Doc. #852525v.3
Doc. #852525v.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of
December 19, 2004 by and among NIMESH PATEL, ASHOK PATEL and KALA
PATEL (each a
"Seller", and collectively the "Sellers"), and SMARTSERV
ONLINE, INC. (the
"Buyer").
RECITALS
WHEREAS, Sellers own all of the issued and outstanding
common stock (the
"Stock") of KPCCD, Inc. ("KP"); and
WHEREAS, Buyer desires to purchase all of the Stock on
the terms and
conditions set forth herein; and
WHEREAS, Sellers desire to sell all of the Stock to Buyer on
the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual
promises hereinafter set forth, the parties hereto, intending
to be legally
bound, agree as follows (all defined terms not otherwise
defined in this
Agreement shall have the meanings set forth on Exhibit A attached
hereto):
1.
AGREEMENT TO SELL AND PURCHASE THE STOCK
. Subject to the terms and
conditions of this Agreement and in reliance upon the
representations,
warranties, promises, agreements and undertakings in this
Agreement, Sellers
shall grant, sell, assign, transfer, convey and deliver all of
their right,
title and interest in and to the Stock to Buyer, and Buyer shall
purchase and
acquire the Stock from Sellers, on the Closing Date.
2.
PURCHASE PRICE; CLOSING
.
2.1
Purchase Price
. (a) In consideration for the sale of the Stock and the
other undertakings of Sellers in this Agreement, and subject to
the terms and
conditions of this Agreement, Buyer shall pay the Purchase Price
as provided in
this Section 2. The purchase price ("Purchase Price") for the
Stock shall be
equal to One Million (1,000,000) shares of common stock of Buyer
(the "Buyer's
Stock" or "Registrable Shares").
(b) The Buyer's Stock shall be allocated and issued to
the Sellers as
follows:
Seller
# of Shares of Buyer's Stock
Nimesh Patel 333,333
Ashok Patel 333,333
Kala Patel 333,334
2.2
Closing
. The closing ("Closing") of the transactions pursuant to this
Agreement shall take place on or before January 7th, 2005 (the
"Closing Date"),
at the principal offices of Buyer, or at such other time and
place as the
parties hereto shall mutually agree.
2.3
Piggyback Registration
.
(a) If, at any time after the date hereof and
continuing until two
years from the date hereof, the Buyer proposes to register any
of its Common
Stock under the Securities Act of 1933, as amended ("Securities
Act") whether
as a result of a primary or secondary offering of Common Stock or
pursuant to
registration rights granted to holders of other securities of the
Company (but
excluding in all cases (i) any registrations to be effected on
Forms S-4 or S-8
or other applicable successor Forms, or (ii) any registrations
relating to what
may be referred to as an "equity line of credit" or similar
transaction), the
Buyer shall, each such time, give to each Seller prompt written
notice of its
intent to do so. Upon the written request of a Seller given within
10 days after
the giving of any such notice by the Buyer, the Buyer shall use its
best efforts
to cause to be included in such registration any Registrable Shares
requested by
such Seller to be registered thereunder;
provided
such Seller agrees to sell
those of his Registrable Shares to be included in such
registration in the same
manner and on the same terms and conditions which shall be
reasonable and
customary, as the other shares of Common Stock which the Buyer
proposes to
register.
(b) If a registration pursuant to Subsection 2.3(a)
hereof involves
an underwritten offering and the managing underwriter shall advise
the Buyer in
writing that, in its opinion, the number of shares of Common Stock
requested by
a Seller to be included in such registration is likely to affect
materially and
adversely the success of the offering or the price that would be
received for
any shares of Common Stock offered in such offering, then,
notwithstanding
anything in subsection 2.3(a) to the contrary, the Buyer shall
only be required
to include in such registration, to the extent of the number of
shares of Common
Stock which the Buyer is so advised can be sold in such offering,
pro
rata
among
all stockholders having registration rights (demand and/or
piggyback)
(including, without limitation, Sellers) on the basis of the number
of shares of
Common Stock that each of them requested to be included in such
registration.
(c) In connection with any offering i nvolving an
underwriting of
shares the Buyer shall not be required under subsection (a) hereof
or otherwise
to include any Registrable Shares of a Seller therein unless such
Seller accepts
and agrees to the terms of the underwriting, which shall be
reasonable and
customary, as agreed upon between the Buyer and the underwriters
selected by the
Buyer.
