Exhibit 99.1
July 1, 2001
STOCK TENDER AND EXCHANGE AGREEMENT
THIS STOCK TENDER AND EXCHANGE AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of July, 2001, by and among SITESTAR CORPORATION,
a Nevada corporation (the "Company"), and XXXXX X. XXXXXXXX ("Xxxxx") and XXXXXX
X. XXXXXXXX ("Xxxxx") (collectively, Xxxxx and Xxxxx are sometimes referred to
in this Agreement as the "Majority Shareholders"), and those individuals listed
on Annex I attached hereto (such persons, other than the Company, but including
Xxxxx and Xxxxx, are referred to herein individually as a "Seller" and
collectively as the "Sellers".)
R E C I T A L S
A. The Sellers own all of the outstanding shares of the capital stock
of Advanced Internet Services, Inc. a North Carolina corporation which is a
successor in interest to two a sole proprietorships one having the same name as
the corporation and the other with the name Professional Data Systems (
collectively "ADVI") .
B. The Company and the Sellers desire the transactions contemplated by
this Agreement (the "Transaction") to constitute a tax-free reorganization
pursuant to ss.368(a)(1) of the Internal Revenue Code of 1986, as amended, and
that this agreement constitute a plan of reorganization.
C. On the terms and subject to the conditions set forth in this
Agreement, the Sellers desire to tender to the Company, and the Company desires
to accept from the Sellers, all of the shares of the capital stock of ADVI owned
by the Sellers in consideration for the issuance by the Company to the Sellers
of Sitestar Common Stock.
A G R E E M E N T
NOW, THEREFORE, with reference to the foregoing facts, the parties
agree as follows:
1. DEFINITIONS.
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(a) Certain Definitions. All terms defined in this Agreement
shall have the defined meanings when used in this Agreement or in any agreement,
note, certificate, report or other document made or delivered pursuant to this
Agreement, unless otherwise defined or the context otherwise requires. The
following terms shall have the following meanings:
"Action" means any litigation, action, suit, proceeding,
arbitration or claim before any court or Governmental Authority, or
investigation by any Governmental Authority.
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"Affiliate" shall mean, with respect to any specified Person,
(i) any other Person who, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person, (ii) any other Person who is a director, officer, partner or trustee of
the specified Person or a Person described in clause (i) of this definition or
any spouse of the specified Person or any such other Person, (iii) any relative
of the specified Person or any other Person described in clause (ii) of this
definition, or (iv) any Person of which the specified Person and/or any one or
more of the Persons specified in clause (i),(ii) or (iii) of this definition,
individually or in the aggregate, beneficially own 10% or more of any class of
voting securities or otherwise have a substantial beneficial interest.
"Annual Financial Statements" shall mean the unaudited balance
sheet of ADVI or the balance sheets of its predecessors in interest, as of May
31, 2001, the related statements of income and retained earnings and cash flows
for the year including the notes (and schedules) to these financial statements.
Trailing 12 months.
"Assumed Debt" shall mean those certain loans identified in
Exhibit A to this Agreement.
"Best Efforts" shall mean the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to ensure that
the result is achieved as expeditiously as practicable under the circumstances;
provided, however, that an obligation to use Best Efforts under this Agreement
does not require the Person subject to that obligation to (i) take actions that
would result in a material adverse change in the benefits to such Person under
this Agreement or the transactions contemplated by this Agreement, (ii) make any
significant cash payments or (iii) incur any significant liability or
obligation.
"Best Knowledge" with respect to any Person shall mean and
include (i) actual knowledge of the Person, including, the actual knowledge of
any of the officers or directors of such Person, and (ii) that knowledge which a
prudent businessperson could have obtained in the management of his business
after making due inquiry, and after exercising due diligence, with respect
thereto.
"Business" shall mean providing Internet access, web hosting,
network consulting, computer sales and service, and website development, all as
currently conducted by the ADVI.
"Business Condition" of any Person shall mean the financial
condition, results of operations, business, properties or prospects of such
Person.
"Charter Documents" shall mean (i) the Articles of
Incorporation, and (ii) the Bylaws.
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"Company Annual Financial Statements" shall mean the
unaudited consolidated financial statement of the Company as of May 31, 2001,
the related consolidated statements of income and retained earnings and cash
flows for the year then ended, including the notes (and schedules) to these
financial statements .
"Company Current Financial Statements" shall mean the
unaudited consolidated balance sheet of the Company as of May 31, 2001 and the
related consolidated statements of income and retained earnings for the
three-months then ended.
"Contract" shall mean any written or oral note, bond,
debenture, mortgage, license, agreement, commitment, contract or understanding.
"Copyrights" shall mean all United States and foreign
copyrights, whether or not registered.
"Current Balance Sheet" shall mean the unaudited balance sheet
of ADVI as at March 30, 2001 included in the Current
Financial Statements.
"Current Financial Statements" shall mean the unaudited
balance sheet of ADVI as of May 31, 2001 and the related statements of income
and retained earnings for the three-months then ended.
"Employment Agreement" shall mean employment agreement entered
into between the Company, on one hand, and Xxxxx, on the other hand, on the date
of this Agreement.
"Employee Plan" with respect to any Person shall mean any
plan, arrangement or Contract providing compensation or benefits to, for or on
behalf of employees and/or directors of such Person and/or Affiliates of such
Person, including employment, deferred compensation, retirement or severance
Contracts; plans pursuant to which Equity Securities are issued, including stock
purchase, stock option, stock appreciation rights plans; bonus, severance,
phantom stock or incentive compensation plans or arrangements; supplemental
unemployment benefit, hospitalization or other medical, life or other insurance;
and ERISA Plans
"Environmental Laws" shall mean all present and future
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises, and similar items, of
all Governmental Authorities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to Hazardous Substances or
the protection of the environment in any respect, including, without limitation:
(i) all requirements, including, without limitation, those pertaining to
notification, warning, reporting, licensing, permitting, investigation, and
remediation of Hazardous Substances; (ii) all requirements pertaining to the
protection of employees or the public from exposure to Hazardous Substances or
injuries or harm associated therewith; and (iii) the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss.9601 et seq.), the
Resource Conservation and Recovery Act (49 U.S.C. ss.6901 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et seq.), the Clean
Air Act (42 U.S.C. ss.7401 et seq.), the Occupational Safety and Health Act (29
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U.S.C. ss.600 et seq.), the Xxxxxx-Cologne Water Quality Control Act (California
Water Code ss. 13000 et seq.), the California Hazardous Waste Control Law
(Division 20, Chapter 6.5 of the California Health and Safety Code, ss. 25100 et
seq.), the Safe Drinking Water and Toxic Enforcement Act of 1986 (Division 20,
Chapter 6.6 of the California Health and Safety Code, ss. 25249.5 et seq.), the
Xxxxxxxxx-Xxxxxxx-Xxxxxx Hazardous Substance Account Act (California Health &
Safety Code ss. 25300 et seq.), the Hazardous Materials Release Response Plans
and Inventory (Division 20, Chapter 6.95 of the California Health and Safety
Code, ss. 25500 et seq.) and all similar federal, state, local and municipal
laws as they may from time to time be modified, amended or superseded.
"Equity Securities" of any Person shall mean the capital stock
of such Person and/or any Stock Equivalents of such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Exploit" shall mean manufacture, advertise, license, market,
merchandise, promote, publicize, sell, use, market, supply or distribute, and
"Exploitation" and "Exploited" shall have a correlative meaning.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Substance" means those substances defined as
hazardous substances in 42 X.X.X.xx. 9601(14) and all other substances defined
as hazardous under other applicable Laws.
"Indebtedness" means, with respect to any Person, (i) any
liability, contingent or otherwise, (a) for borrowed money, capitalized lease
obligations, purchase money obligations or other obligations relating to the
deferred purchase price of assets or property or (b) evidenced by a note, bond,
debenture, letter of credit or similar instrument given in connection with the
acquisition, other than in the ordinary course of business, of any property,
assets, securities or otherwise, including indebtedness created or arising under
conditional sale or other title retention agreements (even though the rights and
remedies of the lender under the agreements in the event of default are limited
to repossession or sale of the property), (ii) any liability of others described
in the preceding clause which such Person has guaranteed or which otherwise is
its legal liability, (iii) all indebtedness referred to above secured by (or for
which the holder of the indebtedness has an existing right, contingent or
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otherwise, to be secured by), any Lien upon the property of such Person, whether
or not the obligations secured thereby have been assumed, and (iv) any
amendment, renewal, extension or refunding of any liability referred to in
clauses (i), (ii) and (iii) above; provided, however, that Indebtedness does not
include any trade payables of any Person incurred in the ordinary course of
business. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at the date of all unconditional obligations as described
above and the maximum amount of any contingent obligations at the date.
"IP" shall mean Patents, Trademarks, Copyrights, Know-How and
other rights and property commonly referred to as intellectual property, and
rights or licenses to use the same, and any and all applications therefor.
"Know-How" shall mean all lab journals, inventions, trade
secrets, know-how (including, without limitation, proprietary know-how and use
and application know-how), product designs, manufacturing, engineering and other
drawings, technology, other intangibles, technical information, safety
information, engineering data and design and engineering specifications,
research records, market surveys, promotional literature, supplier lists,
similar data and formulas and processes.
"Law" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority or otherwise,
including any judicial or administrative order, consent, decree or judgment.
