EXHIBIT 1
AGREEMENT (the "Agreement") dated as of November 27, 1999 (the "Closing
Date") by and between SETO HOLDINGS, INC. ("SETO"), and the persons listed on
Exhibit A hereto (collectively, the "Stockholders").
WHEREAS, (i) SETO is a corporation organized and existing under the laws of
the State of Nevada; (ii) FIMAS SDN. BHD. (the "Company" and, unless the context
otherwise requires includes all the Subsidiaries of the Company whose operations
are reflected in the calculation of Net Tangible Assets pursuant to Section 1.2)
is a corporation organized and existing under the laws of Malaysia and (iii) XXX
XX HUAT, XXX HUN KOK, and VOON XXX XXXX (collectively, the "Executives") are the
principal executive officers and the principal stockholders of the Company; and
(iv) VOON SU PIANG, XXXX XXXX ING, TIEW CHEOW NAN and FIMAS GLOBAL SDN. BHD are
principal stockholders of the Company; and
WHEREAS, the Stockholders wish to sell to SETO, and SETO wishes to purchase
from the Stockholders, all of the issued and outstanding capital stock of the
Company upon the terms and conditions hereinafter set forth (the "Acquisition");
and
WHEREAS, the respective parties desire to make certain representations,
warranties and agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements set forth
-1-
herein and such other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section 1. Sale and Purchase of the Company Shares.
1.1 Sale of the Company Shares. Each Stockholder does hereby agree to sell
and deliver to SETO, and SETO does hereby agree to purchase from each
Stockholder, at the Closing (as defined in Section 9), the number of shares of
the Company's common stock owned by such Stockholder as set forth on Exhibit A
hereto (the "Company Shares") by delivering to the Company stock certificates
representing his Company Shares, accompanied by a stock power executed by such
Stockholder, with his signature Medallion Guaranteed, together with all
applicable stock transfer tax stamps relative to said certificates.
1.2 Payment of Purchase Price. The purchase price shall be 6,000,000 shares
(the "SETO Shares") of SETO common stock (collectively the "Purchase Price"). At
the Closing or as soon as possible within two weeks, SETO shall deliver to the
Stockholders 5,000,000 SETO Shares. If SETO makes available to the Company an
aggregate of USD $1,500,000 additional working capital and the Company's
operations for the fiscal year ended March 31, 2001 generate net income of at
least USD $1,000,000, as determined by SETO'S certified public accountants in
accordance with generally
-2-
accepted accounting principles as in effect from time to time in the United
States ("GAAP"), consistently applied, then SETO will issue to the Stockholders,
pro rata, 1,000,000 additional SETO Shares.
Section 2. Representations, Warranties, Covenants, and Acknowledgments of
the Stockholders. The representations and warranties made and given in this
Section 2 are made by each Stockholder independent of the other Stockholders,
and any claim or liability for the breach of any such representation or warranty
shall be several against only the breaching Stockholder. Each Stockholder
severally (but not jointly) represents, warrants covenants, acknowledges and
agrees as follows:
2.1 Investment. Such Stockholder is acquiring the SETO Shares for his
own account, and not for the account of any other person. Such Stockholder
is acquiring the SETO Shares for investment and not with a view to
distribution or resale thereof except in compliance with applicable laws
regarding the sale of securities.
2.2 Business Experience. Such Stockholder is capable of evaluating the
merits and risks of his investment in SETO by acquiring the SETO Shares
pursuant to this Agreement.
2.3 Access to Information. Such Stockholder has had the opportunity to
ask questions of, and to receive answers from,
-3-
Xxxxxx X. Xxxx, the Chairman of SETO, with respect to the terms and
conditions of the transactions contemplated by this Agreement and with
respect to the business, affairs, financial condition, results and
prospects of operations of SETO. Such Stockholder has received from Xx.
Xxxx and has read SETO's Annual Report on Form 10K-SB for the fiscal year
ended January 31, 1999 and its Current Report on Form 10Q-SB for the
quarter ended October 31, 1999 and has had access to such additional
financial and other information as he has deemed necessary for him to make
a fully-informed decision to invest in SETO by acquiring SETO Shares
pursuant to this Agreement; and he has had the opportunity to obtain any
additional information necessary to verify any of such information to which
he has had access.
2.4 Speculative Investment. Such Stockholder's investment in SETO by
acquiring the SETO Shares pursuant to this Agreement is highly speculative
in nature and is subject to a high degree of risk of loss in whole or in
part. The amount of such potential total investment loss is within such
Stockholder's risk capital means and is not so great in relation to his
total financial resources as to jeopardize his personal financial needs or
those of his family in the event such investment were to be lost in whole.
-4-
2.5 SETO Shares Unregistered. Such Stockholder must bear the economic
risk of his investment in the SETO Shares for an indefinite period of time
because the SETO Shares being issued to him pursuant to this Agreement have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and therefore such Shares cannot be sold or otherwise
transferred by such Stockholder unless such Shares are registered under the
Securities Act or an exemption from such registration is available. None of
SETO nor any of its officers, directors, employees, agents or
representatives has made any agreements, covenants or undertakings
whatsoever either (i) to register the SETO Shares, or any of them, or (ii)
as to whether any exemption will be available from the registration
requirements of the Securities Act for the future sale of any SETO Shares,
including without limitation for sales thereof under Rule 144 promulgated
under the Securities Act. Such Stockholder acknowledges that the exemption
under Rule 144 as currently in effect would not be available until at least
one year after the Closing Date and not then unless, as to which neither
SETO nor any of its officers, directors, employees, agents or
representatives, has given any assurance will occur: (i) a public trading
market then exists for SETO's Common Stock; (ii) either SETO is current in
its reporting obligations under the Securities Exchange Act of 1934, as
amended, or adequate current information
-5-
as to SETO's financial and other affairs and operations is then available
to the public; and (iii) all other applicable terms and conditions of Rule
144 have been satisfied by SETO and such Stockholder.
2.6. Restrictive Legend. Stock certificates evidencing the SETO Shares
shall bear a restrictive legend for securities not registered under the
Securities Act, substantially as follows:
THE OFFERING AND SALE OF THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993 ("SECURITIES ACT") OR
UNDER ANY STATE SECURITIES ACT ("STATE ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF
COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
SUCH TRANSFER TO COMPLY WITH THE SECURITIES ACT AND THE STATE ACT.
2.7 Questionnaire. Such Stockholder has truthfully completed the
Questionnaire in the form of Exhibit 2.7 hereof.
2.8 Tax Advice. Neither SETO nor the Company has made no warranties or
representations to such Stockholder with respect to the income tax
consequences of the transactions contemplated by this Agreement, and such
Stockholder is in no manner relying on SETO or the Company or their
respective representatives for an assessment of such tax consequences.
-6-
2.9 Authorization.
(a) Such Stockholder has full power and authority and legal
capacity to enter into this Agreement and to perform this Agreement in
accordance with its terms; and the execution, delivery and performance
of this Agreement by such Stockholder has been duly authorized by all
necessary corporate or other action. Such Stockholder is not bound by
any contractual or other obligation that would be violated by his
execution and performance of this Agreement; and this Agreement is a
valid and binding obligation of such Stockholder enforceable in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor the
consummation by such Stockholder of any of the transactions
contemplated herein nor compliance by such Stockholder with the terms,
conditions and provisions hereof or of any agreement or instrument
contemplated hereby will (i) conflict with, result in a breach of, or
constitute an event of default under (1) any material instrument,
agreement, lease, license, franchise, permit, or other authorization,
right, or obligation to which such Stockholder or the Company is a
party or any of his or its properties is subject or by which they are
bound, or (2) any statute, ordinance, rule, regulation, judgment,
order, award or decree applicable to such Stockholder or the Company,
or (ii) require the approval, consent or authorization of, or the
making of
-7-
any declaration, filing or registration with, any third party or any
foreign, federal, state or local court, governmental authority or
regulatory body.
