SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
January 2, 2007
GALES INDUSTRIES INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Delaware 000-29245 20-4458244
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State of Commission IRS Employer
Incorporation File Number I.D. Number
1479 North Clinton Avenue, Bay Shore, NY 11706
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Address of principal executive offices
Registrant's telephone number: (631) 968-5000
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
On January 2, 2007, Gales Industries Incorporated (the "Company") entered into a
Stock Purchase Agreement (the "Purchase Agreement") with Sigma Metals, Inc., a
New York corporation ("Sigma Metals"), and George Elkins, Carole Tate and Joseph
Coonan, the shareholders of Sigma Metals (the "Shareholders"). Pursuant to the
Purchase Agreement, on the Closing Date, subject to the satisfaction of various
terms and conditions, the Company will acquire from the Shareholders all of the
issued and outstanding capital stock of Sigma Metals.
The closing of the Purchase Agreement (the "Closing") is scheduled to occur in
April 2007 or on such other date as the Company and the Shareholders may agree
(the "Closing Date"). The purchase price for all of the shares is $5,008,204
plus an amount equal to Sigma Metals' earnings for the period from January 1,
2006, until the Closing Date, subject to certain adjustments as set forth in the
Purchase Agreement. The purchase price is payable in a combination of cash,
promissory notes (the "Notes") and shares of the Company's common stock (the
"Purchase Price Shares").
The Notes shall have a term of three years commencing on the Closing Date,
accrue interest at a rate of seven percent (7%) per annum and contain other
customary terms and conditions. The amount of Purchase Price Shares to be issued
to the Shareholders is equal to $1,900,000 divided by 90% of the average closing
price of the Company's common Stock during the 20 trading days immediately
preceding the Closing Date; provided, however, that such price shall be in no
event less than $0.22 nor greater than $1.00.
Concurrent with the Closing, the Company will enter into employment agreements
with each of the Shareholders. The Employment Agreements provide for annual base
salaries aggregating initially to $600,000, together with certain bonuses based
upon performance and customary increases. The employment agreements will contain
customary terms and provisions relating to severance, benefits and vacation.
Each of the employments will have an initial term of five (5) years, except that
the employment agreement for Mr. George Elkins shall be for an initial term of
two (2) years.
The foregoing summary is subject to, and qualified in its entirety by, the terms
of the Stock Purchase Agreement, attached hereto as Exhibit 10.1. The terms of
the Stock Purchase Agreement are incorporated herein by reference. A copy of the
press release announcing the execution of the Stock Purchase Agreement is
attached as Exhibit 99.1.
EXHIBITS
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10.1 Stock Purchase Agreement, dated January 2, 2007, between Gales
Industries Incorporated, Sigma Metals, Inc. ("Sigma Metals"), and
George Elkins, Carole Tate and Joseph Coonan, the Shareholders of
Sigma Metals.
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99.1 Press Release, dated January 2, 2007, of Gales Industries
Incorporated announcing the execution of the Stock Purchase
Agreement.
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2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Current Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 2, 2007
GALES INDUSTRIES INCORPORATED
By: /s/ Michael A. Gales
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Michael A. Gales, Executive Chairman
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EXHIBIT INDEX
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10.1 Stock Purchase Agreement, dated January 2, 2007, between Gales
Industries Incorporated, Sigma Metals, Inc. ("Sigma Metals"), and
George Elkins, Carole Tate and Joseph Coonan, the Shareholders of
Sigma Metals.
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99.1 Press Release, dated January 2, 2007, of Gales Industries
Incorporated announcing the execution of the Stock Purchase
Agreement.
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4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of January 2,
2007 (the "Agreement") by and among GALES INDUSTRIES INCORPORATED, a Delaware
corporation (the "Buyer"), SIGMA METALS, INC., a New York corporation (the
"Company"), and GEORGE ELKINS, CAROLE TATE and JOSEPH COONAN, the Shareholders
of the Company (each, a "Shareholder", and collectively, the "Shareholders" and
"Seller").
RECITALS
WHEREAS, the Shareholders are the record and beneficial owners of One
Hundred (100) shares of common stock, no par value, of the Company (the
"Shares"), which constitute one hundred percent (100%) of the issued and
outstanding capital stock of the Company; and
WHEREAS, the Buyer desires to purchase from the Shareholders, and the
Shareholders desire to sell to the Buyer, the Shares on the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, on the basis of and
in reliance on their respective representations, warranties, covenants,
obligations, indemnities and agreement set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used herein the following terms shall have the following meanings and
shall include in the singular number the plural and in the plural number the
singular unless the context otherwise requires (capitalized terms not defined in
this Article 1 shall have the meanings ascribed to such terms elsewhere in this
Agreement):
"Affiliate" means, as to a Person, any other Person that, directly or
indirectly, through one or more intermediaries controls, is controlled by or is
under common control with the first-mentioned Person.
"Affiliated Group" with respect to any Person, means any other Person in
which such Person has, directly or indirectly or through one or more
intermediaries, an ownership interest or the right to counsel the business
affairs or operations of that Person by contract, agreement or otherwise.
"Assets" means all of the assets of the Company including, without
limitation, the following:
(a) the Business of the Company as a going concern, and the goodwill
pertaining thereto;
(b) all items of inventory owned by the Company including, without
limitation, all raw materials, work-in-progress and finished products of the
Company;
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(c) all vehicles, machinery, equipment, furniture, fixtures and supplies
of the Company, including containers, packaging and shipping material, tools and
spare parts and other similar tangible personal property owned or used by the
Company in the conduct of the Business;
(d) all of the Company's right, title and interest in and to the United
States and foreign rights with respect to copyrights, licenses, patents,
trademarks, trademark rights, trade names, service marks, service right marks,
trade secrets, shop rights, know-how, technical information, techniques,
discoveries, designs, proprietary rights and non-public information and
registrations, reissues and extensions thereof and applications and licenses
therefore, owned or used, or proposed to be used, in the Business (all of such
rights being collectively referred to hereinafter as the "Rights")
(e) all books and records of the Company (including corporate and tax
records) including all in-house mailing lists, other customer and supplier
lists, trade correspondence, production and purchase records, promotional
literature, data storage tapes and computer disks, computer software, order
forms, accounts payable records (including invoices, correspondence and all
related documents), accounts receivable ledgers, all documents relating to
uncollected invoices, and all shipping records;
(f) all contracts, agreements and purchase and sale orders for goods; all
corporate opportunities under discussion and related to the Business, including
any documentation related thereto;
(g) all trade receivables of the Company and all advance payments, prepaid
items, rights to offset and credits of all kinds of the Company;
(h) all tangible personal property owned by the Company which is not
specifically included in, or specifically excluded by, the foregoing subsections
(a) through (g);
(i) all rights under or pursuant to all warranties, representations and
guarantees made by suppliers in connection with the Assets, all claims, causes
of action, rights of recovery and rights of set-off of any kind against any
person or entity relating to the Assets or the Business; and
(j) any and all other assets of the Company including those reflected as
such in the Financial Statements, with such additions thereto and deletions
therefrom as have occurred or shall occur in the ordinary course of business
between the Cutoff Date and the Closing.
"Business" means the business currently being conducted by the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" shall mean any agreement, contract, obligation, promise,
undertaking, indenture, mortgage, policy, arrangement, or instrument, including
any amendment thereto, fixed or contingent, written or oral, expressed or
implied.
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"Credit Documents" means the Credit Agreement, dated May 16, 2006 by and
between the Company and State Bank of Long Island, and related documents.
"Environmental Damages" means all claims, judgments, damages (other than
special or consequential damages), losses, penalties, fines, liabilities,
encumbrances, liens, costs and expenses of defense of a claim, and costs and
expenses of reporting, investigating, removing and/or remediating Hazardous
Materials, of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, including reasonable attorneys' fees
and disbursements and consultants' fees, any of which are incurred at any time
arising out of, based on or resulting from: (i) the presence or release of
Hazardous Materials in or into the environment, on or prior to the Closing Date,
in violation of applicable Environmental Laws upon, beneath or from any real
property or other location (whether or not owned by the Company) where the
Company conducted operations or generated, stored, sent, transported or disposed
of Hazardous Materials; or (ii) any violation of Environmental Laws by the
Company on or prior to the Closing Date. Environmental Damages attributable to
any individual shall include only that portion of any punitive damages assessed
against the Company as direct result of actions taken by or omissions of that
individual.
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws, codes, regulations, ordinances, rules, judgments,
injunctions, orders, decrees, permits, franchises or licenses relating to
pollution, hazardous substances, hazardous wastes, petroleum or otherwise
relating to protection of the environment, natural resources or human health,
including but not limited to: the Clean Air Act; Clean Water Act; Resource
Conservation and Recovery Act ("RCRA"); Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"); Emergency Planning and Community
Right-to-Know Act; Federal Insecticide, Fungicide and Rodenticide Act; Safe
Drinking Water Act; Toxic Substances Control Act; Hazardous Materials
Transportation Act; Occupational Safety and Health Act; and Endangered Species
Act of 1973, each as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means U.S. generally accepted accounting principles.
"Hazardous Materials" means any substance in amounts and concentrations
that: (i) require reporting, investigation, removal or remediation under any
Environmental Law; (ii) are regulated as a "hazardous waste," "hazardous
substance" or "pollutant" or "contaminant" under any Environmental Law; (iii)
cause a nuisance, trespass or other tortuous condition or poses a hazard to the
health or safety of persons; or (iv) contain gasoline, diesel fuel or other
petroleum fuels, PCBs, asbestos or urea formaldehyde foam insulation.
"IRS" means the Internal Revenue Service.
"Knowledge" a Person will be deemed to have "Knowledge" of a particular
fact or other matter if (a) such person is actually aware of such fact or other
matter, or (b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other matter.
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"Knowledge" with respect to the Company shall mean the Knowledge of any of the
Shareholders or each officer, director or management employee of the Company
responsible for the applicable functional area.
"Legal Requirement" any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including (without limitation) any liability for Taxes.
"Material Adverse Change" means a significant deterioration in the
business, financial condition, or results of operations of the Company, or a
significant impairment of the ability of the Company to carry on its business or
perform its obligations substantially as theretofore conducted including, but
not limited to, changes caused by law, regulation, judgment, order or decree of
general applicability to the Company.
"Ordinary Course of Business" means the ordinary course of business of the
Company consistent with past practice.
"Permits" shall mean any and all licenses, permits, orders or approvals of
any federal, state, local or foreign governmental or regulatory body necessary
for the operation of the Business by the Company.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity.
"Regulatory Approvals" shall mean all regulatory approvals, exemptions,
lapses of waiting periods, written opinions or other actions by the federal,
state and local governmental authorities necessary for the consummation of the
transactions contemplated by this Agreement.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment of any Hazardous Material (including the abandonment or
discarding of barrels, containers, and other closed receptacles containing any
Hazardous Material).
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, (d) in the case of real property, rights of way, building use
restrictions, variances and easements, provided the same do not in any material
respect interfere with the Company's operation of the Business and (e) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Shareholders Agreement" means the Shareholders Agreement dated [ ] among
the Shareholders.
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"Subsidiary" of an entity shall mean any entity of which more than 50% of
the outstanding voting capital stock or the power to elect a majority of the
Board of Directors or other governing body of such entity (irrespective of
whether at the time capital stock of any other class or classes of such entity
shall or might have voting power upon the future occurrence of any contingency)
is at the applicable time directly or indirectly owned, controlled or held by
such entity, or by such entity and one or more other subsidiaries of such
entity, or by one or more other subsidiaries of such entity.
"Tax Return" includes any material report, statement, form, return or
other document or information required to be supplied by a federal, state, local
or foreign taxing authority in connection with Taxes.
"Tax" or "Taxes" means any federal, state, local and foreign income or
gross receipts tax, alternative or add-on minimum tax, sales and use tax,
customs duty and any other tax, charge, fee, levy or other assessment including
property, transfer, occupation, service, license, payroll, franchise, excise,
withholding, ad valorem, severance, stamp, premium, windfall profit, employment,
rent or other tax, governmental fee or like assessment or charge of any kind,
together with any interest, fine or penalty thereon, addition to tax, additional
amount, deficiency, assessment or governmental charge imposed by any federal,
state, local or foreign taxing authority.
"Transaction Documents" means this Agreement, the Notes, the Employment
Agreements.
ARTICLE 2
SALE AND PURCHASE OF SHARES
Section 2.1. Purchase and Sale of Shares.
In exchange for the consideration specified herein, and upon and subject
to the terms and conditions of this Agreement, Buyer agrees to purchase and
acquire from Shareholders, and Shareholders agree to sell, assign, transfer,
convey and deliver to Buyer, all right, title and interest in and to the Shares.
Section 2.2. Delivery of Possession and Instruments of Transfer.
At the Closing (as hereinafter defined), the Shareholders shall sell,
transfer, assign and deliver to Buyer, in consideration for the payment of the
Purchase Price therefore as provided in Section 2.3, certificates representing
the Shares, duly endorsed in blank or accompanied by duly executed stock powers
with signatures guaranteed or notarized, and such other instruments of transfer
requested by and reasonably satisfactory to Buyer and its counsel for
consummation of the transactions contemplated under this Agreement and as are
necessary to vest in Buyer, title in and to the Shares, free and clear of liens
or encumbrances.
Section 2.3. Purchase Price.
Purchase Price. Buyer will purchase the Shares for an aggregate purchase
price (the "Purchase Price") in an amount equal to the sum of: (i) to the Base
Purchase Price defined herein, as adjusted herein.
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(a) Closing Purchase Amount or Base Purchase Price. The " Base Purchase
Price" is an amount equal to FIVE MILLION EIGHT THOUSAND TWO HUNDRED FOUR and
00/100 ($5,008,204.00) DOLLARS, plus the amount of the "06/07 Earnings" as
defined herein and subject to the amount of any adjustments made under Section
2.3 and 2.4 and herein. The $5,008,204 portion of the Base Purchase Price shall
be deemed satisfied by the payment of $3,108,204 as provided below and by the
delivery of the Purchase Price Shares.
