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EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
This is an agreement by and between EB Subsidiary II, Inc., a Texas
Corporation ("EB") and Computer Translation Systems & Support, Inc., a Texas
Corporation ("CTSS"), Xxxxxxx X. Xxxxxx ("Xxxxxx"), Xxxxx Xxxxx ("Xxxxx"), and
Xxxxxxxx Xxxx Melquiond ("West").
1. GENERAL RECITALS.
1.1. CTSS.
CTSS is a Texas Corporation, with its principal place of
business at 301 Commerce, 0000 Xxxx Xxxxxx XX, Xxxx Xxxxx, Xxxxx
00000. CTSS and/or the shareholders, as defined in Section 1.2,
individually own and manufacture a product known as the Impact Unit.
CTSS desire to sell certain assets of its business to EB ("acquired
assets" as defined in Section 2.1).
1.2. SHAREHOLDERS.
Xxxxxx and Xxxxx are the sole shareholders of CTSS. West is
closely associated with CTSS. (Unless referred to individually,
Lefler, Moore, and West are collectively referred to as "shareholders"
even though West is not a shareholder.) They, along with their
respective spouses and/or common law spouses and/or significant
others, if any (collectively referred to as "spouses"), desire to
approve this transaction. The shareholders' spouses are included in
the definition of "shareholders" with respect to the conveyance of any
and all interest they own in the acquired assets and any warranty
relating thereto, but not otherwise.
1.3. ERGOBILT, INC.
ErgoBilt, Inc. (ErgoBilt) is a Texas Corporation having its
principal place of business at 0000 Xxxxxxxxx Xxxxx, Xxxxxx, Xxxxx
00000-0000. ErgoBilt desires to approve the purchase contemplated by
EB in this transaction, and guarantee the performance of EB to CTSS as
contemplated in this Agreement.
1.4. EB SUBSIDIARY II, INC.
EB is a wholly owned subsidiary of ErgoBilt. EB's principal
place of business is at 0000 Xxxxxxxxx Xxxxx, Xxxxxx, Xxxxx
00000-0000. EB desires to purchase the Acquired Assets (as
hereinafter defined) of CTSS, the shareholders, as well as any
interest in the Acquired Assets owned or claimed to be owned by the
shareholders' spouses.
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1.5. PRODUCT. "PRODUCT" SHALL MEAN
a. The Fon'iksWriter and Impact operational software and User
Documentation and all Improvements thereto, excluding the
Digitext "chart" tables and the Digitext keyboard as those
terms are defined in the March 21, 1991 agreement by and
between Digitext and CTSS, Inc.;
b. The "keyboard emulator box" and all improvements to items set
forth in paragraph 1.5 a above and the design plans thereto;
c. All other current, pending, and future related products to the
Foniks and Impact Units and User Documentation of CTSS and/or
the shareholders in the field of voice transcription to
computer data, data capture and transcription technology,
voice-to-text technology, machine shorthand to type
phonetically, data capture and shorthand transcription
technology.
d. Any rights to IMPACT trademark name, if any;
e. Product shall not include Real-Time Captioning, Inc.'s
captioning products.
1.6. INTELLECTUAL PROPERTY. "INTELLECTUAL PROPERTY" SHALL MEAN
a. All patents and patent applications of CTSS and/or the
shareholders, including, without limitation, all patents,
their reissue, and pending patents issuing thereon and any
reissue of any such patents relating or referring to the
Product or Process;
b. All software and all improvements, enhancements, conversions,
and modifications thereto of CTSS and/or the shareholders,
including, without limitation, all source codes, flow charts,
executable object code, and all physical embodiments thereof
that have existed in the past and are currently developed or
being developed, including all documentation thereof relating
or referring to the Products and/or Process;
c. All works of authorship owned by CTSS and/or the Shareholders,
and all claims of copyright thereto, as well as all derivative
works, modifications, changes and other embodiments of such
works or authorship which relate or refer to the Products
and/or Process;
d. All current, pending and future trademarks, service marks, and
trade dress and all names used, or to be used by CTSS and/or
the Shareholders or referring to the Products and/or the
Process, and the good will associated therewith;
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e. All technical information and trade secrets of CTSS and/or the
shareholders, including, without limitation, the engineering,
scientific and practical information and formulas, research
data, design and manufacturing procedures, know-how, raw
material, and expertise and all specifications which are
applied to the designs and construction of tooling and
operation of manufacturing/assembling the Product or using the
Process;
f. All User Documentation and literature of CTSS and/or the
shareholders, including but not limited to all user manuals,
supporting materials, training manuals and materials,
workbooks, product description and technical manuals relating
to the Product and/or Process, as well as all copyrights to
the foregoing; and
g. The term "Intellectual property" does not include software
developed by Xxxxxx and/or Realtime Captioning, Inc. which is
used for closed caption purposes.
f. All rights, title and interest of CTSS in (1) the March 21,
1991 license agreement by and between Digitext, Inc. and CTSS,
Inc. and (2) the August 9, 1995 license agreement by and
between Digitext, Inc. and CTSS, Inc.
1.7. PROCESS.
"Process" shall mean any and all current and future processes and all
improvements thereto of CTSS and/or the shareholders for the transcription of
voice to computer data (by keystroke, hand movement or recognition, or
otherwise) except for captioning products.
1.8. IMPROVEMENTS.
"Improvements" shall mean any invention, technology information,
development, technology and modifications of any nature or form, and any part
or combination of parts, or method of using or manufacturing such part or
combination of parts, currently being developed, and which is developed from
the signing of this agreement until West and Xxxxxx execute their respective
employment agreements (the "Employment Agreements") which improves the Process,
including, without limitation, the development of a new Process which affects
the Product in any of the following ways:
a. Reduces production costs;
b. Improves performance;
c. Improves handling in the manufacturing process;
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d. Broadens applicability;
e. Increases marketability; or
f. Improves appearance.
1.9 COLLATERAL.
"Collateral" shall mean all right, title, and interest, including any
reversion and/or future interest in the;
a. Product, Process, Intellectual Property, and Improvements;
c. Any stock actually issued or purchased under the terms and
conditions of this agreement.
1.10. COVENANTS.
In consideration for the mutual covenants and other consideration
provided for in this Agreement, the parties have and agreed to enter into this
Agreement ("Agreement").
