 to the Disclosure Schedule, Seller has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty. Except as set forth on Schedule 3.8 to the Disclosure Schedule, all taxes and other assessments and levies which Seller was required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper governmental entity. Except as set forth in Schedule 3.8 to the Disclosure Schedule, the federal and state income tax returns and local returns, if any, of Seller have never been audited by the income tax authorities, nor are any such audits in process. Except as set forth in Schedule 3.8, to the Disclosure Schedule there are no outstanding agreements or waivers extending the statute of limitations applicable to any federal or state income tax returns of the Company for any period. 3.9. No Material Adverse Change. Since January, 1996 there has --------------------------- not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Company, and no event has occurred or circumstance exists that may result in such a material adverse change. 3.10. Employee Benefits Matters. ------------------------- 3.10.1 Schedule 3.10.1 lists all plans, programs, and similar agreements, commitments or arrangements, whether oral or written, maintained by or on behalf of Seller or any other party that provide benefits or compensation to, or for the benefit of, current or former employees of the Company ("Plan" or "Plans"). Except as set forth on Schedule 3.10.1 to the Disclosure Schedule only current and former employees of the Company participate in the Plans. Copies of all Plans and, to the extent applicable, all related trust agreements, actuarial reports, and valuations for the most recent year, all summary plan descriptions, prospectuses, Annual Report Form 5500s or similar forms (and attachments thereto) for the most recent year, all Internal Revenue Service determination letters, and any related documents requested by Buyer, including all amendments, modifications and supplements thereto, have been delivered to Buyer, and all of the same are or will be true, correct and complete. 3.10.2 With respect to each Plan to the extent applicable: A. No litigation or administrative or other proceeding is pending or threatened involving such Plan; B. To the Knowledge of Seller, such Plan has been administered and operated in substantial compliance with, and has been amended to comply with all applicable laws, rules, and regulations, including, without limitation, ERISA, the Internal Revenue Code, and the regulations issued under ERISA and the Internal Revenue Code; C. Seller and its predecessors, if any, have made and as of the Closing Date will have made or accrued, all payments and contributions required, or reasonably expected to be required, to be made under the provisions of such Plan or required to be made under applicable laws, rules and regulations, with respect to any period following, such amounts to be determined using the ongoing actuarial and funding assumptions of the Plan; D. Such Plan is fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the date hereof; E. On the Closing Date such Plan will be fully funded in an amount sufficient to pay all liabilities accrued (including liabilities and obligations for health care, life insurance and other benefits after termination of employment) and claims incurred to the Closing Date, or adequate reserves will be set up on the Company's books and records, or paid-up insurance will be provided, therefor; and F. Such Plan has been administrated and operated only in the ordinary and usual course and in accordance with its terms, and there has not been in the year prior hereto any increase in the liabilities of such Plan beyond increases typically experienced by employers similar to the Company. 3.11. Compliance With Legal Requirements; Governmental Authorizations. --------------------------------------------------------------- A. Except as set forth in Schedule 3.11 of the Disclosure ------------- Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) No event has occurred or circumstance exists that (with or without notice or lapse of time) (1) may constitute or result in a violation by Seller of, or a failure on the part of Seller to comply with, any Legal Requirement or (2) may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement or (2) any actual, alleged, possible, or potential obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. B. Schedule 3.11 Except as set forth in Schedule 3.11 of ------------- ------------- the Disclosure Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of any applicable Governmental Authorization; (ii) No event has occurred or circumstance exists that may (with or without notice or lapse of time) (1) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any applicable Governmental Authorization or (2) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any applicable Governmental Authorization; (iii) Seller has not received, at any time since January, 1996, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (1) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or (2) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and (iv) All applications required to have been filed for the renewal of the Governmental Authorizations have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. The Seller has obtained any Governmental Authorizations necessary to permit the Company to lawfully conduct and operate their businesses in the manner they currently conduct and operate such businesses and to permit the Company to own and use their assets in the manner in which they currently own and use such assets. 3.12. Legal Proceedings; Orders. ------------------------- A. Except as set forth in Schedule 3.12 of the Disclosure -------------- Schedule, there is no pending Proceeding: (i) That has been commenced by or against Seller or that otherwise relates to or may affect the business of, or any of the assets owned or used by, Seller; or (ii) That challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To the Knowledge of Seller, (i) no such Proceeding has been Threatened and (ii) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. Seller shall have delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Schedule 3.12 of the Disclosure Schedule. The Proceedings listed in Schedule 3.12 of the Disclosure Schedule will not have a material adverse effect on the business, operations, assets, condition, or prospects of the Company. B. Except as set forth in Schedule 3.12 of the Disclosure ------------- Schedule: (i) There is no Order to which any of Seller, or any of the assets owned or used by the Company, is subject; (ii) Seller is not subject to any Order that relates to the business of, or any of the assets owned or used by, the Company; and (iii) No officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of the Company. C. Except as set forth in Schedule 3.12 of the Disclosure ------------- Schedule: (i) Seller is, and at all times since January, 1996, has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject; (ii) No event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Seller, or any of the assets owned or used by Seller, is subject; and (iii) Seller has not received, at any time since January, 1996, any notice or other communication whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the assets owned or used by the Company, is or has been subject. 3.13. Absence of Certain Changes and Events. Except as set forth -------------------------------------- in Schedule 3.13 of the Disclosure Schedule, since January, 1996, the Company -------------- has conducted its business only in the Ordinary Course of Business and there has not been any: A. Change in the Company's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; B. Amendment to the Organizational Documents of the Company; C. Payment or increase by Seller of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; D. Adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; E. Damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; F. Entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement or (ii) any Contract or transaction involving a total remaining commitment by or to the Company of at least Five Thousand and No/100 Dollars ($5,000.00); G. Sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of the Company, including the sale, lease, or other disposition of any of the Software and Intangibles; H. Cancellation or waiver of any claims or rights with a value to the Company in excess of Five Thousand and No/100 Dollars ($5,000.00); I. Material change in the accounting ethods used by the Company; or J. Agreement, whether oral or written, by Seller to do any of the foregoing. 