The "06/07 Earnings" shall mean the net income of the Company accrued in
the ordinary course of business as reported on its income tax return(s) for the
year commencing January 1, 2006, and ending December 31, 2006, and the period
commencing January 1, 2007, and ending immediately prior to the Closing as
adjusted as set forth below, without taking into account any amounts to be
reported by Seller as a result of the consummation of the transaction
contemplated hereby. For the avoidance of doubt, it is the obligation of the
Shareholders to pay any income taxes due as a result of the 06/07 Earnings.
The consideration payable by the Buyer to each of the Shareholders for the
Shares (the "Base Purchase Price") shall be as follows:
(b) The Buyer shall deliver to George Elkins ("Elkins") (i) $1,515,249.50
in cash or certified funds; (ii) a three-year promissory note dated the Closing
Date, in the principal amount equal to .4875 multiplied by the "06/07 Earnings,"
plus interest. The Note shall contain a provision requiring an aggregate monthly
payment of principal and interest, including interim interest to the payment
date therein, commencing on said payment date and then each consecutive month
thereafter, on the first day of the month, for a period of thirty-six (36)
months (the "Term") in accordance with the amortization schedule of payments
attached hereto as Exhibit A, until the Maturity Date when all outstanding
principal and interest shall be due and payable in full. All payments include
simple interest calculated at the rate of Seven (7.0%) percent per annum from
the Closing date hereof until the Maturity Date pursuant to the terms of the
Note. Any default by the Buyer in the payment of any amount due under this
Agreement or the Note which is not cured within fifteen (15) days of the default
or the due date shall cause all unpaid amounts due under this Agreement and the
Note to be immediately due and payable, plus all costs of collection incurred by
the Seller including reasonable attorney fees, litigation costs and expenses
thereon. The Note is substantially in the form of Exhibit A hereto, and (iii)
the number of restricted shares of the Common Stock of the Buyer equal to .4875
times the total number of Purchase Price Shares. To facilitate the payment by
Elkins of the income taxes payable as a result of his sale of Shares, there
shall be paid to Elkins principal payments under the Note in an amount equal to
Elkins' respective share of 2006 earnings as reflected in the income tax returns
of the Company on April 1, 2007 multiplied by the "Marginal Rate" as defined
below and Elkins' respective share of the 2007 earnings up to the Closing Date
as reflected in the income tax returns of the Company on April 1, 2008
multiplied the Marginal Rate and the taxes due on the 338(h)(10) election
defined herein on April 1, 2008, notwithstanding the amortization schedule of
Note hereunder.
For purposes of this Agreement the "Marginal Rate" is the highest net
effective income tax rate (expressed as a fraction or decimal) payable on income
by a resident of Suffolk County, New York State, on his or her taxable income
for calendar year 2006 or 2007, as the case may be.
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(c) The Buyer shall deliver to Carole Tate ("Tate") (i) $1,515,249.50 in
cash or certified funds; (ii) a three-year promissory note dated the Closing
Date, in the principal amount equal to .4875 multiplied by the "06/07 Earnings"
plus interest. The Note shall contain a provision requiring an aggregate monthly
payment of principal and interest, including interim interest to the payment
date therein, commencing on said payment date and then each consecutive month
thereafter, on the first day of the month, for a period of thirty-six (36)
months (the "Term") in accordance with the amortization schedule of payments
attached hereto as Exhibit A, until the Maturity Date when all outstanding
principal and interest shall be due and payable in full. All payments include
simple interest calculated at the rate of Seven (7.0%) percent per annum from
the Closing date hereof until the Maturity Date pursuant to the terms of the
Note. Any default by the Buyer in the payment of any amount due under this
Agreement or the Note which is not cured within fifteen (15) days of the default
or the due date shall cause all unpaid amounts due under this Agreement and the
Note to be immediately due and payable, plus all costs of collection incurred by
the Seller including reasonable attorney fees, litigation costs and expenses
thereon. The Note is substantially in the form of Exhibit A hereto, and (iii)
the number of restricted shares of the Common Stock of the Buyer equal to .4875
times the total number of Purchase Price Shares. To facilitate the payment by
Tate of the income taxes payable as a result of her sale of Shares, there shall
be paid to Tate principal payments under the Note in an amount equal to Tate's
respective share of 2006 earnings as reflected in the income tax returns of the
Company on April 1, 2007 times the Marginal Rate and Tate's respective share of
the 2007 earnings up to the Closing Date as reflected in the income tax returns
of the Company on April 1, 2008 times the Marginal Rate and the taxes due on the
338(h)(10) election defined herein on April 1, 2008, notwithstanding the
amortization schedule of Note hereunder.
(d) The Buyer shall deliver to Joseph Coonan ("Coonan") (i) $77,705 in
cash or certified funds; (ii) a three-year promissory note dated the Closing
Date in the principal amount equal to .025 times the "06/07 Earnings" plus
interest. The Note shall contain a provision requiring an aggregate monthly
payment of principal and interest, including interim interest to the payment
date therein, commencing on said payment date and then each consecutive month
thereafter, on the first day of the month, for a period of thirty-six (36)
months (the "Term") in accordance with the amortization schedule of payments
attached hereto as Exhibit A, until the Maturity Date when all outstanding
principal and interest shall be due and payable in full. All payments include
simple interest calculated at the rate of Seven (7.0%) percent per annum from
the Closing date hereof until the Maturity Date pursuant to the terms of the
Note. Any default by the Buyer in the payment of any amount due under this
Agreement or the Note which is not cured within fifteen (15) days of the default
or the due date shall cause all unpaid amounts due under this Agreement and the
Note to be immediately due and payable, plus all costs of collection incurred by
the Seller including reasonable attorney fees, litigation costs and expenses
thereon. The Note is substantially in the form of Exhibit A hereto, and (iii)
the number of restricted shares of the Common Stock of the Buyer equal to .025
times the total number of Purchase Price Shares. To facilitate the payment by
Coonan of the income taxes payable as a result of his sale of Shares, there
shall be paid to Coonan principal payments under the Note in an amount equal to
Coonan's respective share of 2006 earnings as reflected in the income tax
returns of the Company on April 1, 2007 times the Marginal Rate and Coonan's
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respective share of the 2007 earnings up to the Closing Date as reflected in the
income tax returns of the Company on April 1, 2008 times the Marginal Rate and
the taxes due on the 338(h)(10) election defined herein on April 1, 2008,
notwithstanding the amortization schedule of Note hereunder.
Buyer has been advised that the Company intends to pay to Coonan a bonus
for services rendered during 2006 or 2007. The amount of such bonuses, up to
$172,295 shall be added back to the Company's 06/07 Earnings. The parties
acknowledge that if the Closing occurs after January 1, 2007, the 06/07 Earnings
will include the earnings of the Company for the period commencing January 1,
2007, and ending on the Closing Date.
The "Purchase Price Shares" is the number of shares of Common Stock of the
Buyer equal to the aggregate amount of $1,900,000, divided by a per share price
(the "Deemed Market Price") which is equal to 90% of the average closing price
of the Buyer's Common Stock as quoted by the OTC Bulletin Board during the 20
trading days immediately preceding the Closing Date. The Deemed Market Price
shall in no event be less than twenty-two cents ($0.22) or be greater than one
dollar ($1.00).
The current total outstanding and issued shares of Common Stock of the
Buyer is 57,269,301. The current price (November 15, 2006) of the Buyer's Common
Stock as quoted by the OTC Bulletin Board is approximately 25 cents.
The Purchase Price Shares shall be restricted stock under the applicable
section of the Securities Exchange Commission Act.
The promissory notes referred to above for each Shareholder are
collectively referred to herein as the "Notes". The Notes shall be secured by
lien ("Seller's Lien") on the personal property and assets of Buyer, including
the Shares. The Seller's Lien shall be a first lien priority, provided that if
in order to obtain the Buyer's Financing (see Section 8.2(a)) Buyer is required
to provide its lender a first lien priority as security, Seller shall accept and
the parties shall execute a Security Agreement and Subordination Agreement
acceptable to Buyer's lender.
(e) The sum of the value of the consideration to be paid to the
Shareholders pursuant to the foregoing clauses (a), (b), (c) and (d) of this
Section 2.3, to wit, the cash, the Notes and the value of the Purchase Price
Shares is referred to herein as the Base Purchase Price. In addition, the Base
Purchase Price shall be increased by an amount calculated as the estimated
additional Federal and State income taxes that the Seller will have to pay as a
result of the Section 338(h)(10)Election (the "338 Payment") made by Buyer
pursuant to Section 2.4. It being the parties intent that the Seller shall
realize approximately the same net after tax dollars from the transaction that
Seller would have realized if Buyer had not made the 338 election. The amount of
the 338 Payment shall be calculated in a manner consistent with a memo from
Seller's attorney attached hereto and made a part hereof. The 338 Payment shall
be calculated and paid by Buyer to Seller within thirty (30) days of Buyer's
receipt of an appraisal of the Company's assets following the Closing, but not
later than April 15, 2007.
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Section 2.3A. Computation of 06/07 Earnings
(a) As soon as practicable following the Closing Date, but not later than
60 days from the Closing Date, the Shareholders will prepare income statements
of the Company for calendar year 2006 and the period commencing January 1, 2007,
and ending immediately prior to the Closing Date (the "06/07 Statements"), and
from such statements shall prepare the Company's income tax return for calendar
year 2006 and for the short 2007 year, including the net income to be reported
by the Company thereon (the "06/07 Returns"). Such net income is referred to
herein as the "Taxable Earnings". Except as specifically provided above with
respect to the bonus that may be paid to Coonan, the 06/07 Statements shall be
prepared in accordance with generally accepted accounting principles consistent
with the accounting policies, practices and assumptions utilized by the Company
in preparing its income statements and tax returns for 2004 and 2005.
(b) The 06/07 Statements and Returns shall be delivered to the Buyer in
writing no later than 60 days after the Closing Date. During the 25 day period
following the Buyer's receipt thereof, the Buyer shall be permitted to have a
firm of accountants review the working papers of the accountant that prepared
the 06/07 Statements and Returns and, in general, the Shareholders will
cooperate with the Buyer's accountant to facilitate such review. The
computations of the Shareholders' accountant shall become binding upon the
parties on the 25th day of the Buyer's receipt of the 06/07 Statements and
Returns unless the Buyer gives written notice of its disagreement to the
Shareholders prior to such date (a "Notice of Disagreement"). A Notice of
Disagreement shall specify in reasonable detail Buyer's accountant's
determination of the net income of the Company and the Taxable Earnings. If the
amount in dispute is less than $100,000, Buyer shall not be permitted to send a
Notice of Disagreement and the 06/07 Statements and Returns prepared by
Shareholders' accountant shall be binding upon the parties.
(c) If the parties cannot resolve the dispute contained in a Notice of
Disagreement, the Buyer and the Shareholders shall mutually select a firm of
independent accountants (the "Auditors") to recompute the 06/07 Statements and
Returns. If Buyer and the Shareholders shall have not selected an Auditor within
fifteen days of the receipt of the Notice of Disagreement, then the Shareholders
shall select the Auditor, subject to Buyer's right to disagree as set forth
below. In either event, the 06/07 Statements and Returns and the Shareholders'
and the Buyer's accountants working papers and such other information as Auditor
may reasonably request will be made available to the Auditor such that Auditor
shall compute its own version of the 06/07 Statements and Returns.
The Auditor's determination of the Taxable Earnings shall be
delivered to the Shareholders and Buyer in writing no later than 30 days after
the appointment of the Auditor (the Auditors' Statement"). The Auditors'
Statement shall become final and binding upon the parties on the thirtieth day
following the Buyer's and the Shareholders' receipt thereof unless either party
gives written notice of disagreement to the other prior to such date. Any Notice
of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. If a Notice of Disagreement is received in a timely
manner then the Auditors' Statement shall not become final and binding upon the
parties. Instead, the parties shall take the average of the Taxable Earnings as
computed by adding the Buyer's Statement the Shareholders' Statement and the
Auditors' Statement of taxable earnings and then the average of the three (3)
statements shall be the Taxable Earnings and 06/07 Earnings for purposes of this
Agreement.
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Except as set forth in Section 12 herein and in this Agreement, the
fees of the Auditors, if any, shall be borne fifty percent by the Buyer and
fifty percent by the Shareholders. Section 2.4. Section 338(h)(10)Election;
Payment of Taxes.
(a) Contemporaneously with the execution and delivery of this Agreement,
the Buyer and the Shareholders have joined in making an election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), and
any comparable elections, with respect to the purchase of the Shares under any
state or local income tax law (each a "Section 338(h)(10) Election"). The Buyer
and the Shareholders further agree to (i) allocate the Purchase Price among the
assets of the Company that are deemed to have been acquired pursuant to Section
338(h)(10) of the Code and comparable state income tax provisions (the "Section
338 Asset Allocation Schedule") and (ii) exchange, complete and properly execute
copies of Internal Revenue Service Form 8023A, the required schedules related
thereto, and comparable state forms and schedules, all of which have been
prepared on a basis consistent with the Section 338 Asset Allocation Schedule.
The Section 338 Asset Allocation Schedule shall be based upon the allocations
set forth on Schedule 2.4 hereto. If any changes are required to be made to
these forms or schedules (including the Section 338 Asset Allocation Schedule)
as a result of any valuation of fixed assets undertaken by the Buyer after the
Closing or as a result of information that becomes available after the Closing,
the parties shall promptly and in good faith reach an agreement as to the
precise changes to be made. The Buyer will prepare and file all further
documents and materials necessary in connection with making a Section 338(h)(10)
Election, and the Shareholders agree to assist the Buyer and cooperate with the
Buyer in connection therewith.
