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):
March 9, 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 March 9, 2007, Gales Industries Incorporated (the "Company") entered into a
Stock Purchase Agreement (the "Purchase Agreement") with John Gantt and Lugenia
Gantt, the shareholders (the "Shareholders") of Welding Metallurgy, Inc., a New
York corporation ("Welding Metallurgy"). 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 Welding Metallurgy.
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 the shares is $6,050,000, subject
to adjustment for working capital, payable in a combination of cash, a secured
promissory note (the "Note") and shares of the Company's common stock (the
"Purchase Price Shares").
We intend to finance the cash portion of the purchase price. While highly
confident that we will obtain the necessary financing by the intended Closing
Date to enable us to purchase the shares, there can be no assurances that we
will be able to do so.
The Note shall have a term of three years commencing on the Closing Date, accrue
interest at a rate equal to the prime rate (as defined) and contain other
customary terms and conditions. The amount of Purchase Price Shares to be issued
to the Shareholders is equal to $550,000 divided by 90% of the average closing
price of the Company's common stock during the 20 trading days immediately
preceding the Closing Date.
Concurrent with the Closing, the Company will enter into a consulting agreement
with John Gantt. The consulting agreement shall provide for an initial terms of
six months, subject to extension for an additional three months upon mutual
agreement of the parties, with compensation of $30,000 per month, a covenant not
to compete with the Company and Welding Metallurgy for a period of five years,
and shall contain such other customary terms and provisions.
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 March 9, 2007, between Gales Industries
Incorporated and John Gantt and Lugenia Gantt, the Shareholders of Welding
Metallurgy, Inc.
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99.1 Press Release, dated March 15, 2007, of Gales Industries Incorporated
announcing the execution of the Stock Purchase Agreement.
- --------------------------------------------------------------------------------
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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: March 14, 2007
GALES INDUSTRIES INCORPORATED
By: /s/ Peter Rettaliata
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Peter Rettaliata, President
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EXHIBIT INDEX
- --------------------------------------------------------------------------------
10.1 Stock Purchase Agreement, dated March 9, 2007, between Gales Industries
Incorporated and John Gantt and Lugenia Gantt, the Shareholders of Welding
Metallurgy, Inc.
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99.1 Press Release, dated March 15, 2007, of Gales Industries Incorporated
announcing the execution of the Stock Purchase Agreement.
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STOCK PURCHASE AGREEMENT
Dated as of March 9, 2007
by and between
GALES INDUSTRIES INCORPORATED,
Buyer
and
JOHN GANTT AND LUGENIA GANTT,
Shareholders
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is entered into as of March 9, 2007 (the
"Agreement") by GALES INDUSTRIES INCORPORATED, a Delaware corporation (the
"Buyer"), and JOHN GANTT AND LUGENIA GANTT, the shareholders (each a
"Shareholder," collectively, the "Shareholders") of WELDING METALLURGY, INC., a
New York corporation (the "Company").
RECITALS
WHEREAS, the Shareholders are collectively 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 shares of capital stock of the Company; and
WHEREAS, the Buyer desires to purchase the Shares from the Shareholders,
and the Shareholders desires to sell the Shares to the Buyer, 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, 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, any and all assets reflected 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 Cut-Off Date and the Closing.
"Business" means the business currently being conducted by the Company.
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"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.
"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 United States generally accepted accounting principles.
"Governmental Body" mean any federal, state, local, municipal, foreign, or
other government, or governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal).
"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)
causes a nuisance, trespass or other tortuous condition or poses a hazard to the
health or safety of persons; or (iv) contains gasoline, diesel fuel or other
petroleum fuels, PCBs, asbestos or urea formaldehyde foam insulation.
"IRS" means the Internal Revenue Service.
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"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 reasonably 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. "Knowledge" with respect to the Company shall mean the Knowledge of the
Shareholders.
"Legal Requirement" means any applicable 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 any change or effect that, individually or
in the aggregate, is materially adverse to the business, financial condition, or
results of operations of the Company or Buyer, as the case may be, other than
changes or effects arising out of (i) general economic conditions; (ii) the
financial markets; and (iii) the entering into or public disclosure of this
Agreement or the transactions contemplated hereby.
"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 as presently conducted.
"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.
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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 Escrow Agreement, the
Note, the Pledge Agreement, the Consulting Agreement and the Registration Rights
Agreement.
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, the Buyer agrees to purchase from
the Shareholders, and the Shareholders agree to sell, assign, and deliver to the
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,
assign and deliver to the Buyer, against 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 reasonably requested by the
Buyer for consummation of the transactions contemplated under this Agreement and
as are necessary to vest in the Buyer, title in and to the Shares, free and
clear of any Security Interest, claims or restrictions, other than restrictions
imposed by federal or applicable state securities laws.