3.14. Contracts; No Defaults. ---------------------- A. Except as set forth in Schedule 3.17(A) of the Disclosure ---------------- Schedule: (i) Other than as set forth or provided for on the Financial Statements, the Company has not or may not acquire any rights under, and the Company has not or may not become subject to any obligation or liability under, any Contract under which the Company is obligated to make payments totaling, or services having a value equal to, $5,000 or more ; and (ii) To the Knowledge of Seller, no officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (1) engage in or continue any conduct, activity, or practice relating to the business of the Company or (2) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. B. Except as set forth in Schedule 3.17(B) of the ----------------- Disclosure Schedule, each material Contract is in full force and effect and is valid and enforceable in accordance with its terms. C. Except as set forth in Schedule 3.17(C) of the Disclosure ---------------- Schedule: (i) The Company is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of each Contract under which such Seller has or had any obligation or liability or by which such Seller or any of the assets owned or used by the Company is or was bound; (ii) Each other Person that has or had any obligation or liability under any Contract under which the Company has or had any rights is, and at all times since January, 1996, has been, in full compliance with all applicable terms and requirements of such Contract; (iii) No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Seller or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and (iv) Seller has not given to or received from any other Person, at any time since January, 1996, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract. F. There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Seller under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation. G. The Contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. 3.15. Insurance. --------- A. Seller have delivered to Buyer: (i) True and complete copies of all policies of insurance to which the Company or Seller is a party or under which the Company, or any director of the Company, is or has been covered at any time within the two (2) years preceding the date of this Agreement; (ii) True and complete copies of all pending applications for policies of insurance; and (iii) Any statement by the auditor of the Company's financial statements with regard to the adequacy of such entity's coverage or of the reserves for claims. B. Except as set forth on Schedule 3.15(B) of the ---------------- Disclosure Schedule: (i) All policies to which Seller is a party or that provide coverage to Seller, the Company, or any director or officer of an the Company: (1) Are valid, outstanding, and enforceable; (2) Taken together in the reasonable judgment of Seller, provide adequate insurance coverage for the assets and the operations of the Company for all risks to which the Company are normally exposed; (3) Are sufficient for compliance with all Legal Requirements and Contracts to which Seller is a party or by which it is bound; (4) Will continue in full force and effect following the consummation of the Contemplated Transactions; and (5) Do not provide for any retrospective premium adjustment or other experienced-based liability on the part of Seller. (ii) Neither Seller nor the Company has received (1) any refusal of coverage or any notice that a defense will be afforded with reservation of rights or (2) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. (iii) Seller has paid all premiums due, and have otherwise performed all of their respective obligations, under each policy to which Seller is a party or that provides coverage to the Company or director thereof. (iv) Seller has given notice to the insurer of all claims that may be insured thereby. 3.16. Environmental Matters. Except as set forth in Schedule 3.16 ---------------------- ------------- of the Disclosure Schedule, at all times since January, 1996, Seller has obtained and is in compliance with all permits, licenses and other authorizations required to do business by Environmental Requirements. 3.17. Employee Matters. ---------------- Except as set forth on Schedule 3.17, at all times since January, 1996, Seller has complied in all respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health and plant closing. Except as set forth on Schedule 3.17, Seller is not liable for the payment of any compensation, Damages, taxes, fines, penalties, or other amounts, however, designated, for failure to comply with any of the foregoing Legal Requirements. 3.18. Intellectual Property Rights of the Company. ------------------------------------------- A. Definitions. As used in this Agreement, and in addition ----------- to any other terms fined in this Agreement, the following terms shall have the following meanings. (i) "Software" means any computer program, operating -------- system, applications system, firmware or software of any nature, whether operational, under development or inactive, including all object code, source code, technical manuals, compilation procedures, execution procedures, flow charts, programmers notes, user manuals and other documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature. (ii) "Owned Software" means all Software owned --------------- by the Company, whether purchase from a third party, developed by or on behalf of the Company, currently under development or otherwise. (iii) "Customer Software" means all Software, other ----------------- than the Owned Software, that is, directly or through Distributors, either (x) offered or provided to customers of the Company or (y) used by the Company to provide information or services to customers of the Company for a fee. (iv) "Seller Software" means the Owned Software --------------- and the Customer Software. (v) "Other Software" means all Software, other -------------- than the Company's Software, that is licensed by the Company from third parties or otherwise used by the Company for any purpose whatsoever. (vi) "Intangible" means: ---------- (1) Patents, patent applications, patent disclosures, all re-issues, divisions, continuations, renewals, extensions and continuation-in-parts thereof and improvements thereto; (2) Trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for Registration thereof and all goodwill associated therewith; (3) Copyrights, Registrations thereof and applications for Registration thereof; (4) Maskworks, Registrations thereof and applications for Registration thereof; (5) Trade secrets and confidential business information (including ideas, formulas, compositions, inventions, whether patentable or unpatentable and whether or not reduced to practice, know-how, manufacturing and production processes and techniques, research and development information, drawings, flow charts, processes, ideas, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information); (6) Other proprietary rights; (7) All income, royalties, Damages and payments due at Closing or thereafter with respect to the Owned Software, Customer Software, Other Software, or other Intangibles and all other rights thereunder including, without limitation, Damages and payments for past, present or future infringements or misappropriations thereof, the right to sue and recover for past, present or future infringements or misappropriations thereof; (8) All rights to use all of the foregoing forever; and (9) All other rights in, to, and under the foregoing in all countries. B. Ownership and Right to License. ------------------------------ (i) Except as set forth in Schedule 3.18 -------------- of the Disclosure Schedule, to the Knowledge of the Seller, at all times since January, 1996, Seller has good and marketable title to the Owned Software and Intangibles attributable to the Owned Software, and have the full right to use all of the Customer Software and Other Software, and Intangibles attributable thereto, as used or required to operate Seller's businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans, free and clear of any liens, claims, charges or encumbrances which would affect the use of such Software in connection with the operation of Seller's business as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (ii) To the Knowledge of Seller, no rights of any third party not previously obtained are necessary to market, license, sell, modify, update, and/or create derivative works for any Software as to which Seller take any such action in their respective businesses as currently conducted and as contemplated in the future in accordance with Seller's written business plans. (iii) To the Knowledge of Seller, none of the Software or Intangibles or their respective past or current uses by or through Seller have violated or infringed upon, or is violating or infringing upon, any Software, patent, copyright, trade secret or other Intangible of any Person. To the knowledge of Seller, Seller has adequately maintained all trade secrets and copyrights with respect to such Software. To the Knowledge of Seller, Seller has performed all obligations imposed upon them with regard to the Customer Software and Other Software which are required to be performed by them on or prior to the date hereof, and Seller nor, to the Knowledge of Seller, any other party, is in breach of or default thereunder in any respect, nor to the Seller's Knowledge is there any event which with notice or lapse of time or both would constitute a default thereunder. 