STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (the “"Agreement"”) entered into on August 9, 2004, by and among Segmentz, Inc., a Delaware corporation (the "Buyer"), and Mike Welch, John Welch, Jim Welch, Keith Avery and Ralf Mojsiejenko (collectively the "Sellers"). The Buyer and the Sellers are referred to collectively herein as the "Parties."

 

The Sellers in the aggregate own all of the outstanding capital stock of Express-1, Inc., a Michigan Corporation (“Express-1”), referred to herein as the ("Target").

 

This Agreement contemplates a transaction in which the Buyer will purchase from the Sellers, and the Sellers will sell to the Buyer, all of the outstanding capital stock of the Target owned by the Sellers in return for cash, warrants, and shares of common stock of Buyer, upon the terms and conditions set forth herein.

 

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

 

1.       Definitions .

 

"Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act.

 

"Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses.

 

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

 

"Affiliated Group" means any affiliated group within the meaning of Code §1504(a) or any similar group defined under a similar provision of state, local or foreign law.

 

“Annual Payment Amount” means any payment made by the Buyer to the Sellers in a calendar year under Section 2(b)(ii) of this Agreement.

 

"Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence.

 

“ Benchmark Revenues” means (i) all existing and future revenues of the Target; plus all revenue of Dasher Express; plus all revenue generated by after acquired entities that handle expedite business; plus all revenue from expedites handled through the central call center operations from Buyer’s network of terminals. For the year ended December 31, 2004, Benchmark Revenues shall also include all revenues of Target prior to the date of closing.

 

"Buyer" has the meaning set forth in the preface above.

 

"Buyer Financial Statements" has the meaning set forth in §3(b) of this Agreement.

 

“ Buyer SEC Documents” has the meaning set forth in §3(b) of this Agreement.

 

“Buyer Shares” means any and all restricted shares of common stock of Buyer transferred or transferable to Sellers pursuant to the terms and provisions in §2(b) of this Agreement.

 

"Change in Control" of the Buyer shall mean a change in control (a) as set forth in Section 280G of the Internal Revenue Code or (b) of a nature that would be required to be reported in response to Item 1 of the current report on Form 8K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred at such time as: (i) any "person", other than the Sellers, (as such term is used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Buyer representing fifty percent (50%) or more of the combined voting power of the Buyer's outstanding securities then having the right to vote at elections of directors; or, (ii) There is a failure to elect three or more (or such number of directors as would constitute a majority of the Board of Directors) candidates nominated by management of the Buyer to the Board of Directors; or (iii) the individuals who at the commencement date of the Agreement constitute the Board of Directors cease for any reason to constitute a majority thereof unless the election, or nomination for election, of each new director was approved by a vote of at least two thirds of the directors then in office who were directors at the commencement of the Agreement; or (iv) the business of the Target is disposed of by the Buyer pursuant to a partial or complete liquidation of the Buyer, a sale of assets (including stock of a subsidiary of the Buyer) or otherwise.

 

 

"Closing" has the meaning set forth in §2(e) of this Agreement.

 

"Closing Date" has the meaning set forth in §2(e) of this Agreement.

 

"Code" means the Internal Revenue Code of 1986, as amended.

 

"Confidential Information" means any information concerning the businesses and affairs of the Buyer, the Target and their Subsidiaries, including, but not limited to, their trade secrets, private or secret processes, methods and ideas, as they exist from time to time, customer lists and information concerning their products, services, training methods, development, technical information, marketing activities and procedures, and their credit and financial data and that of their clients. The term “Confidential Information” shall not include information that is generally available to the public through means other than the breach of a confidentiality or nondisclosure agreement.

 

“ Cost of Goods Sold” means the direct and indirect costs associated with the Net Revenue recognized in an accounting period.

 

"Disclosure Schedule" has the meaning set forth in Section 3(a) of this Agreement, and is attached hereto as Exhibit A.

 

"Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit or other retirement, bonus, or incentive plan or program.

 

"Employee Pension Benefit Plan" has the meaning set forth in ERISA §3(2).

 

"Employee Welfare Benefit Plan" has the meaning set forth in ERISA §3(1).

 

“ Employment Agreements” shall mean the form of the Employment Agreements attached hereto as Exhibits B-1, B-2, B-3 and B-4, to be executed at the Closing by and between the Buyer and each of the Sellers listed on Exhibit B.

