STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 1, 1999
by and among
GLOBAL ACCESS PAGERS, INC.,
and
PhoneXchange, Inc.,
David Chadwick, James Rott, Paul Hyde and Gary Killoran
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TABLE OF CONTENTS
Page
----
SECTION 1.
DEFINITIONS .................................................. 1
SECTION 2. SALES AND TRANSFER OF SHARES;
CLOSING ........................ 9
2.1
SHARES ....................................................... 9
2.2 PURCHASE
PRICE ............................................... 9
2.3
CLOSING ...................................................... 10
2.4 CLOSING
OBLIGATIONS .......................................... 10
SECTION 3. REPRESENTATIONS AND WARRANTIES OF
SELLERS .................... 11
3.1 ORGANIZATION AND GOOD
STANDING ............................... 11
3.2 AUTHORITY; NO
CONFLICT ....................................... 11
3.1
CAPITALIZATION ............................................... 13
3.2 FINANCIAL
STATEMENTS ......................................... 13
3.3 BOOKS AND
RECORDS ............................................ 13
3.4 TITLE TO PROPERTIES;
ENCUMBRANCES ............................ 13
3.5 CONDITION AND SUFFICIENCY OF
ASSETS .......................... 14
3.6 ACCOUNTS
RECEIVABLE .......................................... 14
3.7 NO UNDISCLOSED
LIABILITIES ................................... 15
3.8
TAXES ........................................................ 15
3.9 NO MATERIAL ADVERSE
CHANGE ................................... 15
3.10 EMPLOYEE
BENEFITS ............................................ 15
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS ............................................... 16
3.12 LEGAL PROCEEDINGS;
ORDERS .................................... 17
3.13 ABSENCE OF CERTAIN CHANGES AND
EVENTS ........................ 17
3.14 CONTRACTS; NO
DEFAULTS ....................................... 18
3.15
INSURANCE .................................................... 21
3.16 ENVIRONMENTAL
MATTERS ........................................ 21
3.17 INTELLECTUAL
PROPERTY ........................................ 22
3.18 CERTAIN
PAYMENTS ............................................. 23
3.19
DISCLOSURE ................................................... 24
3.20 RELATIONSHIPS WITH RELATED
PERSONS ........................... 24
3.21 BROKERS OR
FINDERS ........................................... 24
SECTION 4. REPRESENTATIONS AND WARRANTIES OF
BUYER ...................... 25
4.1 ORGANIZATION AND GOOD
STANDING ............................... 25
4.2 AUTHORITY; NO
CONFLICT ....................................... 25
4.3 INVESTMENT
INTENT ............................................ 25
4.4 CERTAIN
PROCEEDINGS .......................................... 25
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SECTION 5. COVENANTS OF SELLERS PRIOR TO CLOSING
DATE ................... 26
5.1 ACCESS AND
INVESTIGATION ..................................... 26
5.2 OPERATION OF THE BUSINESSES OF THE
COMPANY ................... 26
5.3 NEGATIVE
COVENANT ............................................ 26
5.4
NOTIFICATION ................................................. 26
5.5 PAYMENT OF INDEBTEDNESS BY OR TO RELATED
PERSONS ............. 27
5.6 NO
NEGOTIATION ............................................... 27
5.7 BEST
EFFORTS ................................................. 27
SECTION 6. COVENANTS OF BUYER PRIOR TO CLOSING
DATE ..................... 27
6.1 BEST
EFFORTS ................................................. 27
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO
CLOSE .......... 28
7.1 ACCURACY OF
REPRESENTATIONS .................................. 28
7.2 SELLERS'
PERFORMANCE ......................................... 28
7.3 ADDITIONAL
DOCUMENTS ......................................... 28
7.4 NO
PROCEEDINGS ............................................... 29
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE
PROCEEDS .......... 29
7.6 NO
PROHIBITION ............................................... 29
SECTION 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO
CLOSE ......... 29
8.1 ACCURACY OF
REPRESENTATIONS .................................. 29
8.2 BUYER'S
PERFORMANCE .......................................... 30
8.3 NO
INJUNCTION ................................................ 30
SECTION 9.