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), or preference, priority, or other security agreement
or preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"Material Contract" shall mean, with respect to any Person,
any Contract to which Person is a party or is otherwise bound which is:
(i) A Contract which is to be performed in whole or in
part at or after the date of this Agreement and which (A) cannot be canceled
upon 30 days' notice or less and involves aggregate future payments by or to
such Person of more than $10,000; (B) involves material nonmonetary obligations
to be performed later than one year from the date hereof; (C) otherwise
materially affects such Person; or (D) was not entered into in the ordinary
course of business;
(ii) A Contract pursuant to which such Person (A) has
borrowed or is committed or entitled to borrow money in an amount in excess of
$10,000; (B) has lent or committed to lend money; (C) has given or is committed
to give a guarantee of, or otherwise to incur primary or secondary liability for
(including any letter of credit), any obligation of any other party in any
amount;
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(iii) A Contract regarding advertising, brokerage,
licensing, management, representative or agency relationships;
(iv) A Contract with or concerning any labor or employee
organization;
(v) A Contract for the sale of any properties, assets
or rights of such Person for a purchase price in excess of $25,000 or for the
grant of any preferential right to purchase any of such assets, properties or
rights, or which requires the consent of any third party to the transfer and
assignment of such assets, properties or rights;
(vi) A Contract with any Affiliate of such Person;
(vii) A Contract (A) under which the benefits cannot
be retained upon the consummation of the transactions contemplated by this
Agreement without the written consent or approval of other parties or (B) under
which there will be a default as a result of the consummation of the
transactions contemplated by this Agreement unless such other parties provide
written consent or approval;
(viii) A Contract involving the lease of real or
personal property; and
(ix) A Contract requiring such Person to make capital
expenditures in excess of $10,000.
"ADVI Common Stock" shall mean the Common Stock, no par value
per share, of ADVI.
"ADVI IP" shall mean all IP that ADVI owns, licenses and/or
uses.
"ADVI Material Contract" shall mean a Material Contract of
ADVI.
"ADVI Shares" shall mean all of the shares of ADVI Common
Stock held by the Sellers.
"Patents" shall mean all patents (including all reissues,
divisions, continuations, continuations in part and extensions thereof), patent
applications and patent disclosures docketed and all other patent rights.
"Permitted Liens" shall mean (i) Liens for current taxes not
yet delinquent; (ii) restrictions imposed by Law; and (iii) easements and
restrictions which are neither individually nor in the aggregate material to
ADVI.
"Person" shall mean an individual or a partnership,
corporation, trust, association, Limited Liability Company, Governmental
Authority or other entity.
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"Real Estate" shall mean that certain real property located at
000 Xxxx Xxxxxxx Xxxxxx, Xx. Xxxx, XX 00000.
"SEC" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
SEC thereunder.
"Securities" of any Person shall mean Equity Securities, Stock
Equivalents and any other "security" as that term is defined under the
Securities Act of such Person.
"Seller Representative" shall mean Xxxxx Xxxxxxxx, or such
other Seller as may from time to time be elected by the holders of a majority of
the ADVI Shares.
"Sitestar Shares" shall mean the shares of Sitestar Common
Stock to be issued to the Sellers in exchange for their ADVI Shares.
"Sitestar Common Stock" shall mean the Common Stock, par value
$.001 per share, of the Company.
"Stock Equivalents" of any Person shall mean options,
warrants, calls, rights, commitments, convertible securities and other
securities pursuant to which the holder, directly or indirectly, has the right
to acquire (with or without additional consideration) capital stock or equity of
such Person.
"Subsidiary" of any Person shall mean any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are owned directly or indirectly by such Person.
"Systems" of any Person shall mean all items, products or
systems of such Person used in the operation of such Person which incorporate
the processing of dates and date-related data (including, without limitation,
calculating, comparing and sequencing) that are operationally material to the
business as conducted by such Person or its agents or other Persons, including,
without limitation, computer systems, infrastructure items, software
applications, hardware, and related equipment and utilities.
"Trademarks" shall mean all trademark, service xxxx and trade
name rights (including all registrations of trademarks and of other marks, all
registrations of trade names, labels and other trade rights and applications for
any of the foregoing) and all associated goodwill symbolized thereby or
connected therewith.
"Transfer" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration,
and "Transferred" shall have a correlative meaning.
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"Year 2000 Compliant" shall mean that all Systems accurately
process dates and date-related data (including, without limitation, calculating,
comparing and sequencing) in all material respects before, during and after the
year 2000. (b) Other Definitions. In addition to the terms defined in Section
1(a) of this Agreement, the following terms shall have the meanings given the
terms in the Sections set forth below:
Term Section
---- -------
Acquisition Proposal................................... 6(c)
Aggregate Consideration............................ 2(b)
Cash................................................... 2(b)
Claim.................................................. 10(c)
Claim Notice........................................... 10(c)
Claim Dispute Notice................................... 10(f)
Closing................................................ 3(a)
Closing Date........................................... 3(a)
Company Indemnified Party.............................. 10(b)
Company Indemnified Parties............................ 10(b)
Contingent Liabilities................................. 2(b)
Damages................................................ 10(b)
Direct Claim........................................... 10(c)
Employees.............................................. 9(c)
Indemnified Party...................................... 10(c)
Indemnifying Party..................................... 10(c)
Market Price........................................... 2(b)
Notices................................................ 16(a)
Promissory Note..................................... 2(b)
Released Claims........................................ 6(e)
Returns................................................ 4(y)(ii)
Sellers Disclosure Letter.............................. 4
Short Period........................................... 4(y)(i)(D)
Tax Return............................................. 4(y)(i)(A)
Tax.................................................... 4(y)(i)(B)
Taxing Authority....................................... 4(y)(i)(C)
Third Party Claim...................................... 10(c)
2 TENDER AND EXCHANGE OF SHARES.
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(a) Tender and Exchange of Shares. On the terms and subject to
the conditions of this Agreement, at the Closing, the Sellers shall tender,
assign and transfer the ADVI Shares to the Company, and the Company shall accept
the ADVI Shares from the Sellers. The Sellers agree that prior to the Closing
they will not Transfer any of the ADVI Shares.
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Exchange Consideration. The exchange consideration to be issued by the Company
for the ADVI Shares shall be a combination of shares of Sitestar Common Stock,
"Cash" at closing and a "Secured Promissory Note" in the form attached hereto as
an Exhibit, the security for which will be evidenced by a "Security Agreement"
in the form attached hereto as an Exhibit. The "Aggregate Consideration" shall
be equal to a multiple of six (6) times ADVI's Consolidated Recasted Net Income
for the trailing 12-month period ending May 31, 2001 of $276,182 (see Exhibit
C). Twenty percent (20%) of the transaction shall be paid in shares of Sitestar
Common Stock. Seller shall receive Cash at closing in the amount of One Hundred
and Fifty Thousand dollars ($150,000). The balance of the Aggregate
Consideration shall be carried in an interest free promissory note, payable
quarterly, fully amortized over a six (6) year period. Any "Contingent
Liabilities" shall be deducted from the promissory note, reflecting the
aggregate amount of unreimbursed Indemnification Claims of the Company
Indemnified Parties under Section 10 of this Agreement. The "Market Price" shall
be determined as of the Closing Date and shall be deemed to be $0.055.
All pricing periods will be an average of the Closing prices in the ten (10)
trading days prior to Closing day.
(C ) Adjustments to the Purchase Price.
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1. Final Net Income . Upon completion of an audit, to be conducted by
Stonefield Xxxxxxxxx (the "Company CPA") on a basis consistent with past
practices of ADVI, which shall serve as the basis for payment of any Adjustment
to the Exchange Consideration. The Company agrees to pay the cost for the
Company's CPA to prepare this Final Net Income. Once completed, the Final Net
Income and its components will by adjusted in the same fashion as the ADVI
Consolidated Recasted Net Income will be used for purposes of determining the
amount of the exchange consideration as set forth in Section 2(a) above. Upon
its completion by the Company's CPA, the Final Net Income shall be delivered to
the Majority Shareholders, within ten (10) business days of the Majority
Shareholders' receipt of the Final Net Income, Majority Shareholders' and
Majority Shareholders' independent certified public accountants (the "Seller
CPA" and, together with the Company CPA, the "CPAs") will provide the Majority
Shareholders and the Company CPA with a statement setting forth in reasonable
detail any proposed adjustments to the Final Net Income (the "Proposed
Adjustments"). In the event the Company, the Majority Shareholders' and the CPAs
do not mutually agree upon the resolution of the Proposed Adjustments to the
Final Net Income within ten (10) business days of delivery of the Proposed
Adjustments to the Company, Majority Shareholders and the Company CPA, those
Proposed Adjustments which are not resolved ("Unresolved Proposed Adjustments")
shall be decided in the following manner:
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(i) the CPAs shall promptly list the Unresolved Proposed
Adjustments and each party's final position on each item of dispute;
(ii) the CPAs shall agree on a third CPA firm (to be one of the
recognized top regional public accounting firms with offices in the
Piedmont, North Carolina region) (hereinafter, the "Third CPA") to
review the Unresolved Proposed Adjustments;
(iii) the Third CPA shall select one party's position or the
other's on each Unresolved Proposed Adjustment, as being the more
accurate in accordance with the accounting principles set forth in
Section 2(c)D below. The decision of the Third CPA shall be rendered
within thirty (30) days (unless the parties agree to a longer period
of time) of its selection, which decision shall be final and binding
on the parties; and
2. the CPAs shall certify the Final Net Income to Company and the Majority
Shareholders' immediately upon resolution of all Unresolved Proposed Adjustments
by the Third CPA. Each party shall pay the fees and expenses of its own
accountants. The party against which the decision of the Third CPA, if any, is
rendered shall pay the fees and out-of-pocket expenses of the Third CPA. If
multiple adjustments exist and decisions on individual Unresolved Proposed
Adjustments are rendered by the Third CPA against both parties, then the party
losing the most in said decisions, determined on an aggregate dollar basis,
shall pay the fees and out-of-pocket expenses of the third CPA.
3. Once finally agreement upon as provided herein above, the Final Net
Income shall be used in place of the ADVI Consolidated Recasted Net Income above
for purposed of comparison with the total amount of Exchange Consideration as
initial determined in Section 2(b) above. If the amount so determined is great
or less than the amount initially determined the Exchange Consideration shall be
adjusted as provided in Section 2(c)B and C below.
4. In the event that there are any adjustments made to the Aggregate
Purchase Price, said adjustments shall be made to the Promissory Note and
reflected in the next installment of the Promissory Note.