2.0 BUY/ SELL.
2.1. BUY/SELL.
CTSS, with the approval of its shareholders, the shareholders
individually, and the shareholders spouses' individually, agree to sell, grant,
transfer and deliver to EB, and do hereby sell, grant, transfer and deliver to
EB, and EB agrees to purchase, the below assets (hereafter and before referred
to as "Acquired Assets"):
a. All Intellectual Property, Process, and Products of CTSS
and/or the shareholders as those terms are defined therein;
b. All royalty fees earned on or after the Closing Date; and
c. A portion of any and all Recovery that CTSS and/or the
shareholders receive in a settlement or judgment against EDS
and/or its affiliates as set out in Section 3.3 of this
Agreement.
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2.2. TRANSFER.
Within ten (10) days following execution of this Agreement, CTSS shall
provide manuals and data for the computer software system and components
thereof. These shall include, but are not limited to, the following:
a. Computer programmer's manuals and computer user's manuals used
by CTSS and/or the shareholders in development of its software
and Intellectual Property, including manuals for any language
for the CPU used by CTSS in its business and instructions for
performing all backup of all software and message libraries.
b. One original copy of the CTSS computer operating system manual
and compiler and assembly language manuals and any translation
sources to object codes.
c. Manufacturer's documentation, if any, (including schematics)
for all plug-in circuits cards used by CTSS in the use of
their Intellectual Property.
d. All CTSS proprietary computer program logic, if any, in the
flow chart form.
e. Narrative description, if any, of programs and input/output
formats used by CTSS with the software, excluding the Digitext
"chart".
f. One complete copy of the proprietary CTSS, Inc. source code,
with all enhancements, shall be provided in print-out form and
encoded on 3-1/2" disks.
g. All object code created from the proprietary CTSS source code,
and its enhancements, on machine readable medium.
2.3. RETAINED ASSETS.
The following assets and properties shall be retained by CTSS and do
not constitute Acquired Assets:
a. All minute books, stock books and the corporate seal of CTSS;
b. All real property;
c. All plant and office supplies, and other miscellaneous
supplies and materials used in the operations of business;
d. All bank accounts, cash, securities, prepaid expenses,
deposits, and security bonds;
e. All fixtures and furniture;
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f. All royalty fees earned prior to the Closing Date;
g. All inventory (including raw materials, work-in process and
finished goods);
h. All machinery, tools, and equipment needed to assemble the
Products;
i. EDS lawsuit, if any;
j. All customer lists, files, papers and business records; and
2.4. ALLOCATION.
The parties agree that the purchase price shall be allocated among the
acquired assets as deemed appropriate by EB and CTSS; however, in the event
there is a dispute regarding the valuation and allocation process, the parties
agree to use Xxxxx X. Xxxxxx of Business Valuation Services, or another person
agreed by the parties, or pursuant to Arbitration under Section V, to perform
the valuation. The valuation will be jointly agreed to and defined in writing
by the time of Closing.
2.5 LIABILITIES
a. ASSUMED LIABILITIES. EB shall in no event assume or be responsible
for any liabilities, liens, loans security interests, claims,
obligations, or encumbrances of CTSS, contingent or otherwise, and all
of the Acquired Assets shall be sold and conveyed to EB free and clear
of all liabilities, liens, loans, security interests, claims,
obligations, and encumbrances. Unless agreed to in writing by EB,
without limiting the generality of the foregoing, in no event shall EB
assume or be responsible for:
(i) any State or Federal income, property, franchise,
sales use or other taxes of CTSS, its shareholders,
the shareholders' spouses, or West, or any filing
requirements or obligations with respect thereto
arising out of the sale of the acquired assets (all
such tax to be paid by CTSS);
(ii) any liabilities, obligations, or costs (1) resulting
from any claim or lawsuit or other proceeding
relating from any claim or lawsuit or (2) relating to
any of the stock or assets of CTSS or (3) the naming
of CTSS or any successor thereof as a party and
arising out of events, transactions, or circumstances
occurring or existing prior to the Closing date;
(iii) any liabilities, obligations or costs resulting from
any claim or lawsuit or other proceeding relating
from any claim or lawsuit or relating to any
Environmental Claim against CTSS relating to CTSS's
operations,
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its actions or failure to act, or its status as an
owner, operator or lessee of any real property; and
(iv) any liabilities, obligations, and outstanding
balances on any promissory notes, debts, or any other
type of financial obligation, which is owed to any
person or entity, including but not limited to any
debts owed to any of the shareholders or West.
b. RETAINED LIABILITIES. CTSS agrees to assume and be obligated to pay
for, perform, or discharge:
(i) All of the liabilities enumerated in Section 2.5 a;
(ii) All liabilities or obligations of CTSS to make
distributions to its shareholders as dividends, in
liquidation or otherwise;
(iii) All liabilities or obligations of CTSS under or with
respect to any transaction occurring after the
Closing Date;
(iv) All liabilities and obligations arising from any
litigation presently threatened or pending from any
litigation which is hereafter instituted against CTSS
and/or the shareholders based upon events prior to
the closing, or which occur hereafter;
(v) Discharge all liabilities relating to the payment and
distribution of royalties to Digitext as outlined in
March 21, 1991 agreement by and between Digitext and
CTSS, Inc.
(vi) All liabilities and obligations which EB has not
specifically assumed.
c. OBLIGATIONS. Nothing contained in this section shall relieve CTSS
from any obligations under any covenant, warranty, or agreement
contained in this Agreement.
2.6. STRUCTURE.
The transaction shall be structured as a limited asset purchase for tax and
financial reporting purposes. It has been structured to be reported for
financial statement purposes as a purchase under Accounting Principals Board
Opinion 16 ("APB-16") and any applicable SEC laws and regulations, and/or to
maximize the tax benefit to ErgoBilt in all of its tax considerations,
including but not limited to the immediate tax benefit in the acquisition and
the ongoing and future tax benefit in the event of a spin-off. CTSS, EB and
ErgoBilt shall mutually agree to modify the structure of the transaction to
achieve these ends up October 1, 1997.
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2.7 CLOSING. THE CLOSING SHALL BE OCTOBER 1, 1997.
a. EB. At the Closing, EB shall deliver to the shareholder
consideration referred to Section 3.1 a. of this Agreement.
b. CTSS AND SHAREHOLDERS. At the Closing, CTSS shall deliver and
convey to EB the Acquired Assets free and clear of any and all
restrictions, voting trusts or agreements, liens, charges,
encumbrances, options, minority shareholder claims, and
adverse claims or rights whatsoever, except that the Xxxxx
Xxxxxx note shall be controlled by Section 6.1 f(iii).