(d) The Buyer may at any time delay or withdraw
a registration
contemplated by this subsection (a) or otherwise elect to
cause such
registration not to become effective.
(e) It shall be a condition precedent to the
obligations of the
Buyer to take any action pursuant to this Agreement that a Seller
shall furnish
to the Buyer such information as may be required under the
Securities Act and
other applicable laws to permit any registration statement
employed to register
the Registrable Shares to be filed in accordance with Rule
415 under the
Securities Act (or any successor provision), if such Rule is
available to the
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Buyer, and such information regarding such Seller, the Registrable
Shares, the
intended methods of disposition of the Registrable Shares
and such other
information as, in the reasonable opinion of counsel to the Buyer,
is necessary
to enable the Buyer to cause such registration statement to be
properly prepared
and filed in accordance with applicable laws and to obtain
acceleration of the
effective date hereof.
(f) The Buyer shall pay all expenses arising from or
incident to its
performance of, or compliance with, this Agreement, including
(i) SEC, stock
exchange and NASD registration and filing fees, (ii) all fees
and expenses
incurred in complying with securities or "blue sky" laws, (iii)
all printing,
messenger and delivery expenses, and (iv) the fees, charges
and expenses of
counsel to the Buyer and of its independent public accountants
and any other
accounting fees, charges and expenses incurred by the Buyer
(including any
expenses arising from any "cold comfort" letters or any special
audits incident
to or required by any registration or qualification), regardless of
whether such
Registration Statement is declared effective. All of the expenses
described in
the preceding sentence of this subsection (f) are referred
to herein as
"Registration Expenses." Notwithstanding the foregoing, a Seller
shall bear the
expense of any broker's commission or underwriter's discount
or commission
relating to the sale of Registrable Shares, the cost of his or
her own counsel
and accountants as well as any transfer taxes applying to any
Registrable Shares
sold in a registration of the Buyer's securities.
(g) In the event that any Registrable Shares of a Seller
are included
in a registration statement pursuant to this Agreement:
(i) To the fullest extent permitted by law, the
Buyer will
indemnify and hold harmless a Seller, any underwriter (as
defined in the
Securities Act) for the Buyer, and each officer, director,
fiduciary and
employee (and affiliates thereof) of such Seller (each, a "
Seller Affiliate
") or
such underwriter, each broker or other person acting on behalf of
a Seller and
each person, if any, who controls such Seller or such
underwriter within the
meaning of the Securities Act, against any losses, claims,
damages or
liabilities, joint or several, to which they may become
subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or
liabilities (or actions in respect thereof) arise out of or
are based
upon any untrue or alleged untrue statement of any material fact
contained in
such registration statement, including any preliminary
prospectus or final
prospectus contained therein or any amendments or supplements
thereto, or
arise out of or are based upon the omission or alleged omission to
state therein
a material fact required to be stated therein, or necessary
to make the
statements therein not misleading, or any violation by the
Buyer of the
Securities Act, the Securities Exchange Act of 1934 or state
securities or blue
sky laws applicable to the Buyer and leading to action or inaction
required of
the Buyer in connection with such registration or
qualification under such
Securities Act or state securities or blue sky laws; and will
reimburse on
demand to such Seller, such underwriter, such broker or other
person acting on
behalf of such Seller or such officer, director, fiduciary, or
employee (or
affiliates thereof) for any legal or other expenses reasonably
incurred by any
of them in connection with investigating or defending any such
loss, claim,
damage, liability or action, subject to the provisions of
subsection 2.3 (g)
(iii)
provided
,
however
, that the indemnity agreement contained in this
subsection 2.3 (g)(i) shall not apply to amounts paid in
settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without
the consent of the Buyer (which consent shall not be unreasonably
withheld), nor
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shall the Buyer be liable in any such case for any such loss,
damage, liability
or action to the extent that it arises out of or is based
upon an untrue
statement or alleged untrue statement or omission made in
connection with such
registration statement, preliminary prospectus, final prospectus,
or amendments
or supplements thereto, in reliance upon and in conformity
with written
information furnished expressly for use in connection with such
registration
statement by a Seller or an agent of a Seller authorized to
provide such
information.