2.10 Ownership of the Company's Shares. Such Stockholder is the record
owner and the beneficial owner of the capital stock of the Company set
forth opposite his name on Exhibit A. Such Stockholder owns the Company
Shares free and clear of all liens and encumbrances, and he has the full
and complete right and power to dispose of the Company Shares in accordance
with the terms of this Agreement. At the Closing, such Stockholder will
transfer the Company Shares to SETO free and clear of all liens and
encumbrances. There are no existing arrangements that require or permit any
of the Company Shares to be voted by or at the discretion of anyone other
than such Stockholder.
2.11 Confidentiality. Such Stockholder agrees to maintain as
confidential, and not use for his own benefit or for the benefit of any
third party, all material information and knowledge of the Company not
generally known or available to the public, including, without limitation,
its business, affairs, research and development, strategic and operating
plans, products and prospects (the "Confidential Information"), except (i)
with respect to those governmental agencies to which disclosure is required
by law or applicable regulation, (ii) pursuant to subpoena
-8-
or other compulsory process, or (iii) as may otherwise be required by law.
In the event disclosure of Confidential Information is required under
subsections (i) through (iii) above, such Stockholder will, to the extent
lawfully possible, give SETO at least five (5) days prior written notice
before his disclosure and will provide SETO with copies of any responsive
materials.
2.12 Non-Solicitation. (a) For a period of three years after the
Closing Date such Stockholder will not either directly or indirectly for
himself or any third party (a) solicit, induce, recruit, or cause any
person who was, is or hereafter becomes an employee of the Company to
terminate his employment for the purpose of joining, associating or
becoming employed by any business or activity (i) which is in competition
with any product sold, or any business or activity now or hereafter engaged
in, by the Company or SETO or (ii) in which such Stockholder is an officer
or director or directly or indirectly has any ownership interest or to
which he provides any services or (b) interfere or harm the contractual or
business relationships of the Company or SETO with any person, firm or
entity which was, is or hereafter becomes a licensor, licensee or
independent contractor of the Company or SETO.
2.13 Release of The Company. (a) As a material inducement to SETO to
enter into this Agreement and deliver the SETO Shares hereunder, such
Shareholder hereby irrevocably and
-9-
unconditionally releases, acquits, and forever discharges the Company and
each of its stockholders, predecessors, successors, assigns, agents,
directors, officers, employees, representatives, attorneys, subsidiaries,
affiliates (and agents, directors, officers, employees, representatives,
and attorneys of such divisions, subsidiaries, and affiliates), and all
persons acting by, through, under, or in concert with any of them (the
Company and each of its stockholders, etc. are collectively the "The
Company Releasees"), or any of them, from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses,
debts and expenses which such Stockholder now has, owns, or holds, or
claims to have, own, or hold, or which he at any time heretofore had,
owned, or held, or claimed to have, own or hold, or which he at any time
hereafter may have, own, or hold, or claim to have, own, or hold, against
each or any of the Company Releasees with respect to any events which
occurred prior to the date of this Agreement.
(b) For the purposes of implementing a full and complete release and
discharge of the Company Releasees, such Stockholder expressly acknowledges
that this Agreement is intended to include in its effect, without
limitation, all claims, other than those for indemnification, which he does
not know or suspect
-10-
to exist in his favor as of the date of this Agreement, and that this
Agreement contemplates the extinguishment of any such claim or claims.
(c) The foregoing provisions of Section 2.13(a) and (b) shall not in
any way be construed as any claim or admission by any the Company Releasee
that the Company has acted wrongfully with respect to such Stockholder or
to any other person, or that such Stockholder has any rights whatsoever
against the Company.
Section 3. Representations and Warranties of the Company and the
Executives. Each of the Company and the Executives, jointly and severally,
represent and warrant to SETO as follows:
3.1 Organization. The Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization and
has all requisite corporate power and 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 or licensed to do business and in
good standing in each jurisdiction in which the properties and assets
owned, leased or operated by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that,
individually or in the aggregate, could not reasonably be expected to have
a material adverse effect. The
-11-
copies of the certificate of incorporation and by-laws of the Company that
have been delivered to SETO are complete and correct as of the date of this
Agreement, and the duplicate minute book of the Company which has been
furnished to SETO is complete and accurately reflects all material actions
or consents to action taken prior to the date of this Agreement by the
Board of Directors and stockholders of the Company.
3.2 Equity Capitalization; Subsidiaries and Joint Ventures. For
purposes of this Agreement, a "Joint Venture" means an entity in which the
Company, either jointly or individually, is, directly or indirectly, the
beneficial owner of any class of capital stock or other equity security or
any profit participation interest. The Company has no subsidiaries and is
not a participant in any Joint Venture, limited liability company,
partnership or other arrangement except as listed on Schedule 3.2, which
also sets forth the number of shares and the percentages of equity
ownership of the Company in each thereof. Schedule 3.2 also sets forth the
equity capitalization of the Company, including the total number of
authorized and issued shares of equity securities (the "Company
Securities") as of the date hereof. All issued and outstanding shares of
Company Common Stock have been duly authorized, are validly issued, fully
paid and non-assessable, and were issued in full compliance with all
applicable securities laws.
-12-
In connection with the issuance of all outstanding Company Securities there
are no preemptive rights. Except for the Company Securities, there are
outstanding (i) no shares of capital stock or other voting securities of
the Company, (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the
Company, and (iii) no obligations of the Company to issue, repurchase,
redeem, or otherwise acquire (1) any shares of capital stock or other
voting securities, (2) no securities convertible into or exchangeable for
shares of capital stock or voting securities of the Company, or (3) options
or other rights to acquire from the Company any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of the Company.
3.3 Restrictions on Business Activities. Except as disclosed on
Schedule 3.3, there is no agreement, judgment, injunction, order or decree
binding upon the Company which has or could reasonably be expected to have
the effect of prohibiting or materially impairing (a) the ability of the
Company to conduct its business in any geographic area or field of use, (b)
any acquisition of property by the Company, or (d) the conduct of business
by the Company as currently conducted or as currently proposed to be
conducted by the Company.
-13-
3.4 Authorization; Binding Agreement. The Company has the full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Stockholders and (assuming
the Agreement has been duly and validly executed by SETO) constitutes a
legal, valid and binding agreement of the Company and the Stockholders,
enforceable against them in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, and similar
laws affecting creditors' rights generally and to general principles of
equity regardless of whether enforcement is sought in a proceeding at law
or in equity.
3.5 Noncontravention. Except as set forth on Schedule 3.5, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) conflict with or result in any
breach of any provision of the certificate of incorporation or by-laws of
the Company, (b) require any consent, approval or notice under, or conflict
with or result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any loan or credit agreement, note, bond,
mortgage, indenture, license, agreement or other instrument
-14-
or obligation (collectively, "Contracts and Other Agreements") to which the
Company is a party the failure to obtain consent or approval or to give
notice under which, or the conflict with or violation of, breach of or
default under, would, individually or in the aggregate, have a material
adverse effect on the Company or (c) violate any order, judgment, writ,
injunction, determination, award, decree, law, statute, rule or regulation
(collectively, "Legal Requirements") applicable to the Company or its
properties or assets the violation of which, individually or in the
aggregate, would have a material adverse effect on the Company.
3.6 Third Party Approvals. Except as set forth on Schedule 3.6, no
consent, approval or authorization of or declaration or filing with any
U.S. or foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (each, a
"Governmental Entity") or other person or third party on the part of the
Company is required in connection with the execution or delivery by the
Company and the Stockholders of this Agreement or the consummation by the
Company and the Stockholders of the transactions contemplated hereby.
3.7 Financial Statements; Absence of Undisclosed Liabilities. (a) The
Company will furnished to SETO the audited consolidated balance sheets of
the Company as at March 31, 1999,
-15-
1998 and 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended, including the
footnotes thereto (the "Audited Financial Statements"), certified by X.X.
XXX & Associates, independent certified public accountants. The Audited
Financial Statements and the Interim Financial Statements will be prepared
in accordance with GAAP, and present fairly, on a consistent basis, the
consolidated financial position and consolidated results of operations of
the Company on and as of the dates and for the periods therein indicated.
The statements of operations will not contain any special or nonrecurring
items (as compared to the prior year) of income or loss.