Shareholders agree to execute any and all other documents,
transactional and conveyance documents needed to effectuate
the purchase and sale contemplated by this Agreement.
3. PURCHASE PRICE AND OBLIGATIONS.
3.1. PURCHASE PRICE.
The total PURCHASE PRICE is based on a fixed portion payment and a
contingent payment as follows: Upon the terms and subject to the conditions set
forth in this Agreement, EB agrees to provide the following consideration:
a. FIXED PORTION PAYMENT. Contemporaneously with the execution of this
Agreement, EB shall issue to CTSS One Hundred Thousand (100,000)
shares of ErgoBilt, Inc. common stock.
b. CONTINGENT PORTION PAYMENT. Based on the operating performance
benchmarks of EB as measured by:
(i) If at any time prior to August 22, 1999, EB has licensed
thirty-five (35) court reporting, vocational schools and/or
community colleges to teach the Fon'iks system which will
establish the commercial viability of the technology, and
(ii) generates cumulative gross revenue of Ten Million Dollars
($10,000,000) by August 22, 1999, from all direct and
derivative product sales and services; or
(iii) generates value determined by an independent third party,
such as Business Valuation Services, Inc. (BVS), to be
equivalent to the value specified in Section 3.1.b.(i). and
(ii). above
ErgoBilt will pay to CTSS a contingent payment equal to Five Million
Dollars ($5,000,000) less the current market value, as defined in
Section 3.1.c, of the fixed portion payment (assuming such benchmarks
are achieved by August 22, 1999) and that such payment may be in the
form of cash or unrestricted Ergobilt common stock,
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at the discretion of ErgoBilt. If the contingent payment is satisfied
in the form of ErgoBilt common stock, ErgoBilt will purchase common
stock in the open market in order to satisfy any and all additional
consideration due under the Contingent Payment Portion of this
Agreement. In the event that CTTS falls short of the operating
performance benchmarks above, the contingent payment shall be
determined on a pro-rate basis.
The parties further agree that, subject to proper written notice and
ErgoBilt's right to cure within 30 days of receipt of notice, any
actions taken by ErgoBilt that materially negatively impact the
ability of EB to achieve the operating performance benchmarks
identified in Section 3.1.b. above, as determined by binding
arbitration according to the Rules of the Institute of Christian
Conciliation in Dallas, Texas, then the operating performance
benchmarks shall have been deemed met and all payments called for in
the Contingent Portion Payment section of this Agreement shall become
due and payable in full.
c. MARKET VALUE. The Market Value of the 100,000 shares (including any
adjustments for stock splits) of ErgoBilt common stock will be
determined by the average stock market price (average of the bid/ask
spread) of ERGB common stock, as determined by the NASDAQ National
Market prices published in the Wall Street Journal, during the twenty
(20) day period immediately preceding the date EB achieves the
operating performance benchmarks.
d. Registration Rights. For purposes of this Agreement, "Registrable
Rights" shall mean the (i) shares of Common Stock of ErgoBilt issued
or issuable upon exercise of the Stock Options, (ii) any shares of
Common Stock acquired or issued; and (iii) any other shares of Common
Stock acquired as a result of stock splits, stock dividends,
reclassifications, recapitalization, or similar events relating to the
shares described in clauses (i) and (ii) above until such time as a
registration statement covering such Registrable Securities has been
declared effective and such Registrable Securities are transferred
pursuant to Rule 144 under the Securities Act of 1933, as amended.
(i) Piggyback Registration.
a. Notice . If, at any time, ErgoBilt proposes to file a
registration statement under the Securities Act, other
than a registration relating solely to employee benefit
plans or a transaction falling within the provisions of
Rule 145(a) under the Securities Act (a "Registration
Statement"), with respect to an offering for its own
account or for the account of others of any class of
securities of ErgoBilt, then ErgoBilt shall give written
notice of such proposed filing (a "Piggyback Notice") to
each Stockholder at least thirty (30) days before the
anticipated filing date. The Piggyback Notice shall
describe the intended method of distribution and offer
each Stockholder the opportunity to register pursuant to
such Registration Statement such Registerable Securities
as the Stockholder may request in writing to ErgoBilt
within fifteen (15) days after the date the Stockholder
first received the Piggyback Notice (a "Piggyback
Registration").
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ErgoBilt shall take all necessary steps to include in the
Registration Statement all Registerable Securities which
ErgoBilt has been so requested to register by the
Stockholders.
b. UNDERWRITTEN REGISTRATIONS. In a registration pursuant to this
Section 2 involving an underwritten offering, whether or not
for sale for the account of ErgoBilt, if the managing
underwriter with respect to such offering advises ErgoBilt in
writing that the inclusion of all the Registerable Securities
which the Stockholders have requested to be included in the
Registration Statement would materially jeopardize the success
of the offering then ErgoBilt shall be required to include in
the underwriting only that number, if any, of Registerable
Securities which the underwriter advises ErgoBilt in writing
may be sold without materially jeopardizing the offering. In
the event that the number of Registerable Securities included
in such Piggyback Registration is limited as described above,
then Registerable Securities shall be included on a pro-rata
basis based on the number of Registerable Securities requested
to be registered by each Stockholder. Nothing in this Section
2 shall create any liability on the part of ErgoBilt if
ErgoBilt for any reason should decide not to file such
Registration Statement, or if filed, thereafter terminates the
Registration Statement.
e. LOANS.
(i). Contemporaneously with the Closing of this Agreement, EB shall
loan Two Hundred Thousand Dollars ($200,000).
(ii). CTSS will have the right to borrow from ErgoBilt and ErgoBilt
will loan to CTSS up to Two Hundred Thousand Dollars
($200,000) per quarter beginning January 1, 1998 with the last
loan being made on July 1, 1999 (which is the third quarter of
1999). In the event that Xxxxxx and West are terminated for
cause under their employment agreements, ErgoBilt has no
further obligations to make additional loans after the date of
termination. The loans made to CTSS will be secured by
ErgoBilt common stock issued at the Closing, the contingency
purchase price, the stock options grated to Xxxxxx and West
that have not yet vested under the Employment agreements
(those options which have vested shall be released from the
security agreement), and all of the assets of CTSS, Inc. In
the event that CTSS sells shares in a particular quarter, the
loan for that quarter shall be reduced by the amount of stock
sold.