3.19. Certain Payments. Since January, 1996, neither Seller nor ----------------- any director, officer, agent, or employee of the Company, nor to Seller's Knowledge any other Person associated with or acting for or on behalf of Seller, has directly or indirectly: A. Made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business; (ii) to pay for favorable treatment for business secured; (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Copmany or any affiliate of the Company or (iv) in violation of any Legal Requirement. B. Established or maintained any fund or asset that has not been recorded in the books and records of the Company. 3.20. Disclosure. ---------- A. No representation or warranty of Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. B. No notice given pursuant to Section 5.5. will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading. C. There is no fact known to Seller that has specific application to Seller or the Company (other than general economic or industry conditions) and that materially adversely affects or, as far as Seller can reasonably foresee, materially threatens, the assets, business, prospects, financial condition, or results of operations of the Company (on a consolidated basis) that has not been set forth in this Agreement or the Disclosure Schedule. 3.21. Brokers or Finders. Seller and its agents have incurred no ------------------ obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other imilar payment in connection with this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: 4.1. Organization and Good Standing. Buyer is a Texas corporation. ------------------------------ 4.2. Authority. This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of the closing documents set forth in Section 2.5.B (collectively, the "Buyer's Closing Documents"), the Buyer's Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Buyer's Closing Documents and to perform its obligations under this Agreement and the Buyer's Closing Documents. 4.3. Investment Intent. Buyer is acquiring the Shares for its ------------------ own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. 4.4. Certain Proceedings. There is no pending Proceeding that -------------------- has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened. 4.5. Brokers or Finders. Buyer and its agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 4.6. Full Disclosure. To the best knowledge of Buyer, it's officers, directors or agents, no representation, warranty or covenant of Buyer contained in this Agreement or in any other written statement or certificate delivered by Buyer pursuant to this Agreement or in connection with the transactions contemplated herein or in any SEC filing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. To the best knowledge of Buyer, it's officers, directors or agents, there is no fact which adversely affects, or in the future may adversely affect, the business, operations, cash flows, affairs, prospects, properties or assets or the condition, financial or otherwise of the Buyer which has not been disclosed in this Agreement, or in the documents, certificates and written statements furnished to Seller for use in connection with the transactions contemplated hereby or in any SEC filing. 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. 5.1. Access and Investigation. Between the date of this Agreement ------------------------- and the Closing Date, Seller will, and will cause the Company and its Representatives to: A. Afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, "Buyer's Advisors") full and free access to the Company's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Buyer and Buyer's Advisors with copies of all such contracts, book s and records, and other existing documents and data as Buyer may reasonably request; and C. Furnish Buyer and Buyer's Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request. 5.2. Operation of the Business of the Company. Between the date ------------------------------------------- of this Agreement and the Closing Date, Seller will: A. Conduct the business of the Company only in the Ordinary Course of Business; B. Use its commercially reasonable efforts to preserve intact the current business organization of the Company, keep available the services of the current officers, employees, and agents of the Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Company or Seller; C. Confer with Buyer concerning operational matters of a material nature; and D. Otherwise report periodically to Buyer concerning the status of the business, operations, and finances of the Company. 5.3. Negative Covenant. Except as otherwise expressly permitted ----------------- by this Agreement, between the date of this Agreement and the Closing Date, Seller will not without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in Section 3.13. is likely to occur. 5.4. Required Approvals. As promptly as practicable after the date of this Agreement, Seller will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Seller will, and will cause the Company to: A. Cooperate with Buyer with respect to all filings that Buyer reasonably elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Buyer in obtaining all required Consents. 5.5. Notification. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller becomes aware of any fact or condition that causes or constitutes a Breach of any of Seller's representations and warranties as of the date of this Agreement, or if Seller becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Schedule if the Disclosure Schedule were dated the date of the occurrence or discovery of any such fact or condition, Seller will promptly deliver to Buyer a supplement to the Disclosure Schedule specifying such change. During the same period, each Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Seller in this Section 5. or of the occurrence of any event that may make the satisfaction of the conditions in Section 7. impossible or unlikely. 5.6. No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Section 9., Seller will not, and will cause its Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital stock of the Company, or any merger, consolidation, business combination, or similar transaction involving Seller. 5.7. Closing of Bank Accounts. Seller shall cause the closing of ------------------------- all Company bank accounts for which Seller, or its officers and directors, have ole signature authority. 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 6.1. Approvals of Governmental Bodies/Third Party Consents. As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by them to consummate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Buyer will, and will cause each Related Person to: A. Cooperate with Seller with respect to all filings that Seller is required by Legal Requirements to make in connection with the Contemplated Transactions; and B. Cooperate with Seller in obtaining all consents identified in Schedule 3.2 of the Disclosure Schedule; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. 6.2. Access and Investigation. Between the date of this Agreement ------------------------- and the Closing Date, Buyer will, and will cause its Representatives to: A. Afford Seller and its Representatives and prospective lenders and their Representatives (collectively, "Seller's Advisors") full and free access to Buyer's personnel, properties (including subsurface testing), contracts, books and records, and other documents and data; B. Furnish Seller and Seller's Advisors with copies of all such contracts, books and records, and other existing documents and data as Seller may reasonably request; and C. Furnish Seller and Seller's Advisors with such additional financial, operating, and other data and information as Seller may reasonably request. 