5. Accounting Principles. All determinations made as set forth in this
Section 2 shall be made in accordance with the income tax basis of accounting
and shall be applied consistent with past accounting practices of the Company.
For purposes of the Final Balance Sheet, inventory of the Company shall be
determined based on the Company's actual cost.
3) CLOSING AND DELIVERIES.
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a) The Closing. The closing of the tender of the ADVI Shares (the
"Closing") shall take place on June 11, 2001, at 2:00 p.m., E.S.T. time, at 000
Xxxx Xxxxxxx Xxxxxx, Xx. Xxxx, Xxxxx Xxxxxxxx or at such other place or time as
the parties to this Agreement shall mutually agree upon in writing. The date of
the Closing is referred to in this Agreement as the "Closing Date".
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b) Deliveries by the Company at the Closing. At the Closing, the Company
shall deliver to the Sellers:
i) One Hundred and Fifty Thousand dollars ($150,000).
(ii) Fully executed Promissory Note.
(iii) Requisite shares of Sitestar Corporation.
(iv) Such documents and instruments as ADVI may reasonably
request to evidence the satisfaction of all conditions
precedent set forth in Section 8 of this Agreement.
(c) Deliveries by the Sellers at the Closing. At the Closing, the Sellers
shall deliver to the Company:
(i) the certificates evidencing the ADVI Shares, duly endorsed
for transfer in blank or accompanied by a stock power duly endorsed in blank;
(ii) the Employment and Non-compete Agreement duly executed by
Xxxxx and Xxxxx; and
(iii) such documents and instruments as the Company may
reasonably request to evidence the satisfaction of all conditions precedent set
forth in Section 7 of this Agreement.
(d) Further Assurances. At the Closing, each party to this Agreement shall
deliver or cause to be delivered, as appropriate, such further certificates,
consents and other documents as may be necessary to carry out the terms of this
Agreement.
4) REPRESENTATIONS AND WARRANTIES OF THE MAJORITY SHAREHOLDERS AND SELLERS.
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Except as set forth in the disclosure letter delivered by the
Majority Shareholders to the Company concurrently with the execution and
delivery of this Agreement, which letter shall refer to the relevant Sections of
this Agreement (the "Sellers Disclosure Letter"), the Majority Shareholders
jointly and severally, represent and warrant to the Company as follows (and the
Sellers each make the representations under Section 4(o) only):
a) Organization, Standing and Corporate Power. ADVI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of North Carolina and has all requisite corporate power and
corporate authority to own, lease and operate its properties and
assets and to carry on its business as now being conducted. Complete
and correct copies of the Charter Documents of ADVI have been
delivered to the Company. ADVI is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions
except where the failure to so qualify would not have a material
adverse effect on ADVI.
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b) Capitalization.
i) The authorized capital stock of ADVI consists solely of 100,000
shares of ADVI Common Stock. Except for 10,000 shares of ADVI Common Stock,
there are no outstanding Equity Securities of ADVI. All of the outstanding
Equity Securities of ADVI are owned of record and beneficially as set forth
in the ADVI Charter Documents (Exhibit D). All Equity Securities issued by
ADVI have been duly authorized and validly issued and are fully paid and
nonassessable. The holders of the ADVI Common Stock possess exclusive
voting rights with respect to the affairs of ADVI.
ii) There are no outstanding Stock Equivalents of ADVI. ADVI is not
obligated to purchase or redeem any Equity Securities or Stock Equivalents.
iii) ADVI has not, either directly or through any agent, offered any
Securities of ADVI to or solicited any offers to acquire any such
Securities from, or otherwise approached, negotiated, or communicated in
respect of any such Securities with, any Person in such a manner as to
require that the offer or sale of such Securities be registered pursuant to
the provisions of Section 5 of the Securities Act and the rules and
regulations of the SEC thereunder or the securities laws of any state. ADVI
has complied with all federal and state securities and blue sky laws in all
offers, sales and purchases of its Securities prior to the date hereof and
has not violated any applicable law in making such issuances and purchases
of its Securities prior to the date hereof. Any notices required to be
filed under federal and state securities and blue sky laws prior to the
date hereof have been filed on a timely basis prior to or as so required.
iv) Each Seller has good and marketable title to his or her ADVI
Shares, free and clear of all Liens, and at the Closing the Company will
receive good and marketable title to the ADVI Share free and clear of all
Liens. The ADVI Shares are not subject to any Stock Equivalents.
c) Authority; Enforceability; Effect of Agreement.
i) Each Seller has the requisite capacity to enter into, execute and
deliver this Agreement and perform his obligations hereunder. This
Agreement has been duly executed and delivered by each Seller and, assuming
this Agreement is duly executed and delivered by the Company, constitutes a
valid and legally binding obligation of each Seller enforceable against
such Seller in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other similar laws relating to or affecting creditors' rights
generally, or the availability of equitable remedies. No Seller has
dissenter's rights under applicable law.
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ii) The execution and delivery by each Seller of this Agreement do
not, and compliance by each Seller with the provisions of this Agreement
will not, (A) conflict with or result in a breach or default under any of
the terms, conditions or provisions of any Contract to which any Seller or
ADVI is a party or otherwise bound, or to which any property or asset of
any Seller or ADVI is subject; (B) violate any Law applicable to any Seller
or ADVI; or (C) result in the creation or imposition of any Lien on any
asset of ADVI.
d) Assets.
i) ADVI has good and marketable title to all of its assets free and
clear of all Liens, other than Permitted Liens and Liens identified in the
Sellers Disclosure Letter.
ii) ADVI's assets consist of all of the properties and assets,
excluding cash, used in the conduct of the Business, including all of the
properties and assets reflected on the Current Balance Sheet, other than
assets sold or transferred in the ordinary course of business since the
date of the Current Balance Sheet. Each item of material tangible personal
property of ADVI is in good operating condition and repair, ordinary wear
and tear excepted, and those items constitute sufficient material tangible
personal property for the requirements of the Business as currently
conducted.
e) Accounts Receivable; Subscribers.
i) The Sellers Disclosure Letter sets forth a true and complete
schedule of the Accounts Receivable of ADVI as of the date of the Current
Balance Sheet, setting forth a description of the Accounts Receivable
including the names and addresses of the account debtors, the balance
amount and aging as of the date indicated therein. The Accounts Receivable,
whether reflected on the Current Balance Sheet or subsequently created, and
all books, records and documents relating to such Accounts Receivable, are
genuine and materially accurate. All Accounts Receivable of ADVI, whether
reflected on the Current Balance Sheet or subsequently created: (A)
constitute bona fide and valid rights of ADVI to collect payments from
other Persons; (B) represent credit extended in a manner consistent with
ADVI's trade practices; (C) are not subject to any defense, counterclaim or
offset; and (D) except for reserves for returns and bad debts set forth in
the Current Balance Sheet and arising in the ordinary course of business
since the date of the Current Balance Sheet, are fully collectable within
90 days of the respective dates on which such Accounts Receivable were
billed. Since the date of the Current Balance Sheet, there have not been
any write-offs as uncollectable of any Accounts Receivable.
ii) The Sellers Disclosure Letter sets forth a true and correct list
of the names and addresses of all Persons for whom the Company is providing
internet access as of May 31, 2001.
13
f) ADVI Contracts. ADVI is not a party to any Material Contract except as
identified as such in the Sellers' Disclosure Schedule. True and
correct copies of each ADVI Material Contract, including all
amendments and modifications thereof and waivers thereunder, have been
delivered to the Company. To the Best Knowledge of the Majority
Shareholders, each ADVI Material Contract is in full force and effect,
and is the valid and binding obligation of each party to the Assumed
Contract. ADVI has performed all of the obligations required to be
performed by it to date under each ADVI Contract, and ADVI is not in
material breach of or default under any ADVI Contract. To the Best
Knowledge of the Majority Shareholders, each other party to each ADVI
Contract has performed all of the obligations required to be performed
by it to date under the ADVI Contract and is not in material breach of
or in default under the ADVI Contract, and no event has occurred or
circumstance exists which, with notice or lapse of time or both, would
constitute a breach of or default under any ADVI Contract.
g) Intellectual Property. The Sellers Disclosure Letter contains a true
and complete list of all Patents, Trademarks and registered Copyrights
of ADVI and the basis of the right of ADVI to use such Patents,
Trademarks and Copyrights. The ADVI IP constitutes all IP that is
required to enable ADVI to conduct the Business.
h) Subsidiaries. ADVI does not own, directly or indirectly, any shares of
stock or any other financial interest or investment (equity or debt)
in any Person, and is not subject to any agreement, obligation or
commitment to make such investment. The Business has been conducted
solely by ADVI in its own name.
i) Financial Statements. The May 31, 2001 Financial Statements (as
delivered to the Company) fairly present the financial position and
results of operations of ADVI or its predecessor, as applicable, as at
the dates of and for the periods set forth in the Financial Statements
in accordance with the past accounting practices of ADVI and its
predecessors applied on a consistent basis and it varies from GAAP in
the manner set forth in the Disclosure Letter. The Current Financial
Statements of ADVI or its predecessors, as applicable, have been
prepared in accordance with GAAP (with the only exceptions that no
notes have been prepared with respect to the Current Financial
Statements), consistent with the Financial Statements, and fairly
present the financial position and results of operations of ADVI as at
and for the year ended May 31, 2001, and is not subject to year-end
adjustments except for normal year-end adjustments that may be
required in the ordinary course of business. Except as set forth in
the Current Balance Sheet, ADVI does not have any Indebtedness,
obligation or liability, absolute, accrued, contingent or otherwise.