Section 2.3. Purchase Price.
(a) Subject to adjustment in accordance with subparagraphs (b) and (c),
the consideration payable by the Buyer to the Shareholders for the Shares (the
"Purchase Price") shall be (i) four million dollars ($4,000,000) in cash or
readily available funds; (ii) one-million five hundred thousand dollars
($1,500,000) to be paid in accordance with a secured three-year promissory note
dated the Closing Date, substantially in the form of Exhibit A hereto (the
"Note"); and (iii) the Purchase Price Shares (as defined below). Payment of the
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amounts due under the Note shall be secured by a pledge of the Shares evidenced
by a Pledge Agreement. The Shareholders acknowledge that the lien created by the
Pledge shall be second to the lien securing the Senior Indebtedness, as such
term is defined in the Note. Unless jointly directed otherwise by the
Shareholders, the Buyer shall pay one-half of each form of the consideration to
each Shareholder.
The number of the "Purchase Price Shares" shall be equal to the result
obtained by dividing $550,000 by nine-tenths of the average closing price of the
Buyer's Common Stock (the "Deemed Market Price") as quoted by the OTC Bulletin
Board during the 20 trading days immediately preceding the Closing Date.
(b) As soon as practicable following the Closing Date, Buyer shall prepare
the balance sheet of the Company at the close of business on the day immediately
prior to the Closing Date, without giving effect to the transaction contemplated
hereby. Such balance sheet shall be referred to herein as the "Closing Balance
Sheet". The Closing Balance Sheet shall be prepared on a basis consistent with
the accounting policies, practices and assumptions utilized the by Company in
the preparation of its financial statements for the year ended December 31,
2006. Shareholders will provide the Buyer with such assistance as may be
reasonably necessary in connection with the preparation of the Closing Balance
Sheet.
Immediately after the Closing Balance Sheet has been completed, the Buyer
shall determine the "Working Capital" (as defined below) of the Company as of
the Closing Date using the amounts shown on the Closing Balance Sheet. For
purposes of this Agreement, Working Capital shall mean the cash and accounts
receivable of the Company when acquired by Buyer less the accounts payable
(including accrued payroll) of the Company when acquired by the Buyer.
The Buyer's determination of the Working Capital shall be delivered to the
Shareholders in writing no later than 60 days after the Closing Date (the
"Working Capital Statement") During the 25-day period following the
Shareholders' receipt of the Working Capital Statement, the Shareholders'
accountants will be permitted to review the work papers of Company underlying
the Closing Balance Sheet and will have access to the Company's personnel as may
be reasonably necessary in connection therewith and, in general, the Buyer will
cooperate with the Shareholders and the Shareholders' accountants in
facilitating such review. The Working Capital Statement shall become final and
binding upon the parties on the twenty-fifth day following the Shareholders'
receipt thereof unless a Shareholder gives written notice of disagreement as to
the Closing Balance Sheet or the Working Capital Statement ("Notice of
Disagreement") to the Buyer 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 Working Capital
Statement shall become final and binding upon the parties on the earlier of (x)
the date the parties resolve all differences they have with respect to any
matter specified in the Notice of Disagreement and (y) the date all disputed
matters are finally resolved by the Arbitrators (as defined below). The Working
Capital Statement that becomes final and binding on the parties in accordance
with the terms of this Section is referred to herein as the "Final Working
Capital Statement".
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During the 15-day period following the delivery of any Notice of
Disagreement, the parties shall attempt to resolve any differences they may have
with respect to any matter specified therein. If, at the end of such 15-day
period, the parties have not reached agreement on such matters, any party may
demand that the matters which remain in dispute be submitted to arbitrators (the
"Arbitrators"), for review and resolution. The Arbitrators shall be two persons
or entities with offices in New York City, Nassau or Suffolk County, one of
which shall be selected by each of Buyer and the Shareholders. If within 10 days
of receipt by the Arbitrators of the matters which remain in dispute, the
Arbitrators have failed to resolve such matters, the Arbitrators shall mutually
agree upon a third person or entity with offices in New York City (the "Third
Arbitrator") to review and resolve the disputed matters. The decision of the
Third Arbitrator with respect to all disputed matters shall be final and binding
on the parties.
The fees of each Arbitrator shall be borne by the party selecting such
person or entity. The fees of the Third Arbitrator, if any, shall be borne fifty
percent by the Buyer and fifty percent by the Shareholders.