(ii) To the fullest extent permitted by law, a
Seller will
indemnify and hold harmless the Buyer, each of its directors and
officers, each
person, if any, who controls the Buyer within the meaning of the
Securities Act,
and any underwriter for the Buyer (within the meaning of the
Securities Act),
against any losses, claims, damages or liabilities to which the
Buyer or any
such director, officer, controlling person, or underwriter may
become subject
to, under the Securities Act or otherwise, insofar as such
losses, claims,
damages or liabilities (or actions in respect thereto) arise out of
or are based
upon any untrue or alleged untrue statement of any material fact
contained in
such registration statement, including any preliminary
prospectus or final
prospectus contained therein or any amendments or supplements
thereto, or arise
out of or are based upon the omission or alleged omission to
state therein a
material fact required to be stated therein or necessary to make
the statements
therein not misleading, in each case only to the extent that
such untrue
statement or alleged untrue statement or omission or alleged
omission was made
in such registration statement, preliminary prospectus, final
prospectus, or
amendments or supplements thereto, in reliance upon and in
conformity with
written information furnished by a Seller or an agent of a Seller
authorized to
provide such information, expressly for use in connection
with such
registration; and such Seller will reimburse on demand any
legal or other
expenses reasonably incurred by the Buyer or any such
director, officer,
controlling person or underwriter in connection with investigating
or defending
any such loss, claim, damage, liability or action, subject to the
provisions of
subsection (g)(iii). In no event shall the amount of any
indemnification amount
paid or to be paid by Seller exceed the proceeds of the sale of
Registrable
Shares (net of underwriting commissions or discounts and/or
brokers' fees or
commissions) actually received by a Seller.
(iii) Promptly after receipt by an indemnified
party under this
subsection 2.3 (g) of notice of the commencement of any
action, such
indemnified party will, if a claim in respect thereof is to be
made against any
indemnifying party under this subsection 2.3 (g), notify the
indemnifying party
in writing of the commencement thereof and the indemnifying party
shall have the
right to participate in and, to the extent the indemnifying
party desires,
jointly with any other indemnifying party similarly
noticed, to assume
at its expense the defense thereof with counsel selected by the
indemnifying
party and reasonably satisfactory to the indemnified
party;
provided
,
however
, that, if any indemnified party shall have reasonably
concluded that
there may be one or more legal defenses available to such
indemnified party
which are different from or additional to those available to the
indemnifying
party, or that such claim or litigation involves or could have
an effect upon
matters beyond the scope of the indemnity agreement provided in
this subsection
2.3 (g) the indemnifying party shall not have the right to assume
the defense of
such action on behalf of such indemnified party, and such
indemnifying party
shall reimburse such indemnified party and any person
controlling such
indemnified party for the fees and expenses of counsel
retained by the
indemnified party which are reasonably related to the matters
covered by the
indemnity agreement provided in this subsection 2.3 (g).
Subject to the
foregoing, an indemnified party shall have the right to
employ separate
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counsel in any such action and to participate in the defense
thereof but the
fees and expenses of such counsel shall not be at the expense of
the Buyer. The
failure to notify an indemnifying party promptly of the
commencement of any such
action, if materially prejudicial to his ability to defend such
action, shall
relieve such indemnifying party of any liability to the
indemnified party under
this subsection 2.3 (g), but the omission so to notify the
indemnifying party
will not relieve him of any liability which he may have to any
indemnified party
otherwise other than under this subsection 2.3 (g).
3.
REPRESENTATIONS AND WARRANTIES OF SELLER
.
Sellers hereby, jointly and severally, represent and
warrant to Buyer as
follows (with-in 10 days from the date hereof, sellers shall
provide the
Schedules to Buyer, which shall be satisfactory to Buyer
in its sole
discretion):
3.1
Organization and Good Standing
. KP is a corporation duly organized,
validly existing, and in good standing under the laws of its
jurisdiction of
incorporation, 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
owns and uses, and to perform all of its obligations. KP is duly
qualified to do
business as a foreign corporation and is in good standing under
the laws of any
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,
except where the
failure to be so qualified would not have a material adverse effect
on KP or its
business. Sellers have delivered to Buyer true, accurate and
complete copies of
the Organizational Documents of KP, as currently in effect.
3.2
Authority; Title to Stock; No Conflict
. (a) This Agreement constitutes
the legal, valid, and binding obligation of Sellers, enforceable
against Sellers
in accordance with its terms, except as enforceability may be
limited by
bankruptcy and other similar laws and general principles of equity.
Each Seller
has the requisite right, power, authority, and capacity to
execute and deliver
this Agreement and to perform its obligations under this Agreement.