 

"Environmental, Health, and Safety Requirements" shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

 

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

 

"Fiduciary" has the meaning set forth in ERISA §3(21).

 

"Financial Statement" has the meaning set forth in §4(g) of this Agreement.

 

"GAAP" means accounting principles generally accepted in the United States as in effect from time to time.

 

“Gross Profit Margins” means the Net Revenues minus cost of goods sold as determined by GAAP accounting methods.

 

“ Indebtedness” means the term accounts payable item identified in the Most Recent Financial Statement as a long-term liability, attached to the Disclosure Schedule as Schedule C.

 

"Indemnified Party" has the meaning set forth in §8(d) of this Agreement.

 

"Indemnifying Party" has the meaning set forth in §8(d) of this Agreement.

 

"Intellectual Property" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium).

 

"Knowledge" means actual knowledge after reasonable investigation.

 

"Liability" means any actually known liability or any actually known asserted liability by any third party (whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any actually known liability or any actually known asserted liability for Taxes.

 

"Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements.

 

"Most Recent Financial Statements" has the meaning set forth in §4(g) of this Agreement.

 

"Most Recent Fiscal Month End" has the meaning set forth in §4(g) of this Agreement.

 

"Most Recent Fiscal Year End" has the meaning set forth in §4(g) of this Agreement.

 

"Multiemployer Plan" has the meaning set forth in ERISA §3(37).

 

“ Net Income Before Taxes” means the taxable income of the Target for each relevant period, based upon the method of accounting utilized for financial statement purposes, and specifically means the revenues of the Target less the expenses of the Target for such period, excluding and without deducting: (i) any Tax paid or payable; (ii) the amount of any bonus payable to any officer, executive or manager of the Target; (iii) any consideration paid to the Sellers pursuant to this Agreement; and/or (iv) any amounts paid or payable to reduce or pay the Indebtedness of the Target. The Net Income Before Taxes shall be calculated after the date of Closing on an accrual basis and, except as otherwise provided herein, shall be calculated in the manner used immediately prior to the date of the Closing.

 

“ Net Revenue” means gross revenue less returns, allowances, and cash discounts taken by customers.

 

"Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

 

"Party" has the meaning set forth in the preface above.

 

"Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).

 

"Purchase Price" has the meaning set forth in §2(b) below.

 

“Revenues” means the annual gross sales of the Target for all services provided to customers.

 

"Securities Act" means the Securities Act of 1933, as amended.

 

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, material men’s, and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

 

"Sellers" has the meaning set forth in the preface above.

 

"Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

 

"Target" has the meaning set forth in the preface above.

 

"Target Share" means any share of the common stock of the Target.

 

"Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

"Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

"Third Party Claim" has the meaning set forth in §8(d) below.

 

2. Purchase and Sale of Target Shares .

 

(a) Basic Transaction . On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agrees to sell to the Buyer, all of his and her Target Shares, which Target Shares constitute all of the issued and outstanding shares of capital stock of Target, for the consideration specified below in this §2.

 

(b) Purchase Price . The Buyer agrees to pay to the Sellers up to the total sum of Twelve Million Five Hundred Thousand Dollars ($12,500,000) (the "Purchase Price") in cash, stock, and options, as follows:

 

(i) At Closing, the following amounts shall be paid by Buyer to Sellers:

 

(A) Six Million Dollars ($6,000,000), in the form of a note payable bearing interest at the rate of 3% per annum, payable 7 days following closing. All amounts due under the note shall be paid via wire transfer or in other immediately available funds according to the Sellers’ instructions attached hereto as Exhibit C; and

 

(B) Fifty Thousand (50,000) shares of common stock of Buyer, to be issued according to the Sellers’ instructions to those employees of Target, which shall be less than 25 current employees; set forth on the attached Exhibit C, which shares shall contain a standard restrictive legend; and

 

(C) Five Hundred Thousand (500,000) common stock purchase warrant, with an exercise price of $1.75 per share, exercisable for a period of 3 years from issuance, and containing a cashless exercise provision; and

 

(D) Two Million Four Hundred Twenty Eight Thousand Five Hundred and Seventy One (2,428,571) common stock purchase warrants, with an exercise price of $1.75 per share, exercisable as follows:

 

Number of Warrants	Exercise Period
285,714	May 15, 2006 to June 15, 2006
1,000,000	May 15, 2007 to June 15, 2007
1,142,857	May 15, 2008 to June 15, 2008

 