TERMINATION .................................................. 30
9.1 TERMINATION
EVENTS ........................................... 30
9.2 EFFECT OF
TERMINATION ........................................ 31
SECTION 10. INDEMNIFICATION;
REMEDIES .................................... 31
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE .................................................... 31
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY
SELLERS ............ 31
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY
BUYER .............. 32
10.4 RIGHT OF SET-
OFF ............................................. 32
10.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY
CLAIMS .......... 33
10.6 PROCEDURE FOR INDEMNIFICATION -- OTHER
CLAIMS ................ 34
SECTION 11. GENERAL
PROVISIONS ........................................... 34
11.1
EXPENSES ..................................................... 34
11.2 PUBLIC
ANNOUNCEMENTS ......................................... 34
11.3
CONFIDENTIALITY .............................................. 35
11.4
NOTICES ...................................................... 35
11.5 JURISDICTION; SERVICE OF
PROCESS ............................. 36
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11.6 FURTHER
ASSURANCES ........................................... 36
11.7
WAIVER ....................................................... 36
11.8 ENTIRE AGREEMENT AND
MODIFICATION ............................ 37
11.9 DISCLOSURE
LETTER ............................................ 37
11.10 ASSIGNMENTS, SUCCESSOR, AND NO THIRD-PARTY
RIGHTS ............ 37
11.11
SEVERABILITY ................................................. 38
11.12 SECTION HEADINGS,
CONSTRUCTION ............................... 38
11.13 TIME OF
ESSENCE .............................................. 38
11.14 GOVERNING
LAWS ............................................... 38
11.15
COUNTERPARTS ................................................. 38
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January 1,
1999,
by and among Global Access Pagers, Inc., a Nevada corporation ("GAPI" or
"Buyer") and PhoneXchange, Inc., a Delaware corporation (the "Company"),
David
Chadwick, James Rott, Paul Hyde and Gary Killoran (collectively, the
"Sellers").
WITNESSETH:
WHEREAS, Sellers are the owner of an aggregate of 8,600,000 shares
(the
"Shares") of common stock, par value $0.001 per share (the "Common
Stock"), of
the Company, being approximately 85.14% of the 10,100,882 outstanding
shares of
Common Stock;
WHEREAS, Sellers desire to sell, and Buyer desires to purchase,
the
Shares pursuant to this Agreement;
WHEREAS, it is the intention of the parties hereto that,
immediately
following consummation of the purchase and sale of the Stock pursuant to
this
Agreement Buyer shall own approximately 85.14% of the outstanding shares
of
capital stock of the Company.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
SECTION 1. 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 the Company has or
may
acquire any rights, (ii) under which the Company has or may become
subject to
any obligation or liability, or (iii) by which the Company or any of the
assets
owned or used by it is or may become bound.
"BALANCE SHEET" -- as defined in Section 3.4.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of
achieving a
result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible.
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6
"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.
"CLOSING" -- as defined in Section 2.3.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes
place.
"COMPANY" -- as defined in the Recitals of this Agreement, and including
any
Subsidiary of the Company.
"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 sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Employment
Agreements and the Noncompetition Agreements;
(c) the performance by Buyer and Sellers of their respective
covenants
and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise
of
control over the Company.
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES" -- as defined in Section 10.2
"DISCLOSURE LETTER" -- the disclosure letter delivered by Sellers to
Buyer
concurrently with the execution and delivery of this Agreement.
"EBITDA" -- the net operating earnings before interest, income taxes,
depreciation and amortization of PhoneXchange, determined according to
generally accepted accounting principles consistently applied on the
same basis
as EBITDA of the Buyer is (or would be) determined and reported in
Buyer's
financial statements, if the Buyer (or as if the Buyer is)
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7
required to file such financial statements with the Securities and
Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended
(the
"Exchange Act") and Regulation S-X.
"EMPLOYMENT AGREEMENTS" -- as defined in Section 2.4(a)(iii).
"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.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and
wetlands), ground waters, drinking water supply, stream sediments,
ambient air
(including indoor air), plant and animal life, and any other
environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" -- any cost, damages,
expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting
of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational
safety
and health, and regulation of chemical substances or
products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands
and
response, investigative, remedial, or inspection costs and
expenses
arising under Environmental Law or Occupational Safety and
Health
Law;
(c) financial responsibility under Environmental Law or
Occupational
Safety and Health Law for cleanup costs or corrective
action,
including any investigation, cleanup, removal, containment,
or other
remediation or response actions ("Cleanup") required by
applicable
Environmental Law or Occupational Safety and Health Law
(whether or
not such Cleanup has been required or requested by any
Governmental
Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational
Safety and
Health Law.