(b) The Buyer and the Shareholders will prepare and file all tax returns
and reports with respect to taxes including if necessary, Internal Revenue
Service Form 8594 and comparable state forms in a manner consistent with the
Section 338(h)(10) Election and the valuation of the assets as set forth in the
Section 338 Asset Allocation Schedule. All taxes imposed on the deemed sale of
assets resulting from the Section 338(h)(10) Election will be included in
Shareholders' tax returns as applicable and will be paid by Shareholders. Buyer
shall pay to Seller the 338 Payment as set forth above in Section 2.3. Failure
of the Buyer to deliver to Shareholders the 338 Payment in proportion to the
amounts set forth above in Section 2.3 shall be a material default of this
Section and this Agreement and shall not require the Shareholders to report such
Asset Allocation on their respective income taxes and shall cause an
acceleration of all amounts due under the Notes and this Agreement.
Section 2.5 Deposit.
Within five (5) business days of the execution of this Agreement by
all parties hereto, the Buyer shall deposit with William B. Ife, Esq. of Berkman
Henoch Peterson, Peddy, P.C. (the "Escrow Agent") One Hundred Fifty Thousand
($150,000) Dollars (the "Deposit") to be held in accordance herewith. If this
Agreement is terminated by one or more Shareholders pursuant to Section 11.1(a)
or because one or more of the conditions set forth in Section 8.2 and 8.3 is not
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satisfied as a result of Buyer's failure to comply with its obligations
hereunder, then the Escrow Agent shall deliver the Deposit to the Seller and the
Deposit shall become non-refundable. Notwithstanding anything herein to the
contrary, the Deposit shall count toward the "break-up fee" referred to in
Section 11.2(b)(i).
(a) Escrow Agent may hold the Escrow Deposit in an interest bearing
account with Savings Bank, Garden City, New York, or such other account or bank
as may be determined by the Escrow Agent, for the benefit of the parties. The
interest shall be paid to the party entitled to the Escrow Deposit and the party
receiving the interest shall pay any income taxes thereon, if any.
(i) Escrow Agent shall either: (A) apply the Escrow Deposit at
the Closing in escrow pursuant to the terms of this Section or, (B) deliver the
Escrow Deposit to Seller as liquidated damages under Section 11.2(b) herein upon
receipt of written demand therefore, stating that Buyer has defaulted in the
performance of its obligations under this Contract and the facts and
circumstances underlying such default.
(ii) Escrow Agent shall have the right at any time to
terminate Escrow Agent's duties by depositing the Escrow Deposit and the
interest thereon with the Clerk of the Supreme Court, Nassau County and notify
Seller and Buyer of said deposit.
(iii) Buyer agrees that Escrow Agent may represent Seller in
any action arising out of this Contract. Buyer acknowledges and agrees that
Escrow Agent also represents the Company and further agrees to waive any
conflicts of interest herein.
(iv) It is agreed that the duties of the Escrow Agent are only
as herein specifically provided in this Agreement, are purely ministerial in
nature, and that the Escrow Agent shall be acting solely as a stakeholder
without compensation as to the Escrow Deposit at the request and convenience of
the parties, and that Escrow Agent shall incur no liability whatsoever except
for willful misconduct or gross negligence. Company, Seller and Buyer hereby
indemnify and agree to hold Escrow Agent harmless from and against any and all
losses, damages, costs or expenses including legal fees which Escrow Agent may
incur in defending against an action by one of the parties alleging misconduct
by the Escrow Agent which results in a determination in favor of Escrow Agent
(including all appellate actions).
Section 2.6. Assignment.
Without the prior written consent of the Company or the Shareholders, the
Buyer may assign this Agreement to its wholly-owned subsidiary, Gales Industries
Merger Sub, Inc., a Delaware corporation, or to any other entity in which Buyer
holds a greater than ninety percent (90%) equity interest; provided, however,
Buyer shall remain liable for the performance of its obligations under this
Agreement and the Notes.
ARTICLE 3
CLOSING
Section 3.1. Date, Time and Place of Closing.
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The closing of the transactions contemplated by this Agreement and the
Transaction Documents (the "Closing") will take place at the offices of Berkman,
Henoch, Peteson, & Peddy, P.C. 100 Garden City Plaza, Garden City New York at
10:00 a.m. local time, on April 2, 2007, or at such other date, time or place
fixed by written consent of the Buyer and the Shareholders. All proceedings to
take place at the Closing will take place simultaneously, and no delivery will
be considered to have been made until all such proceedings have been completed.
The time and date of the Closing is referred to as the "Closing Date".
Section 3.2. Debts of Company.
Simultaneously with the Closing, (i) the Buyer will repay on behalf of the
Company, or cause the Company to repay, up to an aggregate of $250,000 of
documented loans which the Shareholders have made to the Company (collectively,
the "Officer Debt") and which can be established as outstanding obligations of
the Company; (ii) the Buyer will pay off or refinance or cause the Company to
pay off or refinance up to an aggregate of $23,000 of a loan made by the Small
Business Administration to the Company (the "SBA Debt"); (iii) the Buyer will
pay off or refinance or cause the Company to pay off or refinance up to an
aggregate of $900,000 of loans made by the State Bank of Long Island to the
Company (the "SBOLI Debt") and which are outstanding obligations of the Company;
and (iv) the Buyer will cause all personal guaranties of the Shareholders made
in connection with the SBOLI Debt to be discharged.
Section 3.3. Required Documents; Covenant of Further Assurance.
All certificates, instruments, agreements, consents, approvals and other
documents required by Article 8 as conditions to the Closing, and all
appropriate receipts, will be delivered to the Buyer and the Shareholders at the
Closing. The Shareholders, at any time and from time to time after the Closing
Date upon reasonable request of the Buyer, will execute, acknowledge and deliver
all such further assignments, conveyances, endorsements, deeds, powers of
attorney, consents and other documents and instruments of conveyance and
assignment and take such other action as the Buyer may reasonably request to
transfer to and vest in the Buyer, and to put the Buyer in possession of, all of
the Shares, free and clear of all restrictions, claims or encumbrances, other
than restrictions on transfer under federal and applicable state securities
laws, and otherwise to carry out the transactions contemplated by this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, severally with respect to the representations and
warranties that relate solely to the shares held by each Shareholder, and the
Company with respect to those representations and warranties that relate to the
Company, which representations and warranties are being made solely by the
Company, hereby represents and warrants to the Buyer as of the date hereof and
as of the Closing Date (or if an earlier date as specified in such
representation and warranty, as of such earlier date):
Section 4.1. Organization, Good Standing, Power
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The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. The Company has the corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on the Business as now being conducted. The Company is
authorized to do business and is in good standing in each jurisdiction in which
the conduct of the Business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Company or its business. All of the minute books, stock ledgers and stock
transfer records of the Company have been furnished to the Buyer for review and
Buyer acknowledges receipt of the materials listed on Schedule 4.1. Except as
set forth on Schedule 4.1, such minute books contain the minutes of meetings of
the shareholders and board of directors of the Company and copies of all actions
taken by consent of the shareholders and directors of the Company thereto except
where the failure to do so would not have a material adverse effect on the
Company or its business. Except as set forth in Schedule 4.1, all such meetings
were duly called and held, and a quorum was present and acting throughout each
such meeting, and all such consents were duly executed by all parties thereto
except where the failure to do so would not have a material adverse effect on
the Company or its business. Except as set forth in Schedule 4.1, such stock
ledgers and stock transfer records reflect all issuances and registrations of
transfer of all shares of capital stock of the Company, and the certificates
representing all canceled shares of capital stock have been returned to the
stock ledger.
Section 4.2. Shares.
Such Shareholder has good, valid and marketable title to the number of
Shares set forth on Schedule 4.2 opposite the name of such Shareholder, free and
clear of any covenant, condition, restriction, voting arrangement, lien, charge,
encumbrance, security agreement, option or adverse claim, other than
restrictions on transfer under the Shareholders Agreement, and any applicable
federal and applicable state securities laws. Upon delivery of the certificates
representing such Shareholder's Shares and payment of the applicable portion of
the Purchase Price for those Shares pursuant to Section 2.3, such Shareholder
will transfer good and marketable title to the Shares, free and clear of any
adverse claim set forth above, to the Buyer.
Section 4.3. Adequate Representation.
Such Shareholder has discussed with such professional, legal, tax and
financial advisors as he or she has independently chosen to engage the
implications of and obligations resulting from the execution of this Agreement
and the consummation of the transactions contemplated hereby and has received
adequate legal, tax and financial representation with respect to the drafting
and negotiation of this Agreement and the structure of the transactions
contemplated hereby.
Section 4.4. Capital Stock.
(a) The Company has authorized capital stock consisting solely of Two
Hundred [200] shares of common stock, no par value, of which One Hundred [100]
are issued and outstanding, and all of which are duly authorized, validly
issued, fully paid, non-assessable, and were issued in compliance with all
applicable federal and applicable state securities laws. Each of the individuals
set forth on Schedule 4.2 owns the number of Shares set forth opposite his or
her name. No person to whom any share was issued and no person claiming through
any such person has any claim against the Company in respect of any such
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issuance, including any claim based upon an alleged misstatement of fact in
connection with such issuance or an omission to state a material fact necessary
to make the statements of fact stated in connection with such issuance not
misleading.
(b) There are no outstanding offers, options, warrants, rights, calls,
commitments, obligations (verbal or written), conversion rights, plans or other
agreements (conditional or unconditional) of any character providing for or
requiring the sale, purchase or issuance of any shares of capital stock or any
other securities of the Company.
Section 4.5. Articles of Incorporation and By-Laws.
Correct and complete copies of the Articles of Incorporation (the
"Articles of Incorporation") and By-laws (the "By-laws") and, if any,
Shareholders Agreement of the Company, in each case as amended to date as
described in Schedule 4.5, have been made available to the Buyer. The Articles
of Incorporation and Shareholders Agreement are in full force and effect.
Section 4.6. Subsidiaries, Divisions and Affiliates.
The Company has no Subsidiaries. The Business has been conducted solely by
the Company and not through any Affiliate, joint venture or other Person or
under any other name.
Section 4.7. Equity Investments.
The Company does not own or have any rights to any equity interest,
directly or indirectly, in any corporation, partnership, joint venture, firm or
other entity.
Section 4.8. Authorization.
The Company has full corporate power and authority and has taken all
action necessary to enter into this Agreement and to carry out the transactions
contemplated hereby. Such Shareholder possesses the legal right and capacity to
execute, deliver and perform this Agreement, without obtaining any approval,
authorization, consent or waiver or giving any notice, except as required by the
Shareholders Agreement set forth in Schedule 4.5. The Shareholders have taken
all shareholder action required by applicable law, the Company's Articles of
Incorporation, By-laws or otherwise, to be taken by them to authorize the
execution and delivery by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby. This Agreement and all
other Transaction Documents to which the Company is a party have been, or will
be, duly executed and delivered by the Company and constitute (or when executed
will constitute) the legal, valid and binding obligations of the Company
enforceable against it in accordance with their respective terms, except to the
extent such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, fraudulent conveyance or similar laws
affecting or relating to the enforcement of creditors' rights generally, and by
equitable principles (regardless of whether enforcement is sought in a
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proceeding in equity or at law). This Agreement and all other Transaction
Documents to which such Shareholder is a party have been, or will be, duly
executed and delivered by such Shareholder and constitute the legal, valid and
binding obligations of such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except to the extent such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium,
receivership, fraudulent conveyance or similar laws affecting or relating to the
enforcement of creditors' rights generally, and by equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
Section 4.9. Effect of Agreement.
Except as set forth in Schedule 4.9, the execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation by the Company and the Shareholders of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, rule,
regulation or executive order to which the Company, the Shareholders or the
Business is subject; (b) violate any judgment, order, writ or decree of any
court applicable to the Company, Shareholders or the Business; or (c) result in
the breach of or conflict with any term, covenant, condition or provision of,
or, constitute a default under, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the Assets or Shares
pursuant to the Articles of Incorporation, the By-laws, any commitment, contract
or other agreement or instrument, including any of the Contracts to which the
Company is a party or by which any of the Assets or Shares are bound.
Section 4.10. No Undisclosed Liabilities; Net Worth.
Except as set forth in Schedule 4.10, the Company has no material
liabilities or obligations of any nature and there is no existing condition,
situation or set of circumstances known to the Company or its officers which
could reasonably be expected to result in any material liabilities to the
Company, except for liabilities or obligations reflected or reserved against in
the balance sheets contained in its Financial Statements and Stub Financials
(defined below) and current liabilities incurred in the Ordinary Course of
Business since the date of the Stub Financials. The Officer Debt does not exceed
$250,000, the SBA Debt does not exceed $23,000 and the SBOLI Debt does not
exceed $900,000. The Company's Tangible Net Worth as of June 30, 2006 was at
least $1,600,000 and the Company's Tangible Net Worth as of the Closing Date
will be at least $1,900,000. "Tangible Net Worth" shall mean (a) the aggregate
amount of all assets of the Company, excluding assets properly classified as
intangible assets under GAAP, less (b) the aggregate amount of all liabilities
of the Company, computed in a manner consistent with the financial statements of
the Company previously delivered to Buyer. The Company has, and will have as of
the Closing Date, accounts payable which shall not exceed two thirds (2/3) of
the accounts receivable of the Company.
Section 4.11. Governmental and Other Consents.
Except as set forth on Schedule 4.11, (i) no notice to, consent,
authorization or approval of, or exemption by, any governmental or public body
or authority is required in connection with the execution, delivery and
performance by the Company or such Shareholder of this Agreement or any other
Transaction Documents to which the Company or such Shareholder is a party, or
the taking of any action herein contemplated; and (ii) no notice to, consent,
authorization or approval of, any Person under any agreement, arrangement or
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commitment of any nature which the Company or such Shareholder is party to or
which the applicable Shares or Assets are bound by or subject to, or from which
the Company receives or is entitled to receive a benefit, is required in
connection with the execution, delivery and performance by the Company or such
Shareholder of this Agreement or any other Transaction Documents to which the
company or such Shareholder is a party, or the taking of any action herein
contemplated.
Section 4.12. Financial Statements.