(iii). In the event that ErgoBilt fails to timely make these loans
when requested by CTSS, ErgoBilt shall have 15 days to cure
and make the requested loans. In the event that ErgoBilt fails
to make the loans after the 15-day cure period, ErgoBilt
agrees to pay a $1,000 per day penalty to CTSS until said
loan(s) are funded.
f. SALE OF ERGOBILT COMMON STOCK. The sale of ErgoBilt common stock by
the Stockholders is subject to the collateral requirements and other
SEC rules and regulations, including Rule 144 under the Securities Act
of 1933, as amended, if applicable.
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g. LOAN REPAYMENT. The outstanding balances on all loans made to CTSS
will accrue interest at 90 day LIBOR plus 200 basis points. The
repayment of the outstanding balances and accrued interest on all
loans made to CTSS shall be made on or before August 22, 1999.
ErgoBilt will have the right of offset against the loan at the
time additional compensation is due under the Contingent Portion
Payment provisions of this Agreement.
(i). All outstanding balances on any loans to CTSS will be
secured by the 100,000 shares of ErgoBilt common stock issued
to CTSS upon Closing of this Agreement.
h. INVESTMENT REPRESENTATION. All shares of ErgoBilt common stock
that CTSS will receive under the terms of this Agreement is for
investment purposes and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intent of
distributing or selling their shares. CTSS and the shareholders have
reviewed the representations in the Prospectus and have made or have
had the opportunity to make inquiry concerning EB and ErgoBilt. CTSS
and the shareholders have sufficient knowledge and experience so as to
be able to evaluate the risks and merits of their investment, and they
are able financially to bear risks thereof. CTSS and the shareholders
are entering into the transactions contemplated herein based on their
own assessments of the merits and risks, upon their own experience as
an officer, director and/or shareholder, and are not relying on any
business plan, projections, valuations or other financial information
provided to them by EB and ErgoBilt. CTSS and the shareholders further
acknowledge and agree that ErgoBilt and EB have made no assurances of
any nature whatsoever regarding the future operations of EB or
ErgoBilt except as set out in this Agreement and have made no
guarantees as to the profitability of any investment therein. CTSS and
the shareholders further acknowledge that EB is a newly-formed entity
with no history of operations.
3.2. OBLIGATIONS AND RESPONSIBILITIES.
a. SHAREHOLDERS. West and Xxxxxx, as employees and under their
Employee Agreements, shall have control of the obligation to
manage, design, assemble, and distribute the Products produced
by EB, design the user documentation, provide and train others
to provide technical support, train the labor to assemble and
repair the Product, unless released in writing by ErgoBilt;
however, unless otherwise agreed by the parties, an ErgoBilt
officer shall act as the comptroller and secretary of EB and
all invoices shall be approved by a West or Xxxxxx and an
ErgoBilt officer with the checks signed in the normal course
of business by EB without unreasonable delay.
b. COMPANY NAME AND PRODUCT XXXX. EB and ErgoBilt have the sole
authority to change, modify, and determine the company name of
EB (division
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name) and product marks for all goods and services sold
through and by EB after July 12, 1997.
c. LAWSUIT WITH EDS. After all taxes and expenses have been
netted, all proceeds received by CTSS, the shareholders, and
West from any settlement of judgment of any type of claim
against EDS or its affiliate (collectively referred to as
"Recovery") shall be allocated as follows:
(i) CASH PROCEEDS. Seventy-five percent (75%) of the cash
proceeds as a result of any Recovery, up to a maximum
of Six Million Dollars ($6,000,000), by CTSS in the
EDS action will be retained by CTSS. The remaining
25% of the Cash Recovery proceeds, up to a maximum of
Six Million Dollars ($6,000,000), shall be retained
by EB. If the Cash Recovery proceeds exceeds Six
Million Dollars ($6,000,000), the parties agree to
divide equally, half of the Recovery to CTSS and half
to EB, any and all Cash Recovery proceeds in excess
of Six Million Dollars ($6,000,000).
d. DUE DILIGENCE. ErgoBilt's and EB's authorized representatives
shall have the complete authority to commence immediately an
examination of CTSS, the Shareholders, the Products, Process ,
Intellectual Property, and all matters needed to evaluate this
transaction. CTSS shall bear the expense and cost of its due
diligence. CTSS agrees to fully disclose to EB all
confidential, financial information, Intellectual Property,
Products, Process, Modifications and titles thereto, as well
as all material contracts lenders, investors, software
vendors, employees, and contractors, employment records, and
any other records or information which EB requests. CTSS and
the shareholders agree to cooperate in all ways in providing
this information in a timely manner including extensive
personal and individual character and background
investigations of the shareholders.
e. AUDIT MATERIAL. Within 10 days of executing this Agreement,
CTSS and the shareholders and West shall deliver to EB
whatever financial statements and records, and cooperate fully
in any audit, CTSS has in its possession for the prior 28
months for CTSS' business.
f. EMPLOYMENT AND BENEFITS.
(i). XXXXXX AND WEST. Upon the Closing Date, Xxxxxx and
West shall become employees of EB under respective
Employment Agreement attached as Exhibit F.
(ii). OTHER EMPLOYEES. EB will endeavor to employ the
personnel presently employed by CTSS in such
operation. Neither CTSS, nor the shareholders can
hire CTSS employees or former employees to work at
any other business of CTSS or a business owned or
controlled any CTSS or its Shareholders except that
Xxxxx Xxxxxx and Xxxx Xxxxxxxx can work for RealTime
Captioning, Inc.
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4. MEDIATION AND RESOLUTION.
4.1 ARBITRATION.
The parties agree that any and all claims or disputes between the
parties that arise in the future shall be settled by mediation and if necessary
after a reasonable amount of time for mediation, binding arbitration according
to the Rules of the Institute of Christian Conciliation in Dallas, Texas and
judgment upon an arbitration award may be entered by any court of competent
jurisdiction. "Any claim or dispute" means any and all claims and disputes in
contract or tort or statutory, and without limitation or restriction general to
the foregoing:
(a) Any and all disputes which may arise between the parties
relating to the negotiation, drafting, formation, execution,
and performance of this Agreement.