(ii) Up to a total of Six Million Five Hundred Thousand Dollars ($6,500,000) payable by Buyer to Sellers, annually, if, and only if, the Benchmark Revenue and Gross Profit Margin for the year in question has been met or exceeded, in either cash or shares of common stock of Buyers, in each case as set forth below (each an “Annual Payment Amount” or “APA”):

Year Ended	Benchmark Revenues	Gross Profit Margins	Annual Payment Amount Cash	Cash or Stock*
12/31/2004	$19,000,000	NA	$1,250,000	N/A
12/31/2005	$22,000,000	15%	$1,000,000	$500,000
12/31/2006	$26,000,000	15%	N/A	$1,750,000
12/31/2007	$30,000,000	15%	N/A	$2,000,000
Total			$2,250,000	$4,250,000

*IF the APA is paid in stock the value per share shall be the average closing bid price for a share of the common stock of Buyer for the ten day period ending on March 15 immediately following the Benchmark year.

In addition, in the event one or more of the APA’s is not earned as a result of a failure to meet Benchmark Revenue and/or Gross Profit Margins as set forth above, and Benchmark Revenue in the amount of $30,000,000 and a Gross Profit Margin of 15% or more is achieved for the fiscal year ending December 31, 2008, then, and in that event, Buyer shall pay to Sellers any APA’s not previously earned.

 

In addition, in the event of a “Change of Control” prior to fiscal year ending December 31, 2008 all APA’s will be considered earned and the Buyer shall pay to the Seller all remaining APA’s within 180 days after the event.

 

In addition, in the event Buyer terminates the employment of 3 or more of the Seller’s without cause as defined in each Seller’s Employment Agreement, all APA’s will be considered earned and the Buyer shall pay to the Sellers all remaining APA’s within 180 days after the event.

 

Not later than 45 days after the end of each year through 2008, Buyer shall (i) review Target’s financial performance for the prior year, (ii) shall compile calculations setting forth in sufficient detail Target’s Benchmark Revenues and Gross Profit Margins for the prior year, and any resulting Annual Payment Amount due as a result thereof (an “APA Report”), and (iii) shall deliver the APA Report to Sellers. Sellers shall have 15 days after the date of mailing (the “APA Objection Period”) to provide Buyer, in writing, with any objections Sellers have to the calculations set forth in the APA Report (“APA Objections”). In the event Buyer has not received any such APA Objections within the APA Objection Period, the APA Report shall be considered final and conclusive, and any Annual Payment Amount due thereunder shall be paid by Buyer to Sellers within 15 days of the expiration of the APA Objection Period. In the event Buyer receives one or more APA Objections within the APA Objection Period, the Parties hereto shall collectively agree upon an outside, independent accounting firm which shall then be engaged to compile the information required to be included in the APA Report. Once completed, the APA Report compiled by the outside independent accounting firm shall be conclusive, and any Annual Payment Amount due thereunder shall be paid by Buyer to Sellers within 15 days of the date thereof. Any costs associated with the engagement of an outside independent accounting firm shall be shared equally by the Parties.

 

Failure by Buyer to pay any Annual Payment Amount when due shall subject the Buyer to a penalty of 3% of the unpaid amount per month, unless such failure results from reorganization of the Buyer or from a dispute in process in which the Buyer deposits amounts due into an interest bearing escrow pending resolution, in which case such penalties shall not apply; however Seller shall be entitled to all interest on said escrow.

 

(iii) Notwithstanding any provision of this Agreement to the contrary, the total number of shares of common stock of Buyer issued under the terms of this Agreement and all related agreements shall in no event exceed 19.9% of the number of shares of common stock of Buyer outstanding as of the date of this Agreement.

(c) Building Purchase . Buyer agrees to purchase and Seller agrees to sell the building located at 429 Post Road, Buchanan, MI 49107 for $850,000 in cash or through the assumption of the current mortgage and cash within 180 days from the Closing Date, subject to (i) a qualified appraisal confirming such valuation or in absence of an appraisal the verification of historical cost greater than $850,000, and (ii) Buyer’s satisfaction with the results of Buyer’s due diligence review regarding the property, including, but not limited to, phase I and phase II environmental studies as deemed necessary by Buyer. Buyer will rent the building on a month-to-month basis, for monthly rental payments of Ten Thousand ($10,000) Dollars on a triple net basis until the purchase is completed. Buyer will reserve warehouse space for Express-1 Transportation. Such space shall be leased from Target at a rate of $250 per month.