j) Absence of Certain Changes and Events. Since December 31, 2000, except
for this Agreement and changes contemplated by this Agreement, ADVI
has conducted its business only in the ordinary course of business and
there has not been any:
14
i) purchase, redemption, retirement or other acquisition by ADVI of
any Equity Securities of Seller;
ii) declaration or payment of any dividend or other distribution or
payment to any shareholder of ADVI in respect of any Equity Securities of
ADVI;
iii) increase by ADVI in the compensation payable or to become payable
by ADVI to any shareholder or to any director, officer or employee of ADVI
being paid $25,000 or more at or at any time after October 31, 2000;
iv) payment of any bonus, pension, retirement or insurance payment or
arrangement to or with, or advance or loan of any money to, any Person, or
entry into any employment, severance, loan or similar Contract with any
Person, other than the payment of salaries and other employee benefits in
the ordinary course consistent with past practice;
v) incurrence by ADVI of any Indebtedness other than trade payables
incurred by ADVI in the ordinary course of business which do not exceed
$5,000; or
(vi) Transfer any assets to, or entry into any agreement or
arrangement with, any Seller or any officer or director of ADVI (other than
payment of salaries and other employee benefits to officers in the ordinary
course of business and consistent with past practice) or any of their
respective Affiliates. Seller shall be entitled to withdraw cash due to the
Company prior to June 1, 2001, excluding any cash collected in May for
services to be provided in June.
k) Litigation and Proceedings. There is no pending or, to the best
knowledge of the Sellers, threatened Action (or basis for any Action)
to which ADVI is a party or involving any of the assets, and ADVI is
not subject to any judgment, order, writ, injunction, decree or
regulatory directive or agreement, which could any material adverse
affect on the Business Condition of ADVI.
l) Brokers. ADVI has retained Xxxxxxx Xxxxxxx, The Nexus Group, to act as
an advisor on its behalf in consideration of the proposed transaction.
The Sellers are solely responsible to pay all fees or commissions to
any Person, including Xxxxxxx Xxxxxxx, for or on account of acting as
a finder, broker or advisor in connection with this Agreement or the
transactions contemplated hereby.
m) No Consents Required. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that
are required to be obtained or made by ADVI in connection with the
execution of, and the consummation of the transactions contemplated
under, this Agreement.
15
n) Environmental Compliance Matters. (i) The Real Estate constitutes all
of the real property used or occupied by ADVI; (ii) the Majority
Shareholders have inspected the Real Estate and to their Best
Knowledge there are no Hazardous Substances incorporated in or
deposited, stored or buried at or upon the Real Estate; (iii) the Real
Estate has never been used as a waste disposal site or a storage site
for petroleum products or chemicals; (iv) no existing structures on
the Real Estate contain asbestos; (v) there are not now any
underground storage tanks on the Real Estate; (vi) neither ADVI nor
any Majority Shareholder has allowed, with the knowledge or consent of
ADVI or such Majority Shareholder, any Person occupying the Real
Estate to bring Hazardous Substances onto the Real Estate or to
process or store any Hazardous Substances on the Real Estate and, to
the Best Knowledge of the Majority Shareholders, no Hazardous
Substance has been released into the environment by ADVI that may
present an imminent and substantial endangerment to human health;
(vii) neither ADVI nor any Majority Shareholder is aware of any
complaints on file or matters pending in any federal or state
environmental protection offices involving any allegation of Hazardous
Substances on the Real Estate; and (viii) neither ADVI nor any
Majority Shareholder has received notice from any environmental board,
agency or authority requiring the removal of any Hazardous Substances
or other alleged harmful materials or wastes, or advising of any
pending or contemplated search or investigation of the Real Estate or
any portion of the Real Estate with respect the removal of any
Hazardous Substances or other alleged harmful materials or wastes.
o) Securities Purchase (the representations made in this Section 6(o) are
made by all Sellers, not just the Majority Shareholders):
i) Each Seller is acquiring the Sitestar Shares for such Seller's own
account, for investment purposes only.
ii) Each Seller understands that an investment in the Sitestar Shares
involves a high degree of risk, and each Seller has the financial ability
to bear the economic risk of this investment in the Sitestar Shares;
iii) Each Seller is an "accredited investor" as that term is defined
in Rule 501(a) under Regulation D promulgated pursuant to the Securities
Act.
iv) Each Seller has such knowledge and experience in financial and
business matters that such Seller is capable of evaluating the merits and
risks of an investment in the Sitestar Shares and in protecting such
Seller's own interest in connection with the investment.
v) Each Seller understands that the Sitestar Shares have not been
registered under the Securities Act or under any state securities laws.
16
vi) Each Seller believes that such Seller has received all the
information such Seller considers necessary or appropriate for deciding
whether to invest in the Sitestar Shares, and such Seller has had an
opportunity to ask questions and receive answers from the Company and its
officers and directors regarding the business, prospects and financial
condition of the Company.
vii) Each Seller agrees not to Transfer, with or without
consideration, any of the Shares except pursuant to an effective
registration statement under the Securities Act or an exemption from
registration. As a further condition to any such Transfer, except in the
event that such Transfer is made pursuant to an effective registration
statement under the Securities Act, if in the reasonable opinion of counsel
to the Company any Transfer of the Sitestar Shares by the contemplated
transferee thereof would not be exempt from the registration and prospectus
delivery requirements of the Securities Act, the Company may require the
contemplated transferee to furnish the Company with an investment letter
setting forth such information and agreements as may be reasonably
requested by the Company to ensure compliance by such transferee with the
Securities Act.
Each Seller agrees that each certificate evidencing any of the
Sitestar Shares shall contain the following legend:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, ASSIGNED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN EXEMPTION FROM REGISTRATION.
p) No Material Adverse Change. Since December 1, 2000 there has been no
material adverse change in the Business Condition of ADVI.
q) Employee Plans. ADVI is not a party to, or obligated under, any
Employee Plan.
r) Licenses; Compliance with Laws. ADVI:
i) has all franchises, permits, licenses, and other rights which it
currently deems reasonably necessary for the conduct of its business and to
the Best Knowledge of the Sellers there is not any basis for the denial of
such rights in the future;
ii) is in compliance with, and is not in violation of, any Law except
where the failure to so comply, or such violations, in the aggregate, will
not have a material adverse effect on the Business Condition of ADVI;
17
s) Insurance. ADVI has in full force and effect insurance with respect to
its assets and businesses against such casualties and contingencies
and of such types and forms and to such extent as it deems reasonable
and customary in the case of corporations or organizations engaged in
its businesses and in its respective areas. ADVI has separately
provided to the Company a true and correct list of all insurance
policies maintained by ADVI and a general description of such
policies.
t) Labor Relations. There is no pending or, to the Best Knowledge of the
Sellers, threatened labor dispute, strike or work stoppage affecting
the business of ADVI.
u) Banks, Agents, etc. The Sellers' Disclosure Schedule contains a
complete and correct list setting forth the name of (i) each financial
institution in which ADVI has an account, safe deposit box or
borrowing privilege and the names of all persons authorized to draw
thereon, to have access thereto or to borrow thereupon, as the case
may be, and (ii) each agent to whom ADVI has granted a written power
of attorney or similar authority to act on its behalf.
v) Minute Books. The minute books of ADVI contain a complete summary of
all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
w) Conflicts of Interest. Neither ADVI nor any officer, employee, agent
or any other Person acting on behalf of ADVI has, directly or
indirectly, given or agreed to give or received or agreed to receive
any money, gift or similar benefit (other than legal price concessions
to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or
employee of any Governmental Authority or other Person who was, is, or
may be in of a position to help or hinder the business of (or assist
in connection with any actual or proposed transaction) ADVI which (a)
might subject ADVI to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (b) if not given in the past,
might have had a material adverse effect on the Business Condition of
ADVI or (c) if not continued in the future, might materially adversely
affect the Business Condition of ADVI.
x) Year 2000. All Systems of ADVI are Year 2000 Compliant.
y) Taxes.
i) For the purposes of this agreement, the following terms shall
have the respective meanings set forth below:
(1) "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income
Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
18
(2) "Tax" (including with correlative meaning, the term "Taxes" and
"Taxable") shall mean, with respect to ADVI, any federal, state,
local, foreign or other material tax or governmental charge,
together with any interest and any penalty, addition to Tax or
additional amount imposed by any Taxing Authority due from or
allocable under any applicable law or agreement to, ADVI.
(3) "Taxing Authority" shall mean any governmental authority
(domestic or foreign) responsible for the imposition of any such
Tax.
ii) ADVI has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all material respects. All
Taxes owed by ADVI (whether or not shown on any Tax Return) have been paid.
ADVI currently is not the beneficiary of any extension of time within which
to file any Tax Return.
iii) There is no material dispute or claim concerning any Income Tax
liability of ADVI either (A) claimed or raised by any Taxing Authority in
writing or (B) as to which any of the Sellers and the directors and
officers of ADVI has based upon personal contact with any agent of such
authority.
iv) Sellers' Disclosure Schedule lists all federal, state, local, and
foreign Tax Returns filed with respect to ADVI for taxable periods ended on
or after December 31, 1998, that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Majority Shareholders
have delivered to the Company correct and complete copies of all federal
Tax Returns, examination reports, and statements of deficiencies assessed
against, or agreed to by ADVI since December 31, 1998 by or with any Taxing
Authority. ADVI has not waived any statute of limitations in respect of
Income Taxes or agreed to any extension of time with respect to an Income
Tax assessment or deficiency.
v) ADVI has not filed a consent under Code Section 341(f) concerning
collapsible corporations. ADVI has not made any material payments, is
obligated to make any material payments, or is a party to any agreement
that under certain circumstances could obligate it to make any material
payments that will not be deductible under Code Section 280G. ADVI is not a
United States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). ADVI is not a party to any tax allocation or sharing
agreement. ADVI (A) is not a member of an Affiliated Group filing a
consolidated federal Tax Return or (B) has any liability for the taxes of
any Person (other than any of ADVI) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
19
vi) The unpaid Taxes of ADVI (A) did not, as of the most recent fiscal
month end, exceed by any material amount the reserve for Income Tax
liability (rather than any reserve for deferred taxes established to
reflect timing differences between book and tax income) set forth on the
face of the most recent balance sheet (rather than in any notes thereto)
and (B) will not exceed by any material amount that reserve as adjusted for
operations and transactions through the Closing Date in accordance with the
past custom and practice of ADVI in filing its Tax Returns.
vii) ADVI (and any predecessor of ADVI other than two prior sole
proprietorships which operated the business prior to its incorporation) has
been a validly electing S corporation within the meaning of Code Sections
1361 and 1362 at all times during its existence and ADVI will be an S
corporation up to and including the Closing Date.
z) Material Misstatements and Omissions. No representations and
warranties by any Seller in this Agreement, nor any Exhibit, schedule
or certificate furnished by any Seller to the Company pursuant to this
Agreement, contains or will contain any untrue statement of material
fact or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under
which they were made, not misleading.
5) REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Sellers as follows:
a) Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and has all requisite corporate
power and corporate authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted. The
Company is duly qualified to do business as a foreign corporation and
is in good standing in all jurisdictions except where the failure to
so qualify would not have a material adverse effect on Sitestar. The
Company has made available to ADVI true and complete copies of its
Charter Documents.
b) Authority; Enforceability; Effect of Agreement.
i) The Company has full corporate power and corporate authority
to enter into, execute and deliver this Agreement and perform its
obligations hereunder. This Agreement has been duly authorized by all
necessary corporate action of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company and is enforceable against
the Company in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors'
rights generally, or the availability of equitable remedies.
20
ii) The execution and delivery by the Company of this Agreement
do not, and compliance by the Company with the provisions hereof will
not, (A) conflict with or result in a breach or default under any of
the terms, conditions or provisions of any Contract to which the
Company is a party or otherwise bound, or to which any asset or
property of the Company is subject; or (B) violate any Law applicable
to the Company; or (C) result in the creation or imposition of any
Lien on any asset of the Company.
c) Financial Statements. The Annual Company Financial Statements (as
delivered to the Sellers) fairly present the financial position and
results of operations of the Company as at the dates of and for the
periods set forth in the Annual Company Financial Statements in
accordance with GAAP. The Current Company Financial Statements have
been prepared in accordance with GAAP (with the only exceptions that
no notes have been prepared with respect to the Current Financial
Statements), consistent with the Annual Company Financial Statements,
and fairly present the financial position and results of operations of
the Company as at and for the twelve months ended December 31, 2000,
and are not subject to year-end adjustments except for normal year-end
adjustments that may be required in the ordinary course of business.
d) Litigation and Proceedings. There is no pending or, to the best
knowledge of the Company, threatened Action (or basis for any Action)
to which the Company is a party or involving any of it assets, and the
Company is not subject to any judgment, order, writ, injunction,
decree or regulatory directive or agreement, which could any material
adverse affect on the Business Condition of the Company.
e) Sitestar Shares. Upon issuance, the Sitestar Shares will be duly
authorized, validly issued, fully paid and non-assessable shares of
the Common Stock of the Company.
f) Brokers. The Company has not retained or otherwise engaged or employed
any Person, or paid or agreed to pay any fee or commission to any
Person, for or on account of acting as a finder or broker in
connection with this Agreement or the transactions contemplated
hereby.
g) No Consents Required. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that
are required to be obtained or made by the Company in connection with
the execution of, and the consummation of the transactions
contemplated under, this Agreement.
h) Form 10-KSB. The Form 10-KSB filed with the SEC in April 2001 did not,
as of the date filed, contain any misstatement of fact or omit to
state any fact, in each case which fact would be material to the
Sellers' decision to exchange the ADVI Shares for the Sitestar Shares
pursuant to this Agreement.
21
i) Capitalization.
i) The authorized capital stock of the Company consists solely of
300,000,000 shares of Sitestar Common Stock and 10,000,000 shares of
Preferred Stock. Except for approximately 76 million shares of
Sitestar Common Stock, there are no outstanding Equity Securities of
Sitestar. All Equity Securities issued by Sitestar have been duly
authorized and validly issued and are fully paid and nonassessable.
The holders of the Sitestar Common Stock possess exclusive voting
rights with respect to the affairs of Sitestar.
(ii) There are no outstanding Stock Equivalents of Sitestar.
Sitestar is not obligated to purchase or redeem any Equity Securities
or Stock Equivalents.
(iii) There are currently no plans to engage in any transaction
that would result in a material dilution of the Sitestar Shares to be
received by Sellers at Closing.
j) Sitestar Shares. The Sitestar Shares issued to the Sellers have been
duly authorized and, upon issuance in accordance with this Agreement,
will be validly issued, fully paid and non-assessable will be issued
free and clear of any Liens imposed by Sitestar other than as
contemplated by this Agreement.
k) Labor Relations. There is no pending or, to the Best Knowledge of
Sitestar, threatened labor dispute, strike or work stoppage affecting
the business of Sitestar.
l) Taxes.
i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company currently is not the beneficiary of any extension of
time within which to file any Tax Return.
ii) There is no material dispute or claim concerning any
Income Tax liability of the Company either (A) claimed or raised by any Taxing
Authority in writing or (B) as to which any of the Sellers and the directors and
officers of the Company has based upon personal contact with any agent of such
authority.
iii) The Company has not waived any statute of limitations
in respect of Income Taxes or agreed to any extension of time with respect to an
Income Tax assessment or deficiency.
iv) The unpaid Taxes of the Company (A) did not, as of the
most recent fiscal month end, exceed by any material amount the reserve for
Income Tax liability (rather than any reserve for deferred taxes established to
reflect timing differences between book and tax income) set forth on the face of
the most recent balance sheet (rather than in any notes thereto) and (B) will
not exceed by any material amount that reserve as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
22
6) CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
------------------------------------------
a) Conduct of Business. From the date of execution of this Agreement and
prior to the Closing, except as contemplated by this Agreement or with
the prior written consent of the Company, each Majority Shareholder
agrees to cause ADVI:
i) to conduct its operations according to its ordinary and usual
course of business;
ii) not to Transfer any assets otherwise in the ordinary and usual
course of business;
iii) not to amend, modify or terminate, or grant any waiver of any
right under, any ADVI Material Contract, and not to make any payment under
any ADVI Contract which is not required to be made strictly in accordance
with the terms of the ADVI Contract;
iv) to comply in all material respects with all of its obligations and
duties under any ADVI Contract and not to create or permit to exist any
material default or event of default on behalf of ADVI under any ADVI
Contract, or any event or circumstance which, with lapse of time or notice,
or both, would constitute a material default under a ADVI Contract;
v) to use its Best Efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those Persons having
business relationships with ADVI;
vi) to duly comply with all Laws applicable to ADVI and to the conduct
of the Business;
vii) not to make or agree to make any capital expenditures, other than
in the ordinary and usual course of business;
viii) not to incur any material fixed or contingent obligation or
enter into any Contract or other transaction or arrangement relating to the
Business or the Assets outside the ordinary course of business which would
be a Material Contract;
ix) to maintain its tangible personal property in a good condition and
state of repair, reasonable wear and tear excepted;
x) not, to their best knowledge, to commit any act or omit to do any
act which would be or result in a breach of any of its obligations, duties,
agreements or representations under any ADVI Contract which would have a
material effect on the Business Condition of ADVI;
xi) to bear the risk of loss or damage to the assets of ADVI on and
prior to the Closing Date, and maintain all properties necessary for the
conduct of the Business, whether owned or leased, in substantially the same
condition as they now are;
23
xii) to maintain the books, records and accounts of ADVI in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
xiii) not to enter into any new Contract of any kind or nature with
any Affiliate of ADVI, any Seller or any Affiliate of any Seller;
xiv) not to enter into any transaction or perform any act which would
make any of the representations, warranties or agreements contained in this
Agreement false or misleading in any material respect if made again
immediately after such transaction or act; and
xv) not to take any affirmative action or fail to take any action
within its control that is likely to cause any of the changes or events
listed in Section 6(a) to occur.
b) Inspection of Records. Between the date of this Agreement and the
Closing, the Sellers shall allow the duly authorized officers,
attorneys, accountants and other representatives of the Company access
at all reasonable times, upon reasonable advance notice and during
normal business hours, to the records and files, correspondence,
audits and properties, as well as to all information in each case
relating the business and affairs of ADVI.
c) Acquisition Proposals. During the period from the date of this
Agreement and extending through the earlier of termination of this
Agreement or the Closing, ADVI and each Seller agrees that (i) neither
ADVI nor such Seller nor any agent or representative of ADVI or any
Seller, including without limitation any investment banker, attorney
or accountant, shall initiate, solicit, intentionally encourage or
accept the submission of any proposal or offer with respect to a
merger, acquisition, sale, consolidation or similar transaction
involving all or any significant portion of the assets or any Equity
Securities of ADVI (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any
negotiations or discussions concerning, or provide any confidential
information or data to, any Person relating to an Acquisition
Proposal, and (ii) the Sellers shall notify the Company immediately if
any Acquisition Proposal is received by ADVI and/or any Seller or
agent or representative or any negotiations or discussions relating to
a potential Acquisition Proposal are sought to be initiated or
continued with ADVI and/or such Seller.
d) Best Efforts. Between the date of this Agreement and the Closing, each
of the parties to this Agreement will use its or his Best Efforts to
cause the conditions to the obligations of the other parties set forth
in Sections 7 or 8 of this Agreement, as the case may be, to be
satisfied.
24
e) Release. Except for obligations for salary and benefits accruing in
the ordinary course of business, each Seller hereby forever relieves,
releases and discharges ADVI from any and all claims, debts,
liabilities, losses, demands, obligations, promises, acts, agreements,
costs and expenses, damages, actions and causes of action, of whatever
kind or nature, whether known or unknown, suspected or unsuspected,
existing now, existing as of the Closing or accruing after the Closing
based on, arising out of, or in connection with any action or omission
of ADVI prior to the Closing (collectively, "Released Claims") and
agrees that neither the Company nor ADVI shall have any liability or
obligation whatsoever to such Seller (or any Person claiming by or
through it) arising out of or in connection with the Released Claims.