(b) Any dispute or claim that arises between the parties outside
of this Agreement, and
(c) Any dispute regarding the wording of the covenants,
modifications, clarifications of any additional documents
which are needed to effectuate the purpose of this Agreement.
4.2 CHOICE OF LAW.
It is especially agreed and stipulated that this Agreement shall be
deemed to have been made in the State of Texas. All questions concerning the
validity, interpretation, performance of any of its terms or provisions or of
any rights or obligations of the parties hereto shall be governed by and
resolved by the laws of that jurisdiction.
5.0 CONFIDENTIALITY AND PUBLIC RELATIONS.
5.1. CONFIDENTIALITY.
The parties recognize that certain valuable confidential information
including the source code of CTSS will be disclosed during ErgoBilt's due
diligence of CTSS, EB, ErgoBilt, and all their affiliates agree not to disclose
any confidential information, specifically including without limitation the
source code and to maintain during the entire term of this Agreement the
secrecy and confidentiality of the confidential information, specifically
including without limitation the source code, provided by CTSS.
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5.2. PUBLIC RELATIONS.
The parties recognize that any release of information to the public or
other third parties with respect to these negotiations may cause great
detriment to ErgoBilt and thus agree to keep this proposal confidential. The
parties designate Xxxxxx Xxxxx of ErgoBilt as the sole representative of both
ErgoBilt, CTSS, and the shareholders to communicate information to the public
regarding this transaction.
6.0 WARRANTIES AND REPRESENTATIONS.
6.1. CTSS.
CTSS and the shareholders make the following warrants,
representations, and agreements. For the purpose of this Section VII of this
Agreement, the term CTSS shall mean CTSS and the shareholders. For the purposes
of this Section VII of this Agreement EB shall mean EB and ErgoBilt.
a. EQUITABLE RELIEF. CTSS recognizes and agrees that EB's remedy
at law for any breach of the provisions of this Agreement
would be inadequate and that for breach of such provisions EB
shall, in addition to such other remedies as may be available
to them at law or in equity or as provided in this Agreement,
be entitled to injunctive relief by an action for specific
performance to the extent permitted by law. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided
however, this Agreement and all rights hereunder may not be
assigned by CTSS, except by prior written consent of EB.
b. OSHA AND ENVIRONMENTAL. CTSS warrants and represent that it is
in compliance with OSHA and all applicable state and federal
environmental laws and that no state or federal agency is in
discussions with, or made demands/claims against, CTSS
regarding any non-compliance issue.
c. BULK SALES LAW. CTSS warrants and represents that it will take
all necessary steps to comply with all applicable bulk sales
laws, if necessary.
d. TAXES. CTSS warrants:
(i) FILINGS. That it has filed all federal, state, local,
and other tax returns which are required to be filed
by it and which were due prior to the date of this
Agreement and has paid all taxes shown thereon,
including without limitation, all taxes on
properties, income, business and occupation,
licenses, sales and payrolls. The tax returns of CTSS
for the five years fiscal years will be delivered to
EB at closing, as well as all state franchise
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and sales tax returns for the same period. The 1996
tax return for CTSS shall be prepared and delivered
to EB on Closing.
(ii) PAYMENTS MADE. That all Federal, state, local and
other taxes accruable since the end of the respective
periods covered by such returns and up to the closing
have or will have been paid.
(iii) NO AUDITS. That no federal income tax returns of CTSS
have been audited by the IRS and/or the California
Franchise Tax Board, and CTSS has granted no power of
attorney to any person to represent it before the
IRS; that no federal or state tax liabilities have
been assessed or proposed which remain unpaid. CTSS
is not aware of any basis upon which any assessment
for a material amount of additional taxes could be
made.
(iv) WITHHOLD AND COLLECTING TAXES. Present taxes which
CTSS is required by law to withhold or collect have
been withheld or collected and have been paid over to
the proper governmental authorities or are properly
held by CTSS for such payment, and all withholdings,
collections or other payments payable in connection
therewith as of the dates of the unaudited financial
statements are fully reflected or disclosed in the
balance sheets included as a part of the unaudited
financial statements as at such dates and for the
periods than ended. All such taxes are and will be so
withheld, collected, paid over or held for payment as
of the date of this Agreement and the date hereof. No
waivers of statutes of limitations with respect to
any tax returns of CTSS or extensions of time for the
assessment of any tax have been given which are now
in effect.
e. ACCOUNTS RECEIVABLE. Even though EB is not assuming accounts
receivable, EB is granted the right to inspect all accounts
receivable. CTSS shall provide to EB with a list of all
accounts receivable., if any, showing the name and address of
each debtor, the amount due on each account, and any write-off
or reserve against each account, and the date when the account
became due.
f. Financial.
(i) BANK ACCOUNTS AND MONEY MARKET FUNDS. CTSS agrees to
provide to EB for each account and money market funds
all bank statements, canceled checks, debits and
credits, and deposit slips for the period beginning
April 1, 1994 to the effective date of this Agreement
that is in the possession of CTSS. If EB or ErgoBilt
require CTSS to obtain information from financial
institutions, ErgoBilt will pay the cost of such
searches and copies.
(ii) FINANCIAL STATEMENTS. CTSS shall deliver to ErgoBilt
unaudited financial statements of CTSS for each of
its fiscal years since 1991, which include balance
sheet, income statement and statement of cash flow
for the respective
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periods, provided, however, such financial statements
exist. If CTSS is required to prepare such financial
statements, ErgoBilt will pay the cost of such
financial statement preparation.
(iii) DEBTS. CTSS warrants that it is not a party to any
loan, debt instrument or bank credit agreement other
than the Xxxxx Xxxxxx debt. CTSS warrants that there
are no claims, debts, or liabilities outstanding,
except for the note owed to Xxxxx Xxxxxx, which is
approximately $100,000 ("Xxxxx Xxxxxx obligation" or
"note"). CTSS shall cause to be released all Product,
Process, Intellectual Property, and Improvements from
any lien or pledge in the Xxxxx Xxxxxx obligation.
(iv) CORPORATE DOCUMENTS. CTSS shall deliver to EB correct
and complete copies of CTSS's Articles of
Incorporation and Bylaws, each as amended to date,
and minutes of meetings, and copies of al actions by
written consent taken by , the directors and
shareholders of CTSS. All actions taken by CTSS'
Board of Directors and shareholders authorizing this
transaction.