(b) Except as set forth in the Audited Financial Statements or
incurred in connection with this transaction, the Company will have no
direct or indirect material liabilities of any nature whatsoever.
(c) The Audited Financial Statement ending March 31, 2000 and the
management accounts ending Oct. 31, 1999 will show that as of October 31,
1999, the Company had Net Tangible Assets of at least USD $4,000,000.
3.8 Absence of Certain Changes or Events. Since December 31, 1998 the
Company has conducted its business in the ordinary course consistent with
past practice and there has not
-16-
been any condition, event or occurrence that, individually or in the
aggregate, has resulted, or could reasonably be expected to result, in a
material adverse effect with respect to the Company.
3.9 Absence of Litigation. Except as set forth on Schedule 3.9, as of
the date hereof there are no claims, actions, proceedings, investigations
or audits pending or, to the knowledge of the Company, threatened against
the Company on the date hereof before any court or Governmental Entity or
Regulatory Agency. As of the date hereof, the Company is not subject to any
order, judgment, injunction or decree (collectively, "Orders") of any
court, Governmental Entity or Regulatory Agency. Schedule 3.9 sets forth
the best faith estimates of the Company as to the maximum amount of the
potential liability of the Company with respect to each claim, action,
proceeding, investigation and audit pending as reflected in the statements
of claim and pleadings related thereto.
3.10 Contracts. Schedule 3.10 sets forth, as of the date hereof, a
list of all of the following Contracts and Other Agreements to which the
Company is a party: (i) contracts, severance agreements, non-competition
agreements, non-disclosure agreements or any other type of contract or
understanding with any current or former holder of at least 10% of the
outstanding Company Common Stock, or any current or former officer,
director, employee or person retained by the Company (including, without
limitation,
-17-
independent consultants and commission agents); (ii) contracts and other
agreements with any labor union or association representing any employee of
the Company; (iii) partnership, joint venture or license agreements; (iv)
indentures, mortgages, promissory notes, loan agreements, guarantees or
other agreements or commitments for the borrowing of money or for a line of
credit; (v) contracts with any person to sell, distribute or otherwise
market any of the Company's products or services, other than in the
ordinary course of business; (vi) contracts (other than those terminable
without penalty on not more than thirty (30) days notice) for the purchase
or lease of materials, supplies, goods, services, equipment or other assets
providing for future aggregate payments by the Company of $25,000 or more;
(vii) contracts for the sale of any material assets of the Company other
than in the ordinary course of business or the grant to any person of any
options or preferential rights to purchase any material assets of the
Company; (viii) contracts under which the Company agrees to indemnify any
party, to guarantee any third party obligations or to share the tax
liability of any party; (ix) contracts relating to the acquisition by the
Company of any operating business or the capital stock of any other person;
(x) contracts containing obligations or liabilities of any kind to holders
of the Company Securities; (xi) contracts for the payment of fees or other
consideration to any current or former employee,
-18-
consultant, officer or director of the Company; (xii) leases or options or
rights of first refusal for the purchase or lease of any real property;
(xiii) contracts which contain any material non compete or exclusivity
provisions with respect to any business or geographic area in which
business is conducted with respect to the Company or which restricts the
conduct of any business by the Company or any geographic area in which the
Company may conduct business or requires exclusive referrals of any
business, in each case in any material respect; or (xiv) contracts with any
person for the provision of investment banking or financial consulting
services by the Company. There have been delivered or made available to
SETO true and complete copies of all such Contracts and Other Agreements as
set forth on Schedule 3.10. All of such Contracts and Other Agreements are
in full force and effect with respect to the Company and are in full force
and effect with respect to the other parties thereto.
3.11 Compliance. (a) Except as set forth on Schedule 3.11, the Company
is not in default or violation of any term, condition or provision of (a)
its certificate of incorporation or by-laws, (b) any of the Contracts and
Other Agreements set forth on Schedule 3.10 or (c) any Legal Requirements
applicable to the Company the default or violation of which individually,
or in the aggregate, would have a material adverse effect on the Company.
-19-
(b) For purposes of this Section 3.11:
"Hazardous Material" shall mean any material or substance that,
whether by its nature or use, is now or hereafter defined as hazardous
waste, hazardous substance, pollutant or contaminant under any
Environmental Law (defined below), or which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and which is now or hereafter regulated under any Environmental
Law, or which is or contains petroleum, gasoline, diesel fuel or another
petroleum hydrocarbon product, lead paint, asbestos, asbestos-containing
materials or polychlorinated biphenyls;
"Environmental Laws" means those federal, provincial, local and other
laws, statutes, ordinances, rules, regulations, orders and decrees
(including any amendments thereto) relating to pollution or protection of
the environment, including laws relating to emissions, discharges, releases
or threatened releases of Hazardous Materials, pollutants, wastewater
(other than non-contact cooling or process water), or wastes constituting
hazardous substances in, into, onto or upon the environment (including,
without limitation, ambient air, surface water, groundwater, or land), or
otherwise relating to the processing, distribution, use, treatment,
collection, accumulation, storage, disposal, transport, or handling of
Hazardous Materials.
-20-
(c) The operations of the Company have been and are now in material
compliance with all Environmental Laws. All approvals of government
authorities required to be held by the Company concerning the environment
have been obtained, are valid and are in full force and effect, have been
and are being complied with in all material respects and there are no
proceedings commenced or threatened to revoke or amend any such approvals.
The business operations of the Company have not and are not now the subject
of any remedial order (being any administrative complaint, direction, order
or sanction issued, filed or imposed by any governmental authority pursuant
to any Environmental Laws). No part of any premises occupied by the Company
in the operation of its business has ever been used as a landfill or for
the disposal of waste or, except for the operations of the Company
conducted in material compliance with Environmental Laws, for the storage,
treatment or disposal of Hazardous Material. The Company neither uses nor
stores in or on the premises occupied by it in the operation of its
business any Hazardous Material other than in material compliance with
Environmental Laws. The Company and the Executives have no knowledge of any
Hazardous Material in, on or under the premises occupied by it in the
operation of its business other than those used in the ordinary course of
the Company's business.
-21-
3.12 ERISA and Employee Benefit Matters.
(a) Neither the Company nor any ERISA Affiliate (as defined
below) maintains any Employee Benefit Plan. As used in this Agreement,
"Employee Benefit Plan" shall mean any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and any other material plan, policy,
program, practice, agreement, understanding or arrangement (whether
written or unwritten) providing compensation or other benefits to any
current or former director, officer, employee or consultant (or to any
dependent or beneficiary thereof), of the Company or any ERISA
Affiliate which are now, or were within the past six (6) years,
maintained by the Company or any ERISA Affiliate or under which the
Company or any ERISA Affiliate has or could have any obligation or
liability, whether actual or contingent (and including, without
limitation, any liability arising out of an indemnification,
guarantee, hold harmless or similar agreement), including, without
limitation, all incentive, bonus, deferred compensation, vacation,
holiday, cafeteria, medical, disability, stock purchase, stock option,
stock appreciation, phantom stock, restricted stock or other
stock-based compensation plans, policies, programs, practices or
arrangements. As used in this Agreement, "ERISA Affiliate" shall mean
any entity (whether or not incorporated) other than the Company that,
together
-22-
with the Company, is or was a member of (i) a controlled group of
corporations within the meaning of Section 414(b) of the Code, (ii) a
group of trades or businesses under common control within the meaning
of Section 414(c) of the Code or (iii) an affiliated service group
within the meaning of Section 414(m) of the Code.
3.13 Intellectual Property; Software.
(a) Except as set forth on Schedule 3.13(a), (i) the Company owns
or has a valid license or otherwise has the right to use all patents,
copyrights, trademarks, service marks and trade names, including any
registrations or applications for registration of any of the
foregoing, technology, know-how, computer software programs and
applications, and tangible or intangible proprietary information or
material (collectively, "Intellectual Property") that are material to
the operation of the business of the Company as presently conducted,
all of which are listed on Schedule 3.13 (ii) the use of the
Intellectual Property by the Company does not infringe upon or
otherwise violate any intellectual property rights of third parties
and (iii) no third party, including, but not limited to, any employee,
former employee, independent contractor or consultant of the Company
is infringing upon or otherwise violating the rights of the Company in
the Intellectual Property.