Correct and complete copies of the unaudited Balance Sheets and Income
Statements of the Company as of, and for the fiscal years ended, December 31,
2005 and December 31, 2004 (collectively, the "Pre-Audited Financials"), and an
unaudited balance sheet and income statement of the Company as of, and for the
six months ended June 30, 2006 (the "Stub Financials" and collectively with the
Pre-Audited Financials, the "Financial Statements") have been made available to
the Buyer. June 30, 2006 is referred to herein as the "Cutoff Date." The
Financial Statements: (i) are consistent in all material respects with the books
and records of the Company; (ii) have been prepared in accordance with GAAP on a
basis consistent with that of the preceding accounting periods; (iii) reflect
and provide adequate reserves and disclosures in respect of all Liabilities of
the Company, including all contingent liabilities, as of the respective dates of
the Financial Statements, and (iv) present fairly in all material respects the
financial position of the Company at such dates and the results of operations
and cash flows of the Company for the periods then ended, except that the Stub
Financials do not reflect the impact of normal recurring year-end adjustments,
which adjustments would not have a material impact on the financial results
reflected in the Stub Financials. Buyer has reviewed all documents and consulted
with the appropriate professionals regarding such information and acknowledges
that they understand the financial information set forth therein
Section 4.13. Absence of Certain Changes or Events.
Since the Cutoff Date, the Company has used all reasonable efforts
consistent with normal business practice to preserve the business organization
of the Company intact, and to keep available to the Company the services of all
current officers and employees of the Company. Company has used all reasonable
efforts consistent with normal business practice to preserve the goodwill of the
suppliers, customers, employees and others having business relations with the
Company as of such date. Except as set forth in Schedule 4.13, since December
31, 2005, no customer of the Company whose purchases represented more than 5% of
the Company's sales during 2005 has disclosed to the Company any plan or
intention to reduce or terminate its volume of purchases from the Company or
change the nature or way of doing its business with the Company. Since the
Cutoff Date, the Company has conducted its Business in the ordinary course, in a
manner consistent with normal business practice, has maintained its rates and
charges without reduction and has maintained its assets and properties in a
manner consistent with normal business practice, ordinary wear and tear
excepted.
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Except as set forth on Schedule 4.13, since the Cutoff Date, the Company
has not: (a) suffered any material adverse change in, or the occurrence of any
events which, individually or in the aggregate, has or have had, or might
reasonably be expected to have, a material adverse effect on the financial
condition or results of operations of the Business, taken as a whole; (b)
incurred damage to or destruction of any Asset or Assets individually or in the
aggregate having a replacement cost in excess of $50,000 whether or not covered
by insurance; (c) incurred any obligation or liability (fixed or contingent) not
in the ordinary course of business in excess of $50,000; (d) made or entered
into contracts or commitments to make any capital expenditures in excess of
$50,000; (e) encumbered any of the Assets with any Security Interest in addition
to Security Interests in existence as of the Cutoff Date other than Security
Interests imposed by operation of law; (f) sold, transferred or leased any Asset
or Assets individually or in the aggregate having a replacement cost in excess
of $50,000, or canceled or compromised any debt or material claims, except in
each case, in the ordinary course of business; (g) sold, assigned, transferred
or granted any rights under or with respect to any licenses, agreements,
patents, inventions, trademarks, trade names, copyrights or formulae or with
respect to know-how or any other intangible asset including, but not limited to,
the Rights; (h) amended or terminated any contracts, agreements, leases or
arrangements which otherwise would have been required to be set forth on
Schedule 4.17 hereto; (i) waived or released any other rights of material value
to the Company; (j) declared or paid any dividend on its capital stock, or set
apart any money for distribution to or for its Shareholders other than salary
expected to become due under the Employment Agreements and there is set forth on
Schedule 4.13 a list of all distributions made to the Shareholders and not
reflected in the Financial Statements as of December 31, 2005; (k) redeemed any
portion of its capital stock; (1) entered into any employment or consulting
agreement not terminable by the Company on less than 30-days notice without
material liability to the Company or amended the terms of any employment or
consulting agreement in a manner adverse to the Company; (m) incurred any
indebtedness for borrowed money or guaranteed any such indebtedness of another
Person, in addition to the Company's indebtedness, including without limitation
pursuant to the Credit Documents, as of the Cutoff Date or (n) entered into any
transactions not in the ordinary course of business which would, individually or
in the aggregate, materially adversely affect the Business.
Section 4.14. Title to Assets; Absence of Liens and Encumbrances.
The Company has good and marketable title to, and owns outright, the
Assets, free and clear of all Security Interests, other than those disclosed in
the Financial Statements and those set forth in Schedule 4.14 (the "Permitted
Encumbrances"). The leases and other agreements or instruments under which the
Company holds, leases or is entitled to the use of any real or personal property
are in full force and effect. The Company enjoys peaceable and undisturbed
possession under all such leases. All Assets, to the knowledge of the Company
are in material conformance with applicable zoning and other laws, ordinances,
rules and regulations; and no notice of violation of any law, ordinance, rule or
regulation thereunder has been received by the Company or the Shareholders.
Schedule 4.14 contains a list of all real property leased by the Company.
The Company does not own any real property. The Company has made available or
furnished to Buyer true and complete copies of (a) all leases, licenses or other
occupancy agreements, including amendments and supplements thereto, to which the
Company is a party respecting any real property and all other instruments
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granting such leasehold interests, rights, options or other interests. Except as
set forth in Schedule 4.14, all buildings, structures, appurtenances and
material items of machinery, equipment and other material tangible assets used
by the Company in the conduct of the Business are in working order, ordinary
wear and tear excepted, are usable in the Ordinary Course of Business. Buyer
acknowledges that they have inspected same and accept same in their existing
condition.
Section 4.15. Equipment.
Set forth on Schedule 4.15 is (i) a correct and complete list which
includes a description of all items of equipment used in the Business as of June
30, 2006, having individually a fair market value of $50,000 together with all
acquisitions and dispositions of assets having such value made after such date,
(ii) a list of all items of equipment used in the Business disposed of since
June 30, 2006, and (iii) a description of all items of equipment used in the
Business as of the date of this Agreement acquired since June 30, 2006, at a
cost in excess of $50,000 (collectively, the "Equipment"). Except as set forth
on Schedule 4.15, none of the Equipment has been disposed of since the Cutoff
Date, except in the normal course of business of the Company.
Section 4.16. Insurance.
There is now and there will be as of the Closing, in full force and effect
with a reputable insurance company fire and extended insurance coverage with
respect to all material tangible Assets in reasonable commercial amounts. There
are no known outstanding or unsatisfied written requirements imposed or made by
any of the Company's current insurance companies with respect to current
policies covering any of the Assets, or by any governmental authority requiring
or recommending, with respect to any of the Assets, that any repairs or other
work be done on or with respect to, or requiring or recommending any equipment
or facilities be installed on or in connection with, any of the Assets. On
Schedule 4.16 is set forth a correct and complete list of (a) all currently
effective insurance policies and bonds covering the Assets or the Business, and
their respective annual premiums (as of the last renewal or purchase of new
insurance) and (b) for the three-year period ending on the date hereof, (i) all
accidents, casualties or damage occurring on or to the Assets or relating to the
Business which resulted in claims individually in excess of $50,000 , and (ii)
claims for product liability, damages, contribution or indemnification and
settlements (including pending settlement negotiations) resulting therefrom
which individually are in excess of $50,000. Except as set forth on Schedule
4.16, as of the date hereof there are no disputes with underwriters of any such
policies or bonds, and all premiums due and payable have been paid. There are no
known pending or threatened terminations or premium increases with respect to
any of such policies or bonds other than premium increases in the Ordinary
Course of Business, and there is no known condition or circumstance applicable
to the Business, other than the sale of the Shares pursuant to this Agreement,
which could reasonably be expected to result in such termination or increase
other than premium increases in the Ordinary Course of Business. The Company, to
its knowledge is in compliance with all material conditions contained in such
policies or bonds, except for any noncompliance which, individually or in the
aggregate, would not be reasonably expected to have a material adverse effect on
the Business.
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Section 4.17. Agreements, Arrangements
4.17.1 Except as set forth on Schedule 4.17 and as set forth in Section
4.10 herein, the Company is not a party to, nor are the Assets or Shares subject
to or bound by any:
(a) lease agreement (whether as lessor or lessee) where the annual obligation of
the Company exceeds $50,000;
(b) license agreement, assignment or contract (whether as licensor or licensee,
assignor or assignee) relating to trademarks, trade names, patents, or
copyrights (or applications therefore), unpatented designs or processes,
formulae, know-how or technical assistance, or other proprietary rights, other
than agreements relating to off-the-shelf software used in the conduct of the
Business;
(c) employment or other contract or agreement which (i) may not be terminated
without liability to the Company upon notice to the employee, independent
contractor or other party thereto of not more than 30 days, or (ii) provides for
payments (contingent or otherwise) of more than $50,000 per year (including all
salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or other Person
involved in the acquisition of supplies with an annual cost in excess of
$50,000;
(e) non-competition, secrecy or confidentiality agreements, or any other
agreement restricting the Company from doing business anywhere in the world;
(f) agreement or other arrangement for the sale of goods or services to any
third party (including the government or any other governmental authority) in
annual amounts in excess of $50,000;
(g) agreement with any labor union;
(h) agreement with any distributor, dealer, leasing company, sales agent or
representative, other than contracts or orders for the purchase, sale or license
of goods made in the usual and ordinary course of business at an aggregate price
per contract of more than $50,000 and a term of more than three months under any
such contract or order;
(i) agreement, contract or order with any manufacturer, leasing company,
supplier or customer (including those agreements which allow discounts or
allowances or extended payment terms), where the annual obligation of the
Company is more than $50,000;
(j) agreement with any distributor or brokerage company, leasing company,
management company or any other individual or entity who assists, places,
brokers or otherwise is involved with the marketing or distribution of the
products of the Business to its customers;
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(k) joint venture or partnership agreement with any other Person;
(1) agreement guaranteeing, indemnifying or otherwise becoming liable for the
obligations or liabilities of another Person;
(m) agreement with any banks or other persons, for the borrowing or lending of
money or payment or repayment of draws on letters of credit or currency swap or
exchange agreements (other than purchase money security interests which may,
under the terms of invoices from its suppliers, be granted to suppliers with
respect to goods so purchased);
(n) agreement with any bank, finance company or similar organization which
acquires from the Company receivables or contracts for sales on credit;
(o) agreement granting any person a Security Interest on any of the Assets,
including, without limitation, any factoring or agreement for the assignment of
receivables or inventory, other than in the Ordinary Course of Business;
(p) agreement for the incurrence of any capital expenditure in excess of
$50,000;
(q) advertising, publication or printing agreement; and
(r) agreement giving any party the right to renegotiate or require a reduction
in prices to be paid or the repayment of any amount previously paid, to the
Company.
Correct and complete copies of all items required to be shown on Schedule
4.17 have been separately delivered or made available to Buyer prior to the date
hereof.
4.17.2 Each of the Contracts is valid, in full force and effect and
enforceable in accordance with its terms, except to the extent such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, fraudulent conveyance or similar laws affecting or
relating to the enforcement of creditors' rights generally, and by equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law).
4.17.3 Except as set forth on Schedule 4.17, the Company has fulfilled, or
has taken all action reasonably necessary to enable it to fulfill when due, all
of its respective obligations under the Contracts. Furthermore, there has not
occurred any material default or any event which with the lapse of time or the
election of any person other than the Company or the Shareholders, will become a
default under any of the Contracts, except for such material defaults, if any,
which have been indicated on Schedule 4.17.
Section 4.18. Patents, Trademarks, Copyrights.
Schedule 4.18 sets forth (i) the registered and beneficial owner and the
expiration date, to the extent applicable, for each of the Rights owned or used
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by the Company and (ii) the product, service, or products or services of the
Company which make use of, or are sold, licensed or made under, each such Right.
All of the Rights are included in the Assets and constitute all Rights necessary
for the conduct of the Business by the Company. Except as set forth on Schedule
4.18, neither the Shareholders nor the Company has sold, assigned, transferred,
licensed, sub-licensed or conveyed the Rights, or any of them, or any interest
in the Rights, or any of them, to any Person, and the Company has the entire
right or right, title and interest (free and clear of all Security Interests) in
and to the Rights owned or used by the Company to conduct the Business; neither
has the validity of such items been, nor is the validity of such items, nor the
use thereof by the Company, the subject of any known pending or threatened
opposition, interference, cancellation, nullification, conflict, concurrent use,
litigation or other proceeding. The conduct of the Business as currently
operated, and the use of the Assets does not materially conflict with, or
infringe, any legally enforceable rights of third parties. Except as set forth
on Schedule 4.18, there is no known infringement of any proprietary right owned
or licensed by the Company.
Section 4.19. Permits.
The Company has all Permits required to permit it to carry on the Business
as currently conducted in a manner consistent with its normal practice. Set
forth on Schedule 4.19 is a complete list of all such Permits (the "Company
Permits").
Section 4.20. Compliance with Applicable Laws.
The conduct by the Company of the Business does not violate or infringe,
any law, statute, ordinance, regulation or executive order currently in effect
and applicable to the Company and there is no known meritorious basis for any
claims of violation or infringement of, any law, statute, ordinance, regulation
or executive order currently in effect and applicable to the Company, except in
each case for violations or infringements which could not be reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the Business, taken as a whole. The Company is not in default under any Company
Permit, under any governmental or administrative order or demand directed to it,
or with respect to any order, writ, injunction or decree of any court applicable
to it.
Section 4.21. Litigation.