6.3. Operation of the Business of the Company. Between the date ------------------------------------------- of this Agreement and the Closing Date, Buyer will: A. Conduct the business of Buyer only in the Ordinary Course of Business; B. Use commercially reasonable efforts to preserve intact the current business organization of Buyer; and A. Confer with Seller concerning operational matters of a material nature. 6.4. Notification. Between the date of this Agreement and the ------------ Closing Date, Buyer will promptly notify Seller in writing if Buyer becomes aware of any fact or condition that causes or constitutes a Breach of any of Buyer's representations and warranties as of the date of this Agreement, or if Buyer becomes aware of theoccurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 7.1. Accuracy of Representations. --------------------------- A. All of Seller's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. B. Each of Seller's representations and warranties in Article 3. must have been accurate in all respects as of the date of this Agreement, and must be accurate in all respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Schedule. 7.2. Seller's Performance. -------------------- A. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects. B. Each document required to be delivered pursuant to Section 2.4. must have been delivered by closing, and each of the other covenants and obligations in Section 5. must have been performed and complied with in all respects. C. The results of any investigation performed by Buyer in connection with Section 5.1. shall be satisfactory to Buyer in its sole discretion. 7.3. Consents. Each of the Consents identified in Schedule 3.2 of -------- ------------ the Disclosure Schedule must have been obtained and must be in full force and effect. 7.4. Additional Documents. Seller shall deliver such other --------------------- documents as Buyer may reasonably request for the purpose of (i) evidencing the accuracy of any of Seller's representations and warranties; (ii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by such Seller; (iii) evidencing the satisfaction of any condition referred to in this Section 7. or (iv) otherwise facilitating the consummation or performance of any of the Contemplated Transactions. 7.5. No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking Damages or other relief in connection with, any of the Contemplated Transactions or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions. 7.6. No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been made or Threatened by any Person any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, any of Seller or (ii) is entitled to all or any portion of the Purchase Price payable for the Shares, except as has been orally disclosed to Buyer. 7.7. No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Body. 7.8. Employment Agreement.On or before the Closing Date, Seller(s) --------------------- shall have entered into an employment agreement with Buyer. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 8.1. Accuracy of Representations. All of Buyer's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 8.2. Buyer's Performance. ------------------- A. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects. B. Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.5. 8.3. Consents. Each of the Consents identified in Schedule 3.2 of -------- ------------ the Disclosure Schedule must have been obtained and must be in full force and effect. 8.4. Additional Documents. Buyer must have caused the following --------------------- ocuments to be delivered to Seller such other documents as Seller may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer; (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer; (iii) evidencing the satisfaction of any condition referred to in this Section 8. or (iv) otherwise facilitating the consummation of any of the Contemplated Transactions. 8.5. No Injunction. There must not be in effect any Legal -------------- Requirement or any injunction or other Order that (i) prohibits the sale of the Shares by Seller to Buyer and (ii) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 8.6. 8.6 Employment Agreements. Buyer and ----------------------- Asif Balagamwala shall enter into an Employment Agreement, in a form to be mutually agreed by the parties. 9. TERMINATION. 9.1. Termination Events. ------------------ This Agreement may, by notice given prior to or at the Closing, be terminated: A. By either Buyer or Seller if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived; B. (i) By Buyer if any of the conditions in Section 7. have not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; (ii) By Seller, if any of the conditions in Section 7. have not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with their obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; or C. By mutual consent of Buyer and Seller; or D. By either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before March 31, 2000, or such later date as the parties may agree upon. 9.2. Effect of Termination. Each party's right of termination ---------------------- under Section 9.1. is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1., all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 12.1. and 12.3. will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one (1) or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION; REMEDIES. 10.1. Agreement by Seller to Indemnify. Seller (the "Seller --------------------------------- Indemnifying Party"), agrees that they will indemnify and hold Buyer harmless in respect of the aggregate of all indemnifiable Damages of Buyer. For this purpose, "indemnifiable Damages" of Buyer means the aggregate of all Damages incurred or suffered by Buyer resulting from: A. Any inaccurate representation or warranty made by Seller in or pursuant to this Agreement; B. Any default in the performance of any of the covenants or agreements made by Seller in this Agreement; or C. The failure of any Seller to pay, discharge or perform any liability or obligation of Seller or of Seller resulting from the operation of Seller's business prior to the Closing Date. With respect to the measurement of "Indemnifiable Damages", Buyer shall have the right to be put in the same financial position as it would have been had each of the representations and warranties of Seller been true and correct and had each of the covenants of Seller been performed in full. The amount of any indemnifiable Damages otherwise payable to Buyer hereunder shall be reduced if the indemnifiable Damages incurred by Buyer will provide Buyer with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Buyer as a result of such deductions or credits, discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Buyer at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Seller Indemnifying Party to indemnify Buyer shall be subject to each of the following principles or qualifications: 1. Each of the representations and warranties made by Seller in this Agreement or pursuant hereto, shall survive for a period of one (1) year after the Closing; provided, however, that the representations and warranties made by Seller to the extent they relate to Seller's title to the Shares shall survive forever and that the representations and warranties made by Seller and Shareholder in Section 3.8. hereof ("Taxes") shall in each case survive until the first (1st) anniversary of the later of: A. The date on which applicable period of limitation on assessment or refund of tax has expired; or B. The date on which the applicable taxable year (or portion thereof) has been closed. No claim for the recovery of indemnifiable Damages may be asserted by Buyer against Seller Indemnifying Party or their successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. 