(b) Schedule 3.13 also contains a list of all patents issued,
assigned to or licensed by, and trademarks
-23-
registered to, the Company and all pending applications therefor.
Except as set forth on said Schedule, the Company owns or has an
exclusive right or license to use the Scheduled IP free and clear of
all liens and encumbrances. No consent of any third party is or will
be required for the use by SETO of any of the Scheduled IP or the
transfer of the Company's rights therein to SETO. Except as set forth
on said Schedule, the Company is not obligated to pay any royalties or
fees with respect to the Scheduled IP. Said Schedule also contains a
true and complete list of all licenses of or rights to any
intellectual property rights granted by the Company to others.
(c) The Company does not have knowledge of any infringement by it
upon the patents, trademarks, trade names, service marks, trade
secrets, copyrights or other intellectual property rights of others.
The Company has not received any notice of, nor has it been a
defendant or plaintiff in any suit, action or proceeding which
involves, any claim that the Company has infringed or is infringing
any intellectual property rights of others. The Company has taken all
measures as it has deemed necessary and appropriate in the
circumstances to maintain the confidentiality of the process and
formulae, research and development results and other know-how of the
Company. The Company has obtained from its
-24-
current employees and consultants written confidentiality agreements,
copies of which are attached hereto as Exhibit 3.13(a).
(d) To the knowledge of the Company, the computer software and
hardware of the Company is free of defects in programming and
operation, which individually or in the aggregate would have a
material adverse effect with respect to the Company. Any software
products or services owned, provided or otherwise developed by the
Company, or used by the Company in the conduct of the Company's
business as presently conducted and as it is expected to be conducted
after the date of this Agreement, whether in whole or in part, by or
for the Company, which incorporate any date- related information or
otherwise process any date-related information, provide, among other
things, the following functionality: (i) accurate processing of
date-related information before, during and after January 1, 2000,
including accepting the date input, providing the date output, and
performing calculations on dates or portions of dates; (ii) accurate
functioning without interruption before, during and after January 1,
2000 without any change in operation associated with the advent of the
new century; (iii) ability to respond to two digit date input in a way
that resolves any ambiguity as to century in a disclosed, defined and
predetermined manner and (iv) the ability to store and provide output
date information in ways that are unambiguous as to century.
-25-
3.14 Labor Matters.
(a) Neither the Company nor any of the Stockholders has been advised
by, or has knowledge that, any of the Company's officers or other executive
level employees (such as managing directors) intends to leave its employ.
(b) The Company is in compliance in all material respects with all
laws (including any legal obligation to engage in affirmative action),
agreements and contracts relating to the employment of former, current, and
prospective employees and independent contractors of the Company, including
all such laws, agreements and contracts relating to wages, hours,
collective bargaining, employment discrimination, immigration, disability,
civil rights, fair labor standards, occupational safety and health,
workers' compensation, pay equity, wrongful discharge and violation of the
potential rights of such former, current, and prospective employees,
independent contractors and leased employees, and it has timely prepared
and filed all appropriate forms required by any relevant governmental
authority. The Company is not engaged in any unfair labor practice.
(c) No collective bargaining agreement with respect to the business of
the Company is currently in effect or being negotiated. The Company has no
obligation to negotiate any such collective bargaining agreement, and
neither the Company nor any of
-26-
the Stockholders has been advised that, or has any knowledge that, the
employees of the Company desire to be covered by a collective bargaining
agreement.
(d) There are no strikes, slowdowns or work stoppages pending or, to
the best knowledge of the Company and the Stockholders, threatened with
respect to the employees of the Company, nor has any such strike, slowdown
or work stoppage occurred or, to the best knowledge of the Company and the
Stockholders, been threatened since January 1, 1998. There is no
representation claim or petition pending before or any federal, state or
local labor agency, and, to the best knowledge of the Stockholders, no
question concerning representation has been raised or threatened since
January 1, 1998 respecting the employees of the Company.
(e) There are no complaints or charges against the Company pending
before any federal, state or local labor agency, and, to the best knowledge
of the Stockholders, no person has threatened since January 1, 1998 to file
any complaint or charge against the Company with any such board or agency.
(f) No charges with respect to or relating to the business of the
Company or any affiliate thereof are pending before any federal, state or
local agency responsible for the prevention of unlawful employment
practices.
-27-
(g) Since January 1, 1998, the Company has not received any notice of
the intent of any federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws to conduct an investigation of
the Company, and, to the best knowledge of the Stockholders, no such
investigation is in progress.
(h) Schedule 3.14 hereto is a schedule setting forth, the annual base
salary of each salaried employee of the Company as of June 30, 1999 and as
proposed as of January 1, 2000.
(i) Schedule 3.14 hereto contains the names of all employees or former
employees of the Company who are receiving, or who are entitled to receive
after the date hereof, continuing payments of any kind after termination of
employment together with the annual amounts payable to each of such
employees and the duration of such payments.
3.15 Insurance Coverage. Attached hereto as Schedule 3.15 is a list of
all insurance policies and fidelity bonds relating to the assets, business,
operations, employees, officers or directors of the Company. True and
complete copies of all such policies and bonds have been delivered by the
Company to SETO. There is no claim by the Company pending under any of such
policies or bonds as to which coverage has been denied by the underwriters
of such policies or bonds or in respect of which such underwriters
-28-
have reserved their rights, except as could not reasonably be expected to
have a Material Adverse Effect with respect to the Company. All premiums
payable under all such policies and bonds have been timely paid, and the
Company has otherwise complied in all material respects with the terms and
conditions of all such policies and bonds. Each insurance policy is in full
force and effect. The insurance policies provide adequate coverage for all
normal risks incident to the Company's business conducted on the date
hereof and the assets and properties of the Company.
3.16 Licenses and Permits. Schedule 3.16 lists each material license,
franchise, permit, certificate, approval or other similar authorization
issued by any Governmental Entity or Regulatory Agency to the Company and
affecting, or relating in any way to, the assets or business of the Company
(the "Permits"). Except as set forth on Schedule 3.16, (i) the Permits are
valid and in full force and effect and (ii) the Company is not in default
under, and no condition exists that with notice or lapse of time or both
would constitute a default under, the Permits, which default, individually
or in the aggregate, would have a Material Adverse Effect.
3.17 Finders and Investment Bankers. Neither the Company or any of its
officers or directors nor the Stockholders have employed any investment
banker, financial advisor, broker or finder
-29-
in connection with the transactions contemplated by this Agreement or
incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection
with the transactions contemplated hereby.
3.18 Books and Records. All constituent documents, business licenses,
minute books, stock certificate books, stock transfer ledgers and other
records of the Company (collectively, the "Records") have been maintained
in accordance with sound business practices and Legal Requirements
applicable to the Company. The Records are complete and accurate in all
material respects and contain all material matters required to be dealt
with in such Records.
3.19 Title to and Condition of Assets. Except as set forth on Schedule
3.19, the Company owns and has good and marketable title to all of its
assets (whether tangible or intangible) which are material to the conduct
of the Company's business, free and clear from all Liens other than Liens
that do not materially interfere with the present use by the Company of the
property subject thereto or affected thereby. All of the assets owned,
leased or used by the Company are in good operating condition and repair
(except for normal wear and tear), are suitable for the purposes used and
are adequate and sufficient for
-30-
all current operations of the Company, and the use thereof is in material
conformance with all applicable ordinances and regulations, and all
building, zoning and other laws.
3.20 Transactions with Certain Persons. Except as set forth on
Schedule 3.20, since January 1, 1998 the Company has not, except on an
arm's-length basis, directly or indirectly, purchased, leased or otherwise
acquired any assets or properties or obtained any services from, or sold,
leased or otherwise disposed of any assets or properties or furnished any
services to, or otherwise dealt with (except with respect to remuneration
for services rendered as a director, officer or employee of the Company),
any person which, directly or indirectly, alone or together with others,
controls, is controlled by or is under common control with the Company.
Except as set forth in Schedule 3.20 the Company does not use or lease any
property that is owned by any officer, director or affiliate of or any
relative of any thereof.