The terms "removal," "remedial," and "response action," include the
types of
activities covered by the United States Comprehensive Environmental
Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended
("CERCLA").
"ENVIRONMENTAL LAW" -- any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the public
of
intended or actual releases of pollutants or hazardous
substances or
materials, violations of discharge limits, or other
prohibitions and
of the commencements of activities, such as
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8
resource extraction or construction, that could have
significant
impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so
that they do not present unreasonable risks to human health or
the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation
of hazardous substances, pollutants, oil, or other potentially
harmful
substances;
(g) cleaning up pollutants that have been released, preventing the
threat
of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of
them, for
damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to
recover for
injuries done to public assets.
"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 the Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and
rolling
stock) currently or formerly owned or operated by the Company.
"FAIR MARKET VALUE"--shall mean, with respect to any common stock, the
average
closing bid price of such common stock quoted on the National
Association of
Securities Dealers Automated Quotation System - Bulletin Board ("Nasdaq
Bulletin Board"), or, if such common stock is not listed on the Nasdaq
Bulletin
Board, such other exchange as such common stock is then traded or
listed, for
the five trading days prior to the date for which such value is
determined.
"GAAP"--Generally accepted United States accounting principles, applied
on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"GAPI COMMON STOCK"--restricted common stock of Global Access Pagers,
Inc., a
Nevada corporation, which shall bear appropriate legends as required by
law,
and which shall be issued pursuant to exemptions to the registration
requirements of the Securities Act under Section 4(2) and Regulation D
of the
rules promulgated thereunder.
"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.
4
9
"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.
"HAZARDOUS ACTIVITY" - the distribution, generation, handling,
importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any
withdrawal
or other use of groundwater) of Hazardous Materials in, on, under,
about, or
from the Facilities or any part thereof into the Environment, and any
other
act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on
or off
the Facilities, or that may affect the value of the Facilities or the
Company.
"HAZARDOUS MATERIALS" - any waste or other substance that is listed,
defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant
to any
Environmental Law, including any admixture or solution thereof, and
specifically including petroleum and all derivatives thereof or
synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" - as defined in Section 3.22.
"INTERIM BALANCE SHEET" - as defined in Section 3.4.
"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 could be expected to discover or
otherwise become
aware of such fact or other matter in the course of conducting
a
reasonably comprehensive investigation concerning the
existence of
such fact or other matter.
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10
A Person (other than an individual) will be deemed to have "Knowledge"
of a
particular fact or other matter if any individual who is serving, or who
has at
any time served, as a director, officer, employee, partner, executor, or
trustee of such Person (or in any similar capacity) has, or at any time
had,
Knowledge 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.
"NONCOMPETITION AGREEMENTS"--as defined in Section 2.4(a)(iv).
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to
provide
safe and healthful working conditions and to reduce occupational safety
and
health hazards, and any program, whether governmental or private
(including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena,
confirmation 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 by applicable law or common
practice to be
authorized by the board of directors of such Person (or by any
Person
or group of Persons exercising similar authority) and is not
required
to be authorized by the shareholders of such Person; 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) the partnership agreement and any
statement of partnership of a general partnership; (iii) the limited
partnership agreement and the certificate of limited partnership of a
limited
partnership; (iv) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person;
and (v)
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.
6
11
"PLAN" -- as defined in Section 3.13.
"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 or more member's 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 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
(f) 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 (ii) "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 10% of the outstanding voting power of a Person or equity
securities or
other equity interests representing at least 10% of the outstanding
equity
securities or equity interests in a Person.
"RELEASE" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether
intentional or unintentional.
"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.
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12
"SECURITIES ACT" -- the Securities Act of 1933, as amended, or any
successor
law, and regulations and rules issued pursuant to that Act or any
successor law.
"SELLERS" -- as defined in the first paragraph of this Agreement.
"SELLERS' RELEASES" -- as defined in Section 2.4.
"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 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.
"THREAT OF RELEASE" -- a substantial likelihood of a Release that may
require
action in order to prevent or mitigate damage to the Environment that
may
result from such Release.
"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), or
if any other event has occurred or any other circumstances exist, 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.
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer
will
purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Shares
will be $6,450,003, subject to adjustment as set forth below, plus the
Earnout
Amount.