(d) The Closing . The Closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Adorno & Yoss, PA, at 350 East Las Olas Boulevard, Suite 1700, Fort Lauderdale, Florida 33301, commencing at 9:00 a.m. local time on the 2nd business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Buyer and the Sellers may mutually determine (the "Closing Date"); provided, however, that the Closing Date shall be no later than August 30, 2004.

 

(e) Deliveries at the Closing . At the Closing, (i) the Sellers will deliver to the Buyer the various certificates, instruments, and documents referred to in §7(a) of this Agreement, (ii) the Buyer will deliver to the Sellers the various certificates, instruments, and documents referred to in §7(b) of this Agreement, (iii) each of the Sellers will deliver to the Buyer stock certificates representing all of his and her Target Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) the Buyer will deliver to each of the Sellers the Purchase Price as set forth in §2(b) of this Agreement.

 

3. Representations and Warranties Concerning the Transaction .

 

(a) Representations and Warranties of the Sellers . Each of the Sellers jointly and severally represents and warrants to the Buyer that the statements contained in this §3(a) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(a)) except as set forth in the Disclosure Schedule delivered on the date hereof and initialed by the Parties, and attached hereto as Exhibit A. The statements contained in the Disclosure Schedule are incorporated in the representations and warranties contained in this Section 3(a) by this reference. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in Section 3 and Section 4 as applicable.

 

         i.             [Intentionally Omitted]

 

(ii) Authorization of Transaction . The Sellers have full power and authority to execute and deliver this Agreement and to perform his or her obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Sellers, enforceable in accordance with its terms and conditions. The Sellers need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.

 

(iii) Noncontravention . Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Sellers are subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Sellers are a party or by which he or she is bound or to which any of his or her assets is subject.

 

(iv) Brokers' Fees . The Sellers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated.

 

(v) Investment . The Sellers (A) are acquiring the Buyer Shares solely for his or her own account for investment purposes, and not with a view to the immediate distribution thereof, (B) have received certain information concerning the Buyer and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the Buyer Shares, and (C) are Accredited Investors as that term is defined in Regulation D of the Securities and Exchange Act of 1933, as amended.

 

(vi) Target Shares . The Sellers hold of record and own beneficially the number of Target Shares set forth next to his or her name in Section 4(b) of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. The Sellers are not a party to any option, warrant, purchase right, or other contract or commitment that could require the Sellers to sell, transfer, or otherwise dispose of any capital stock of the Target (other than this Agreement). The Sellers are not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Target.

 

(b) Representations and Warranties of the Buyer . The Buyer represents and warrants to the Sellers that the statements contained in this §3(b) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(b)), except as set forth in the Disclosure Schedule attached hereto. The statements contained in the Disclosure Schedule are incorporated in the representations and warranties contained in this Section 3(b) by this reference.

 

(i) Organization of the Buyer . The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.

 

(ii) Authorization of Transaction . The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement, to consummate the transaction provided herein and to perform its obligations hereunder. The Board of Directors of the Buyer have duly authorized by proper corporate action the execution and delivery of this Agreement by the Buyer. If shareholder approval is required, the shareholders of the Buyer have duly authorized by proper corporate action the execution and delivery of this Agreement by the Buyer. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.

 

(iii) Noncontravention . Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject.

(iv) Brokers' Fees . The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any Sellers could become liable or obligated.

 

(v) Investment . The Buyer represents that it (A) understands that the Target Shares have not been, and will not be, registered under the Securities Act, or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (B) is acquiring the Target Shares solely for its own account for investment purposes, and not with a view to the distribution thereof, (C) is a sophisticated investor with knowledge and experience in business and financial matters, and is knowledgeable regarding the business of the Target, (D) has had an opportunity to ask questions and receive answers from the Sellers regarding the business, properties, prospects and financial condition of the Target, has received certain information concerning the Target, and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the Target Shares, (E) is able to bear the economic risk and lack of liquidity inherent in holding the Target Shares, and (F) is an Accredited Investor. Buyer believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Target Shares. By executing this Agreement, Buyer further represents that Buyer does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participation to such Person or to any third Person, with respect to any of the Target Shares or the Target, other than the Sellers.