(b) Neither the execution and delivery of this
Agreement by Sellers
nor the consummation or performance by Sellers of any of the
transactions
contemplated hereby, directly or indirectly (with or without
notice or lapse of
time): (i) contravene, conflict with, or result in a
violation of (A) any
provision of the Organizational Documents of KP, or (B) any
resolution adopted
by the board of directors or the stockholders of KP; (ii) (A)
contravene,
conflict with, or result in a violation of, any Legal Requirement
or any Order
to which any Seller or KP, or any of the assets owned or used
by KP, may be
subject; (iii) contravene, conflict with, or result in a violation
of any of the
terms or requirements of any Governmental Authorization that is
held by KP or
any of the assets owned or used by KP; (iv) 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 Contract
to which KP is
a party; or (v) result in the imposition or creation of any
Encumbrance upon or
with respect to any asset or assets owned or used by KP except
pursuant to the
Master Vendor Agreement and any other document, instrument on
agreement executed
and delivered in connection with the transactions
contemplated by this
Agreement.
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(c) Neither any Seller nor KP is 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
transactions
contemplated hereby.
3.3
Capitalization
. The authorized equity securities of KP consist of 200
shares of common stock, no par value per share.
Schedule 3.3
sets forth a
complete and accurate list of all equity securities of KP that
are issued and
outstanding as of the date of this Agreement. There are no
outstanding options,
warrants, calls, commitments, agreements, pre-emptive or
other rights to
subscribe for, purchase or otherwise acquire equity securities of
KP. All of the
issued and outstanding equity securities of KP set forth on
Schedule 3.3
are
owned of record and beneficially by Sellers, free and clear of all
Encumbrances.
Except as described on
Schedule 3.3
, no legend or other reference to any
purported Encumbrance appears upon any certificate representing
outstanding
equity securities of KP. All of the outstanding equity
securities of KP 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 of KP. None of the outstanding equity securities or
other securities
of KP was issued in violation of the Securities Act or any
other applicable
securities laws. KP does not own, and is not a party to 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 Information
.
(a) KP has not prepared any formal financial statements.
The Financial
Information (as hereinafter defined) which Sellers have provided to
Buyer is tax
basis (which is modified cash basis derived from the tax returns).
The Financial
Information has not been prepared in accordance with
generally accepted
accounting principles.
(b) Schedule 3.4 contains the following:
(i) Sales and Invoice reports for June, July and
August of 2004,
(ii) KP tax returns for 2003, 2002, and 2001,
(iii)KP Quick Book Profit and Loss Statement,
Balance Sheet and
Cash Flow Statement for January through July
2004 (the "KP
Quick Books Information"),
(iv) Bank statements from North Fork Bank for May,
June, July and
August, 2004,
(v) Accounts receivable listing as of August 31,
2004,
(vi) A/P listing as of August 31, 2004, and
(vii)Physical inventory listings as of August 31,
2004
Sellers have also orally provided financial information
pertaining to KP's
selling, general and administrative expenses, which financial
information as
reflected in the Forecast (as defined in the Master Vendor
Agreement) has been
reviewed and approved in such written format by Sellers
(such financial
information pertaining to selling, general and administrative
expenses, and the
financial information contained in Schedule 3.4 is collectively
defined as the
"Financial Information").
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(c) The Financial Information fairly presents in all
material
respects the financial information stated therein; provided that
the KOP Quick
Books Information is subject to year-end adjustments.
3.5
Books and Records
. All of the books of account, minute books, stock
record books, and other records of KP have been made available to
Buyer and are
correct and complete in all material respects and have been
maintained in
accordance with sound business practices. There currently is not
in place any
formal system of internal accounting controls; provided, that
the Sellers'
direct participation in the KP Business provides reasonable
assurance that (i)
transactions are executed in accordance with management's
general or specific
authorizations, (ii) transactions are recorded as
necessary to permit
preparation of financial statements consistent with the books and
records and to
maintain asset accountability, (iii) access to assets is
permitted only in
accordance with management's general or specific authorization,
and (iv) the
recorded accountability for assets is compared with the
existing assets at
reasonable intervals and appropriate action is taken with
respect to any
differences. All material financial and record keeping functions
are performed
by the Sellers. At the Closing, all of the minute books and stock
record books
of KP will be delivered to Buyer.
3.6
Property; Encumbrances
.