Except as set forth on Schedule 4.21, there is no claim, action, suit,
proceeding, arbitration, reparation, investigation or hearing or notice of
hearing, pending or threatened, before any court or governmental, administrative
or other competent authority or private arbitration tribunal, which could have a
material adverse effect on the Business, or prevent the consummation of the
transactions contemplated by this Agreement; nor are there any known facts which
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could reasonably be expected to give rise to any such claim, action, suit,
proceeding, arbitration, investigation or hearing, which could have a material
adverse effect, individually or in the aggregate, upon the Business, or prevent
the consummation of the transactions contemplated by this Agreement. The Company
has not waived any statute of limitations or other affirmative defense with
respect to any of these obligations. There is no continuing order, injunction or
decree of any court, arbitrator or governmental, administrative or other
competent authority to which the Company is a party, or to which the Assets or
Business is subject. Neither the Company nor any current officer, director, or
employee of the Company has been permanently or temporarily enjoined or barred
by order, judgment or decree of any court or other tribunal or any agency or
other body from engaging in or continuing any conduct or practice in connection
with the Business.
Section 4.22. Customers, Suppliers, Distributors and Agents.
Schedule 4.22 sets forth (a) the ten largest (in dollar value) purchasers
of goods and/or services from the Company and (b) the ten largest (in dollar
value) providers of goods and/or services to the Company the fiscal year ended
December 31, 2005.
Except as set forth on Schedule 4.22, the Company does not have any
knowledge that any Person set forth on Schedule 4.22 will cease to continue such
relationship, or will substantially reduce the extent of such relationship, at
any time prior to or after the Closing Date. The Company does not have any
knowledge of (i) any contemplated material and adverse modification or change in
the business relationship of the Company with, or (ii) any existing condition or
state of facts which will materially adversely affect, or has a reasonable
likelihood of materially adversely affecting the business relationship of the
Company with the Persons listed on Schedule 4.22 or which has prevented or will
prevent the Business from being carried on under its new ownership after the
Closing in substantially the same manner as it is currently carried on.
Section 4.23. Books and Records.
Except as set forth on Schedule 4.1, the books of account and other
financial and corporate records of the Company are in all material respects
complete, correct and up to date, with all necessary signatures in a manner
consistent with the Company's normal business practices.
Section 4.24. Employee Benefit Plans.
Schedule 4.24(b) contains a true and complete list of all the following
agreements or plans, if any, which are presently in effect or which have
previously been in effect and which cover current or former employees, directors
and/or other service providers of any member of the Company (collectively
"Participants"), and indicating, with respect to each, the agreements or plans
for which the Company currently maintains or contributes to on behalf of its
employees and the amount of the Company's total obligation thereunder.
The plans, programs, policies, or arrangements described in subparagraph
(a) or (b) above are hereinafter collectively referred to as the "Company
Plans." The Shareholders have delivered to the Buyer true and complete copies,
if any, of all written plan documents and contracts evidencing the Company
Plans, as they may have been amended to the date hereof, together with all
documents, including without limitation, Forms 5500, relating to any Company
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Plans required to have been filed prior to the date hereof with governmental
authorities for each of the three most recently completed plan years.
Section 4.25. Powers of Attorney.
Except as set forth on Schedule 4.25, no person has any power of attorney
to act on behalf of the Company or the Shareholders in connection with any of
the Company's or the Shareholder's properties or business affairs other than
such powers to so act as normally pertain to the officers of the Company.
Section 4.26. Labor Matters.
(a) Except as set forth in Schedule 4.26, the Company is not a party to
any contract or collective bargaining agreement with any labor organization.
Except as set forth in Schedule 4.26, no organizing effort or question
concerning representation is pending respecting the employees of the Company,
and no such question has been raised within the preceding three years.
(b) All reasonably anticipated material obligations of the Company,
whether arising by operation of law, contract, past custom or otherwise, for
unemployment compensation benefits, pension benefits, salaries, wages, bonuses
and other forms of compensation payable to the officers, directors and other
employees and independent contractors of the Company have been paid or reserved
for.
(c) There is no known basis for any material claim, grievance,
arbitration, negotiation, suit, action or charge of or by the employees of the
Company, and no such material charge or complaint is pending against the Company
before the National Labor Relations Board, the Equal Employment Opportunity
Commission or any other federal, state or local agency with jurisdiction over
employment matters.
(d) The Company has withheld and paid to the appropriate governmental
authorities or is withholding for payment not yet due to such authorities all
amounts required to be withheld from the employees of the Company. The Company
is not liable for any arrears of such amounts or penalties thereon for failure
to comply with any of the foregoing. The Company is in compliance in all
material respects with all applicable laws, rules and regulations relating to
the employment of labor, including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes and other amounts as
required by appropriate governmental authorities.
Section 4.27. Environmental Matters.
Except as set forth on Schedule 4.27, (i) the Company is in compliance
with all applicable Environmental Laws; (ii) the Company has not transported,
stored and disposed of any Hazardous Materials upon real property owned or
leased by it in contravention of applicable Environmental Laws; (iii) there has
not occurred, nor is there presently occurring, a Release of any Hazardous
Materials by the Company on, into or beneath the surface of any parcel of real
property in which the Company has (or will have after giving effect to the
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transactions contemplated hereby) an ownership interest or any leasehold
interest except in compliance with applicable Environmental Laws; (iv) the
Company has not transported or disposed of, or allowed or arranged for any third
parties to transport or dispose of, any Hazardous Material to or at a site
which, pursuant to CERCLA, has been placed on the National Priorities List; (v)
the Company has not received written notice that the Company is a potentially
responsible party for a federal or state environmental cleanup site or for
corrective action under RCRA; and (vi) the Company has not undertaken (or been
requested to undertake) any response or remedial actions at the request of any
federal, state or local governmental entity in each of the foregoing cases of
causes (i) through (vi), except as to circumstances which could not reasonably
be expected to have a material adverse effect on the Business of the Company,
taken as a whole.
Section 4.28. Tax Matters.
(a) The Company has filed or caused to be filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company have been paid. Except as set forth in
Schedule 4.28, the Company is not currently the beneficiary of any extension of
time within which to file any Tax Return that has not already been timely filed
(with due regard to such extension). Except as set forth on Schedule 4.28, no
claim has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. Except as set forth on Schedule 4.28, there are no Security
Interests on any of the Assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax (except for Taxes not yet due and
owing).
(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) There is no known pending or threatened claim by any authority for
additional Taxes for any period for which Tax Returns have been filed. Schedule
4.28 lists all federal, state, local, and foreign income Tax Returns filed with
respect to the Company (including Tax Returns filed by each Shareholder relating
to Company activities) for taxable periods ended on or after December 31, 2003,
indicates whether those Tax Returns have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Shareholders have delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company since December 31, 2003.
(d) The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Company has not filed a consent under Code ss.341(f) concerning
collapsible corporations. The Company has not made any payments, is not
obligated to make any payments and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code ss.280G. The Company has not been a United States real
property holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(1)(A)(ii). The Company has
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disclosed on its federal income Tax Returns all positions taken therein that
could not be reasonably expected to give rise to a substantial understatement of
federal income Tax within the meaning of Code ss.6662. The Company is not a
party to any Tax allocation or sharing agreement. The Company (i) has not been a
member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was ACER) or (ii) does not have
any Liability for the Taxes of any Person (other than of ACER) under Reg. ss. 1
1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, or by contract.
(f) The Company has maintained its status as a "small business
corporation" within the meaning of Code ss. 1361(b) and any comparable
provisions of state or local law at all times since its inception. The validity
of the election of "S Corporation" status has not been challenged by the
Internal Revenue Service nor is there any known basis for such a challenge.
Since the date of its incorporation, except as set forth in Schedule 4.28, the
Company has not been taxed other than as a "small business corporation".
(g) The Company has not agreed to, and is not required to include in its
income, any adjustment pursuant to Code ss. 481(c) (or comparable provisions of
any state or local law) by reason of a change in accounting method or otherwise.
(h) The unpaid Taxes of the Company, if any (i) did not, as of the Cutoff
Date, exceed the reserve for Tax Liability (including any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the face of the Balance Sheet (including any notes thereto) contained
in the Financial Statements and (ii) do not exceed that reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company in filing its Tax Returns.
Section 4.29. Recent Dividends and Other Distributions.
Except as set forth on Schedule 4.17, there has been no dividend or other
distribution of assets or securities whether consisting of money, property or
any other thing of value, declared, issued or paid to or for the benefit of the
Shareholders by the Company since December 31, 2005.
Section 4.30. Inventory.
The inventory set forth in the Financial Statements has been valued in
accordance with GAAP on a basis consistent with that of the preceding accounting
periods. The inventory is adequate and appropriate for the conduct of the
business of the Company as it is currently being conducted. Inventory levels are
not in excess of the normal operating requirements of the Company in the
ordinary course of business consistent with past practice. The value at which
the inventory is carried on the Financial Statements reflects the normal
inventory policy of the Company consistent with past practice. Except as set
forth in Schedule 4.30, all of the Inventory is of a quantity and quality
maintained in the ordinary course of business at regular prices or usable in the
ordinary course of business.
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Section 4.31. Purchase and Sale Obligations.
All purchases, sales and orders and all other commitments for purchases,
sales and orders made by or on behalf of the Company since December 31, 2005
have been made in the usual and ordinary course of its business in accordance
with normal practices. On the Closing Date, the Company shall deliver to Buyer a
schedule of all such uncompleted purchase and sale orders and other commitments
with respect to any of the Company's obligations as of a date not earlier than
fifteen (15) days prior to the Closing.
Section 4.32. Shareholders Agreement
Each of the Shareholders covenants and agrees that any obligation any
other Shareholder might have had under the Shareholders Agreement to obtain his
consent to the sale of Shares by such other Shareholder pursuant to this
Agreement has been satisfied. Further, each Shareholder hereby waives any right
of first refusal or similar right he might have had to purchase Shares to be
acquired by Buyer pursuant to this Agreement.
Section 4.33. Accounts Receivable and Accounts Payable.
A true and correct aged (30-60-90 days) list of all accounts receivable
and accounts payable of the Company as of the end of the calendar month
preceding the date hereof has been furnished to the Buyer. Except as set forth
on Schedule 4.33, all of the accounts receivable of the Company are actual and
bona fide accounts receivable representing obligations for the total dollar
amount thereof showing on the books of the Company, and the accounts receivable
are not and will not be subject to any recoupments, set-offs or counter-claims,
other than set-offs from the purchase of inventory by the Company and returns,
in each case in the ordinary course of business consistent with past practice.
Except as otherwise reflected in the Financial Statements, such accounts
receivable are collectible in the ordinary course of business.
Section 4.35. Brokers and Finders.
Neither the Seller nor the Company, nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement and the Seller agrees to indemnify and hold Buyer
harmless from any liability, loss, cost, claim and/or demand that any other
broker or finder may have in connection with this transaction as a result of
actions taken by the Company or the Seller
Section 4.36. Personnel.
(a) Schedule 4.36 (a) contains a list, as of the date hereof, of the
following information for each full-time, part-time or temporary employee,
officer, director or consultant of the Company, including each employee on leave
of absence or layoff status: name; job title; current employment status; current
compensation; severance or other compensation to be paid as a result of
termination of employment or upon a change of control; and the basis for
determining any bonuses, commissions or similar payments for the past year only.
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Schedule 4.36(a) also contains a list of all Contracts or letters evidencing
employment to which the Company is a party, except for contracts which can be
terminated without liability of more than $50,000 upon not more than ten (10)
days notice. Such Schedule 4.36(a) shall be updated by the Company to be
complete and accurate as of the Closing Date.
(b) Except as set forth on Schedule 4.36(a) no employee or director of the
Company is a party to, or is otherwise bound by, any Contract or arrangement,
including any confidentiality, noncompetition, or proprietary rights agreement,
between such employee or director and any other Person that in any way
materially adversely affects or will affect (i) the performance of his duties as
an employee or director, or (ii) the ability to conduct the Business. No
director, officer, or other key employee of the Company intends to terminate his
employment.
(c) Schedule 4.36(d) contains a complete and accurate list of the
following information for each retired employee or director of the Company, or
his dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
Section 4.37. Insider Interests.
Except as set forth in Schedule 4.37, no Shareholder, officer or director
of the Company is a party to any transaction with the Company including, without
limitation, by being a party to any contract, agreement or arrangement (i)
providing for the furnishing of services, (ii) providing for rental of real or
personal property, or (iii) otherwise requiring payments to any such
Shareholder, officer or director or to any trust, corporation or entity to which
such person has any interest.
Section 4.38. Investment Intent.
Each of the Shareholders is acquiring the Purchase Price Shares, set forth
in Section 2.3, for his or her own account, not for the benefit or account of
any other person, for investment purposes only, and not with a view to, or in
connection with any person to sell, transfer or pledge any part of the Purchase
Price Shares, and such Shareholder has no plans to enter into any such agreement
or arrangement, except after the expiration of any restrictions required herein
on the Purchase Price Shares.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Shareholders as of the
date hereof and as of the Closing Date:
Section 5.1. Organization and Good Standing; Power and Authority.
The Buyer is a corporation duly organized and validly existing under the
laws of the State of Delaware. The Buyer has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby.
Section 5.2. Corporate Authorization.
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The Buyer has full corporate power and authority and has taken all actions
necessary to enter into this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and all other Transaction Documents to which the Buyer is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of the
Buyer and all necessary action on the part of the stockholders of the Buyer.
This Agreement and the other Transaction Documents to which the Buyer is a party
have been, or will be, duly executed and delivered by the Buyer and constitute
(or when executed will constitute) the valid, legal and binding obligations of
the Buyer, enforceable against the Buyer in accordance with their respective
terms, except to the extent such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, receivership, fraudulent conveyance or
similar laws affecting or relating to the enforcement of creditors' rights
generally, and by equitable principles (regardless of whether enforcement is
sought in a proceeding in equity or at law).
Section 5.3. Conflicts; Defaults.