3.21 Absence of Certain Business Practices. None of the Company or any
officer, employee or agent of the Company, nor any other person acting on
its or their behalf, has, directly or indirectly, within the past three
years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a
position to help or hinder the business which (a) would subject the Company
to any
-31-
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (b) if not given in the past, would have had a material adverse
effect on the business, or (c) if not continued in the future, would result
in a material adverse effect or would subject the Company to suit or
penalty in any private or governmental litigation or proceeding, in the
case of (b) and (c), however, without taking into account ordinary and
customary activities as permitted by the relevant jurisdictions.
3.22 Real Property. The Company does not own any real property any
interest therein other as identified on Schedule 3.22. Except as identified
in Schedule 3.22, the Company owns outright, free and clear of any claim,
lien, security interest, pledge, restriction, charge or encumbrance, all
such real property estate and real estate interests and all leasehold
improvements, equipment, inventory and other personal property used in its
business or presently located in any of its premises, except for the lien,
if any, of current taxes not yet due and payable.
3.23 Real Property and Other Leases. All leases of real property and
all material leases of other property, and amendments and modifications
thereof, are in full force and effect and have not been modified or amended
in any material respect, all rents and additional rents due to date under
each such lease have been paid, the Company has been in peaceable
possession since the commencement
-32-
of the original term of such lease, and the Company does not have any
knowledge of an uncured default under such leases by it or by the lessor
under any of such leases nor of any event which with notice or lapse of
time or both would constitute a default thereunder by the Company.
3.24 Inventory. All of the inventory of the Company is carried on its
books at cost (on the basis of FIFO and average cost).
3.25 Accounts Receivable. All of the accounts receivable of the
Company arose from bona fide transactions in the ordinary course of
business, and none is subject to any defense, set-off or counterclaim.
3.26 Taxes.
(a) For the purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding on
amounts paid to or by such entity or any subsidiary thereof, payroll,
employment, excise, severance, stamp, occupation, property, environmental
or windfall profit tax, or other tax, together with any interest or any
penalty, addition to tax or additional amount imposed by any governmental
authority responsible for the imposition of any such
-33-
tax (domestic or foreign) (a "Taxing Authority"), and (ii) liability of
such entity or any subsidiary thereof for the payment of any amounts of the
type described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any taxable period, and (iii)
liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in clauses (i) or (ii) as a result of any
express or implied obligation to indemnify any other person.
(b) Except as set forth in Schedule 3.26:
(i) all Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any
Taxable period ending on or before the Closing Date by or on behalf of
the Company (the "Company Tax Returns"), have been or will be filed
when due (subject to any extensions of such due date) and each Tax
Return is materially correct and complete as filed;
(ii) the Company has timely paid, withheld or made provision on
its books for all Taxes shown as due and payable on the Company Tax
Returns that have been filed;
(iii) no Company's Tax Returns relating to income or franchise
Taxes filed with respect any Taxable years
-34-
of the Company has been examined by appropriate income tax
authorities;
(iv) the Company has not granted any extension or waiver of the
limitation period applicable to any the Company Tax Returns;
(v) there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened in a writing received by the
Company against or with respect to the Company in respect of any Tax
or assessment;
(vi) there are no requests for rulings in respect of any Tax
pending between the Company and any Taxing Authority;
(vii) there are no liens for Taxes upon the assets of the Company
except liens for current Taxes not yet due;
(viii) the Company will not be required to include any adjustment
in Taxable income for any Tax period (or portion thereof) ending after
the Closing Date as a result of a change in method of accounting for
any Tax period (or portion thereof) ending on or before the Closing
Date or pursuant to the provisions of any agreement entered into with
any Taxing Authority with regard to the Tax liability of the
-35-
Company for any Tax period (or portion thereof) ending on or before
the Closing Date;
(ix) the Company has not been a member of an affiliated group
other than one of which the Company was the common parent, or filed or
been included in a combined, consolidated or unitary Tax return other
than one filed by The Company, or a return for a group consisting
solely of its predecessors, or participated in any other similar
arrangement whereby any income, revenues, receipts, gains, losses,
deductions, credits or other Tax items of the Company was determined
or taken into account for Tax purposes with reference to or in
conjunction with any such items of another person other than the
Company or any such predecessor;
(x) the Company is not currently under any contractual obligation
to pay to a Taxing Authority the income or franchise tax obligations
of, or with respect to transactions relating to, any other person or
to indemnify any other person with respect to any income or franchise
tax; and
(xi) the Company has not signed any letter or entered into any
agreement or arrangement in writing consenting to the surrender or
sharing of any deductions, credits or other Tax attributes with any
other person or
-36-
transferred or assigned to any other person for Tax purposes any such
items.
3.27 Principal Customers and Suppliers.
(a) Schedule 3.27 contains a true and complete list of the top 10
purchasers (by dollar volume) of the Company's products during the 12
months ended December 31, 1998 and the nine months ended September 30, 1999
and the aggregate dollar amount of their purchases thereof during such
periods. Since January 1, 1999 no such purchaser has terminated its
relationship with the Company or notified the Company in writing of its
intention (for any reason) to terminate its relationship or reduce its
purchases of Products by more than 50%.
(b) Schedule 3.27 contains a true and complete list of the Company's
top 10 suppliers (by dollar volume) during the 12 months ended December 31,
1998 and the nine months ended September 30, 1999 and the aggregate dollar
amount of purchases from such suppliers during such periods. Since January
1, 1999 no such supplier has terminated its relationship with the Company
or notified the Company in writing of its intention (for any reason) to
terminate such relationship or reduce its sales to the Company from the
level during the six months ended December 30, 1998.
-37-
3.28 Product Returns. Schedule 3.28 hereto contains a true and
complete description of the product return experience of the Company for
the two years ended June 30, 1999.
3.29 Product Liability. Schedule 3.29 hereto contains a true and
complete description of the Company's product liability experience with
respect to its business since January 1, 1997.
3.30 Questionable Payments. Neither the Company nor any active
employee acting on The Company's behalf has used any corporate funds for:
(i) illegal contributions, entertainment or gifts for purposes of
influencing the activities or decision making of a political official; or
(ii) illegal payments, bribes or kickbacks to any United States government
official or employee or foreign government official or employee or other
third party. Neither the Company nor any director, officer or other
employee of the Company has: (i) made any payments or provided services or
other favors in the United States of America or in any other country in
order to obtain preferential treatment or consideration by any governmental
entity with respect to any aspect of the business of the Company; or (ii)
made any political contributions which would not be lawful under the laws
of the United States and the foreign country in which such payments were
made. Neither the Company nor any director, officer or other employee of
the Company or any customer or supplier of the Company has been the subject
of
-38-
any inquiry or investigation by any governmental entity in connection with
payments or benefits or other favors to or for the benefit of any
governmental or armed services official, agent, representative or employee
with respect to any aspect of the business of the Company or with respect
to any political contribution.
3.31 Disclosure. The representations and warranties by the Company and
the Executives contained in this Agreement and in any document, instrument
or certificate furnished or to be furnished by him in connection herewith
or pursuant hereto do not contain any untrue statement of a material fact,
or do not omit to state any material fact required to be stated therein in
order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 3.31 or elsewhere
in this Agreement or in any document or certificate furnished or to be
furnished as aforesaid in connection herewith or pursuant hereto shall not
be affected or deemed waived by reason of the fact that SETO and/or its
representatives know or should have known that any such representation or
warranty is or might be inaccurate in any respect.
-39-
Section 4. Representations and Warranties of SETO. SETO represents and
warrants to the Company and the Stockholders as follows:
4.1 Organization. SETO is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is
duly authorized to carry on its business where and as now conducted and to
own, lease and operate properties as it now does.