Each Seller represents that he has not Transferred any Released
Claims.
In furtherance thereof, each Seller acknowledges that
he or she is familiar with Section 1542 of the Civil Code of the State of
California, which provides as follows:
A general release does not extend to claims which the creditor
did not know or suspect to exist in his favor at the time of
executing the release, which if known by him, must have
materially affected his settlement with the debtor.
Each Seller waives any and all rights it has or may have
under California Civil Code Section 1542 and/or any successor section to it with
respect to the claims released hereby.
7) CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
---------------------------------------------
The obligation of the Company to purchase the ADVI
Shares and to take the other actions required to be taken by the Company at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by the Company in writing,
in whole or in part):
a) Representations and Warranties. The representations and warranties of
the Majority Shareholders and the other Sellers (contained in this
Agreement, any Exhibit or schedule hereto, or any certificate,
instrument or other writing delivered to the Company or its
representatives by any Seller, or any of their respective
representatives) shall be true and correct on the Closing Date with
the same force and effect as though made on and as of the Closing Date
(i.e., with respect to a representation that a state of facts exists
on or as of the date hereof, it is a condition that such state of
facts exists in all material respects on or as of the Closing Date,
and with respect to a representation that a state of facts has or has
not changed between a date prior to the date hereof and the date
hereof, it is a condition that such state of facts has or has not
changed between such prior date and the Closing Date), except as
affected by transactions contemplated hereby and thereby and except
that any such representation or warranty made as of a specified date
(other than the date of this Agreement) shall only need to have been
true on and as of such date;
25
b) Performance. Each Seller shall have performed all obligations and
complied with all covenants required by this Agreement to be performed
or complied with by such Seller on or prior to the Closing Date;
c) Title to ADVI Shares. The Company shall have received good and
marketable title to the ADVI Shares, free and clear of all Liens;
d) Consents. Except to the extent this requirement has been waived by the
Company, the Sellers shall have delivered to the Company all consents
of third parties necessary so that ADVI will not be in breach of any
Contract as a result of the purchase of the ADVI Shares by the
Company;
e) Employment Agreements. The Sellers shall have executed and delivered
to the Company the Employment Agreement;
f) Subscribers. ADVI shall have received monthly internet access, web
hosting or other recurring service fees from not less than 2,800
Persons, including corporate clients, in an aggregate amount of not
less than $56,000 during the calendar month immediately preceding the
month in which the Closing occurs;
g) Other Matters. All corporate and other proceedings and actions taken
in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such
transactions shall be reasonably satisfactory in form and substance to
the Company and its counsel.
8) CONDITIONS TO THE OBLIGATIONS OF THE SELLERS.
---------------------------------------------
The obligation of the Sellers to sell the ADVI Shares and to
take the other actions required to be taken by the Sellers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Sellers in writing, in
whole or in part):
a) Representations and Warranties. The representations and warranties of
the Company (contained in this Agreement, any Exhibit or schedule
hereto, or any certificate, instrument or other writing delivered to
the Sellers or their representatives by the Company, or any of its
representatives) shall be true and correct on the Closing Date with
the same force and effect as though made on and as of the Closing Date
(i.e., with respect to a representation that a state of facts exists
on or as of the date hereof, it is a condition that such state of
facts exists in all material respects on or as of the Closing Date,
and with respect to a representation that a state of facts has or has
not changed between a date prior to the date hereof and the date
hereof, it is a condition that such state of facts has or has not
changed between such prior date and the Closing Date), except as
affected by transactions contemplated hereby and thereby and except
that any such representation or warranty made as of a specified date
(other than the date of this Agreement) shall only need to have been
true on and as of such date;
26
b) Performance. The Company shall have performed all obligations and
complied with all covenants required by this Agreement to be performed
or complied with by the Company on or prior to the Closing Date;
c) Employment Agreements. The Company shall have executed and delivered
to Xxxxx the Employment Agreement; and
d) Other Matters. All corporate and other proceedings and actions taken
in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such
transactions shall be reasonably satisfactory in form and substance to
the Sellers and their counsel.
9) FURTHER AGREEMENTS OF THE PARTIES.
----------------------------------
a) Further Agreements of the Sellers. The Sellers shall upon the request
of the Company from time to time execute and deliver to the Company
such documents and instruments of title, conveyance, transfer and
assignment as may be necessary or desirable in order to vest in the
Company, free and clear of all Liens, all right, title and interest in
and to any and all of the ADVI Shares.
b) 8-K Financial Statements. The Majority Shareholders shall promptly
provide such assistance reasonably requested by the Company to enable
it to prepare financial statements and pro forma financial statements
sufficient to permit the Company to fully, completely and timely
comply with the Company's obligations to file financial statements
relating to the Business with the SEC and to obtain an audit of those
statements, including signing such representation letters as may
reasonably be requested by the auditors.
c) Employees.
i) The Employee Schedule (Exhibit G) lists the name, job title,
current base salary or hourly wage, date of hire and social security number
of employees actively employed by ADVI including individuals on short-term
disability who were so employed immediately before their disability
(collectively, the "Employees"). As to any individual on short-term
disability, The Employee Schedule indicates the reason for such absence and
the date the individual is reasonably expected to return to active
employment. The Employee Schedule also indicates the accumulated vacation
pay accrued for each Employee as of the Closing Date.
ii) The Majority Shareholders jointly and severally agree to pay all
costs and expenses related to the termination of employment of any employee
of ADVI who is entitled to any severance in connection with his or her
termination (including indirect severance because such employee is entitled
to at least 10 days or more notice of termination).
27
(d) Sale of Shares. All shares issued to Majority Shareholders will be
restricted from sale for a period of two (2) years from the close of
the transaction. At the end of the two (2) year restriction period,
the shares may be registered for sale in the public market, subject to
the rules and regulations governing the Securities and Exchange Act of
1934 Rule 144 and other applicable securities laws, on a quarterly
basis, over a two (2) year period at a maximum rate of twelve and one
half percent (12.5%) per quarter.
10) SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
------------------------------------------------------
a) Survival of Representations and Warranties. All representations and
warranties made in this Agreement or made in any document delivered
pursuant to this Agreement by or on behalf of any party shall survive
the execution and delivery of this Agreement and the Closing,
regardless of notice of or any investigation or right of investigation
made prior to or after the date of this Agreement by or on behalf of
any party, and shall terminate and expire two years following the
Closing Date after which date they shall be of no further force or
effect.
b) Indemnification By The Majority Shareholders. The Majority
Shareholders shall, jointly and severally, indemnify, save and hold
harmless the Company and each of its officers, directors, employees,
agents and affiliates, and each of their successors and assigns
(individually, a "Company Indemnified Party" and collectively, the
"Company Indemnified Parties") from and against any and all costs,
losses, claims, liabilities, fines, penalties, incidental and
consequential damages, lost profits and expenses (including interest
which may be imposed in connection therewith and court costs and
reasonable fees and disbursements of counsel) ("Damages") incurred in
connection with, arising out of, resulting from or incident to:
i) all liabilities of or claims against the Company Indemnified
Parties of any nature, whether accrued, absolute, contingent or
otherwise, arising out of the Business attributable to any state of
facts existing or any event occurring at or prior to the Closing
(whether known or unknown to the Majority Shareholders or the
Company), to the extent not reflected as a liability on the Current
Balance Sheet or for accounts payable and approved expenses incurred
by ADVI in the ordinary course of business subsequent to the date of
the Current Balance Sheet;
ii) any breach of, or any inaccuracy in any of, the
representations or warranties, or any default in any agreements, made
by the Sellers in this Agreement, any Exhibit or schedule to this
Agreement or any certificate, instrument or writing delivered in
connection with this Agreement or in connection with any Exhibit or
schedule to this Agreement;
28
iii) all liabilities of or claims against the Company Indemnified
Parties of any nature, whether accrued, absolute, contingent or
otherwise, arising under any Environmental Laws and relating to the
ownership or use by ADVI of any of the Real Estate prior to the
Closing;
iv) the Assumed Debt (except to the extent that ADVI reassumes
the Assumed Debt pursuant to the Assumption Agreement);
v) any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against
in this Section 10(b); provided, however, that the Sellers shall not
be obligated to indemnify a Company Indemnified Party and hold it or
him harmless under this Section 10(b) with respect to any settlement
of a claim to which the Seller Representative has not consented, which
consent shall not unreasonably be withheld. If, by reason of the claim
of any third Person relating to any of the matters subject to
indemnification under this Section 10(b), a Lien, attachment,
garnishment or execution is placed upon any of the property or assets
of any Company Indemnified Party, the Sellers shall also, promptly
upon demand, furnish an indemnity bond satisfactory to the Company
Indemnified Party to obtain the prompt release of such Lien,
attachment, garnishment or execution.
c) Indemnification By The Sellers other than the Majority Shareholders
(the "Other Sellers"). The Other Sellers shall each indemnify, save
and hold harmless the Company Indemnified Parties from and against any
and all Damages incurred in connection with, arising out of, resulting
from or incident to any breach of, or any inaccuracy in any of, the
representations or warranties, or any default in any agreements, made
by the Sellers in Section 4(o) of this Agreement.
d) Notice of Claim. If a claim for Damages (a "Claim") is to be made by a
party entitled to indemnification hereunder (an "Indemnified Party")
against the indemnifying party (the "Indemnifying Party"), the
Indemnified Party shall give written notice (a "Claim Notice") to the
Indemnifying Party, which notice shall specify whether the Claim
arises as a result of a claim by a person against the Indemnified
Party (a "Third Party Claim") or whether the Claim does not so arise
(a "Direct Claim"), and shall also specify (to the extent that the
information is available) the factual basis for the Claim and the
amount of the Damages, if known. If the Claim is a Third Party Claim,
the Indemnified Party shall provide the Claim Notice as soon as
practicable after such party becomes aware of such Claim. If any
Action is filed against any Indemnified Party, written notice thereof
shall be given to the Indemnifying Party as promptly as practicable
(and in any event within 15 calendar days after the service of the
citation or summons). The failure of any Indemnified Party to give
timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the Indemnifying Party has been
damaged by such failure.