Schedule 3.6
contains a complete and accurate
list of all leaseholds in real property owned by KP. Except as
set forth on
Schedule 3.6
, KP does not own or have any other interest in any real
property.
KP owns all the properties and assets (whether real, personal,
or mixed and
whether tangible or intangible) that it purports to own, and
has leasehold
interests in or possessory rights to use all such properties and
assets that it
purports to have leasehold interests in or possessory rights to
use. Except as
set forth in
Schedule 3.6
, all properties and assets reflected in the Latest
Balance Sheet are free and clear of all Encumbrances.
3.7
Sufficiency of Assets.
All of the assets (tangible and intangible)
owned, leased or licensed by KP, together with the inventory to
be provided by
Sellers to KP pursuant to the Master Vendor Agreement (as
hereinafter defined),
will be sufficient for the continued conduct of KP's business
after the Closing
in substantially the same manner as conducted prior to the Closing,
except that
KP has no inventory and no cash or accounts receivable in
accordance with the
terms of the transactions contemplated hereby.
3.8
No Undisclosed Liabilities
. At the time of the Closing, KP will have no
liabilities or obligations of any nature (whether absolute,
accrued, contingent,
or otherwise) except for liabilities described in
Schedule 3.8
., which
liabilities on Schedule 3.10 will not be material to KP or its
business. Except
as set forth on Schedule 3.8, KP has not made and is not
responsible or liable
for any guarantees or warranties with respect to its
products, nor has KP
committed to repurchase any products from its customers.
3.9
Taxes
. Except as set forth on
Schedule 3.9
, (a) KP has timely filed
all Returns required to be filed by it prior to the Closing Date;
(b) as of the
time of filing the Returns were true and correct in all
respects; (c) KP has
paid, or made provision for the payment of, all Taxes shown to
be due on such
Returns and all estimated Taxes; (d) the charges, accruals and
reserves with
respect to Taxes on the books of KP are adequate to fully
account for Taxes
attributable to all periods through the Closing Date; (e) KP has
not waived (or
been asked to waive) any statute of limitations affecting any Tax
liability or
agreed (or been asked to agree) to any extension of
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time during which a Tax assessment or deficiency assessment may
be made which
waiver or extension is still outstanding; (f) there are no pending
Tax audits of
any Returns or any outstanding unpaid deficiencies or additions
thereto of KP
and KP has not received written notice of any unresolved
questions or claims
concerning its Tax liability; (g) KP has made available to Buyer
copies of all
revenue agent reports and other written additions or
deficiencies or other
liabilities for Taxes of KP; (h) KP has complied in all respects
with all Legal
Requirements, rules and regulations relating to the payment,
withholding and
remittance of Taxes or similar provisions under any federal,
state, county,
local or foreign laws, including, without limitation the payment,
withholding
and remittance of all sales and use taxes; (i) KP is not nor has it
been a party
to any tax sharing agreement; (j) KP has never been a member of
an affiliated
group of corporations (as defined in Code Section 1504(a))
that filed a
consolidated federal income Return; (k) KP has not (i) filed
any consent
agreement under Section 341(f) of the Code; (ii) received or
applied for any tax
relief or entered into any agreement that affects the computation
of future tax
liability for periods beginning on and after the Closing
Date; (iii) made
payments or become obligated to make payments (including
pursuant to this
Agreement) which will not be deductible because of Sections 280G,
404 or 162(m)
of the Code; (iv) granted any power of attorney with respect to any
matter which
is currently in force; (v) been required to include in income
any adjustment
pursuant to Section 481(a) of the Code by reason of a
voluntary change in
accounting method utilized by KP and KP has no knowledge that
the Internal
Revenue Service has proposed any such adjustment or change in
accounting method;
(vi) made, or become subject to, an election as provided in Section
108(b)(5) of
the Code (or any predecessor provision) for any taxable year; (vii)
acquired any
assets which are treated as "tax exempt use property" within
the meaning of
Section 168(h) of the Code or (viii) disposed of property in a
transaction
accounted for under the installment method under Section 453 of
the Code; (l)
there are no liens with respect to Taxes upon any of the
properties or assets,
real or personal, taxable or intangible, of KP (except for Taxes
not yet due or
payable); and (m) each Seller is not a foreign person within
the meaning of
Section 1445 of the Code.
3.10
No Material Adverse Change.
Since the date of January 1, 2004, there
has not been any material adverse change in the business, results
of operations,
properties, assets, or financial condition of KP (other than as
contemplated by
Section 3.14(g)).