The execution and delivery of this Agreement and the other agreements and
instruments executed or to be executed in connection herewith by the Buyer do
not, and the performance by the Buyer of its obligations hereunder and
thereunder and the consummation by the Buyer of the transactions contemplated
hereby or thereby, will not: (i) violate, conflict with, or constitute a breach
or default under any of the terms of its certificate of incorporation or bylaws;
(ii) require any authorization, approval, consent, registration, declaration or
filing with, from or to any governmental authority; (iii) violate any law,
statute, judgment, decree, injunction, order, writ, rule or regulation
applicable to the Buyer; or (iv) conflict with or result in a breach of, create
an event of default (or event that, with the giving of notice or lapse of time
or both, would constitute an event of default) under, or give any third party
the right to terminate, cancel or accelerate any obligation under, any contract,
agreement, note, bond, guarantee, deed of trust, loan agreement, mortgage,
license, lease, indenture, instrument, order, arbitration award, judgment or
decree to which the Buyer is a party or by which such party is bound and which
would affect the consummation of the transactions contemplated hereby. There is
no pending or, to the knowledge of the Buyer, threatened action, suit, claim,
proceeding, inquiry or investigation before or by any governmental authorities,
involving or that could reasonably be expected to restrain or prevent the
consummation of the transactions contemplated by this Agreement. Buyer is in
compliance with all applicable federal and applicable state securities laws,
except where the failure to maintain such compliance would not have a material
adverse affect on the business or financial condition of Buyer.
Section 5.4. Brokers, Finders and Agents.
Neither the Buyer nor any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement and the Buyer agrees to indemnify and hold the Seller harmless
from any liability, loss, cost, claim and/or demand that any broker or finder
may have in connection with this transaction as a result of actions taken by the
Buyer or any of its officers, directors or employees.
Section 5.5 Litigation.
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Except as may be described in the filings made by the Buyer with the
Securities and Exchange Commission (the "Public Filings"), and as disclosed to
Seller and attached hereto as Schedule 5.5 ,there is no claim, action, suit,
proceeding, arbitration, reparation, investigation or hearing or notice of
hearing, pending or, to the knowledge of Buyer, threatened, before any court or
governmental, administrative or other competent authority or private arbitration
tribunal, which could have a material adverse effect on the Buyer, or to prevent
the consummation of the transactions contemplated by this Agreement; nor to the
knowledge of the Buyer are there any facts which could reasonably be expected to
give rise to any such claim, action, suit, proceeding, arbitration,
investigation or hearing, which could have a material adverse affect,
individually or in the aggregate, upon the Buyer, or prevent the consummation of
the transactions contemplated by this Agreement. Except as may be disclosed in
the Public Filings, and as disclosed to Seller and attached hereto as Schedule
5.5 there is no continuing order, injunction or decree of any court, arbitrator
or governmental, administrative or other competent authority to which the Buyer
is a party. Neither the Buyer nor any current officer, director, or employee of
the Buyer has been permanently or temporarily enjoined or barred by order,
judgment or decree of any court or other tribunal or any agency or other body
from engaging in or continuing any conduct or practice.
Section 5.6 No Consents Required.
No notice to, consent, authorization or approval of, or exemption by, any
governmental or public body or authority is required in connection with the
execution, delivery and performance by the Buyer of this Agreement or any other
Transaction Documents to which the Buyer is a party, or the taking of any action
herein contemplated. No notice to, consent, authorization or approval of, any
Person under any agreement, arrangement or commitment of any nature which the
Buyer is party to or which the assets of Buyer are bound by or subject to, or
from which the Buyer receives or is entitled to receive a benefit, is required
in connection with the execution, delivery and performance by the Buyer of this
Agreement or any other Transaction Documents to which the Buyer is a party, or
the taking of any action by Buyer herein contemplated.
Section 5.7 Investment Intent.
The Buyer is purchasing the Shares for its own account, not for the
benefit or account of any other person, for investment purposes only, and not
with a view to, or in connection with, the distribution or resale thereof. The
Buyer has no agreement or other arrangement with any person to sell, transfer or
pledge any part of the Shares and the Buyer has no plans to enter into any such
agreement or arrangement.
Section 5.8. Adequate Representation.
Buyer has discussed with such professional, legal, tax and financial
advisors as it has independently chosen to engage the implications of and
obligations resulting from the execution of this Agreement and the consummation
of the transactions contemplated hereby and has received adequate legal, tax and
financial representation with respect to the drafting and negotiation of this
Agreement and the structure of the transactions contemplated hereby.
The Buyer represent and agrees that Buyer has fully and completely
investigated, examined and inspected the Company's premises and tangible assets
and that it is acquiring the same "as is" reasonable wear and tear accepted.
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Section 5.9 Accuracy of Information.
No statement contained in this Agreement or any Exhibit or Schedule
attached hereto, and no statement contained in any certificate or other
instrument or document furnished by or on behalf of Buyer pursuant to this
Agreement, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact that is necessary to make the
statements contained herein or therein not misleading. All representations
herein shall be true as of closing and shall survive the closing to the extent
set forth hereunder.
Prior to Closing, Buyer shall not interfere with the operation of
Company's business and operations or do anything that will adversely affect the
Seller or Company's performance under this agreement.
ARTICLE 6CERTAIN COVENANTS OF THE SHAREHOLDERS
The Shareholders and the Company hereby covenant and agree with the Buyer
that they shall do, or cause to be done, the following, between the date of this
Agreement and the Closing Date.
Section 6.1. Access and Information.
The Shareholders will cause the Company to afford to the Buyer and the
Buyer's accountants, counsel and other representatives reasonable access from
time to time during normal business hours, after the provision of reasonable
prior written notice thereof, throughout the period from the date hereof until
the Closing Date to the properties, books, contracts, commitments, personnel,
independent accountants and records of the Company. During such period, the
Shareholders will cause the Company to furnish or make available to the Buyer
and the Buyer's accountants, counsel and other representatives copies of such
documents and all such other information concerning the Company as the Buyer
reasonably may request. The Shareholders will cause the Company to cooperate
with the Buyer in the Buyer's efforts to obtain reasonable access, from time to
time until the Closing Date, after the provisions of reasonable prior written
notice thereof, to key customers of the Company, with the Company's consent and
in their sole discretion for the purpose of obtaining information about their
business with the Company from such customers' perspective and their intentions
regarding ongoing relationships with the Company after the Closing.
Section 6.2. No Solicitation or Negotiation.
(a) Prior to the closing or the termination of this Agreement, the Company
and the Shareholders will not, and will not permit any of the Company's
officers, directors, affiliates, employees, representatives or agents to,
directly or indirectly:
(i) solicit, initiate, consider, encourage or accept any other
proposals or offers from any Person other than the Buyer involving or
relating to (A) any acquisition or purchase of any of the capital stock of
the Company or a material portion of the assets of the Company or (B) any
other extraordinary business transaction that would reasonably be expected
to be inconsistent with, conflict with or otherwise have a material
adverse effect on the consummation of the transactions contemplated
hereby, or
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(ii) participate in any discussions, conversations, negotiations and
other communications with any Person other than the Buyer regarding, or
furnish to any other Person any non-public information with respect to, or
otherwise cooperate in any way, assist or participate in, facilitate or
encourage any effort or attempt by any other Person to seek to do any of
the foregoing.
(b) The Company and the Shareholders will, and will cause the Company's
officers, directors, affiliates, employees, representatives or agents to,
immediately cease and cause to be terminated all existing discussions,
conversations, negotiations and other communications with any Person conducted
with respect to any of the foregoing prior to the date hereof.
(c) The Shareholders promptly will notify the Buyer if any Shareholder,
the Company or any officer, director, Affiliate, employee, representative or
agent of the Company are approached with respect to, or are otherwise made aware
of, any such discussions or any such inquiries or proposals and will, in any
such notice to the Buyer, indicate in reasonable detail the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or other contact. The Shareholders
will not, and will not permit the Company to, release any Person from, or waive
any provision of, any confidentiality or standstill agreement to which the
Company is a party, without the prior written consent of the Buyer.
Section 6.3. Conduct of the Business of the Company.
(a) From the date hereof through the Closing Date or the termination of
this Agreement, as the case may be, except as otherwise permitted or
contemplated by this Agreement or consented to in writing by the Buyer, the
Company will (i) preserve in all material respects the Business of the Company,
(ii) use its reasonable efforts to keep available to the Company the services of
all current officers and key employees identified on Schedule 4.36 and (iii) use
its reasonable efforts to preserve in all material respects the goodwill of the
suppliers, customers, employees and others currently having business relations
with the Company in a manner consistent with its normal practice.
(b) From the date hereof through the Closing Date or the termination of
this Agreement, as the case may be, except as otherwise permitted or
contemplated by this Agreement or consented to in writing by the Buyer, which
consent shall not be unreasonably withheld or delayed, the Company will continue
the operation of the Business of the Company in the ordinary course and in a
manner consistent with its normal practice, and to maintain the assets,
properties and rights of the Company in a manner consistent with its normal
practice the date hereof, subject to ordinary wear and tear. Without limiting
the generality of the foregoing, except as otherwise permitted or contemplated
by this Agreement or consented to in writing by the Buyer, which consent shall
not be unreasonably withheld or delayed, the Company will not permit the Company
to:
(i) incur, discharge or satisfy any obligation or liability or any
Security Interest, equities or claims, except in the ordinary course of
business in a manner consistent with its normal practice or in connection
with the performance of this Agreement;
(ii) incur any debt or increase the amount of any existing debt,
other than in the ordinary course of business in a manner consistent with
its normal practice;
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(iii) increase or establish any reserve for taxes or other
liabilities on its books or otherwise provide therefore, except for taxes
or other liabilities arising in the ordinary course of business in a
manner consistent with its normal practice since December 31, 2005; write
up or down the value of inventory or determine as collectible any notes or
accounts receivable that were previously considered to be uncollectible;
or voluntarily make any change in any of its methods of accounting or in
any of its accounting principles or practices except as required by GAAP
or applicable law or in a manner consistent with its normal practice;
(iv) purchase, lease, sell, assign or transfer any material asset,
property or business or waive or permit to lapse any material right,
except in the ordinary course of business; or make or authorize any
capital expenditure in excess of $50,000 in the aggregate;
(v) make any loan to any Shareholder or any relative or Affiliate of
any Shareholder, or declare, set aside or pay to any Shareholder any
dividend or other distribution in respect of its capital stock, transfer
any asset or pay any money to any Shareholder or any relative or Affiliate
of any Shareholder other than the payment of wages, salaries, bonuses and
other benefits in the ordinary course of business to Shareholders who are
also employees of the Company; or enter into or agree to enter into any
transaction with or for the benefit of any Shareholder or any relative or
Affiliate of any Shareholder other than the transactions contemplated
pursuant to this Agreement;
(vi) reclassify or change in any manner the outstanding shares of
capital stock of the Company or issue or agree to issue, sell, transfer,
pledge, encumber or deliver any stock, bond, debenture or other security
of the Company or any warrant, obligation, subscription, option,
convertible security or other commitments under which any additional
shares of capital stock of the Company may be authorized, issued or
transferred from treasury except as contemplated by this Agreement and the
other Transaction Documents;
(vii) except as set forth in Schedule 6.03(b)(vii), grant any
increase in the compensation payable to any officer, director, consultant,
employee or agent, except for increases in the compensation payable in the
ordinary course of business to employees in amounts and at times
consistent with past practice; fail to pay or accrue for compensation
payable to officers, directors, consultants, employees or agents in
compliance with existing agreements or arrangements or consistent with
prior periods; enter into or amend any contract for the employment of any
officer, employee or other person that is not terminable upon 30 days
notice or less without material liability to the Company; enter into any
contract or collective bargaining agreement with any labor union; enter
into or agree to enter into any bonus, pension, profit-sharing,
retirement, stock purchase, stock option, deferred compensation, incentive
compensation, hospitalization, insurance or similar plan, contract or
understanding providing for employee benefits, other than in the ordinary
course of business consistent with past practice;
(viii) enter into any contract, except in the ordinary course of
business consistent with past practice, that is not terminable upon 30
days notice or less without material liability to the Company; enter into
any contract, except in the ordinary course of business consistent with
past practice, continuing for a period of more than three months from its
date that is not terminable upon 30 days notice or less without material
liability to the Company;
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(ix) enter into any agreement or instrument, except in the ordinary
course of business consistent with past practice, relating to the
borrowing or lending of money or extension of credit or guarantee or
indemnify any person or entity with respect to any obligation for borrowed
money or otherwise or make or permit to be made any amendment,
modification, cancellation or termination of any material contract,
agreement, lease, license, finance agreement or written evidence of
indebtedness, except as contemplated by this Agreement;
(x) extend credit to any customer in excess of amounts in accordance
with past practice or depart from the normal and customary trade, discount
and credit policies of the Company;
(xi) settle any administrative or judicial proceedings;
(xii) amend the certificate of incorporation or the bylaws of the
Company in a manner that would materially adversely affect or delay the
consummation of the transactions contemplated hereby; or
(xii) make any investment in the assets or securities of any Person
in excess of $50,000 in the aggregate.
Section 6.4. Compliance with Laws.
The Shareholders will use reasonable efforts to cause the Company to
comply in all material respects with all applicable laws, statutes, judgments,
decrees, injunctions, orders, writs, rules and regulations of any governmental
authority.
Section 6.5. Performance of Obligations.
The Company will perform, in a timely manner and in all material respects,
its obligations under each Contract and otherwise to use its reasonable best
efforts to keep each such Contract in full force and effect.
Section 6.6. Insurance.
The Company will maintain its existing insurance policies in full force
and effect.
Section 6.7. Permits.
The Company will exercise reasonable efforts to cause all Permits to
remain in full force and effect. The Company will cooperate in good faith with
the Buyer and take such actions as may be reasonably required by the Buyer to
enable the Company to conduct its Business under the Company Permits after the
Closing in substantially the same manner as prior to the Closing.
Section 6.8. Other Changes.
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Except as otherwise expressly provided in this Agreement, the Shareholders
will not take any action, and will use their reasonable efforts to prevent the
occurrence of any event within the control of the Company or the Shareholders,
that would cause any representation or warranty contained herein to be untrue or
incomplete in any material respect on or before the Closing Date. The
Shareholders will give prompt written notice to the Buyer of any (i) change that
would render any representation or warranty made by the Shareholders hereunder
to be untrue or incomplete in any material respect as of the date of such change
or (ii) Material Adverse Change.