29
e) Defense of Claims. With respect to a Third Party Claim, if after
receipt of the Claim Notice the Indemnifying Party acknowledges in
writing to the Indemnified Party that the Indemnifying Party shall be
obligated under the terms of its indemnity hereunder in connection
with such lawsuit or action, the Indemnifying Party shall be entitled,
if it so elects at its own cost, risk and expense, (i) to take control
of the defense and investigation of such Action, (ii) to employ and
engage attorneys of its own choice, but, in any event, reasonably
acceptable to the Indemnified Party, to handle and defend the same
unless the named parties to such Action (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party
and the Indemnified Party has been advised in writing by counsel that
there may be one or more legal defenses available to such Indemnified
Party that are different from or additional to those available to the
Indemnifying Party, in which event the Indemnified Party shall be
entitled, at the Indemnifying Party's cost, risk and expense, to
separate counsel of its own choosing, and (iii) to compromise or
settle such Action, which compromise or settlement shall be made only
with the written consent of the Indemnified Party, such consent not to
be unreasonably withheld.
If the Indemnifying Party fails to assume the defense of such Claim
within 15 calendar days after receipt of the Claim Notice, the
Indemnified Party against which such Claim has been asserted will
(upon delivering notice to such effect to the Indemnifying Party) have
the right to undertake, at the Indemnifying Party's cost and expense,
the defense, compromise or settlement of such Claim on behalf of and
for the account and risk of the Indemnifying Party. If the Indemnified
Party assumes the defense of the Claim, the Indemnified Party will
keep the Indemnifying Party reasonably informed of the progress of any
such defense, compromise or settlement. The Indemnifying Party shall
be liable for any settlement of any Action effected pursuant to and in
accordance with this Section 10(e) and for any final judgment (subject
to any right of appeal) and the Indemnifying Party agrees to indemnify
and hold harmless an Indemnified Party from and against any Damages by
reason of such settlement or judgment.
(f) No Claim by the Sellers. Although the Sellers may have relied on
information supplied by ADVI in making certain representations and
warranties contained in this Agreement and the Sellers' Disclosure
Schedule, each Seller agrees that he or she has no claim, and shall
assert no claim, for contribution, indemnification or otherwise,
against ADVI with respect to any breach of any covenant or of any of
the representations and warranties or any inaccuracy in the Sellers'
Disclosure Schedule irrespective of whether the information supplied
by ADVI and relied upon by such Seller was incomplete or inaccurate in
any way or for whatsoever reason; further, the Sellers acknowledge
that ADVI has made no representation or warranty to the Sellers with
respect to the information supplied by it to the Sellers whatsoever.
30
(g) Liquidation of Indemnification Claims. Any Claim set forth in any
Claim Notice shall be deemed valid and binding upon the Sellers unless
the Sellers give written notice of dispute of the Claim, or a portion
of the Claim (a "Claim Dispute Notice"), within 45 days from receipt
of the Claim Notice, which Claim Dispute Notice sets forth in
reasonable detail the basis for disputing the Claim (or portion of the
Claim). Within 15 days following receipt of the Claims Dispute Notice,
the Company and the Seller Representative (and any other Majority
Shareholder who desires to participate) shall discuss the Claim in
person or by telephone. If the parties are unable to resolve the
dispute, either the Majority Shareholders or the Company shall have
the right to have the claim submitted to and settled by arbitration as
hereinafter provided (it being expressly understood and agreed that if
such Claims Dispute Notice is duly given, it is the intention of the
parties to this Agreement that any such indemnification claim shall be
resolved by arbitration as provided in this Section 10(g)). The
arbitration shall be by a single arbitrator experienced in the matters
at issue selected by, and mutually acceptable to, the Indemnifying
Party and the Indemnified Party and shall be conducted in accordance
with the arbitration rules of the American Arbitration Association.
The arbitrator must be independent (not an agent, officer, director,
attorney, employee, or shareholder of the Company or any Seller or a
relative or Affiliate of any of those persons) without any economic or
financial interest of any kind in the outcome of the arbitration. Each
arbitrator's conduct will be governed by the Code of Ethics for
Arbitrators in Commercial Disputes (1986) that has been approved and
recommended by the American Bar Association and the American
Arbitration Association. The parties shall request the arbitrator to
convene a hearing as promptly as practicable for the dispute to be
held on such date and at such time and place (a) in Los Angeles
County, California if such claim is brought by the Seller or (b) in
Guilford County, North Carolina if such Claim is brought by the
Company, as the arbitrator designates upon 30 days' advance notice to
each Indemnified Party and each Indemnifying Party. The parties shall
request that the arbitrator render his decision within 30 days after
the conclusion of the hearing. The arbitrator shall hear and decide
the dispute based on the evidence produced, notwithstanding the
failure or refusal to appear by a party who has been duly notified of
the date, time, and place of the hearing. The decision of the
arbitrator shall be final and binding as to any matters submitted
under this Agreement, and to the extent that the arbitrator's decision
is that Damages have been incurred for which a party is to be
indemnified under this Agreement, the Damages shall be promptly
satisfied; provided, however, that, if necessary, such decision may be
enforced by either the Indemnifying Party or the Indemnified Party in
any court of record having jurisdiction over the subject matter or
over any of the parties hereto. The prevailing party shall recover all
of such party's costs, and reasonable attorneys' fees incurred in
connection with any such arbitration.
31
(h) Tax and Insurance Benefits. The amount of any Damages claimed
hereunder shall be reduced by the amount of any actual tax savings to
the indemnified party that result from the liability that gave rise to
such Damages and by the amount received by the indemnified party with
respect to such liability under any insurance coverage or from any
other party alleged to be responsible therefore. The indemnified party
shall use reasonable efforts to collect any amounts available under
such insurance coverage or from such other party alleged to have
responsibility. If an indemnified party hereunder receives an amount
under insurance coverage or from another party with respect to Damages
at any time subsequent to its receipt of indemnification for Damages
hereunder, then the indemnified party shall promptly reimburse the
indemnifying party for any payment made or expense incurred by such
Indemnitor in connection with providing such indemnification up to the
amount received by the indemnified party from such insurance coverage
or party. The parties hereto agree that for purposes hereof, no actual
tax savings are realized by an indemnified party as the result of the
receipt by an indemnifying party or any indemnification payment for
damages.
(i) Means of Recovery. All claims by the Company against any Seller under
this Section 10 for any claim (except for those claims under Section
4(a), (b), (c) and (n) of this Agreement shall be satisfied by direct
setoff first against the Promissory Note. All other claims by the
Company against Sellers under this Section 10 may be satisfied by the
direct assertion against any Sellers of the Company's indemnification
claim. All claims by any Seller against the Company under this Article
10 may be satisfied by the direct assertion against the Company of any
Seller's indemnification claim.
(j) Limitation on Recovery. The aggregate liability of the Sellers on the
one hand, and the Company on the other hand, for any claim related to
breaches of representations and warranties made pursuant to this
Agreement and any Claims for indemnification arising under such
representations and warranties shall be limited to the exchange
consideration as established pursuant to Section 2(b) above; provided
that this limitation shall not limit any remedy (a) for breaches of
the representations and warranties contained in Sections 3(a), (b),
(c) or (n) of this Agreement or (b) for breaches of the
representations and warranties contained in Section Sections 5(a),
(b)(i) or (j) of this agreement, and provided further that this
limitation shall be in no way construed to limit any remedy for fraud,
willful misconduct or any other misrepresentation. Amounts paid as
indemnification for matters described in the provisos to the preceding
sentence shall not be taken into account in determining the limitation
on the aggregate liability under this section. (k) No Seller other
than Xxxxx and Xxxxx shall have any liability under this Section 10,
other than for violations of Sections 4(b)(iv) and 4(c) of this
Agreement.
32
11) NONCOMPETITION.
---------------
a) Covenant Not to Compete. For a period of three years from the Closing
Date, each Seller agrees that he will not, directly or indirectly,
whether individually or as a member, officer, director, investor,
stockholder, employee or consultant of any Person, (i) engage, within
the states of Virginia, West Virginia, Kentucky, Tennessee, South
Carolina and North Carolina in a business which competes with any line
of business engaged in or about to be engaged in by the Company, or
(ii) induce or attempt to induce (A) any employee of the Company to
leave the employ of the Company or in any way interfere adversely with
the relationship between any such employee and the Company, (B) any
employee of the Company to work for, render services or provide advice
to or supply confidential business information or trade secrets of the
Company to any Person, or (C) any customer, supplier, licensee,
licensor or other business relation of the Company to cease doing
business with the Company or in any way interfere with the
relationship between any such customer, supplier, licensee, licensor
or other business relation and the Company. The ownership by a Seller
of four percent or less of the outstanding capital stock of any
corporation engaged in any business which competes with any line of
business engaged in or about to be engaged in by the Company, where
the capital stock of the corporation is listed on a national
securities exchange or actively quoted on the Nasdaq National Market
or Nasdaq SmallCap Market, shall not be deemed a violation by a Seller
of this Section 11, provided that such Seller is not an officer,
director or employee of, or a consultant to, such corporation.
Provided, further, that notwithstanding the above, the Sellers may
elect to leave the employment of the Company jointly or separately at
anytime consistent with the provisions of any written employment
agreement they may have with the Company, without such departure being
a breach of any provisions of this Agreement.
b) Remedies. Each Seller acknowledges and agrees that, in the event of a
violation by such Seller of the terms and provisions of this Section
11, the remedies at law would not be adequate; and accordingly, in
such event the Company may proceed to protect and enforce its rights
under this Section 11 by an Action in equity for specific performance
and temporary, preliminary and permanent injunctive relief from
violation of any of the provisions of this Section 11 from any court
of competent jurisdiction without the necessity of proving the amount
of any actual damages to the Company resulting from the breach.
c) Modification. If for any reason there should be a determination by a
court of competent jurisdiction that the provisions of this Section 11
are too broad or unreasonable and therefore unenforceable, the
provisions of this Section 11 shall be deemed modified, and fully
enforceable as so modified, to the extent that the court would find
them to be fair, reasonable and enforceable under the circumstances.