3.11
Employee Benefits
. (a)
Schedule 3.11
contains a complete list of KP
Benefit Plans and complete copies of each of the following
documents have been
delivered by Sellers to Buyer: (i) each KP Benefit Plan
document (and, if
applicable, related trust agreements) and all amendments thereto,
all written
interpretations thereof and written descriptions thereof
which have been
distributed to employees of KP or any ERISA Affiliate, a
complete description
of any KP Benefit Plan which is not in writing, and all
annuity contracts
or other funding instruments; (ii) each determination letter
issued by the
Internal Revenue Service, with respect to each KP ERISA Pension
Plan and any
pending or the most recent application for such a
determination letter
with respect to each KP ERISA Pension Plan; (iii) Annual
Reports on Form
5500 Series (including all applicable schedules thereto)
required to be filed
with any governmental agency for each KP Benefit Plan and Tax
returns, if any
(including all applicable schedules thereto) for each trust
related thereto for
the three most recent plan years; (iv) all actuarial reports
prepared for the
three most recent plan years for each KP ERISA Pension Plan; (v)
all financial
statements and accountant's opinions relating to each KP ERISA
Pension Plan and
KP ERISA Welfare Plan for the three most recent plan
years; (vi) any
correspondence or notifications received from any governmental
agency relating
to KP Benefit Plans; (vii) all administrative forms and related
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documents used in connection with the administration of the KP
ERISA Pension
Plans and KP ERISA Welfare Plans; and (viii) all other contracts,
agreements,
insurance policies and fidelity bonds relating to the KP Benefit
Plans. The
following information has been supplied or made available by
Sellers to Buyer:
the age, compensation, service and related data as of the last
day of the last
plan year for employees and former employees of KP. Neither KP nor
any KP ERISA
Affiliate has, at any time, directly or indirectly contributed
to or had an
obligation to contribute to a Multiemployer Plan. Neither KP nor
any KP ERISA
Affiliate has any announced plan or legally binding commitment
to create any
additional KP Benefit Plans or to amend or modify any existing KP
Benefit Plan.
(b) Except as provided in
Schedule 3.11
, each KP ERISA Pension Plan,
KP ERISA Welfare Plan, KP Benefit Arrangement, related trust
agreement, annuity
contract and other funding instrument complies, and has been
maintained in
material compliance, with its terms and, both as to form and
operation, with all
applicable requirements, including all reporting and disclosure
requirements,
prescribed by any and all statutes, orders, rules and
regulations, including,
but not limited to, ERISA and the Code.
(c) Except as provided in
Schedule 3.11
, no condition exists which
would prevent KP from amending or terminating any KP ERISA Welfare
Plan. Except
as set forth in
Schedule 3.13
, neither KP nor any KP ERISA Affiliate nor any KP
ERISA Welfare Plan has any present or future obligation to make
any payment to
or under any KP ERISA Welfare Plan which provides benefits to
retirees. Each KP
ERISA Welfare Plan which is a "group health plan," as defined in
Section 607(1)
of ERISA, has been operated in material compliance with the
provisions of Part 6
of Title I of ERISA and Section 4980B of the Code at all times.
There are no
contributions or benefit claims with respect to any KP ERISA
Welfare Plan which
are or will be 30 days past due.
(d) Except as provided in
Schedule 3.11
, with respect to each KP
ERISA Pension Plan subject to the minimum funding
requirements of Section
302 of ERISA or Section 412 of the Code and, if applicable,
Title IV of
ERISA: (A) neither KP nor any KP ERISA Affiliate has failed to
satisfy the
minimum funding requirements of Section 302 of ERISA or
Section 412 of the
Code, including for this purpose the quarterly contribution
requirements of
Section 302(e) of ERISA and Section 412(m) of the Code; (B)
no event or
condition exists which could be deemed a reportable event
within the meaning
of Section 4043 of ERISA with respect to which the notice
requirement has not
been waived; (C) as of the Closing Date, KP and each KP ERISA
Affiliate has or
will have made all required premium payments, when due, to the
Pension Benefit
Guaranty Corporation; (D) no termination of any KP ERISA
Pension Plan has
occurred which will subject KP or any KP ERISA Affiliate to any
liability (other
than routine administrative expenses) to the Pension
Benefit Guaranty
Corporation or to any other person or party; and (E) no amendment
has occurred
which has required or could require KP or any KP ERISA
Affiliate to provide
security to any KP ERISA Pension Plan under Section 401(a)(29)
of the Code.