 

(vi) Buyer Shares; SEC Documents; Financial Statements; Disclosures . The Buyer has filed with the SEC and has made available to the Sellers a true and complete copy of each annual, quarterly and other material report, schedule, form, registration statement (without exhibits) and definitive proxy statement required to be filed by the Buyer with the Securities and Exchange Commission (the "SEC") since January 1, 2001, (the "Buyer SEC Documents"). As of their respective filing dates, the Buyer SEC Documents complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as the case may be, and the published rules and regulations of the SEC promulgated thereunder applicable to such Buyer SEC Documents, and none of the Buyer SEC Documents contained on their filing dates any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent corrected by a subsequently filed Buyer SEC Document. The financial statements of the Buyer included in the Buyer SEC Documents (the "Buyer Financial Statements") complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates, were prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted under the Securities Act or the Securities Exchange Act, as the case may be), and fairly presented in all material respects the consolidated financial position, results of operations and cash flows of the Buyer and its consolidated subsidiaries as of the respective dates thereof and for the periods indicated therein (subject, in the case of unaudited financial statements, to normal and recurring year-end audit adjustments). There has been no material change in the Buyer's accounting policies or estimates, except as described in the notes to the Buyer Financial Statements or as required by GAAP. The Buyer has provided the Sellers with all the information that the Sellers have requested regarding the business of the Buyer and the Buyer Shares.

 

4. Representations and Warranties Concerning the Target and Its Subsidiaries . The Sellers jointly and severally represent and warrant to the Buyer that the statements contained in this §4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §4), except as set forth in the Disclosure Schedule. The statements contained in the Disclosure Schedule are incorporated in the representations and warranties contained in this Section 4 by this reference.

 

(a) Organization, Qualification, and Corporate Power . Each of the Target and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of the Target and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Each of the Target and its Subsidiaries has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. §4(a) of the Disclosure Schedule lists the directors and officers of the Target and its Subsidiaries. The Sellers have delivered to the Buyer correct and complete copies of the charter and bylaws of the Target and its Subsidiaries (as amended to date). The minute books (containing the available records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of the Target and its Subsidiaries are correct and complete. None of the Target and its Subsidiaries is in default under or in violation of any provision of its charter or bylaws.

 

(b) Capitalization . All of the issued and outstanding Target Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the respective Sellers as set forth in §4(b) of the Disclosure Schedule. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Target to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Target. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the Target.

 

(c) Noncontravention . Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any of the Target and its Subsidiaries is subject or any provision of the charter or bylaws of any of the Target and its Subsidiaries or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any of the Target and its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). None of the Target and its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement.

 

(d) Brokers' Fees . None of the Target and its Subsidiaries has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

 

(e) Title to Assets . The Target and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the properties and assets used by them, located on their premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet.

 

(f) Subsidiaries . §4(f) of the Disclosure Schedule sets forth for each Subsidiary of the Target (i) its name and jurisdiction of incorporation, (ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) the number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of each Subsidiary of the Target have been duly authorized and are validly issued, fully paid, and nonassessable. One of the Target and its Subsidiaries holds of record and owns beneficially all of the outstanding shares of each Subsidiary of the Target, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any of the Target and its Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any of its Subsidiaries or that could require any Subsidiary of the Target to issue, sell, or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary of the Target. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of the Target. None of the Target and its Subsidiaries controls directly or indirectly or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a Subsidiary of the Target.

 

(g) Financial Statements . Attached hereto as Schedule 4(g) are the following financial statements (collectively the "Financial Statements"): (i) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended 2001, 2002, and 2003 (the "Most Recent Fiscal Year End") for the Target; and (ii) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the 6 months ended June 30, 2004 (the "Most Recent Fiscal Month End") for the Target . The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Target as of such dates and the results of operations of the Target for such periods, are correct and complete, and are consistent with the books and records of the Target (which books and records are correct and complete); provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items.

 

(h) Events Subsequent to Most Recent Fiscal Year End . Since the Most Recent Fiscal Year End, to the Sellers’ Knowledge, there has not been any adverse change in the business, financial condition, operations, results of operations, or future prospects of any of the Target and its Subsidiaries. Without limiting the generality of the foregoing, since that date neither the Target nor any Subsidiary has:

 

(i) sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

 

(ii) entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $10,000 or outside the Ordinary Course of Business;

 

(iii) accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $10,000 to which any of the Target is a party or by which any of them is bound;

 

(iv) imposed any Security Interest upon any of its assets, tangible or intangible;

 

(v) made any capital expenditure (or series of related capital expenditu