4.2 Corporate Authority, Etc.
(a) SETO has full power and authority to enter into this Agreement and
to perform this Agreement in accordance with its terms; the execution,
delivery and performance of this Agreement by SETO and the consummation of
the Acquisition have been duly authorized by its Board of Directors and
SETO is not bound by any contractual or other obligation that would be
violated by the execution or performance of this Agreement; and this
Agreement is a valid and binding obligation of SETO enforceable in
accordance with its terms; and
(b) Neither the execution and delivery of this Agreement nor the
consummation by SETO of any of the transactions contemplated herein nor
compliance by SETO with the terms, conditions and provisions hereof or of
any agreement or instrument contemplated hereby will (i) conflict with,
result in a breach of,
-40-
or constitute an event of default under the certificate of incorporation or
by-laws of SETO, or any material instrument, agreement, lease, license,
franchise, permit, judgment, order, award, decree or other authorization,
right, or obligation to which SETO is a party or any of its properties is
subject or by which they are bound, or any statute, ordinance, rule or
regulation applicable to SETO, or (ii) require the approval, consent or
authorization of, or the making of any declaration, filing or registration
with, any third party or any foreign, federal, state or local court,
governmental authority or regulatory body.
4.3 Governmental Consents and Approvals. The execution, delivery and
performance by SETO of this Agreement and the consummation of the
Acquisition by SETO requires no action by or in respect of, or filing with,
any United States, state or local governmental body, agency, official or
authority.
4.4 Capitalization. SETO's authorized capitalization is 100,000,000
shares of capital stock, all of which is common stock, of which 10,949,100
shares are issued and outstanding. All the outstanding shares of SETO were
duly authorized for issuance and are validly issued, fully-paid and
non-assessable. There are no outstanding options, warrants, calls,
commitments or rights of any kind relating to the issued or unissued
capital stock or other
-41-
securities or equity interests of SETO, except for issued stock options for
6,310,000 shares.
4.5 Litigation. There is no litigation, proceeding or governmental
investigation pending or, so far as is known to SETO, threatened, or any
order, injunction or decree outstanding, against or relating to SETO or any
of its properties or businesses.
4.6 Finders' Fee. SETO has employed or utilized the services of a
finder or other intermediary in connection with this Agreement or the
transactions contemplated by this Agreement, which constitutes a finders
fee of 250,000 shares of SETO restricted 144 shares.
4.7 Absence of Undisclosed Liabilities. Except to the extent fully
reflected or reserved against in its July 31, 1999 balance sheet, SETO has
no liabilities of any nature, whether accrued, absolute, contingent or
otherwise, including, but not limited to, any tax or other liabilities of
any nature that were unknown or undetermined as of that date but that, if
then known or determined, would have been required to be reflected in a
balance sheet prepared in accordance with generally accepted accounting
principles applied on a consistent basis. There is no basis for the
assertion against SETO of any liability of any nature (and in any amount)
not fully reflected or reserved against in its July 31,
-42-
1999 balance sheet or not incurred in the ordinary course of business
thereafter.
Section 5. Covenants of the Parties.
5.1 Preserve Accuracy of Representations; Other Action. Each party
will use its best efforts to cause the satisfaction of the conditions to
the obligations of the parties set forth in Section 8 and to prevent the
taking of any action that would result in any of the representations and
warranties of such party not being true in and as of the Closing Date.
5.2 Exhibits. Any information furnished in an exhibit to this
Agreement shall be deemed to be furnished under any other exhibit which
calls for the furnishing of the same information whether or not that
information is separately stated in such other schedule.
5.3 Further Action. Each party to this Agreement shall take all such
further action, and execute and deliver such further documents, as may be
necessary to carry out the transactions contemplated by this Agreement.
5.4 Expenses. Each party shall bear its own expenses incurred in
connection with the negotiation, preparation and closing of this Agreement
and in connection with all duties and obligations required to be performed
by it under this Agreement.
-43-
5.5 Public Announcements. SETO and the Executives will use their best
efforts to mutually agree on any press release or other public announcement
with respect to this Agreement and the transactions contemplated hereby. No
public announcement about this Agreement shall be made by either party,
except as otherwise required by law, without the prior written approval of
the other party, which approval shall not be withheld unreasonably.
5.6 Consents and Approvals. The parties shall cooperate in using their
best efforts to obtain as promptly as practicable all approvals, consents
and authorizations, governmental, regulatory or otherwise, which may be
required in connection with the consummation of the Acquisition.
Section 6. Covenants of the Company.
6.1 Access to Information. From the date hereof until the Closing
Date, the Company shall permit SETO and its representatives to make such
investigation of the assets and the businesses of the Company as the
Company may desire, and the Company further agrees to give to SETO and its
legal counsel, accountants and other representatives, upon reasonable
notice, during normal business hours, full access throughout the period to
the Closing Date to all of its offices, properties, assets, books,
agreements, commitments, records and files. The Company further agrees to
furnish to SETO, upon request, during that period, such
-44-
financial and operating data and all other scientific and technical
information as SETO may reasonably request, and to instruct the Company's
employees, counsel and financial advisors to cooperate with SETO in its
investigation of the business of the Company. The Company shall also keep
SETO apprised of any material developments affecting its Intellectual
Property.
From the date hereof until the Closing Date, reasonably promptly
following the end of each month, the Company will deliver to SETO a copy of
the management reporting package prepared by the Company for such month in
the ordinary course of its business for internal distribution.
6.2 Conduct of the Company Pending the Closing. From the date hereof
until the Closing Date, the Company shall in all material respects operate
only in the ordinary course of business. Without limiting the generality of
the foregoing, until the Closing Date the Company:
(a) not pay, discharge, satisfy or accrue any liability for any
claims, liabilities or obligations (whether absolute, accrued,
contingent or otherwise) other than the payment, discharge or
satisfaction of liabilities incurred in the normal course of business;
(b) not make loans or advances or incur any indebtedness for
borrowed money or guarantee or otherwise become
-45-
responsible for any such indebtedness, or issue or sell any debt
securities or guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of others;
(c) not take any action that would result in any of the
representations or warranties of the Executives set forth in this
Agreement becoming untrue or in any of the conditions to the closing
set forth in Section 7.1 hereof not being satisfied;
(d) promptly notify SETO in writing of, and furnish any
information which SETO may request with respect to, the occurrence of
any event or the existence of any state of facts that would result in
any of the Company or the Executives' representations and warranties
not being true as of the Closing Date, including, but not limited to,
any material litigation, proceeding or governmental investigation
threatened or asserted by or against the Company, any material adverse
change in the condition (financial or otherwise), assets, liabilities
or business of the Company or any other occurrence of any kind which
materially and adversely affects the assets, business or prospects of
the Company;
(e) except as required by existing employment agreements, not (i)
grant or agree to grant any general increase in the rates of salaries
or compensation of its employees, or any specific increase to any
employee whose total salary or
-46-
compensation after the increase would be at any annual rate in excess
of $50,000, or increase the pension, retirement or other employment
benefits of its employees, (ii) enter into any written contract,
agreement or plan covering any director, officer, consultant or
employee that provides for the making of payments, the reduction of
any exercise price or the acceleration of vesting of any benefit or
right or any other entitlement contingent upon (1) the Acquisition or
(2) the termination of employment after the Acquisition if such
payment, acceleration or entitlement would not have been provided but
for the Acquisition, (iii) adopt or amend any conditions under any
stock option plan, (iv) enter into or amend any employment, severance
or other similar arrangements or agreements or special pay
arrangements with respect to termination of employment with any of its
directors, officers, consultants or employees, or (v) make any offer
of employment to any person or offer any employee or former employee
engagement for consulting services;
(f) not issue or commit itself to issue any shares of its capital
stock or other securities or options or warrants with respect thereto;
(g) not declare, set aside or pay any dividends or other
distribution in respect of its capital stock; redeem, purchase or
otherwise acquire any of such stock; or make any direct
-47-
or indirect payment of any kind to any of its stockholders, to any
corporation controlled by any of its stockholders, or to any relative
of any of its stockholders, except compensation for services rendered
in each case consistent with past practice;
(h) not amend its certificate of incorporation or by-laws or
change any of its banking arrangements, or amend any lease, agreement
or commitment set forth in any exhibit hereto;
(i) not acquire or agree to acquire by merging or consolidating
with or by purchasing any material portion of the capital stock or
assets of any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire
or agree to acquire any assets which are material, individually or in
the aggregate, to the business condition of the Company taken as a
whole;
(j) not waive any of its rights or claims having value, except
rights or claims that individually or in the aggregate are not
material in amount and are waived in the ordinary course of business;
(k) not enter into any lease, agreement or commitment which, if
entered into prior to the date of this Agreement, would have been
required to be included in any exhibit hereto, except with SETO's
prior written approval;
-48-
(l) not settle or compromise, or agree to settle or compromise,
any suit or other litigation matter or any matter in an arbitration
proceeding;
(m) not commence a lawsuit other than for the routine collection
or amounts due and owing;
(n) not change the accounting methods or practices followed by
the Company, make any material tax election, file any material
($10,000) tax agreement, or settle any material tax claim or
assessment;
(o) not (a) expend cash in excess of $25,000 in any single
transaction or series of related transactions, except in the ordinary
course of business, (b) purchase any item of capital equipment costing
in excess or $25,000 or (c) enter into any capital commitment or
long-term obligation equal to or in excess of $25,000;
(p) maintain and preserve its business organizations intact,
retain its present employees so that they will be available to SETO
after the Acquisition, and maintain its relationships with suppliers,
customers and others so that they will be preserved after the
Acquisition;
(q) keep in full force and effect all of its existing liability
insurance, and will not modify or reduce the coverages thereunder;
-49-
(r) duly comply with (A) all laws, ordinances, orders,
injunctions and decrees applicable to the Company and to the conduct
of its business, and (B) all material agreements and obligations by
which it, its properties or its assets may be bound;
(s) not amend, willfully violate or terminate any material
agreements, including, without limitation, any agreements pursuant to
which it has been granted a license or exclusive rights in a
geographical area or field of use;
(t) not amend or abandon, or allow to become amended or
abandoned, any pending application for a patent, or fail to maintain
any existing patent owned or licensed to it; and
(u) maintain all of its machinery and equipment in customary
repair, maintenance and condition, except to the extent of normal wear
and tear.