Except as set forth in
Schedule 3.11
, with respect to each KP ERISA Pension Plan
subject to Title IV of ERISA, as of each such KP ERISA Pension
Plan's most
recent annual valuation date, the assets for each such KP ERISA
Pension Plan are
at least equal in value to the present value of the accrued
benefits (determined
as of the most recent annual valuation date) of the
participants in such KP
ERISA Pension Plan, based on the most recent actuarial valuation of
such Plan,
and since the annual valuation date neither KP nor any KP ERISA
Affiliate has
taken any action, or failed to take any action, which would
materially increase
the cost of any such
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Plan. Neither KP nor any KP ERISA Affiliate has any liability
for unpaid
contributions with respect to any KP ERISA Pension Plan.
Except as noted on
Schedule 3.11
, each KP ERISA Pension Plan (and each related trust agreement,
annuity contract or other funding instrument) which is intended to
be qualified
and tax-exempt under the provisions of Sections 401(a) and
501(a) of the Code
has received a determination letter that it is so qualified and
no event has
occurred nor does any condition exist which would cause it not to
continue to be
so qualified.
(e) No KP Benefit Plan (or trust or other funding
vehicle pursuant
thereto) is subject to any Tax under Section 511 of the Code.
(f) Neither KP nor any plan fiduciary of any KP ERISA
Welfare Plan or
KP ERISA Pension Plan has engaged in any transaction in violation
of Sections
404 or 406 of ERISA or any "prohibited transaction," as defined
in Section
4975(c)(1) of the Code, for which no exemption exists under Section
408 of ERISA
or Section 4975(c)(2) or (d) of the Code.
3.12
Compliance with Legal Requirements; Governmental Authorizations
. KP
has complied, and is in compliance, in all material respects
with each Legal
Requirement or Order that is or was applicable to it or the conduct
or operation
of its business or the ownership or use of any of its assets.
KP has not,
directly or indirectly, made any payment or gift to any
Governmental Body or
officer or official thereof or any employee of an entity with
whom KP does
business. KP has not received any written notice to the
effect that, or
otherwise been advised in writing that, it is not in compliance
with any such
Legal Requirements or Orders. There are no Orders issued against,
or binding on,
KP or which do or may adversely affect, limit or control the
conduct or
operations of its business or the ownership or use of any
material asset or
assets. KP holds all Governmental Authorizations which are
material to its
current use, occupancy or operation of its assets or the conduct or
operation of
its business.
3.13
Legal Proceedings; Legal Requirements and Orders
. There are no
Proceedings (whether or not purportedly on behalf of KP)
pending or, to the
Knowledge of Sellers, Threatened against or affecting KP or
the conduct or
operation of its business or the ownership or use of any of its
assets. Except
as set forth on
Schedule 3.13
hereto, since December 31, 2002, no Proceeding
involving product liability, breach of warranty or consumer
protection in laws
has been instituted or, to the Knowledge of Sellers, Threatened
against KP.
3.14
Absence of Certain Changes and Events
. Except as set forth in
Schedule
3.14
or as contemplated by this Agreement or as reflected in the
[Latest
Financial Statements], since December 31, 2003, KP has conducted
its business
only in the ordinary course of business and there has not been any:
(a) change in KP's authorized or issued capital stock;
grant of any
stock option or right to purchase shares of capital stock of KP;
issuance of any
security convertible into such capital stock; grant of any
registration rights;
purchase, redemption, retirement, or other acquisition by KP 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,
other than to the
Sellers in a manner consistent with past practice (which is
described in
Schedule 3.14) and the distribution of all inventory, accounts
receivable,
accounts payable and other rights and obligations in accordance
with the terms
of the transactions contemplated hereby;
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(b) amendment to the Organizational Documents of KP;
(c) except in the ordinary course of business, payment
or increase by
KP of any bonuses, salaries, or other compensation to any
stockholder, director,
officer, or 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 KP;
(e) damage to or destruction or loss of any asset or
property of KP,
whether or not covered by insurance, materially and adversely
affecting the
assets, business, financial condition, or results of operations of
KP;
(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 KP of at least $5,000;
(g) sale (other than sales of goods from inventory in
the ordinary
course of business), lease, or other disposition of any
material asset or
property of KP or mortgage, pledge, or imposition of any
lien or other
Encumbrance on any material asset or property of KP, including the
sale, lease,
or other disposition of any of the Intellectual Property;
except that in
accordance with the terms of agreement with Buyer, KP shall
distribute to an
entity designated by Sellers immediately prior to the Closing,
(i) all of KP's
accounts receivable, inventory and accounts payable, (ii) all
obligations,
commitments and liabilities of KP to purchase prepaid calling
cards and other
inventory, and (iii) all obligations, commitments and liabilities
with respect
to such accounts receivable, inventory and accounts payable,
including without
limitation, inter-company accounts, shareholder accounts,
payroll and payroll
tax liabilities and cash accounts.