(v) DOING BUSINESS CERTIFICATES. CTSS shall deliver to EB
true and correct copies of all foreign corporation
and assumed name filings and a list of all States in
which CTSS is doing business.
g. PROPERTY. CTSS and its shareholders warrants it has good and
marketable title to all property owned by it, free of all
encumbrances. CTSS warrants that it owns good and marketable
title to all Intellectual Property, Products, and Process, and
the same is free and clear from any lien or encumbrances. CTSS
warrants and represents that the Intellectual Property,
Process, Products are free from claims, misappropriation or
infringement. The shareholders and the shareholders' spouses
specifically warrant and represent that they have no
individual interest, claim, ownership or title in the
Intellectual Property, Products, or Process which is not being
conveyed to EB in this transaction. CTSS represents and
warrants that none of its employees, agents, or consultants
own any title to or property interest to the Intellectual
Property, Products, or Process. CTSS and the shareholders
represent and warranty that attached as Exhibit G is a
complete list of any and all Intellectual Property, Process,
and Products owned by CTSS and the shareholders.
h. SOURCE CODE.
(i) CTSS and the shareholders warrant that the source
code and enhancements and deliverable object code
based thereon shall not contain anywhere embedded
therein a logic bomb, time bomb, or other drop dead
device which has the purpose to deactivate or
otherwise make useless the computer software
furnished as part of its Intellectual Property in the
Agreement.
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(ii) CTSS and the shareholders agree that when delivering
its software hereunder it shall not embed in any of
its executable software a trapdoor or other means of
access that would enable CTSS to gain access to the
software without the knowledge or consent of
ErgoBilt.
i. NAMES, FRANCHISEES, PERMITS. CTSS warrants that it has not
received any claims that it does not have the right to use its
mane or the name of its Products, Intellectual Property, or
Process in every state in which it now does business. CTSS
warrants that it has no franchises, permits, Intellectual
Property, Process, or Products which are currently being used
in the operation of its business which infringes or violates
the rights of any other person, entity, or business. CTSS has
not infringed or violated in any way any trademark, trade
name, copyright, trade secret rights or contractual
relationships of others, and has not received any notice,
claim or protests respecting any such violations or
infringement. CTSS has not given any indemnification to any
person for any such violations or infringements.
j. CONTRACTS.
(i) MATERIAL CONTRACTS. CTSS agrees to provide EB with
all contracts to which it is a party or by which it
is a party or by which CTSS is and which are material
to CTSS' business and all confidentiality agreements
obtained from parties other than EB. CTSS warrants
that it is not obligated under any contracts or
agreement which materially and adversely affects its
business, properties, prospects, assets or condition
financial or otherwise, including but not limited to,
all debt instruments, contracts with software
companies, employees, contractors notes, collateral
agreements, licenses and development agreements.
(ii) NO DEFAULT. CTSS warrants that it is not in default
under (nor is CTSS aware of any fact or event which
with the lapse of time or the giving of notice or
both would constitute a default under) any contract
made or obligation owed by it which would result in a
liability that would materially adversely affect the
business of CTSS.
(iii) POWER OF ATTORNEY. CTSS has given no power of
attorney to any person or entity, which is presently
outstanding or in force for any purpose whatsoever.
k. LITIGATION.
(i) NO ACTIONS. There are no actions, suits, proceeding
or investigations of any kind pending, or, to the
knowledge of CTSS, threatened before any court,
commission, or other administrative authority against
CTSS, any of its stockholders, or its business, or
its properties, Product, Process, or Intellectual
Property and CTSS is not the subject of any order or
decree.
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(ii) EDS. CTSS warrants and represents to EB that:
1. CTSS has not breached any agreement or any
covenant of any agreement or arrangement that
CTSS had with EDS;
2. CTSS warrants and represents that CTSS is not
a party to any contract, agreement, or any
type of arrangement with EDS which would
limit its right to enter into this, or any
similar, agreement; CTSS, to the best of its
personal knowledge, warrants and represents
that EDS has not made any oral or written
claim against CTSS, nor has EDS sent any
letters to CTSS seeking the return of moneys
or properties to EDS; and
3. EDS does not own any interest in, nor have a
lien or claim against any of CTSS's
intellectual Property, Process, Product,
Improvements.
1. EMPLOYEES. CTSS warrants and represents that:
(i) EMPLOYEE'S HEALTH. Xxxxx Xxxx and Xxxxx Xxxxxx
severally represent that they are in good health to
the best of their knowledge.
(ii) COMPLIANCE. CTSS is in compliance with all federal,
state and municipal laws respecting employment
practice, terms and conditions of employment, and
wages and hours, and is not engaged in any unfair
labor/ employment practice, and there no arrears in
payments of wages or social security taxes.
(iii) NO UNIONS. None of the employees of CTSS are
represented by any labor union; there is no pending
labor strike, or other material labor trouble
affecting CTSS; there is no material labor grievance
pending and no pending collective bargaining
agreement to which CTSS is a party.
(iv) NO EMPLOYEE PLANS. CTSS has no ERISA plan or any
other type of employee benefits plans, stock option
plans employee welfare benefit plan or employee
pensions.
m. AUTHORITY.
(i) APPROVAL. No approval, authorization, order, license
or consent of or registration, qualification or
filing with any governmental authority and no
approvals or consent by any other person or entity is
required in connection with the execution, delivery
or performance by CTSS of this Agreement.
(ii) CTSS'S AUTHORITY. CTSS has full right, power and
authority to execute, deliver and perform this
Agreement. All proper consents of shareholders and
shareholders' spouses have been obtained authorizing
the execution, delivery
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and performance of this Agreement constituting valid
and legally binding obligations of CTSS. There are
pending no proceedings or actions to dissolve or
otherwise terminate CTSS. Attached as Exhibit H is a
Corporate and Shareholders Resolution approving and
consenting to the terms of this Agreement.