6.3 Other Offers. The Company agrees that it has terminated any
existing negotiations contemplating the sale, merger, or acquisition of the
Company or its business, or the possible acquisition of a material portion
of its assets or the issue or sale of authorized capital stock or other
securities of the Company which would directly or indirectly constitute a
change in control of the Company (a "Sale of the Company") and (b) from the
date hereof until the Closing Date or the earlier termination of this
Agreement, (i) to refrain, directly and indirectly, from
-50-
soliciting or initiating discussions with any person or entity other than
SETO relating to any offers, negotiations, understandings, letters of
intent, commitments or agreements, written or oral, contemplating the Sale
of the Company, (ii) to conduct its business only in the ordinary course
consistent with its current business strategy, except that the Company will
not sell, assign, license or otherwise diminish or dispose of any of its
material assets or properties except after consultation with SETO, and
(iii) not to participate, directly or indirectly, in any negotiations
regarding, or furnish to any other person information with respect to, any
effort or attempt by any other person to do or seek a Sale of the Company.
The Company shall inform SETO within one business day of its receipt of any
offer, proposal or inquiry relating to any Sale of the Company.
6.4 Notices of Certain Events. The Company shall, upon obtaining
knowledge of any of the following, promptly notify SETO of and, if same be
in writing, promptly deliver to SETO copies of: (i) any notice or
communication from any person alleging that the consent of such person is
or may be required in connection with the transactions contemplated herein;
(ii) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated
herein; (iii) any actions, suits, claims, investigations or other judicial
-51-
proceedings commenced or threatened against the Company; and (iv) any
adverse determination or recommendation in connection with any governmental
proceeding regarding any of the Company's products.
6.5 FIRPTA. The Company shall deliver to the Internal Revenue Service
a properly executed notice in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2) which states that shares of capital stock
of the Company do not constitute "United States real property interests"
under Section 897(e) of the Code. The Company shall provide a copy of such
statement to SETO for purposes of satisfying SETO's obligations under
Treasury Regulation Section 1.1445-2(c)(3) within the 30 day period
immediately preceding the Closing Date.
6.6 Consents. The Company shall use its best efforts to cause obtain
at the earliest practicable date, by instruments in form and substance
satisfactory to SETO and without any conditions materially adverse to the
Company or to SETO, all consents and approvals referred to in Schedule 3.6.
SETO shall cooperate to the extent reasonably required in order to obtain
such consents, but SETO shall not be obligated to agree to any change in
any lease or agreement or to agree to make any payment or furnish any
guaranty in connection with any such consents.
6.7 Maintenance of Business. The Company will use its best efforts to
carry on its business and preserve its
-52-
relationships with those customers, suppliers, licensees, licensors and
commercial partners that are material to its business in substantially the
same manner as it has prior to the date hereof. Should the Company become
aware of a material deterioration in any such relationship, it will
promptly bring such information to the attention of SETO in writing.
Section 7. Covenants of SETO.
7.1 Notices of Certain Events. SETO shall, upon obtaining knowledge of
any of the following, promptly notify the Company of and, if same be in
writing, promptly deliver to the Company copies of: (i) any notice or
communication from any person alleging that the consent of such person is
or may be required in connection with the transactions contemplated herein;
and (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated herein.
Section 8. Conditions to the Acquisition.
8.1 Conditions Precedent to Obligations of SETO. The obligation of
SETO to consummate the Acquisition is subject to the fulfillment, prior to
or at the Closing, of each of the following conditions (any or all of which
may be waived by SETO):
(a) All representations and warranties of the Company,
Stockholders and the Executives shall be true and accurate
-53-
at and as of the time of the Closing with the same effect as though
made again at and as of that time;
(b) The Company, the Stockholders and the Executives shall have
performed and complied with all obligations and covenants required by
this Agreement to be performed or complied with by it or them prior to
or at the Closing;
(c) The Company shall have been furnished with a certificate
(dated the date of the Closing and in form and substance reasonably
satisfactory to the Company) executed by the chief executive officer
and chief financial officer of the Company and by each Stockholder and
Executive certifying to the fulfillment of the conditions specified in
Sections 8.1(a) and 8.1(b);
(d) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation
of the Acquisition shall have been issued and remain in effect (each
party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government
or governmental agency in the United States or China which would
prevent the consummation of the Acquisition;
(f) Since the date hereof, (a) there shall have been no changes
that constitute, and (b) no event or events shall
-54-
have occurred which have resulted in or constitute, a material adverse
change in the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the
Company;
(g) All and other governmental consents, orders and approvals
legally required for the consummation of the Acquisition and the
transactions contemplated hereby shall have been obtained and be in
effect at the date of the Closing; SETO shall have received duly
executed copies of all of the instruments evidencing those consents,
orders and approvals; no such consent, order or approval shall have
any terms which in the reasonable judgment of SETO, when taken
together with the terms of all such consents, orders or approvals,
would materially impair the value to SETO of the Acquisition; and no
governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations,
would materially impair the value to SETO of the Acquisition;
(h) each of the Company's directors, officers and its ten largest
stockholders (determined as of the date hereof and as of the Closing
Date) shall have entered into an agreement with SETO not to compete
with SETO or the Company for a period of three years from the Closing
Date.
-55-
8.2 Conditions Precedent to Obligations of the Company. The obligation
of the Company and the Stockholders to consummate the Acquisition is
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions (any or all of which may be waived by the Company) and
the Stockholders:
(a) All representations and warranties of SETO shall be true at
and as of the time of the Closing with the same effect as though made
again at and as of that time;
(b) SETO shall have performed and complied with all obligations
and covenants required by this Agreement to be performed or complied
with by it prior to or at the Closing; and
(c) The Company shall have been furnished with a certificate
(dated the date of the Closing and in form and substance reasonably
satisfactory to the Company) executed by the chief executive officer
and chief financial officer of SETO certifying to the fulfillment of
the conditions specified in Sections 8.2(a) and 8.2(b).
Section 9. Closing.
9.1 Time and Place of Closing. The parties shall deliver the documents
referred to in Sections 9.2 and 9.3 at a closing to be held at the offices
of Messrs. Hofheimer Gartlir & Gross, LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 on April 17, 2000 (or such other place and time as the parties
shall agree).