Section 6.9. Approvals, Consents and Further Assurances.
The Shareholders shall use their reasonable efforts to obtain in writing
as promptly as possible all approvals, consents and waivers required in order to
effectuate the transactions contemplated hereby, and shall deliver to Buyer
copies, reasonably satisfactory in form and substance to Buyer, of such
approvals and consents. The Shareholders shall also use their reasonable efforts
to ensure that the other conditions set forth in Article 8 hereof are satisfied
by the Closing Date.
ARTICLE 7
CERTAIN COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees with the Shareholders that between
the date hereof and the Closing Date:
(a) The Buyer shall have furnished to the Shareholders (i) certificates of
the Secretary of State of the State of New York, dated as of a date not more
than five business days prior to the Closing Date, attesting to the
organization, qualifications to do business and good standing of the Buyer and
(ii) a certificate of the Secretary of the Buyer, certifying to the Articles of
Incorporation and By-laws of the Buyer.
(b) The Buyer shall have furnished an opinion of counsel, from counsel to
the Buyer, dated the Closing Date reasonably satisfactory in form and substance
to Seller's counsel with respect to the matters set forth in the form annexed
hereto as Exhibit 7(b). As to matters of fact, such opinion may rely upon
certificates furnished by appropriate officers or directors of Buyer and public
officials.
(c) The Buyer shall exercise reasonable efforts to obtain on terms and
conditions reasonably satisfactory to the Shareholders all approvals and
consents of third parties required to be obtained to consummate the transactions
contemplated hereby by virtue of any law, regulation or agreement applicable to
the Buyer.
(d) The Buyer shall exercise reasonable efforts to secure a minimum of
$5,100,000 of financing to be available for the consummation of the transactions
contemplated by this Agreement.
(e) The Buyer shall exercise reasonable efforts to secure within 90 days
of the date hereof the written consent of its secured lender to the transaction
contemplated hereby.
(f) The Buyer shall exercise reasonable efforts to complete its due
diligence of the Company to Buyer's satisfaction within 90 days of the date
hereof.
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ARTICLE 8
CONDITIONS OF CLOSING
Section 8.1. Conditions to the Obligation of Buyer to Close.
The obligations of the Buyer to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, on or prior to the Closing
Date, of the following conditions to be fulfilled by the Shareholders or the
Company, as the case may be, any of which may be waived in whole or in part by
the Buyer:
(a) The representations and warranties of the Shareholders and the Company
set forth in this Agreement shall be true, correct and complete in all material
respects as of the date hereof and as of the Closing Date as though such
representations and warranties were made anew at and as of such date (or if an
earlier date is specified in such representation and warranty, as of such
earlier date), and the Shareholders shall have duly performed in all material
respects all agreements and covenants herein required to be performed by them on
or before the Closing Date.
(b) The Company shall not have suffered or incurred any Material Adverse
Change since the date hereof.
(c) The Shareholders shall have furnished the Buyer with certificates,
executed by each of the Shareholders and dated the Closing Date, confirming the
matters expressed in Section 8.1(a) and (b).
(d) The Shareholders shall have furnished to the Buyer (i) certificates of
the Secretary of State of the State of New York, dated as of a date not more
than five business days prior to the Closing Date, attesting to the
organization, qualifications to do business and good standing of the Company and
(ii) a certificate of the Secretary of the Company, certifying to the Articles
of Incorporation and By-laws of the Company.
(e) All approvals and consents of third parties required to be obtained by
virtue of any law, regulation or agreement applicable to the Company or Sellers
to consummate the transactions contemplated hereby shall have been obtained on
terms and conditions reasonably satisfactory to the Buyer.
(f) There shall be in effect Employment Agreements between the Company and
each of George Elkins, Carole Tate and Joseph Coonan substantially in the forms
annexed hereto as Exhibits C, D and E (the "Employment Agreements").
(g) The Tangible Net Worth of the Company as of the Closing Date shall be
at least $1,900,000.
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(h) The Buyer shall have received an opinion, dated the Closing Date, of
counsel to the Shareholders and the Company in substantially the form of Exhibit
E annexed hereto.
(i) Such members of the Board of Directors and such officers of the
Company as may be designated by the Buyer prior to the Closing Date shall have
tendered their resignations, effective at the Closing, as such directors and
officers.
(k) Each Shareholder and each officer and director of the Company shall
have executed and delivered releases, in form and substance reasonably
satisfactory to the Buyer, releasing the Company from any liability or
obligation owed by the Company to such person as of the Closing Date, other than
obligations arising under this Agreement.
(l) The Company shall have sufficient records to allow an expeditious and
accurate audit of the Company's financial records for at least 2005 and 2006.
Section 8.2. Additional Conditions to the Obligation of Buyer to Close.
The obligations of the Buyer to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, on or prior to
the Closing Date, of the following conditions which Buyer shall exercise
reasonable efforts to fulfill and any of which may be waived in whole or in part
by the Buyer:
(a) The Buyer shall have secured a minimum of $5,100,000 of financing to
be available for the consummation of the transactions contemplated by this
Agreement.
(b) The Buyer shall have completed due diligence of the Company within the
time period stated herein.
Section 8.3. Conditions of the Shareholders to Close.
The obligation of the Shareholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, on or prior to
the Closing Date, of the following conditions to be fulfilled by the Buyers, any
of which may be waived in whole or in part by the Shareholders:
(a) The representations and warranties of the Buyer set forth in this
Agreement shall be true, correct and complete in all material respects as of the
Closing Date as though such representations and warranties were made anew at and
as of such date (or if an earlier date is specified in such representation and
warranty, as of such earlier date), and the Buyer shall have duly performed in
all material respects all agreements and covenants herein which are required to
be performed by the Buyer on or before the Closing Date.
(b) The Buyer shall have furnished the Shareholders with a certificate,
executed on behalf of the Buyer by one of its executive officers duly authorized
by the Buyer as a signatory and dated the Closing Date, confirming the matters
expressed in Section 8.2(a).
(c) All consents of third parties required for the Buyer to consummate the
transactions contemplated hereby shall have been obtained by Buyer on terms and
conditions reasonably satisfactory to the Shareholders.
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(d) The Employment Agreements shall have been entered into.
(e) The Buyer shall have furnished to the Shareholders (i) certificates of
the Secretary of State of the State of New York, dated as of a date not more
than five business days prior to the Closing Date, attesting to the
organization, qualifications to do business and good standing of the Buyer and
(ii) a certificate of the Secretary of the Buyer, certifying to the Articles of
Incorporation and By-laws of the Buyer.
(e) The Buyer shall have furnished an opinion of counsel, from Counsel of
Buyer, dated the Closing Date and reasonably satisfactory form and substance to
Seller's counsel, with respect to the matters set forth herein in a form
substantially attached hereto as Exhibit F. As to matters of fact, such opinion
may expressly rely upon certificates furnished by appropriate officers or
directors of Buyer and by public officials.
ARTICLE 9
AGREEMENTS REGARDING TAXES
Section 9.1. Tax Returns.
The Buyer will prepare or cause to be prepared any Tax Returns of the
Company that are due or may be filed by the Company from and after the Closing
Date, other than any income Tax returns required to be filed for periods ending
on or prior to the Closing Date, which will be prepared by the Shareholders (at
their expense) and delivered in a timely manner to the Buyer. In the case of Tax
returns of the Company prepared by the Shareholders, the Shareholders will
prepare such returns consistent with past practice and in accordance with
applicable law, will provide to the Buyer drafts of any such Tax returns that
include any period ending on the Closing Date no later than 5 days before their
due date, with regard to extensions actually granted, and will permit the Buyer
to review, comment on and approve such draft Tax returns. The Buyer will not
unreasonably withhold or delay its approval to any such draft Tax returns and,
after such approval, will execute and file such Tax returns. The Buyer will
cooperate with the Shareholders with respect to any information or documentation
reasonably required by the Shareholders in preparing such Tax returns.
Section 9.2. Cooperation on Tax Matters.
The Buyer and the Shareholders shall cooperate fully, as and to the extent
reasonably requested, in connection with the filing of Tax Returns pursuant to
this Article and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon another 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 Buyer and the Shareholders shall, and
shall cause the Company to, retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority.
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ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
Section 10.1. Survival.
The representations and warranties, set forth in this Agreement, in any
Exhibit or Schedule hereto and in any certificate or instrument delivered in
connection herewith shall survive for a period of twelve (12) months after the
Closing Date (the "Warranty Period") and shall thereupon terminate and expire
and shall be of no force or effect thereafter, except (i) with respect to any
claim, written notice of which shall have been delivered to Buyer or the
Shareholders, as the case may be, in accordance with Section 10.6 and prior to
the end of the Warranty Period, such claim shall survive the termination of such
Warranty Period for as long as such claim is unsettled, and (ii) with respect to
any litigation which shall have been commenced to resolve such claim on or prior
to such date. Notwithstanding the foregoing, solely with respect to the
representations and warranties regarding taxes (Section 4.28), ERISA matters
(Section 4.24), and environmental matters (section 4.27), the applicable
Warranty Period shall be the applicable statute of limitations.
Section 10.2. Indemnification by the Shareholders.
The Shareholders hereby covenant and agree with Buyer that the
Shareholders shall indemnify Buyer and its shareholders, respective directors,
officers, employees and Affiliates of Buyer, and each of their successors and
assigns (individually, a "Buyer Indemnified Party"), and hold them harmless
from, against and in respect of any and all costs, losses, claims, liabilities
(including for Taxes), fines, penalties, damages and expenses (including
interest, if any, imposed in connection therewith, court costs and reasonable
fees and disbursements of counsel) (collectively, "Damages") incurred by any of
them resulting from any claim, liability, obligation or expense arising out of
or related to the failure of the Company or the Shareholders to pay any Taxes
due in respect of the operation of the Company prior to the Closing Date.
Section 10.3. Indemnification by Buyer.
Buyer hereby covenants and agrees with the Shareholders that Buyer shall
indemnify each Shareholder (individually a "Shareholder Indemnified Party") and
hold him harmless from, against and in respect of any and all Damages incurred
by such Shareholder resulting from any misrepresentation, breach of any
representation or warranty in this Agreement or the non-fulfillment in any
material respect of any agreement, covenant or obligation by Buyer made in this
Agreement (including without limitation any Exhibit or Schedule hereto and any
certificate or instrument delivered in connection herewith).
Buyer agrees to indemnify and hold harmless Seller from the payment of all
federal and state tax on the income attributable to stock purchased hereunder
from and after the Closing Date. Buyer further agrees to indemnify and hold
harmless Seller from all liabilities and obligations of the Company as a result
of ownership of the Stock and Assets, from and after the Closing Date for acts
that occur after the Closing Date including all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses (including attorneys fees)
that are incidental to any such liability or obligation.
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Section 10.4. Right to Defend.
If the facts giving rise to any such indemnification shall involve any
actual claim or demand by any third party against a Buyer Indemnified Party or
Shareholder Indemnified Party (referred to herein as an "Indemnified Party"),
then the Indemnified Party will give prompt written notice of any such claim to
the indemnifying party, which notice shall set forth in reasonable detail the
nature, basis and amount of such claim (the "Notice of Third Party Claim"). It
is a condition precedent to the applicable indemnifying party's obligation to
indemnify the applicable Indemnified Party for such claim that such Indemnified
Party timely provide to such indemnifying party the applicable Notice of Third
Party Claim, provided that the failure to provide such Notice of Third Party
Claim shall only relieve such indemnifying party of its or his obligation to
indemnify for such claim only to the extent that such indemnifying party has
been prejudiced by such Indemnified Party's failure to give the Notice of Third
Party Claim as required. The indemnifying party receiving such Notice of Third
Party Claim may (without prejudice to the right of any Indemnified Party to
participate at its own expense through counsel of its own choosing) undertake
the defense of such claims or actions at its expense with counsel chosen and
paid by its giving written notice (the "Election to Defend") to the Indemnified
Party within thirty (30) days after the date the Notice of Third Party Claim is
deemed received; provided, however, that the indemnifying party receiving the
Notice of Third Party Claim may not settle such claims or actions without the
consent of the Indemnified Party, which consent will not be unreasonably
withheld or delayed, except if the sole relief provided is monetary damages to
be borne solely by the indemnifying party; and, provided further, if the
defendants in any action include both the indemnifying party and the Indemnified
Party, and the Indemnified Party shall have reasonably concluded that counsel
selected by the indemnifying party has a conflict of interest because of the
availability of different or additional defenses to the parties, the Indemnified
Party shall cooperate in the defense of such claim and shall make available to
the indemnifying party pertinent information under its control relating thereto,
but the Indemnified Party shall have the right to its own counsel and to control
its defense and shall be entitled to be reimbursed for all reasonable costs and
expenses incurred in such separate defense. In no event will the provisions of
this Article reduce or lessen the obligations of the parties under this Article,
if prior to the expiration of the foregoing thirty (30) day notice period, the
Indemnified Party furnishing the Notice of Third Party Claim responds to a third
party claim if such action is reasonably required to minimize damages or avoid a
forfeiture or penalty or because of any requirements imposed by law. If the
indemnifying party receiving the Notice of Third Party Claim does not duly give
the Election to Defend as provided above, then it will be deemed to have
irrevocably waived its right to defend or settle such claims, but it will have
the right, at its expense, to attend, but not otherwise to participate in,
proceedings with such third parties; and if the indemnifying party does duly
give the Election to Defend, then the Indemnified Party giving the Notice of
Third Party Claim will have the right at its expense, to attend, but not
otherwise to participate in, such proceedings. The parties to this Agreement
will not be entitled to dispute the amount of any Damages (including reasonable
attorney's fees and expenses) related to such third party claim resolved as
provided above.
Section 10.5. Subrogation.