(a) Purchase Price. The Purchase Price will be paid in shares of
GAPI
Common Stock equal to the result of the greater of (i) dividing the
Purchase
Price by the Fair Market Value per share of the GAPI Common Stock, or
(ii)
921,429 shares of GAPI Common Stock. These shares will be issued as
follows:
8
13
(i) 307,161 shares shall be issued within five days of
Closing;
(ii) 614,268 will be issued if and to the extent that the
Company
achieves at least $1,000,000 in EBITDA during the
period
commencing on the Closing and ending August 31, 1999,
at the
rate of .614268 additional shares for each dollar of
EBITDA
achieved by the Company during such period; provided,
however,
that in no event shall more than 614,268 shares be
issued
pursuant to this Section 2.2(a)(ii).
(b) Earnout. The Purchase Price shall be increased by the
following
payments (the "Earnout Payments"), payable through December
31, 2001
(the "Earnout Period"), provided, however, that the maximum
aggregate number of shares of GAPI Common Stock to be issued
pursuant to all Earnout Payments shall not exceed (i) the
sum of
2,600,000 shares, less (ii) the number of shares of GAPI
Common
Stock issuable pursuant to Section 2.2(a) above, as adjusted
pursuant to Section 2.2(b) above. In the event that the
Company
achieves EBITDA in any single calendar month (or an average
monthly
EBITDA over any three month period of any fiscal quarter)
during the
Earnout Period (excluding the net profit allocable to any
minority
interest in the Company) set forth below, Sellers shall be
issued
additional shares of GAPI Common Stock as set forth below:
Additional Shares
Monthly EBITDA Per Month
----------------------- -----------------
$1,300,000 - $2,599,999 50,000
$2,600,000 - $3,899,999 100,000
$3,900,000 - $5,199,999 150,000
$5,200,000 - $6,499,999 200,000
Each additional $1,300,000 50,000
million
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take
place at the offices of Buyer's consultant at 2224 Main Street, Santa
Monica,
California 90405, at 10:00 a.m. (local time) on January 29, 1999, or at
such
other time and place as the parties may agree. Subject to the provisions
of
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
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At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), with
signatures
guaranteed by a commercial bank or by a member firm of
the New
York Stock Exchange, for transfer to Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii) executed by
Sellers
(collectively, "Sellers' Releases");
(iii) employment agreements in the form of Exhibit 2.4(a)
(iii),
executed by Sellers (collectively, "Employment
Agreements");
(iv) noncompetition agreements in the form of Exhibit 2.4(a)
(iv),
executed by Sellers (collectively, the "Noncompetition
Agreements");
(v) a certificate executed by Sellers representing and
warranting
to Buyer that each of Sellers' 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 Letter that were
delivered
by Sellers to Buyer prior to the Closing Date in
accordance
with Section 5.4); and
(vi) the resignation of any or all members of the board of
directors
of the Company, as directed by Buyer.
(b) Buyer will deliver to Sellers:
(i) Such number of shares of GAPI Common Stock as required
pursuant
to Section 2.2(a), registered on the books of Buyer in
the
names and denominations as requested by Sellers in
writing
prior to the Closing; and
(ii) the Employment Agreements, executed by Buyer.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, and the Company, represent and warrant
to Buyer
as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly existing,
and in
good standing under the laws of Delaware, 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.
The Company 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.
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(b) Sellers have delivered 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
obligations
of Sellers, enforceable against Sellers in accordance with its
terms.
Upon the execution and delivery by Sellers of the Employment
Agreements, the Sellers' Releases, and the Noncompetition
Agreements
(collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents will constitute the legal, valid, and
binding
obligations of Sellers, enforceable against Sellers in
accordance
with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute
and
deliver this Agreement and the Sellers' Closing Documents and
to
perform their obligations under this Agreement and the
Sellers'
Closing Documents.
(b) 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 the Company or any Seller, or any of
the
assets owned or used by the Company, 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
the
Company or that otherwise relates to the business of, or
any of
the assets owned or used by, the Company;
(iv) cause Buyer or the Company to become subject to, or to
become
liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be
reassessed
or revalued by any taxing authority or other
Governmental Body;
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(vi) 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
(vii) result in the imposition or creation of any Encumbrance
upon or
with respect to any of the assets owned or used by the
Company;
Neither the 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.