10.2. Agreements by Buyer to Indemnify. Buyer (the "Buyer Indemnifying Party"), agrees to indemnify and hold Seller (the "Seller Indemnified Party") harmless in respect of the aggregate of all indemnifiable Damages of any of Seller Indemnified Parties. For this purpose, "indemnifiable Damages" of the of Seller Indemnified Party means the aggregate of all Damages incurred or suffered by the Seller Indemnified Party resulting from: A. Any inaccurate representation or warranty made by Buyer or pursuant to this Agreement; or B. Any default in the performance of any of the covenants or agreements made by Buyer in this Agreement. With respect to the measurement of "Indemnifiable Damages", the Seller Indemnified Party shall have the right to be put in the same financial position as they would have been had each of the representations and warranties of Buyer Indemnifying Party been true and correct and had each of the covenants of Buyer Indemnifying Party been performed in full. The amount of any indemnifiable Damages otherwise payable to any Seller Indemnified Party hereunder shall be reduced if the indemnifiable Damages incurred by Seller Indemnified Party will provide such Party with income tax deductions or credits. The amount of the reduction shall be the amount of the actual cash tax savings realized by Seller Indemnified Party as a result of such deductions or credits discounted to its present value as of the date of the payment of the indemnifiable Damages from the date such indemnifiable Damages were incurred by Seller Indemnified Party at the rate of interest charged on such date by the Internal Revenue Service on underpayment of taxes. The foregoing obligation of Buyer Indemnifying Party to indemnify Seller Indemnified Party shall be subject to each of the following principles or qualifications: 10.2.1 Each of the representations and warranties made by Buyer in Article 4 of this Agreement shall survive for a period of one (1) year after the Closing Date, and thereafter all such representations and warranties shall be extinguished. No claim for the recovery of indemnifiable Damages pursuant to clause (i) of Section 10.2. may be asserted by Seller Indemnified Party against Buyer Indemnifying Party or its successors in interest after such representations and warranties shall be thus extinguished; provided, however, that claims first asserted in writing within the applicable period shall not thereafter be barred. 10.3. Matters Involving Third Parties. If any third party shall notify Buyer or Seller (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 10., then the Indemnified Party shall notify each Indemnifying Party thereof promptly; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent that) the Indemnifying Party thereby is Damaged. If any Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then: A. The Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice satisfactory to the Indemnified Party; B. The Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party concludes that the counsel the Indemnifying Party has selected has a conflict of interest); C. The Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld or delayed unreasonably); and D. The Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld or delayed unreasonably). If no Indemnifying Party notifies the Indemnified Party within fifteen (15) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, then the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it may deem appropriate. 10.4. Limitations on Indemnification. Notwithstanding the provisions of Sections 10.1 or 10.2 hereof, neither party shall have any liability to indemnify the other until and to the extent that the aggregate amount of indemnifiable claims hereunder equals or exceeds $5,000, and the cap on any indemnification claims hereunder shall in no event exceed an amount equal to one half of the value of Buyer's Stock transferred hereunder valued as of the Closing Date. 11. POST-CLOSING AGREEMENTS. 11.1. Consistency in Reporting. Each party hereto agrees that: -------------------------- (i) the transaction is intended to qualify as a tax-free transaction under the I.R.C.; (ii) the transaction shall be reported for Federal income tax purposes as a tax-free transaction; (iii) for purposes of all financial statements, tax returns and reports, and communications with third parties, the transactions contemplated in this agreement and ancillary or collateral transactions will be treated as a tax-free transaction; and (iv) if the characterization of any transaction contemplated in this agreement or any ancillary or collateral transaction is challenged, each party hereto will testify, affirm and ratify that the characterization contemplated in such agreement was with the characterization intended by the party; provided, however, that nothing herein shall be construed as giving rise to any obligation if the reporting position is determined to be incorrect by final decision of a court of competent jurisdiction. 12. GENERAL PROVISIONS. 12.1. Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants. Seller will cause the Company not to incur any out-of-pocket expenses in connection with the Contemplated Transactions. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party. 12.2. Public Announcements. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Seller shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Seller and Buyer will consult with each other concerning the means by which the Company's employees, customers, and suppliers and others having dealings with Seller will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication. 12.3. Confidentiality. Between the date of this Agreement and the Closing Date, Buyer and Seller will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, and not use to the detriment of another party or the Company any written, oral, or other information obtained in confidence from another party or an Seller in connection with this Agreement or the Contemplated Transactions, unless: A. Such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party; B. The use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions; or C. The furnishing or use of such information is equired by or necessary or appropriate in connection with legal proceedings. If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request. Whether or not the Closing takes place, Seller waives, and will upon Buyer's request cause Seller to waive, any cause of action, right, or claim arising out of the access of Buyer or its representatives to any trade secrets or other confidential information of the Company. 12.4. Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand (with written confirmation of receipt); (ii) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested or (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Seller: AC Travel, Inc. 822 Concord Road, Suite 110 Smyrna, GA 30080 Attn: Asif Balagamwala With a copy to: Michael Smith, Esq. Buyer: Elite Technologies, Inc. 3700 Crestwood Parkway Suite 1000 Duluth, GA 30096 With a copy to: Morris, Manning & Martin, L.L.P. 1600 Atlanta Financial Center 3343 Peachtree Road, N.E. Atlanta, Georgia 30326-1044 Attention: Bryan G. Harrison, Esq. Telecopy No.: (404) 365-9532 12.5. Jurisdiction; Service of Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Georgia, County of Gwinnett, or, if it has or can acquire jurisdiction, in the United States District Court for the Northern District of Georgia, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 12.6. Further Assurances. The parties agree (i) to furnish upon request to each other such further information; (ii) to execute and deliver to each other such other documents and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 12.7. Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law: A. No claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one (1) party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; B. No waiver that may be given by a party will be applicable except in the specific instance for which it is given; and C. No notice to or demand on one (1) party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12.8. Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the Letter of Intent between Buyer and Seller) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 12.9. Disclosure Schedule. ------------------- A. The disclosures in the Disclosure Schedule, and those in any Supplement thereto, must relate only to the representations and warranties in the Section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. B. In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. 12.10. Assignments, Successors and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 12.11. Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 12.12. Section Headings; Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 12.13. Time of Essence. With regard to all dates and time periods ---------------- set forth or referred to in this Agreement, time is of the essence. 12.14. Governing Law. This Agreement will begoverned by the laws -------------- of the State of Georgia without regard to conflicts of laws principles. 12.15. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. EX-10.4 5 0005.txt EMPLOYMENT AGREEMENT AGREEMENT made this 1st day of June, 1999, between Elite Technologies, Inc., a Texas corporation ("Employer"), having its principal place of business in Duluth, Georgia, and Scott Schuster ("Employee"). WHEREAS, Employee and Employer desire to set forth in writing their contract with respect to Employee's employment by Employer; NOW, THEREFORE, in consideration of their mutual promises set forth herein, the parties hereby agree as follows: 1. Employment. Employer hereby employs Employee, and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 2. Duties and Authority. a. Employee will occupy the position of Chairman of the Board and Chief Executive Officer (the "Position") with Employer. Employee has also been appointed as a member of the Board of Directors of Employer (the "Board"). b.Employee will have the responsibility and authority associated with the Position, reporting directly to, and subject to the control of, the Board, and will have general supervision, direction and control, as necessary, over all of the business and affairs of Employer and its employees. Employee will be primarily responsible for carrying out orders and resolutions of the Board and such duties as may from time to time be assigned to Employee by the Board. c. Employee agrees to devote his full time attention and best efforts to the performance of his employment hereunder. 3. Term of Employment. The term of employment shall begin on the date of this Agreement and shall extend for a period of three (3) consecutive years unless earlier terminated as provided herein. 4. Noncompetition. Employee agrees, during the term of this Agreement, and for a period of one (1) additional year immediately following the termination of this Agreement, that (i) he will not solicit, engage, entice, procure, or otherwise interfere, in any manner, with the employees, customers, or other business relationships of Employer, (ii) he will not engage, directly or indirectly, in any business similar, like, comparable or related to the business then being conducted by Employer, and (iii) he will not serve as an officer, member of the board of directors, or have any other affiliation with any entity engaged in such a business. In the event that Employer and Employee are unable to agree on whether a particular business in which Employee attempts to engage is directly or indirectly in competition with Employer, the matter will be submitted to arbitration under the provisions of Paragraph 24 of this Agreement. 5. Compensation. Employee will receive compensation during the term of this Agreement as follows: a. A base annual salary of Two Hundred Fifty Thousand Dollars ($250,000) per year payable either bi-monthly, weekly, semi-weekly or monthly at the discretion of Employer, subject to annual upward adjustments by the Board (the "Base Salary"). b. An incentive salary (the "Profits Bonus") equal to a maximum of one and one half percent (1.5%) of the Adjusted Net Profits (hereinafter defined) of Employer during each fiscal year beginning or ending during the term of this Agreement, prorated for any partial fiscal year. "Adjusted Net Profits" shall be the net profits before federal and state income taxes, determined on a consolidated basis and otherwise in accordance with generally accepted accounting principles by the independent accounting firm employed by Employer as auditors (the "Auditors") and adjusted to exclude: (i) any incentive salary payments paid pursuant to this Agreement; (ii) any contributions to pension and/or profit-sharing plans; (iii) any extraordinary gains or losses (including, but not limited to, gains or losses on disposition of assets); (iv) any refund or deficiency of federal and state income taxes paid in or assessed for a prior year for which a Profits Bonus has been paid after taking into account such over or under payment; and (v) any provision for federal or state income taxes made in prior years for which a Profits Bonus has been paid which is subsequently determined as unnecessary. The determination of the Adjusted Net Profits made by the Auditors shall be final and binding upon Employee and Employer. The Profits Bonus shall be paid within sixty (60) days after the end of each fiscal year. The maximum Profits Bonus payable for any one fiscal year under this Paragraph 5.b. shall not exceed two hundred percent (200%) of Employee's Base Salary during such fiscal year unless authorized by the Board. The Profits Bonus may be paid in shares of common stock, $0.10 par value, of Employer ("Employer Shares") by mutual agreement of Employer and Employee. c. An incentive salary ("Revenue Bonus") equal to a maximum of four percent (4%) of the Revenue Increase(s) (hereinafter defined) of Employer during each fiscal year beginning or ending during the term of this Agreement. "Revenue Increase(s)" shall be the difference between the gross revenue reported by Employer for the applicable fiscal year, less the gross revenue reported by Employer for the immediately preceding fiscal year, determined in accordance with generally accepted accounting principles by the Auditors, and prorated for any partial fiscal year. Any increase in gross revenue which is caused by the acquisition, merger or roll up of any entity (the "Transaction") shall be discounted by fifty percent (50%) in the year in which the Transaction occurs and only the discounted amount included in calculating gross revenue. The Revenue Bonus shall be paid within sixty (60) days after the end of each fiscal year. The maximum Revenue Bonus payable for any one fiscal year under this Paragraph 5.c. shall not exceed two hundred percent (200%) of Employee's Base Salary unless authorized by the Board. The Revenue Bonus may be paid in Employer Shares by mutual agreement of Employer and Employee. In the event of a Transaction, Employer and Employee agree that, for purposes of calculating the Revenue Increase, the gross revenues attributable to the acquired company or assets (the "Target") for the immediately preceding fiscal year shall be the gross revenues of the Target for the twelve (12) calendar months immediately preceding the closing of the Transaction. d. Employer agrees that Employee may review the books and records of Employer at anytime during the term of this Agreement and for a period of twelve (12) months after a termination of this Agreement for purposes of verifying the calculation of the Profits Bonus and the Revenue Bonus. On written notice from Employee to Employer, such review may be conducted at Employer's principal business office after ten (10) days written notice from Employee. If such review determines an underpayment to Employee of the amounts owed for the Profits Bonus and the Revenue Bonus in excess of ten percent (10%) of the amounts actually paid to Employee for same for the periods of the underpayment, Employer shall reimburse Employee for the reasonable costs of such review. 6. Deferred Compensation. In the event that Employee retires after performing services for Employer up until Employee reaches the age of 65 or retires at an earlier age with the approval of Employer, Employee will be entitled to deferred compensation payments after retirement upon the following terms and conditions: a. For a period of twenty (20) years ("Retirement Period") Employee will receive all of the following: (i) base payments equal to thirty percent (30%) of the average total salary (Base Salary plus Profits Bonus plus Revenue Bonus) paid to Employee during the last three (3) full years of employment or based upon his total period of employment, should that period be less that three (3) full years, prior to the month of retirement ("Retirement Base Salary"); (ii) Advisory Payments equal to thirty percent (30%) of the Retirement Base Salary, provided that Employee serves as an advisor and consultant to Employer regarding its business. Employee will hold himself available to perform services at reasonable times at the request of the Board, consistent with any business activities Employee may be engaged in at such time. The Board shall have the right to require the presence of Employee at any Board meeting, not exceeding more than one meeting per month. Attendance at these Board meetings shall not be required should Employee's health prevent attendance; however, Employer shall have the right to demand a written statement from Employee prepared by a licensed medical examiner evidencing inability of Employee to attend the meeting or meetings. Employee will be reimbursed for all reasonable and necessary travel and incidental expenses incurred by Employee in connection with the performance of advisory services; and (iii) Noncompetition Payments equal to forty percent (40%) of the Retirement Base Salary. b. The Retirement Base Salary, the Advisory Payments and the Noncompetition Payments (collectively, the "Deferred Compensation Payments") shall be made in equal monthly installments on the first day of each month, starting the month following the month of retirement. c. In the event of the death of Employee prior to the expiration of the "Retirement Period," Employer will pay all remaining installments of Retirement Base Salary specified in Paragraph 6.a.