If the Indemnified Party receives payment or other indemnification from
the indemnifying party hereunder, the indemnifying party shall be subrogated to
the extent of such payment or indemnification to all rights in respect of the
subject matter of such claim to which the Indemnified Party may be entitled, to
institute appropriate action against third parties for the recovery thereof,
including under any insurance policies, and the Indemnified Party agrees to
assist and cooperate in good faith with the indemnifying party and to take any
action reasonably required by such indemnifying party, at the expense of such
indemnifying party, in enforcing such rights.
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If the Shareholders shall have paid Buyer Indemnified Party for an
indemnified claim arising out of Section 4.21 hereof or otherwise, and the Buyer
Indemnified Party or the Company subsequently receives payment under insurance
policies (existing prior to the Closing) covering such claim, the Buyer
Indemnified Party shall repay to such Shareholders the amount of such prior
payment made by Shareholders; provided, however, such repayment shall not exceed
the actual amount received by the Buyer Indemnified Party under such policy,
less all reasonable fees (including attorneys' fees) incurred by the Buyer
Indemnified Party in pursuing and collecting under such policy.
Section 10.6. Notes.
Payments due under the Notes shall not be withheld by the Buyer for any
reason to offset any indemnification obligations of the Shareholder to the Buyer
arising under this Agreement.
ARTICLE 11
TERMINATION
Section 11.1. Termination Events.
Subject to the provisions of Section 11.2, this Agreement may be
terminated by written notice given at or prior to the Closing Date in the manner
hereinafter provided:
(a) by either Buyer or the Shareholders if a material default or breach
shall be made by the other party hereto with respect to the due and timely
performance of any of its covenants and agreements contained herein, or with
respect to the due compliance with any of its representations, warranties or
covenants, and, after notice of such default has been received by the defaulting
party, such default cannot be cured prior to the Closing Date, or the date that
is fifteen (15) days after the receipt of such notice, whichever is later, and
has not been waived;
(b) (i) by Buyer if all of the conditions set forth in Section 8.1 or
8.2 shall not have been satisfied on or before the Closing Date, other
than through failure of Buyer to fully comply with its obligations
hereunder, and shall not have been waived by Buyer on or before such date;
or
(ii) by the Shareholders, if all of the conditions set forth in
Section 8.3 shall not have been satisfied on or before the Closing Date,
other than through failure of the Shareholders to fully comply with their
obligations hereunder, and shall not have been waived by all of the
Shareholders on or before such date.
(c) by mutual consent of Buyer and all of the Shareholders; or
(d) by either Buyer or the Shareholders if the Closing shall not have
occurred, other than through failure of any such party to fulfill its
obligations hereunder, on or before April 9, 2007.
Section 11.2. Effect of Termination.
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(a) In the event that this Agreement shall be terminated pursuant to
Section 11.1 (c) or (d), all further obligations of Buyer and those Shareholders
as to which the termination is effective under this Agreement shall terminate
without further liability of either party.
(b) (i) If this Agreement is terminated by one or more Shareholders
pursuant to Section 11.1(a) or pursuant to Section 11.1(b)(ii) because one
or more of the conditions set forth in Section 8.3 is not satisfied as a
result of the Buyer's failure to comply with its obligations hereunder,
then the Shareholders shall have the right to be paid by the Buyer as a
"break-up" fee an amount equal to the expenses, including legal and
accounting fees, incurred by the Shareholders and the Company in
connection herewith one hundred fifty thousand ($150,000) dollars and none
of the Shareholders shall have any further recourse against the Buyer.
ARTICLE 12
MISCELLANEOUS
Section 12.1. Expenses.
Except as and to the extent otherwise provided in this Agreement, if the
transactions contemplated by this Agreement are not consummated, the
Shareholders and Buyer shall each pay their own respective expenses and the fees
and expenses of their respective counsel and other experts. Notwithstanding
anything herein to the contrary in the event that the Closing occurs or does not
occur through no intentional default of the Company or Shareholders, Buyer shall
pay to $150,000 to Shareholders including the legal and accounting fees incurred
by the Shareholders and the Company. Payment pursuant to this section is to be
in accordance with and not in addition to the "break up" fee in Section
11.2(b)(i).
Section 12.2. Waivers.
No action taken pursuant to this Agreement, including any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein or in any other documents. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach. Any party hereto may, at or
before the Closing, waive any conditions to its obligations hereunder which are
not fulfilled.
Section 12.3. Binding Effect; Benefits.
This Agreement shall inure to the benefit of the parties hereto and shall
be binding upon the parties hereto and their respective successors and assigns.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto, the
Buyer Indemnified Parties, the Shareholder Indemnified Parties or their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
Section 12.4. Assignment; Delegation.
Except as provided in Section 7.1, no party to this Agreement may assign
its rights or delegate its obligations hereunder without the prior written
consent of all of the other parties. Any assignment or delegation in violation
of this Section 12.4 shall be null and void.
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Section 12.5. Notices.
All notices, requests, demands and other communications which are required
to be or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or after dispatch by
recognized overnight courier to the party to whom the same is so given or made:
If to the Buyer, to:
Gales Industries Incorporated
1479 North Clinton Avenue
Bay Shore, NY 11706
Attn: Louis A. Giusto
Fax: 212-639-1509
With a copy to:
Eaton & Van Winkle LLP
3 Park Avenue,
New York, NY 10016
Attn: Vincent J. McGill, Esq.
Fax: 212-779-9928
or at such other address as the Buyer may have advised the other parties hereto
in writing; and
If to the Company, to:
Sigma Metals, Inc.
45 Jefryn Boulevard
Deer Park, New York 11729
Attn: Carole Tate, President
Fax: (631) 243 -2100
or at such other address as the Company may have advised the Buyer in writing;
and
If to a Shareholder at the address set forth beneath his or her signature
on the execution page hereof, or at such other address as each such Shareholder
may have advised the Buyer in writing.
With in the case of the Company and the Shareholders copies to:
Berkman, Henoch, Peterson & Peddy, P.C.
100 Garden City Plaza
Garden City, New York 11530
Attn: William Ife, Esq.
Fax No. 516 222 6209
All such notices, requests and other communication shall be deemed to have
been received on the date of delivery thereof (if delivered by hand) and on the
next day after the sending thereof (if by overnight courier).
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Section 12.6. Entire Agreement.
This Agreement (including the Schedules and Exhibits hereto) and the other
Transaction Documents constitute the entire agreement and supersede all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements,
representations, warranties, statements, promises and understandings, whether
written or oral, with respect to the subject matter hereof. No party hereto
shall be bound by or charged with any written or oral arguments,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement or in any Schedule or Exhibits hereto
or any other Transaction Documents, or in certificates and instruments to be
delivered pursuant hereto on or before the Closing.
Section 12.7. Headings; Certain Terms.
The section and other headings contained in this Agreement are for
reference purposes only and shall not be deemed to be a part of this Agreement
or to affect the meaning or interpretation of this Agreement.
Section 12.8. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which when executed, shall be deemed to be an original and all of which together
shall be deemed to be one and the same instrument.
Section 12.9. Governing Law.
This Agreement, and the rights and obligations of the parties hereto under
this Agreement, shall be governed by, construed and enforced in accordance with
the laws of the State of New York, without giving effect to the choice of law
principles thereof. Any action arising out of the breach or threatened breach of
this Agreement shall be commenced in a state court of New York and each of the
parties hereby submits to the jurisdiction of such courts for the purpose of
enforcing this Agreement.
Section 12.10. Severability.
If any term or provision of this Agreement shall to any extent be finally
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement shall not be affected thereby, and each term and
provision of the agreement shall be valid and enforced to the fullest extent
permitted by law.
Section 12.11. Amendments.
This Agreement may not be modified or changed except by an instrument or
instruments in writing signed by the party or parties against whom enforcement
of any such modification or amendment is sought.
Section 12.12. Transaction Taxes.
The Shareholders shall pay any and all taxes arising out of the transfer
of the Shares to the Buyer and imposed upon the sale of the Business and
transfer of ownership thereof to Buyer.
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Section 12.13. Section References.
All references contained in this Agreement to any section number are
references to sections of this Agreement unless otherwise specifically stated.
Section 12.14. Exhibits and Schedules.
The Exhibits and Schedules attached hereto or referred to herein are
incorporated herein and made a part hereof. As used herein, the expression "this
Agreement" includes such Exhibits and Schedules.
Section 12.15. Press Releases and Public Announcements.
The Buyer shall have the right to issue press releases and make public
announcements relating to the matters contemplated by this Agreement, provided,
however, that the Shareholders will be given an opportunity to review and make
suggestions regarding such disclosure. The Shareholders will not issue any press
release or make any public announcement disclosing the execution and delivery of
this Agreement.
Section 12.16. Survival.
On termination of this Agreement and the payment of all amounts, if any,
that may be due in accordance with Section 11.2, all of the rights and
obligations of the parties hereunder shall expire.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute and deliver this Agreement as of the first date
written above.
GALES INDUSTRIES INCORPORATED
By: /s/ Michael A. Gales
-------------------------
Name: Michael A. Gales
Title: Executive Chairman
/s/ George Elkins
-----------------------------
GEORGE ELKINS
45 Jefryn Boulevard
Deer Park, New York 11729
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/s/ Carole Tate
-----------------------------
CAROLE TATE
45 Jefryn Boulevard
Deer Park, New York 11729
/s/ Joseph Coonan
-----------------------------
JOSEPH COONAN
45 Jefryn Boulevard
Deer Park, New York 11729
SIGMA METALS, INC.
By: /s/ Carole Tate
-------------------------
Name: Carole Tate
Title: President
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Gales Industries Incorporated Announces Acquisition of Strategic Metals
Distributor
BAY SHORE, NY - January 3, 2006 -- Gales Industries Incorporated (OTCBB: GLDS),
a holding company established to consolidate manufacturers, engineering
integrators and specialized service providers to the aerospace/defense industry,
today announced that it had signed a Stock Purchase Agreement for the
acquisition of all of the outstanding shares of Sigma Metals, Inc., a strategic
metals distributor based in Deer Park, Long Island, NY. As part of the purchase
agreement Gales Industries has agreed to pay approximately $5.0 million plus an
amount equal to Sigma's earnings for the period from January 1, 2006, until the
closing. The purchase price will be paid in a combination of cash, restricted
stock, and debt. Further, Gales will assume approximately $1.2 million of
Sigma's indebtedness. The closing of the acquisition is subject to standard due
diligence and applicable financial reporting requirements.
Michael A. Gales, Executive Chairman of Gales Industries, said, "We are pleased
to announce our second business acquisition since commencing our consolidation
program. The Company believes Sigma Metals brings to Gales Industries numerous
advantages in our pursuit of growth, margin expansion and expanded services to
our customers".
Commenting further, Peter D. Rettaliata, Gales Industries' President and Chief
Executive Officer, added, "With approximate annual revenues of $18 million,
Sigma Metals will increase our trailing twelve months revenue by nearly 60%, and
the Company expects Sigma to be accretive to earnings in addition to it being
cash flow positive. Strategically, Sigma Metals will provide a vehicle within
the Group enabling us to leverage our position in the aerospace raw materials
industry, providing both a hedge against price inflation and improvement of
overall access to critical sources of supply.
Sigma Metals is a specialty distributor of strategic metals, primarily aluminum,
stainless steels of various grades, titanium and other exotic end user specified
materials. Sigma's products are sold to both aerospace/defense as well as
commercial accounts throughout the U.S. and in numerous international markets.
Customers include the world's largest aircraft manufacturers, subcontractors,
original equipment manufacturers and various government agencies.
Legal representation for Gales Industries in this transaction was provided by
Eaton & Van Winkle LLP of New York, NY. Legal representation for Sigma Metals in
this transaction was provided by Berkman, Henoch, Peterson & Peddy, P.C. of
Garden City, NY.
ABOUT GALES INDUSTRIES INCORPORATED
Gales Industries Incorporated (OTCBB: GLDS) is a holding company established to
engage in the consolidation of manufacturers, engineering integrators and
related service providers to the aerospace/defense and commercial aviation
industries. The Company is focused on flight safety and other critical
componentry. The Company's first acquisition was of Air Industries Machining
Corp., a leading aerospace/defense manufacturer and engineering integrator based
in Bay Shore, Long Island, NY. Consolidation opportunities include companies
operating within highly synergistic disciplines of manufacturing, technical
services and strategic products distribution. The Company's strategy and
attendant tactical plan is to execute its consolidation principally amongst Tier
III, IV and V aerospace/defense subcontractors. Gales offers a tailored exit
strategy or management continuity strategy in exchange for qualified
acquisitions, and targets technically superior middle market organizations with
revenues of up to $100 million annually. Information on the Company and its
products may be found online at www.airindmc.com.
# # #
Certain matters discussed in this press release are 'forward-looking statements'
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. In particular, the Company's
statements regarding trends in the marketplace, firm backlog, projected backlog,
potential future results and acquisitions, are examples of such forward-looking
statements. The forward-looking statements include risks and uncertainties,
including, but not limited to, the timing of projects due to the variability in
size, scope and duration of projects, estimates, projections and forecasts made
by management with respect to the Company's critical accounting policies, firm
backlog, projected backlog, regulatory delays, government funding and budgets,
matters pertaining to potential and pending acquisitions subject to and after
closings, and other factors, including results of financial audits and general
economic conditions, not within the Company's control. Certain of the Company's
forward looking statements, with the projected backlog in particular, are
formulated based on management's extensive industry experience and understanding
and assessment of industry trends, customer requirements, and related government
spending. Projected backlog may be subject to variability and may increase or
decrease at any time based on a variety of factors, including but not limited to
modifications of previously released orders, acceleration of orders under
general purchase agreements, etc. The factors discussed herein and expressed
from time to time in the Company's filings with the Securities and Exchange
Commission could cause actual results and developments to be materially
different from those expressed in or implied by such statements. The
forward-looking statements are made only as of the date of this press release
and the Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Contacts:
Jordan M. Darrow
Darrow Associates, Inc.
631-367-1866
jdarrow@darrowir.com
or
Gales Industries Incorporated
Michael A. Gales
631-328-7024
mag@airindmc.com