Sellers are acquiring the GAPI Common Stock for their own account and
not with
a view to their distribution within the meaning of Section 2(11) of the
Securities Act. Each Seller is either (i) an "accredited investor" as
such term
is defined in Rule 501(a) under the Securities Act, or (ii) represented
by an
accredited investor who is sophisticated in financial transactions and
is
competent to represent, and has represented, and such Seller in this
transaction such that such Seller is considered an accredited investor
for
purposes of Regulation D promulgated under the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 50,000,000
shares of
common stock, par value $0.001 per share, of which 10,100,882 shares are
issued
and outstanding, and 5,000,000 shares of preferred stock, par value
$0.001, of
which none are outstanding. Sellers are and will be on the Closing Date
the
record and beneficial owners and holders of the Shares, free and clear
of all
Encumbrances. Each of the Sellers owns the shares of Common Stock as set
forth
opposite such Seller's name on Schedule 3.1 attached hereto. All of the
Shares
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.
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. The
Company
does not own, or have any Contract to acquire, any equity securities or
other
securities of any Person or any direct or indirect equity or ownership
interest
in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer the unaudited financial statements
attached
hereto as Schedule 3.2 of the Disclosure Letter (the "Financial
Statements").
Such Financial Statements and notes 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; the Financial
Statements referred to in this Section 3.2 reflect the consistent
application
of such accounting principles throughout the periods involved.
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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 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 the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Schedule 3.6 of the Disclosure Letter contains a complete and accurate
list of
all real property, leaseholds, or other interest therein owned by the
Company.
The Company owns all the properties and assets (whether real, personal,
or
mixed and whether tangible or intangible) that they purport to own or
located
in the facilities owned or operated by the Company or reflected as owned
in the
books and records of the Company, including all of the properties and
assets
reflected in the Financial Statements (except for assets held under
capitalized leases disclosed Schedule 3.6 of the Disclosure Letter, and
all of
the properties and assets purchased or otherwise acquired by the Company
since
the date of the Financial Statements. All material properties and assets
reflected in the Financial Statements are free and clear of all
Encumbrances
except, with respect to all such properties and assets, (i) mortgage or
security interests shown on the 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, (ii)
mortgages or security interests incurred in connection with the purchase
of
property or assets after the date of the Financial Statements (such
mortgages
and security interests being limited to the property or assets so
acquired),
with respect to which no default (or event that, with notice or lapse of
time
or both, would constitute a default) exists, and (iii) liens for current
taxes
not yet due.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Company are
structurally sound, are in good condition and repair, and are adequate
for the
uses to which they are being put, and none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in
nature or
cost. The building, plants, structures, and equipment of the Company are
sufficient for the continued conduct of the Company's businesses after
the
Closing in substantially the same manner as conducted prior to the
Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the balance
sheet
contained in the Financial Statements (the "Balance Sheet") or on the
accounting records of the Company as of
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the Closing Date (collectively, the "Accounts Receivable") represent or
will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior
to the
Closing Date, the Accounts Receivable are or will be as of the Closing
Date
current and collectible net of the respective reserves shown on the
Balance
Sheet or on the accounting records of the Company as of the Closing Date
(which
reserves are adequate and calculated consistent with past practice.
Subject to
such reserves, each of the Accounts Receivable either has been or will
be
collected in full, without any set-off, within ninety days after the day
on
which it first becomes due and payable. There is no contest, claim, or
right of
set-off, other than returns in the Ordinary Course of Business, under
any
Contract with any obligor of an Accounts Receivable relating to the
amount or
validity of such Accounts Receivable.
3.9 NO UNDISCLOSED LIABILITIES
The Company 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 most
recent
Balance Sheet and current liabilities incurred in the Ordinary Course of
Business since the date thereof.
3.10 TAXES
(a) The Company has filed or caused to be filed (on a timely basis
since
its inception) all Tax Returns that are or were required to be
filed
by or with respect to it pursuant to applicable Legal
Requirements.
The Company has paid, or made provision for the payment of,
all Taxes
that have or may have become due pursuant to those Tax Returns
or
otherwise, or pursuant to any assessment received by Sellers
or the
Company.
(b) There is no pending audit of any Tax Return of the Company.