(i), but no other Deferred Compensation Payments, to any beneficiary of Employee designated by Employee in a written document filed with Employer, or in the absence of such designation, the estate of Employee. Employer may elect to pay these remaining installments of Retirement Base Salary in a lump sum or in the equal monthly installments specified in Paragraph 6.b. d. Employee shall not sell, assign, transfer, or pledge, or in any other way dispose of or encumber, voluntarily or involuntarily, by gift, testamentary disposition, inheritance, transfer to any inter-vivos trust, seizure and sale by legal process, operation of law, bankruptcy, winding up of a corporation, or otherwise, the right to receive any Retirement Base Salary pursuant to this Agreement. 7. Relocation. In the event Employee is transferred and assigned to a new principal place of work located more than fifty (50) miles from Employee's present residence, Employer will pay for all reasonable relocation expenses including: a. Transportation fares, meals, and lodging for Employee, his spouse, and family from Employee's present residence to any new residence located near the new principal place of work. b. Moving of Employee's household goods and the personal effects of Employee and Employee's family from Employee's present residence to the new residence. c. Lodging and meals for Employee and Employee's family for a period of not more than sixty (60) consecutive days while occupying temporary living quarters located near the new principal place of work. d. Round trip travel, meals and lodging expenses for Employee's family for no more than two (2) house hunting trips to locate a new residence, each trip not to exceed fourteen (14) days; and e. Expenses in connection with the sale of the residence of Employee including realtor fees, property appraisals, mortgage prepayment penalties, termite inspector fees, title insurance policy and revenue stamps, escrow fees, fees for drawing documents, state or local sales taxes, mortgage discount points (if in lieu of a prepayment penalty), and seller's attorney's fees (not to exceed one percent (1%) of the sales price). At the option of Employee and in lieu of reimbursement for these expenses, Employee may sell the residence of Employee to Employer at the fair market value of the residence determined by an appraiser chosen by Employer. The appraisal will be performed within ten (10) days after notice of transfer and notice of appraised value will be submitted by report to Employee. Employee will have the right to sell the residence to Employer at the appraised price by giving notice of intent to sell within thirty (30) days from the date of the appraisal report. The term "residence" shall mean the property occupied by Employee as the principal residence at the time of transfer and does not include summer homes, multiple-family dwellings, houseboats, boats, or airplanes but does include condominium or cooperative apartment units and duplexes (two family) occupied by Employee. 8. Medical and Group Insurance. At the expense of Employer, Employer agrees to include Employee in the group medical and hospital plan of Employer, when such plan is established. 9. Stock Options. Pursuant to a separate stock option agreement (the "Stock Option Agreement"), Employer will grant Employee options to acquire two million (2,000,000) shares of Employer Shares at $0.01 per share, one million (1,000,000) of which shares will vest and become fully exercisable on January 1, 2001, and the balance of which will vest and become fully exercisable on August 31, 2001, subject to acceleration of the vesting period upon the termination of this Agreement for any reason whatsoever. The options will have a term of ten (10) years. Employee agrees that at no time will he sell any Employer Shares in such amounts or at such prices which would create a material adverse effect on the ten (10) day moving average closing price of Employer Shares on such exchange or system then trading in Employer's quoted stock. The Stock Option Agreement will also grant Employee "piggy-back" registration rights with respect to the shares acquired pursuant to the exercise of such options. 10. Vacation. Employee shall be entitled to six (6) weeks of paid vacation during each fiscal year of employment; for the fourth fiscal year and each fiscal year thereafter, said vacation time shall increase to five (5) weeks during each fiscal year. The time for the vacation shall be mutually agreed upon by Employee and Employer. If vacation is not taken, for the benefit of Employer, Employee shall be compensated at one and one half (1 1/2) times his then current Base Salary for time not taken. Additionally, Employee shall receive thirty (30) days sick/personal leave for each fiscal year of employment. Unused sick/personal leave will accrue and be retained by Employee to be used at his discretion or paid on a termination of his employment. 11. Automobile. Employer will provide Employee, during the term of this Agreement, with the use of a new luxury automobile of Employee's choice. Employer will pay all operating expenses on such automobile and will procure and maintain in force an automobile liability policy for the automobile with coverage, including Employee, in the minimum amount of One Million Dollars ($1,000,000) combined single limit on bodily injury and property damage. 12. Expense Reimbursement. Employee shall be entitled to reimbursement for all reasonable expenses, including travel and entertainment, incurred by Employee in the performance of Employee's duties. Employee will maintain records and written receipts as required by federal and state tax authorities to substantiate expenses as an income tax deduction for Employer and shall submit vouchers for expenses for which reimbursement is made 13. Low Interest Loan. a. From time to time, Employee may borrow sums from Employer up to a maximum aggregate of Six Hundred Thousand Dollars ($600,000) provided Employer has excess funds available for such purposes. The Board shall establish the amount of such funds available upon request by Employee. Each loan shall be evidenced by a promissory note payable in not more than sixty (60) monthly principal and interest installment payments starting with the first day of the month following the month in which the loan is made, with interest at the rate of three percent (3%) per year on the unpaid balance of the loan or loans outstanding. b. In the event Employee severs employment with Employer for reasons other than permanent disability, death, or retirement while a loan or loans are outstanding, the unpaid principal amount then outstanding shall be due and payable within thirty (30) days after the date of termination. In the event severance of employment is due to permanent disability, death, or retirement, Employee, or the legal representative of Employee, shall repay any outstanding loan in accordance with the terms of the promissory note. c. Should there be a default in the payment of any installment of principal and interest when due, during Employee's employment under this Agreement, Employer may withhold installments from Employee's compensation under this Agreement. If there is a default after a termination of Employee's employment, then the entire sum of principal and interest, at the option of Employer, shall immediately become due and payable without demand or notice. In case this note is not paid upon acceleration, Employee shall pay all costs of collection and reasonable attorney's fees whether or not suit is filed on the note. 14. Permanent Disability. a. In the event Employee becomes Permanently Disabled (hereinafter defined) during employment by Employer, Employer may terminate this Agreement by giving thirty (30) days prior notice to Employee of its intent to terminate this Agreement, and, unless Employee resumes performance of the duties set forth in Paragraph 2 within such thirty (30) days and continues such performance, this Agreement will terminate at the end of the thirty (30) day period. "Permanently Disabled" for purpose of this Agreement will mean the inability, due to physical or mental ill health, or any reason beyond the control of Employee, to perform Employee's duties for sixty (60) consecutive days or for an aggregate of ninety (90) days during any one fiscal year irrespective of whether such days are consecutive, as determined by a physician selected by Employer and a physician selected by Employee. Employee will be entitled to his Base Salary earned prior to the date of becoming Permanently Disabled as provided for in Paragraph 5 computed pro rata up to and including the date of becoming Permanently Disabled. b. Upon termination of employment under the provisions of Paragraph 14.a., Employee will be entitled to Retirement Base Salary under the provisions of Paragraph 6(i). For purposes of Paragraph 6, termination under Paragraph 14.a. of this Agreement shall be considered "retirement." Employee will be excused from performing advisory services as required under Paragraph 6.b.