-56-
9.2 Documents To Be Delivered by the Company and the Stockholders. At
the Closing, the Company shall deliver to SETO the following:
(a) Copies of resolutions of its board of directors authorizing
its execution, delivery and performance of this Agreement and its
consummation of the Acquisition, and a certificate of its secretary,
dated the date of the closing, that such resolutions were duly adopted
and are in full force and effect;
(b) The certificates referred to in Section 8.1(c);
(c) An opinion of counsel in form and substance satisfactory to
SETO's counsel;
(d) The non-compete agreements described in Section 8.1(k).
(e) Stock certificates from each Stockholder representing all of
his ownership of shares of the Company, endorsed to SETO or
accompanied by a signed stock power transferring to SETO all of such
shares, together with all applicable stock transfer stamps relative to
said certificates;
9.3 Documents To Be Delivered by SETO. At the Closing, SETO shall
deliver to the Stockholders the following:
(a) copies of resolutions of its Board of Directors authorizing
its execution, delivery and performance of this
-57-
Agreement and its consummation of the Acquisition and certificates of
its secretary of SETO, dated the date of the Closing, that such
resolutions were duly adopted and are in full force and effect; and
(b) the certificate referred to in Section 8.2(c);
(c) the SETO Shares representing the Purchase Price designated
for such Stockholder in Section 1.2.
Section 10. Survival of Representations and Indemnity.
10.1 Survival. The representations, warranties, covenants and
agreements of the parties shall survive the Closing Date for two years.
Section 11. Termination.
11.1 Grounds for Termination. This Agreement may be terminated by
written notice to the other parties, by any party (i) if at any time prior
to the date of the Closing any event shall have occurred or any state of
facts shall exist that renders any of the conditions to its obligations as
provided in this Agreement incapable of fulfillment, or (ii) if on the date
on which the Closing would otherwise have been held, any condition to its
obligations has not been fulfilled, or (iii) if for any reason other than
its own wilful default, the Acquisition has not been consummated on or
before April 17, 2000.
11.2 Continuing Liability. The termination of this Agreement pursuant
to Section 11.1 shall not relieve the Company or
-58-
SETO or any Stockholder or Executives, from any liability for breach of
this Agreement prior to the date of termination.
Section 12. Indemnification.
12.1 The Company, the Executives and the Stockholders on the one hand,
and SETO on the other, do hereby agree to indemnify, defend and hold
harmless each other from and against any and all claims, demands, damages,
losses, injuries, liabilities, penalties, costs, expenses (including
without limitation reasonable attorneys' fees), suits, actions,
investigations, judgments and fees which may be imposed upon, incurred or
suffered by or asserted against it arising out of or in connection with any
one or more of the following:
(a) Any failure to perform or comply with any agreements,
obligations or undertakings to be performed pursuant to this
Agreement; and
(b) Any breach of any of their respective presentation, warranty,
covenant or agreement made in this Agreement, or in respect of the
facts associated therewith.
(c) Notwithstanding subparagraph (a) of this Section 12.1, no
indemnifying party shall have liability under this Section 12.1 with
respect to any single or aggregate claim for less than US $50,000.
(d) A party seeking indemnification shall notify the indemnifying
parties within a reasonable time in writing of any
-59-
action, claim or liability in respect of which it intends to claim
such indemnification, provided that the failure to give timely notice
shall not release any of the indemnifying parties from any liability
to the extent the indemnifying parties are not prejudiced thereby. The
indemnifying parties shall have the right, by prompt notice to the
party seeking indemnification to assume the defense of such claim with
counsel reasonably satisfactory to the party seeking indemnification,
and at the sole cost of the indemnifying parties. If the indemnifying
parties do not so assume the defense of such claim, the party seeking
indemnification may assume such defense with counsel of its choice and
at the sole cost of the indemnifying parties. If the indemnifying
parties so assume such defense, the party seeking indemnification may
participate therein through counsel of its choice, but at its sole
cost. The party not assuming the defense of any such claim shall
render all reasonable assistance to the party assuming such defense,
and all out-of- pocket costs of such assistance shall be for the
account of the Indemnifying Parties. No such claim shall be settled
other than by the party defending the same, and then only with the
consent of the other party, which shall not be unreasonably withheld;
provided that the party seeking indemnification shall have no
obligation to consent to any settlement of any such claim which
imposes on SETO any liability or obligation which cannot be assumed
and performed in full by the Indemnifying Parties.
-60-
Section 13. Miscellaneous.
13.1 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instructions, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the
transactions described herein and contemplated hereby and to carry into
effect the intents and purposes of this Agreement.
13.2 Schedules. Any information furnished in a schedule to this
Agreement shall be deemed to be furnished under any other schedule which
calls for the furnishing of the same information whether or not that
information is separately stated in such other schedule.
13.3 Expenses. Each party shall bear its own expenses incurred in
connection with the negotiation and preparation of this Agreement and in
connection with all duties and obligations required to be performed by it
under this Agreement.
13.4 Public Announcements. No public announcement about the
Acquisition shall be made by any party hereto without the prior written
approval of the other parties, which approval shall not be withheld
unreasonably, subject to SETO's obligation to comply with federal
securities laws.
-61-
13.5 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed given when
delivered personally or by reputable overnight courier or mailed by
registered or certified mail, return receipt requested, to the parties at
the following addresses (or to such other address as a party may have
specified by notice to the other parties pursuant to this provision):
(a) if to the Company or any Executive or Stockholder, at:
Fimas Electronics Sdn. Bhd.
Lot 8A9, Lorong Perusahaan 0x
Xxxxxxx XXXX Xxxxx
00000 Xxxxx, Xxxxx, Xxxxxxxx
ATT: Xxx Xx Huat, Charirman
(b) if to SETO Holdings, Inc., at
000 Xxxxx Xxxxx Xxxx
Xxxxxxxxxx Xxxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxx, Chairman
With a copy to:
Hofheimer Gartlir & Gross, LLP
000 Xxxxx Xxxxxx - 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
13.8 No Assignment. This Agreement is personal to each of the parties
and may not be assigned without the written consent of the other parties.
13.9 Entire Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of
-62-
Nevada, exclusive of its choice-of-law principles. Each party hereby
irrevocably submits to the jurisdiction of any state or Federal court
sitting in Wake County, North Carolina in any action or proceeding arising
out of or relating to this Agreement, and each party hereby irrevocably
waives the defenses of improper venue or an inconvenient forum for the
maintenance of any such action or proceeding to the fullest extent
permitted by law.
13.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada, exclusive of its
choice-of-law principles. Each party hereby irrevocably submits to the
jurisdiction of any state or Federal court sitting in New York County, New
York in any action or proceeding arising out of or relating to this
Agreement, and each party hereby irrevocably waives the defenses of
improper venue or an inconvenient forum for the maintenance of any such
action or proceeding to the fullest extent permitted by law.
13.11 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
-63-
13.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
13.13 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, and nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
13.14 Choice of Language. The parties declare that at their request,
the present Agreement, along with all notices, schedules, exhibits, etc.
has been drawn up in the English language and henceforth, all
communications between them, including without limitation those intended to
have any legal effect, are to be in the English language.
13.15 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is
-64-
so broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable.
-65-
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
SETO HOLDINGS, INC.
By: /S/ Xxxxxx X. Xxxx
----------------------------------
Name: Xxxxxx X. Xxxx
Title: Chairman
FIMAS SDN BHD
FIMAS ELECTRONICS SDN BHD
By: /s/ Xxx Xx Huat
----------------------------------
Name: Xxx Xx Huat
Title: Chairman
STOCKHOLDERS:
By: /s/ Xxx Xx Huat
----------------------------------
Name: Xxx Xx Huat
/s/ Yap Hun Kok
----------------------------------
Name: Yap Hun Kok
/s/ Voon Xxx Xxxx
----------------------------------
Name: Voon Xxx Xxxx
/s/ Voon Su Piang
----------------------------------
Name: Voon Su Piang
/s/ Xxxx Xxxx Ing
----------------------------------
Name: Xxxx Xxxx Ing
/s/ Tiew Cheow Nan
----------------------------------
Name: Tiew Cheow Nan
-66-