(c) The charges, accruals, and reserves with respect to Taxes on
the
respective books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's
liability for Taxes. There exists no proposed tax assessment
against
the Company. No consent to the application of Section 341(f)
(2) of
the IRC has been filed with respect to any property or assets
held,
acquired, or to be acquired by the Company. All Taxes that the
Company is or was required by Legal Requirements to withhold
or
collect have been duly withheld or collected and, to the
extent
required, have been paid to the proper Governmental Body or
other
Person.
(d) All Tax Returns filed by the Company are true, correct, and
complete.
3.11 NO MATERIAL ADVERSE CHANGE
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Since the date of the most recent Balance Sheet, there has not been any
material adverse change in the business, operations, properties,
prospectus,
assets, or condition of the Company, and no event has occurred or
circumstance
exists that may result in such a material adverse change.
3.12 EMPLOYEE BENEFITS.
(a) There is no Plan or Welfare Plan of which the Company or an
ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which
the
Company or an ERISA Affiliate of the Company otherwise
contributes or
has contributed, or in which the Company or an ERISA Affiliate
of the
Company otherwise participates or has participated.
(b) Definitions:
(i) "ERISA Affiliate" means, with respect to the Company,
any other
person that, together with the Company, would be treated
as a
single employer under IRC Section 414.
(ii) "Plan" has the meaning given in ERISA Section 3(3).
(iii) "Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
(iv) "Welfare Plan" has the meaning given in ERISA Section
3(1).
3.13 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) the Company is, and at all times since its inception 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;
(b) no event has occurred or circumstance exists that (with or
without
notice or lapse of time) (i) may constitute or result in a
violation
by the Company of, or a failure on the part of the Company to
comply
with, any Legal Requirement, or (ii) may give rise to any
obligation
on the part of the Company to undertake, or to bear all or any
portion
of the cost of, any remedial action of any nature; and
(c) the Company has not received, at any time, any notice or other
communication (whether oral or written) from any Governmental
Body or
any other Person regarding (i) any actual, alleged, possible,
or
potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible, or
potential
obligation on the part of the Company to undertake, or to bear
all or
any portion of the cost of, any remedial action of any nature.
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20
(d) Schedule 3.11 of the Disclosure Letter contains a
complete and
accurate list of each Governmental Authorization that is
held,
or required to be held, by the Company or that otherwise
relates to the business of, or to any of the assets
owned or
used by, the Company. Each Governmental Authorization
listed or
required to be listed in Schedule 3.11 of the Disclosure
Letter
is valid and in full force and effect. 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 Governmental Authorization listed or required to
be
listed in Schedule 3.11 of the Disclosure Letter, or (2)
result
directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination or, or any
modification to, any Governmental Authorization listed
or
required to be listed in Schedule 3.11 of the Disclosure
Letter. The Governmental Authorizations listed in
Schedule 3.11
of the Disclosure Letter collectively constitute all of
the
Governmental Authorizations necessary to permit the
Company to
lawfully conduct and operate its businesses in the
manner it
currently conducts and operates such businesses and to
permit
the Company to own and use its assets in the manner in
which it
currently owns and uses such assets.
3.14 LEGAL PROCEEDINGS; ORDERS
(a) There is no pending Proceeding that has been commenced
by or
against the Company or that otherwise relates to or may
affect
the business of, or any of the asses owned or used by,
the
Company, or that challenges, or that may have the effect
of
preventing, delaying, making illegal, or otherwise
interfering
with, any of the Contemplated Transactions. No event has
occurred or circumstance exists that may give rise to or
serve
as a basis for the commencement of any such Proceeding.
To the
Knowledge of Sellers and the Company, no such Proceeding
has
been Threatened.
(b) There is no Order to which the Company, or any of the
assets
owned or used by the Company, is subject, and no Seller
is
subject to any Order that relates to the business of, or
any of
the assets owned by or used by, the Company. 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.
3.15 ABSENCE OF CERTAIN CHANGES AND EVENTS
Since the date of the most recent Balance Sheet, the Company has
conducted its
businesses 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
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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 the Company 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 or existence of 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 or
adversely affecting the properties, assets, business,
financial
condition, or prospects of the Company, taken as a
whole;
(f) termination of, or receipt of notice of termination of
(i) any
license, distribution, joint venture, credit, or similar
agreement, or (ii) any Contract or material transaction;
(g) sale, 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 Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a
value to
the Company in excess of $5,000;
(i) material change in the accounting methods used by the
Company;
or
(j) agreement, whether oral or written, by the Company to do
any of
the foregoing.