(iii) SHAREHOLDER AUTHORITY. The CTSS shareholders have
full right, power and authority to execute, deliver
and perform this Agreement and each related agreement
to which they are parties. This agreement has been
duly executed and delivered by the CTSS shareholders
and constitutes a legally binding obligation of each
of them. Attached as Exhibit H is a Corporate and
Shareholders Resolution approving and consenting to
the terms of this Agreement.
n. DISCLOSURES. The representations and warranties made by CTSS
in this Agreement and any statements by them made in any of
the Exhibits hereto do not contain any untrue statement of a
material fact or omit to state a material fact. There is no
fact or condition particularly related to the business of CTSS
which is known to CTSS, and neither is aware of any fact or
condition particularly related to the business of CTSS which
any of them reasonably believes might adversely affect in a
material fashion the business, property, Intellectual
Property, Process, and Product, condition (financial or
otherwise), or results of operations of CTSS which has not
been set forth in this Agreement or in an Exhibits hereto.
o. INDEMNIFICATION. Subject to all of the limitations and
provisions of this Article, CTSS and the shareholders jointly
and severely agree to indemnify, defend at its costs with
legal representation reasonably satisfactory to EB, save and
hold EB harmless from and against, and compensate them for any
and all demands, claims, actions, causes of action,
assessments, damages, liabilities, losses, diminution in
value, expenses, fees, judgments or deficiencies of any nature
whatsoever (including, without limitation, any unpaid taxes
due from CTSS and reasonable attorneys' fees and other costs
and expenses incident to any suit action or proceeding
including those incurred in connection received, incurred or
sustained by the indemnified parties, or either of them, which
shall arise out of or result from any breach of any
representation, warranty or covenant of this Agreement,
including without limitation those set forth herein) except
that CTSS and the Shareholders shall not have to indemnify
ErgoBilt or EB for any claim made by EDS or one of its
affiliates which arises outside of any breach of any
representation, warranty or covenant of this Agreement,
including without limitation those set forth herein). CTSS and
the shareholders grant to EB and ErgoBilt the right to
directly setoff its claims for indemnification against all
funds due to CTSS under Section 3.01 d 2 of this Agreement.
p. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of CTSS set forth in this
Agreement shall survive the date hereof for
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three years (except that the representations and warranties
regarding taxes and employee benefit plans of this Agreement
shall survive the date hereof for six years), notwithstanding
the establishment of a shorter period by any applicable
statute of limitations, the provisions of which are hereby
waived, provided that liability with respect to any
representation or warranty as to which a claim is made within
such 3-year and 6-year periods, as applicable, shall continue
until finally determined and paid.
q. SET-OFF. Any amount or amounts due from CTSS or its
shareholders to ErgoBilt under the indemnification provision
or any other loss, claim or liability arising from an
obligation or liability of CTSS may be, at EB's option, set-
off against any amounts due or stock to the CTSS under this
Agreement.
r. NO OTHER NEGOTIATIONS. CTSS and its shareholders represents
and warrants (i) that there are no existing letters of intent
to which CTSS or the Shareholders are bound with respect to
the sale of the CTSS or the acquired assets; (ii) that, except
as required by law, CTSS will not provide a copy of this
Agreement to any person other than its legal or financial
advisors, (iii) that the execution of this Agreement is not in
breach of, or contradiction to, any other agreement or
arrangement that the CTSS has with any other individual or
business entity; and (iv) that CTSS shall not discuss or
negotiate with any party, company, or individual until the
time periods allowable for due diligence and EB corporate
approvals have passed.
s. NO FELONY RECORD. Lefler, West, and Xxxxx represent that none
of them have been convicted of a felony.
t. NEGATIVE COVENANT NOT TO COMPETE.
(i) CTSS and/ or the shareholders, jointly and severally,
covenant that none of them, either separately,
jointly, or in association with others, as employees,
owners, partners, shareholders, or consultants, will
enter into or engage in manufacturing, selling,
marketing, or distribution of the Product, Process,
Intellectual Property, or Improvements within the
United States for a period of five (5) years from the
date of the Closing Date.
(ii) CTSS and the shareholders, jointly and severally,
covenant that none of them, either separately,
jointly, or in association with others, as employees,
owners, partners, shareholders, or consultants, will
enter into or engage in "any other associated or
related service or business" within the United States
for a period of three (3) years from the date of the
Closing Date, without prior written permission of EB
or ErgoBilt. The phrase "any other associated or
related service or business" has the broadest
possible meaning including without limitation any
product or service business which (1) trains or
teaches the use of the Product and or Process, (2)
services the after sale repair or
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upgrade market of the Product, (3) uses the Product,
Process or similar/ enhanced Product or the
Intellectual Property to provide transcription
services to any industry or business (including, but
not limited to the legal, insurance, financial/
banking, brokerage, radio, television, media, and
Internet industries). Notwithstanding the forgoing,
(1) Xxxxxx Xxxxxx, Xxxxx Xxxxx and RealTime
Captioning, Inc. are not covered under this clause,
and (2) Xxxxx Xxxxxx shall be allowed to continue
performing work of RealTime Captioning. Inc. up to
the earlier of October 1,1998 or the date CTSS
receives the maximum consideration specified under
Section 3.1 of this Agreement, but not thereafter.
During this period of time, Xxxxxx agrees that he
shall not perform work for Real Time Captioning, Inc.
during the normal working hours of EB.
(iii) CTSS and the Shareholders acknowledge that this
covenant not to compete is necessary to maintain the
Confidential Information referred to in Section 7.1
u. and is necessary to protect the proprietary
interests of EB, and that the restriction against non
competition is reasonable in light of the
consideration and other value CTSS and the
Shareholders have accepted, and will accept, pursuant
to this Agreement.
u. CONFIDENTIAL INFORMATION.
(i) CTSS and the Shareholders acknowledge that all
information included within and relating to the
Product, Process, Intellectual Property, and
Improvements are valuable, special, and unique assets
of EB (collectively referred to as "Confidential
Information"). In recognition of this, CTSS and the
Shareholders represent and agree that except as
specifically authorized in writing by EB and
ErgoBilt, during the five (5) year period following
the Closing Date, CTSS and the Shareholders shall not
disclose any Confidential Information to any person
or entity, except for disclosure required by law or
by court order, in which event EB and ErgoBilt shall
be given prompt notice of any such compelled
disclosure, and, if possible, an opportunity to
defend its rights hereunder prior to any such
compelled disclosure being made.
(ii) CTSS and the Shareholders acknowledge that this
covenant to maintain Confidential Information is
necessary to protect the proprietary interests of EB,
and that the restriction against disclosure is
reasonable in light of the consideration and other
value CTSS and the Shareholders have accepted, and
will accept, pursuant to this Agreement.