33
12) TERMINATION.
-------------
a) Termination by Mutual Consent. This Agreement may be terminated at any
time prior to the Closing by the mutual agreement, in writing, of each
of the parties to this Agreement.
b) Termination by the Company. The Company may (but shall not be
obligated to) terminate this Agreement prior to the Closing by giving
written notice to the Sellers if:
i) there has been a material violation or breach by any Seller of
any agreement, covenant, representation or warranty contained in this
Agreement, which violation or breach shall not have been cured or
corrected within 15 days after receipt of notice thereof;
ii) the Closing does not occur on or prior to June 30, 2001, or
such later date as may be agreed to in writing by the parties; or
iii) any of the conditions in Section 7 have not been satisfied
as of the Closing or if the Company is made aware and determines in
its reasonable discretion that any condition will not be satisfied as
of the Closing (other than through the failure of the Company to
comply with its obligations under this Agreement) and the Company has
not expressly waived such condition in writing on or before the
Closing.
c) Termination by the Sellers. The Sellers may (but shall not be
obligated to) terminate this Agreement prior to the Closing by giving
written notice to the Company if:
i) there has been a material violation or breach by the Company
of any agreement, covenant, representation or warranty contained in
this Agreement, which violation or breach shall not have been cured or
corrected within 15 days after receipt of notice thereof;
ii) the Closing does not occur on or prior to June 30, 2001, or
such later date as may be agreed to in writing by the parties; or
iii) any of the conditions in Section 8 have not been satisfied
as of the Closing or if the Sellers are made aware and determine in
their reasonable discretion that any condition will not be satisfied
as of the Closing (other than through the failure of ADVI or the
Sellers to comply with its or their obligations under this Agreement)
and ADVI has not expressly waived such condition in writing on or
before the Closing.
In the event of such termination, no party shall have any
obligation or liability to any other in respect to this Agreement, except for
any breach of contract occurring prior to such termination.
34
13. CERTAIN TAX MATTERS.
--------------------
The following provisions shall govern the allocation of responsibility
as between the Company and Sellers for certain tax matters following the Closing
Date:
(a) Tax Periods Ending on or Before the Closing Date. The
Company shall prepare or cause to be prepared and file or cause to be filed all
Tax Returns for ADVI for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. The Company shall permit the Seller
Representative to review and comment on each such Tax Return described in the
preceding sentence prior to filing and shall make such revisions to such Tax
Returns as are reasonably requested by the Seller Representative . To the extent
permitted by applicable law, Sellers shall include any income, gain, loss,
deduction or other tax items for such periods on their Tax Returns in a manner
consistent with the Schedule K-1s furnished by ADVI to the Sellers for such
periods. The Sellers shall reimburse the Company for any Taxes of ADVI with
respect to such periods within 15 days after payment by the Company or ADVI of
such Taxes to the extent such Taxes are not reflected in the reserve for Tax
liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Current
Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing
Date. The Company shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of ADVI for Tax periods which begin before the Closing
Date and end after the Closing Date. The Sellers shall pay to the Company within
15 days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Current Balance Sheet. For purposes of this Section, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of ADVI.
35
(c) Refunds and Tax Benefits. Any Tax refunds that are
received by the Company or ADVI, and any amounts credited against Tax to which
the Company or ADVI become entitled, that relate to Tax periods or portions
thereof ending on or before the Closing Date shall be for the account of the
Sellers, and the Company shall pay over to the Sellers any such refund or the
amount of any such credit within fifteen (15) days after receipt or entitlement
thereto. In addition, to the extent that a claim for refund or a proceeding
results in a payment or credit against Tax by a taxing authority to the Company
or ADVI of any amount accrued on the Current Balance Sheet, the Company shall
pay such amount to the Sellers within fifteen (15) days after receipt or
entitlement thereto.
(d) Cooperation on Tax Matters.
(i) The Company and the Sellers shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and the Sellers agree (A) to retain all
books and records with respect to Tax matters pertinent to ADVI relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Company or the Sellers,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
ADVI or the Sellers, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) The Company and the Sellers further agree, upon
request, to use their Best Efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) The Company and Sellers further agree, upon
request, to provide the other party with all information that either party may
be required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder. (e) Tax Sharing Agreements. All
tax sharing agreements or similar agreements with respect to or involving ADVI
shall be terminated as of the Closing Date and, after the Closing Date, ADVI
shall not be bound thereby or have any liability thereunder.
36
(f) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any tax imposed
by the state of North Carolina) shall be paid by the Sellers when due, and the
Sellers will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law,
Company will, and will cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
(g) S Corporation Status. ADVI and the Sellers will not revoke
ADVI's election to be taxed as an S corporation within the meaning of Code
Sections 1361 and 1362. ADVI and the Sellers will not take or allow any action
other than the sale of ADVI Common Stock pursuant to this Agreement that would
result in the termination of ADVI's status as a validly electing S corporation
within the meaning of Code Sections 1361 and 1362.
14. MISCELLANEOUS.
--------------
d) Notices. All notices, requests, demands and other communications
(collectively, "Notices") given pursuant to this Agreement shall be in
writing, and shall be delivered by personal service, courier,
facsimile transmission (which must be confirmed) or by United States
first class, registered or certified mail, postage prepaid, to the
following addresses:
(i) if to the Company, to:
Sitestar Corporation.
ATTN: Xxxxxxx X. Xxxxxx
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Tel No. 000-000-0000 Fax No. 000-000-0000
(ii) if to the Sellers, to:
Xxxxx Xxxxxxxx
000 Xxxx Xxxxxxx Xxxxxx
Xx. Xxxx, XX 00000
Tel No. 000-000-0000
Fax No. 000-000-0000
With a copy to:
Xxxxxxx X. Xxxxx, Esq.
Xxxxxx Xxxxxxx & Meschan PA
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Tel No. 000-000-0000
Fax No. 000-000-0000
37
Any Notice, other than a Notice sent by registered or certified mail, shall
be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier
of when received or the third day following deposit in the United States
mails. Any party may from time to time change its address for further
Notices hereunder by giving notice to the other parties in the manner
prescribed in this Section.
e) Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire
subject matter of this Agreement, and any and all prior discussions,
negotiations, commitments and understandings, whether oral or
otherwise, related to the subject matter of this Agreement are hereby
merged herein.
f) Assignment. No party may assign this Agreement, and any attempted or
purported assignment or any delegation of any party's duties or
obligations arising under this Agreement to any third party or entity
shall be deemed to be null and void, and shall constitute a material
breach by such party of its duties and obligations under this
Agreement. This Agreement shall inure to the benefit of and be binding
upon any successors of each party by way of merger or consolidation.
g) Waiver and Amendment. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and
waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision. This Agreement may be amended only
by a written agreement executed by all of the parties to this
Agreement.
h) Governing Law. This Agreement has been made and entered into in the
State of California and shall be construed in accordance with the laws
of the State of California without giving effect to the principles of
conflicts of law thereof.
i) Severability. Whenever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or
become prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
j) Captions. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions
of interpretation of this Agreement.
k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
38
l) Costs and Attorneys' Fees. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a
default in the performance by any party to this Agreement of its
obligations under this Agreement, the prevailing party shall recover
all of such party's attorneys' fees incurred in each and every such
action, suit, arbitration or other proceeding, including any and all
appeals or petitions therefrom. As used in this Section, attorneys'
fees shall be deemed to mean the full and actual costs of any legal
services actually performed in connection with the matters involved
calculated on the basis of the usual fee charged by the attorney
performing such services and shall not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
m) Rights Cumulative. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and
each and every right under this Agreement, or under any other document
or instrument delivered hereunder, or allowed by law or equity, shall
be cumulative and may be exercised from time to time.
n) Judicial Interpretation. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court
interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against any Person
by reason of the rule of construction that a document is to be
construed more strictly against the Person who itself or through its
agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
o) Force Majeure. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is
prevented from performing any such obligations due to causes or events
beyond its control, including, without limitation, acts of God, fire,
flood, earthquake, strike or other labor problem, injunction or other
legal restraint, present or future law, governmental order, rule or
regulation, then such delay or nonperformance shall be excused and the
time for performance thereof shall be extended to include the period
of such delay or nonperformance.
p) Seller Representative. Any consent, approval, demand or waiver
required of or made by the Sellers pursuant to this Agreement shall be
made by the holders of a majority of the ADVI Shares. The Company
shall be entitled to rely, without investigation or inquiry, upon any
consent, approval or waiver of the Sellers set forth in any written
certificate, instrument or other document signed by the Seller
Representative as to any such approval, consent, waiver or notice of
the Sellers, and any such written agreement, certificate or other
document shall be binding upon all Sellers.
39
IN WITNESS WHEREOF, this Agreement has been made and entered into as of the
date and year first above written.
SITESTAR CORPORATION
a Nevada corporation
By: /s/ Xxxxxxx X. Xxxxx
-------------------------
Its: President
/s/ Xxxxx X. Xxxxxxxx
---------------------------------
Xxxxx X. Xxxxxxxx
/s/ Xxxxxx X. Xxxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxxx
---------------------------------
Witness
40
EXHIBIT A
(See attached)
o Assumed Debt Detail
EXHIBIT B
o Asset Schedule
EXHIBIT C
o ADVI Recasted Consolidated Gross Revenue 05/31/01
o ADVI Recasted Consolidated Net Income (05/31/01)
EXHIBIT D
o ADVI Charter Documents
EXHIBIT E
o Sellers' Disclosure Schedule
EXHIBIT F
o Employment Agreement (Xxxxx Xxxxxxxx)
EXHIBIT G
o Employee Schedule
41