3.16 CONTRACTS; NO DEFAULTS
(a) Schedule 3.14(a) of the Disclosure Letter contains a
complete
and accurate list, and Sellers have delivered to Buyer
true and
complete copies, of:
(i) each Applicable Contract that involves
performance of
services by the Company of an amount or value in
excess
of $10,000;
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(ii) each Applicable Contract that involves
performance of
services or delivery of goods or materials to
the
Company of an amount or value in excess of
$10,000;
(iii) each Applicable Contract that was not entered
into in
the Ordinary Course of Business;
(iv) each lease, rental or occupancy agreement,
license,
installment and conditional sale agreement, and
other
Applicable Contract affecting the ownership of,
leasing
of, title to, use of, or any leasehold or other
interest in, any real or personal property;
(v) each licensing agreement or other Applicable
Contract
with respect to patents, trademarks, copyrights,
or
other intellectual property, including
agreements with
current or former employees, consultants, or
contractors regarding the appropriation or the
non-disclosure of any of the Intellectual
Property
Assets;
(vi) each joint venture, partnership, and other
Applicable
Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by the
Company
with any other Person;
(vii) each Applicable Contract containing covenants
that in
any way purport to restrict the business
activity of
the Company or any Affiliate of the Company or
limit
the freedom of the Company or any Affiliate of
the
Company to engage in any line of business or to
compete
with any Person;
(viii) each Applicable Contract providing for payments
to or
by any Person based on sales, purchases, or
profits,
other than direct payments for goods or services
provided by the Company;
(ix) each power of attorney that is currently
effective and
outstanding;
(x) each Applicable Contract entered into other than
in the
Ordinary Course of Business that contains or
provides
for an express undertaking by the Company to be
responsible for consequential damages;
(xi) each Applicable Contract for capital
expenditures in
excess of $10,000;
(xii) each written warranty, guaranty, and or other
similar
undertaking with respect to contractual
performance
extended by the Company; and
(xiii) each amendment, supplement, and modification
(whether
oral or written) in respect of any of the
foregoing.
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(b) Except as set forth in Schedule 3.14(b) of the Disclosure
Letter, no
Seller (and no Related Person or any Seller) has or may
acquire any
rights under, and no Seller has or may become subject to any
obligation or liability under, any Contract that relates to
the
business of, or any of the assets owned or used by, the
Company.
(c) Each Contract identified or required to be identified in
Schedule
3.14(a) of the Disclosure Letter is in full force and effect
and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 3.14(a) of the Disclosure
Letter:
(i) the Company is, and at all times has been, in full
compliance
with all applicable terms and requirements of each
Contract
under which the Company has or had any obligation or
liability
or by which the Company or any of the assets owned or
used by
the Company is or was bound;
(ii) each other Person that has or had any obligations or
liability
under any Contract under which the Company has or had
any rights
is, and at all times 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 the
Company 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) the Company has not given to or received from any other
Person
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.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or
payable to the Company under current or completed Contract
with any
Person and no such Person has made written demand for such
renegotiation.
(f) The Contract relating to the sale or provision of 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
Requirements.
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3.17 INSURANCE
(a) Sellers have delivered to Buyer true and complete copies of
all
policies of insurance to which the Company is a party or under
which
the Company, or any director of the Company, is or has been
covered
at any time.
(i) All policies to which the Company is a party or that
provide
coverage to the Sellers, the Company, or any director or
officer
of the Company:
(ii) Neither any 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 and effect or will not be renewed or that the
issuer of
any policy is not willing or able to perform its
obligations
thereunder.
(iii) The Company has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which
the Company is a party or that provides coverage to the
Company.
(iv) The Company has given notice to the insurer of all
claims that
may be insured thereby.
3.18 ENVIRONMENTAL MATTERS
(a) The Company is, and at all times has been, in full compliance
with,
and has not been and is not in violation of or liable under,
any
Environmental Law. Neither the Sellers nor the Company have
any basis
to expect, nor have any of them or any other Person for whose
conduct
they are or may be held to be responsible received, any actual
or
Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public
interest,
or (ii) the current or prior owner or operator of any
Facilities, of
any actual or potential violation of failure to comply with
any
Environmental Law, or of any actual or Threatened obligation
to
undertake or bear the cost of any Environmental, Health and
Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in
which the
Company has had an interest, or with respect to any property
or
Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, importe