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7.2. ERGOBILT.
EB makes the following warrants, representations, and agreements:
7.3 ORGANIZATION AND AUTHORITY.
EB is a Texas Corporation duly organized, validly existing and in good
standing under the law of the State of Texas, with full power to carry on its
business as such business is now conducted, to execute and deliver this
Agreement and to carry out the transactions contemplated hereby.
7.4 NO VIOLATION.
Neither the execution and delivery by EB of this Agreement or any of
the related agreements to which EB may be a party, nor the consummation of the
transactions herein or therein contemplated, nor compliance with the terms,
conditions and provisions hereof or thereof will conflict with or violate any
provision of law or the Articles of Incorporation or by-laws of EB.
7.5 TAXES.
No state excise or business and occupation tax returns of EB have ever
been audited, no state tax liabilities have been assessed or proposed which
remain unpaid.
7.6 MUTUAL REPRESENTATIONS.
a. NO BROKER COMMISSION. Both ErgoBilt and CTSS represent and
warrant to each other they have not entered into a written,
oral, or implied broker's agreement, which would entitle any
person or entity a commission resulting from this transaction.
b. REPORTS. The parties agree to prepare and promptly file all
reports documents, and notices with all applicable regulatory
and other governmental agencies, as may be required with
respect to this letter of intent.
c. COOPERATION. The parties agree to include within this
agreement all necessary provisions and covenants necessary to
effectuate the purposes and intents of the parties as set
forth in this agreement.
d. COSTS. CTSS shall bear its and its shareholders costs and
expenses as well as the cost and expenses of EB and ErgoBilt,
including all legal accounting and financial fees with respect
to this transaction and the transactions contemplated herein.
e. BINDING. Each party represents that the execution and delivery
of this agreement and the consummation of this transaction
contemplated hereby
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have been duly authorized by all necessary action by each
party, that this agreement constitutes a legal agreement of
valid and binding obligation on each party, enforceable
against each party in accordance with the term of these terms.
Each party represents that neither the execution and delivery
of this Agreement, nor the consummation of this transaction
contemplated by the parties, will constitute a breach of any
agreement to which a party is a party. Specifically, CTSS and
the shareholders warrant that they have no contractual
agreements pending or anticipated with EDS, nor will this
Agreement interfere with any prior or current negotiations
with any third party.
8. MISCELLANEOUS COVENANTS
8.1 Descriptive Heading.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provision of this Agreement.
8.2 BINDING.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their successors.
8.3 REPRESENTATIVES.
The representations, warranties and covenants set forth in this
agreement shall be continuing and shall be true and correct on and as of this
date in the same force and effect as if made at that time, and all such
representations, warranties of covenant shall survive the execution of this
Agreement.
8.4 EFFECTIVE DATE.
The Effective Date of this Agreement shall be Closing Date except as
it may be extended by the agreement of the parties (the "Effective Date").
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8.5 ASSIGNMENT
EB shall be able to assign this Agreement to a wholly-owned subsidiary
of ErgoBilt, however CTSS and its shareholders shall not be able to assign any
of its rights in this Agreement.
8.6 NOTICES.
All notices, requests, demands and other communications under this
Agreement shall be in writing and delivered by personal delivery, mail,
overnight courier or telecopier. Such communications shall be deemed given, if
by personal delivery, when received; if by mail by certified or registered mail
(postage prepaid and return receipt requested) on the date of receipt as
evidenced by the return receipt; or if by overnight courier or telecopier
(provided that the party giving the notice has confirmation of such delivery or
sending) on the date actually received, and, in each case, addressed to the
party to whom notice is to be given as set forth below:
a. If to EB and ErgoBilt: 0000 Xxxxxxxxx Xxxxx, Xxxxxx, Xxxxx
00000-0000, (000) 000-0000 with a copy to Xxx X. Xxxx,
Xxxxxxxx & Xxxx LLP, X.X. Xxx 0000, Xxxxx, Xxxxx 00000-0000.
b. If to CTSS: CTSS, Inc. 301 Commerce, 0000 Xxxx Xxxxxx XX, Xxxx
Xxxxx, Xxxxx 00000 with a copy to Xxxx Xxxxx Chalk, Xxxxxxxx
Xxxxxxxx Xxxxxxx Xxxxxxxx Flowers Xxxxxx Xxxxxxxx & Chalk, LLP
301 Commerce, 0000 Xxxx Xxxxxx XX, Xxxx Xxxxx, Xxxxx 00000,
(000) 000-0000 and (000) 000-0000 (fax).
8.7 ENTIRE AGREEMENTS.
All Attachments hereto shall be deemed incorporated into and made part
of this Agreement. This Agreement contains the entire understanding between the
parties relating to the subject matter of this Agreement. There are no
agreements, representations, or warranties by any of the parties, which are not
set forth herein. All prior proposals, discussions and writings by and between
the parties and relating to the subject matter of this Agreement are superseded
by this Agreement.
8.8 GUARANTEE. ErgoBilt guarantees the performance of EB to CTSS as
contemplated in this Agreement.
8.9 AMENDMENT IN WRITING.
All modifications and amendments to this Agreement must be in writing
executed by both parties.
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In witness whereof the parties hereto have executed this Agreement as
of the day and year written nest to their name.
CTSS, INC.
By: ,
----------------------------------------
Chairman of the Board of CTSS, Inc.
CONSENTED TO AND APPROVED BY:
-------------------------------------------- -------------------------
Xxxxxxx X. Xxxxxx, Shareholder of CTSS, Inc. Xxxxxx Xxx Xxxxxx
Spouse of Xxxxxxx X. Xxxxxx
-------------------------------------------- -------------------------
Xxxxx Xxxxx, Shareholder of CTSS, Inc. Spouse of Xxxxx Xxxxx
-------------------------------------------- -------------------------
Xxxxx Xxxx, Spouse of Xxxxx Xxxx
EB SUBSIDIARY, INC.
By:
----------------------------------------
Xxxxxx XxXxxxxx
By:
----------------------------------------
Xxxxxx Xxxxx
ERGOBILT, INC.
By: By:
---------------------------------------- -----------------------
Xxxxxx XxXxxxxx Xxxxxx Xxxxx
Chairman of the Board CEO and President
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