(ii) but shall nevertheless be entitled to receive the Advisory Payments except to the extent limited by death of Employee as set forth in Paragraph 6.c. Employee, however, shall not be entitled to Noncompetition Payments under Paragraph 6. c. Employer shall maintain, at its expense, a disability policy covering Employee for a dollar amount specified by the Board. This amount may not exceed one hundred percent (100%) of the Base Salary. Benefits of this policy shall begin on the date Employee's sick/personal leave days are exhausted and shall continue until Employee's Deferred Compensation Payments as outlined in Paragraph 6 of this Agreement commence. 15. Death. In the event that Employee dies during the term of this Agreement, this Agreement shall immediately terminate except that Employee will be entitled to his Base Salary earned prior to the date of death as provided for in Paragraph 5 computed pro rata up to and including the date of death. Additionally, Employee will be entitled to Retirement Base Salary under the provisions of Paragraph 6(i). For purposes of Paragraph 6, termination under Paragraph 15 of this Agreement shall be considered "retirement." Employee, however, shall not be entitled to receive either Advisory Payments or Noncompetition Payments under Paragraph 6. 16. Termination. a. Employer may terminate Employee's employment under this Agreement by giving ten (10) days prior written notice to Employee. Should Employer terminate Employee's employment for any reason other than Cause (hereinafter defined), Employee shall receive his Base Salary, the Profits Bonus and the Revenue Bonus due for the remainder of the term of this Agreement, payable as and when same would have become due and payable but for the termination of Employee's employment, the Retirement Base Salary, the Advisory Payments and the Noncompetition Payments. Should Employer terminate Employee's employment for Cause, Employee will be entitled to his Base Salary earned prior to the date of termination as provided for in Paragraph 5 of this Agreement, computed pro rata up to and including the date of termination, plus one twelfth (1/12) of his Base Salary. Employee shall not be entitled to any further payments under this Agreement. For purposes of this Agreement, "Cause" will occur if Employee willfully breaches or habitually neglects the duties to be performed under Paragraph 2, habitually engages in the use of illegal substances or the excessive use of alcohol. b. In the event Employer is acquired, is a non-surviving party in a merger, or transfers substantially all of its assets, this Agreement shall not be terminated and Employer agrees to take all actions necessary to ensure that the transferee or surviving company is bound by the provisions of this Agreement. c. Employee may terminate Employee's employment by providing thirty (30) days prior written notice to Employer. Should Employee terminate Employee's employment for any reason other than Good Reason (hereinafter defined), Employee will be entitled to his Base Salary earned prior to the date of termination as provided for in Paragraph 5 of this Agreement, computed pro rata up to and including the date of termination, plus one full year of his Base Salary, plus all stock based compensation due through the term of this agreement. Should Employee terminate Employee's employment with Good Reason, Employee shall receive his Base Salary, the Profits Bonus and the Revenue Bonus due for the remainder of the term of this Agreement, payable as and when same would have become due and payable but for the termination of Employee's employment, the Retirement Base Salary, the Advisory Payments and the Noncompetition Payments. For purposes of this Agreement, "Good Reason" means the occurrence, during the term of this Agreement, of any one of the following acts by Employer, or failures by Employer to act: i. any material diminution in Employee's authorities or responsibilities (including reporting responsibilities) or from his status, title, position or responsibilities (including reporting responsibilities); the assignment to him of any duties or work responsibilities which are inconsistent with such status, title, position or work responsibilities; or any removal of Employee from, or failure to reappoint or reelect him to the Position and Employer's Board of Directors, except if any such changes are because of Permanent Disability, retirement, or death; ii. a reduction by Employer in Employee's Base Salary, Profits Bonus or Revenue Bonus as in effect on the date hereof or as the same may be increased from time to time; iii. the failure by Employer, without Employee's consent, to pay to Employee any portion of Employee's current compensation; or iv. the failure by Employer to continue to provide Employee with benefits substantially similar in value to Employee in the aggregate to those enjoyed by Employee under any of Employer's pension, life insurance, medical, health and accident, or disability plans. 17. Notices. a. Any notice under this Agreement must be written. Notices must be either (i) hand delivered to the address set forth below for the recipient; or (ii) placed in the United States mail, certified, return receipt requested, addressed to the recipient or (iii) deposited with an overnight delivery service, addressed to the recipient; or (iv) telecopied by facsimile transmission to the party, provided that the transmission is confirmed by telephone on the date of the transmission and is followed with a copy sent by overnight delivery or regular mail to the address specified below. Any mailed notice is effective upon deposit with the United States Postal Service or the overnight delivery service, as applicable; all other notices are effective upon receipt. b. Either party may designate another address for this Agreement by giving the other party at least five (5) business days' advance notice of its address change. A party's attorney may send notices on behalf of that party, but a notice is not effective against a party if sent only to that party's attorney. 18. Entire Agreement. This Agreement contains the entire agreement and supersedes all prior agreements and understanding, oral or written, with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment or modification is sought. 19. Waiver. The waiver by Employer of a breach of any of the provisions of this Agreement by Employee shall not be construed as a waiver of any subsequent breach by Employee. 20. Governing Law; Venue. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia. Gwinnett County, Georgia shall be the proper venue for any litigation arising out of this Agreement. 21. Paragraph Headings. Paragraph headings are for convenience only and are not intended to expand or restrict the scope or substance of the provisions of this Agreement. 22. Assignability. The rights and obligations of Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Employer. This Agreement is a personal employment agreement and the rights, obligations and interests of Employee hereunder may not be sold, assigned, transferred, pledged or hypothecated. 23. Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement shall remain in full force and effect and shall in no way be impaired. 24. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Any arbitration shall be held in Atlanta, Georgia. EX-27 6 0006.txt FDS --
5 3-mos May-31-2000 Jun-01-1999 May-31-2000 (35,106) 0 0 0 0 846,554 31,004 547,512 5,872,191 2,039,336 0 0 0 3,427 0 5,872,191 298,230 298,230 0 0 1,481,216 (29,075,847) 16,100 16,100 0 0 0 0 0 (29,075,847) (1.41) (1.41)
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