(h) cancellation or waiver of any claims or rights with
a value to KP
in excess of $5,000;
(i) material change in the accounting methods used by
KP; or
(j) agreement, whether oral or written, by KP to
do any of the
foregoing.
3.15
Contracts; No Defaults
. (a)
Schedule 3.15(a)
contains a complete and
accurate list, and Sellers have delivered to Buyer true and
complete copies
(or, in the case of any oral Contract, such Schedule
shall contain a
written description), of: (i) each Contract that involves
performance of
services or delivery of goods or materials by KP; (ii)
each Contract
that involves performance of services or delivery of goods or
materials to
KP; (iii) each 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 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 joint venture,
partnership, and
other Contract (however named) involving a sharing of
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profits, losses, costs, or liabilities by KP with any other
Person; (vi) each
Contract containing covenants that in any way purport to restrict
the business
activity of KP or limit the freedom of KP to engage in any line
of business or
to compete with any Person; (vii) each Contract providing for
payments to or by
any Person based on sales, purchases, or profits, other than direct
payments for
goods; (viii) each power of attorney granted by KP that is
currently effective
and outstanding; (ix) each Contract for capital expenditures; (x)
each written
Contract that provides for a warranty, guaranty, and/or
other similar
undertaking with respect to contractual performance extended by
KP; (xi) each
Contract for employment; and (xii) each amendment, supplement, and
modification
(whether oral or written) in respect of any of the foregoing.
(b) Sellers do not have any rights under any Contract
identified or
required to be identified in
Schedule 3.15(a)
, and no officer, director, agent,
employee, consultant, or contractor of KP is bound by any Contract
that purports
to limit the ability of such officer, director, agent, employee,
consultant, or
contractor to engage in or continue any conduct, activity, or
practice relating
to the business of KP or assign to any Seller or to any other
Person any rights
to any invention, improvement, or discovery.
(c) Each Contract set forth on
Schedule 3.15(a)
is as to KP in full
force and effect and is valid and enforceable in accordance with
its terms, and
to the knowledge of each Seller, as to the other party to such
Contract, in full
force and effect and is valid and enforceable in accordance
with its terms,
except as enforceability may be limited by bankruptcy and other
similar laws and
general principles of equity.
(d) (i) KP is, and at all times since December 31, 2003
has been, in
compliance in all material respects with all applicable terms and
requirements
of each Contract set forth on
Schedule 3.15(a)
; (ii) to the Knowledge of
Sellers, each other Person that has or had any obligation or
liability under any
Contract set forth on Schedule 3.15(a), and at all times since
December 31, 2003
has been, in compliance in all material respects with all
applicable terms and
requirements of such Contract set forth on
Schedule 3.15(a)
; (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 KP
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 Contract set forth on
Schedule 3.15(a)
; and (iv) KP has not given to
or received from any other Person, at any time since December
31, 2003, any
notice or other communication (whether oral or written)
regarding any actual,
alleged, possible, or potential violation or breach of or claim
with respect to,
or default under, any Contract set forth on
Schedule 3.15(a)
(other than matters
which have been resolved and properly reflected in KP's financial
statements).
(e) There are no renegotiations of, attempts to
renegotiate, or
outstanding contractual rights to renegotiate any amounts paid or
payable to KP
under any Contracts set forth on
Schedule 3.15(a)
.
3.16
Insurance
.
Schedule 3.16
sets forth a true and complete list of all
insurance policies maintained as of the date of this Agreement by
or on behalf
of KP and relating to its business and/or assets,
indicating the type
of coverage, name of insured, name of insurance carrier or
underwriter, premium
thereon, policy limits and expiration date of each policy. All
such insurance
policies are in full force and effect, and KP is not in default
with respect to
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