(c) The excess, if any, of $-0- over the Working Capital as of the Closing
Date as reflected on the Final Working Capital Statement is referred to herein
as the "Deficiency." The excess of the Final Working Capital over $-0- is
referred to herein as the "Surplus." If it is determined that there is a
Surplus, the Company shall pay the same to the Shareholders within ten days of
the determination of the Final Working Capital Statement. If it is determined
that there is a Deficiency, the Shareholders shall pay the same to the Company
within ten days of the determination of the Final Working Capital Statement. Any
amount that may be due from the Shareholders shall first be paid by the
surrender of such number of shares of common stock as are then being held in
escrow as determined by dividing the Deficiency by the Deemed Market Price. If
the Deficiency exceeds $275,000, the balance shall be paid in cash within ten
days of the determination of the Final Working Capital Statement. Any amount
paid pursuant to this Section shall be deemed an increase (or decrease) of the
Purchase Price.
ARTICLE 3
CLOSING
Section 3.1. Date, Time and Place of Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Eaton & Van Winkle LLP, 3 Park
Avenue, New York, New York at 10:00 a.m. local time, on April 30, 2007, or at
such other date, time or place agreed by the Buyer and the Shareholders. The
time and date of the Closing is referred to as the "Closing Date".
Section 3.2. 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 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 Security Interests, other than
restrictions on transfer under federal and applicable state securities laws, and
otherwise to carry out the transactions contemplated by this Agreement.
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Section 3.3. Escrow.
In order to secure the Shareholders' obligations to indemnify the Buyer
pursuant to the terms of Article 10 hereof, the Buyer shall deliver or cause to
be delivered to Eaton & Van Winkle LLP (the "Escrow Agent") one half (1/2) of
the Purchase Price Shares (the "Escrow Shares"). The Escrow Shares shall be held
by the Escrow Agent subject to the terms and conditions of an Escrow Agreement
in the form attached hereto as Exhibit B (the "Escrow Agreement").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
As an inducement to Buyer to enter into this Agreement and perform its
obligations hereunder, the Shareholders, hereby represent and warrant to the
Buyer as of the date hereof (or if an earlier date as specified in such
representation and warranty, as of such earlier date):
Section 4.1. Organization, Good Standing, Power
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 and to carry on the
Business as now being conducted. The Company is authorized or licensed to do
business as a foreign corporation and is in good standing in each of the
jurisdictions set forth on Schedule 4.1. The minute books, stock ledgers and
stock transfer records of the Company will be furnished to the Buyer for review.
Except as set forth on Schedule 4.1, such minute books contain the minutes of
all 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. 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.
Section 4.2. 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") of the Company, in each
case as amended to date will be made available to the Buyer.
Section 4.3. Shares.
Each of the Shareholders has good, valid and marketable title to 50 of the
Shares, free and clear of any covenant, condition, restriction, voting
arrangement, charge, Security Interest, option or adverse claim, other than
restrictions on transfer under federal and applicable state securities laws.
Upon delivery of certificates representing the Shares and payment of the
Purchase Price pursuant to Section 2.3, the Buyer will acquire good and
marketable title to the Shares, free and clear of any Security Interest,
restrictions or claims.
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Section 4.4. Capital Stock.
(a) The Company has authorized capital stock consisting solely of 200
shares of common stock, no par value, of which 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 federal and applicable
state securities laws. 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 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. Subsidiaries, Divisions and Affiliates.
The Company has no Subsidiaries and 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 4.6. Authorization.
Each 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 set forth in
Schedule 4.6. The Shareholders have taken all shareholder action required by
applicable law, the Company's Articles of Incorporation, By-laws or otherwise,
required to be taken to authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement and
all other Transaction Documents to which a Shareholder is a party have been, or
will be, duly executed and delivered by the Shareholders and constitute the
legal, valid and binding obligations of the Shareholder which is a party
thereto, 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 4.7. Effect of Agreement.
Except as set forth in Schedule 4.7, the execution, delivery and
performance of this Agreement by the Shareholders and the consummation by 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, a
Shareholder or the Business is subject; (b) violate any judgment, order, writ or
decree of any court applicable to the Company, a Shareholder or the Business; or
(c) result in the breach of or conflict with any term, covenant, condition or
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provision of, or, constitute a default under, or result in the creation or
imposition of any Security Interest upon any of the Assets or Shares pursuant to
the Articles of Incorporation or the By-laws, or 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 4.8. Governmental and Other Consents.
Except as set forth on Schedule 4.8, (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 Shareholders of this Agreement or any other Transaction
Documents to which a 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 commitment of any nature to which a
Shareholder is party to, or by which the 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 Shareholders of this Agreement or any other Transaction Documents to
which a Shareholder is a party, or the taking of any action herein contemplated.
Section 4.9. Financial Statements.
Copies of the unaudited Balance Sheets and Income Statements of the
Company as of, and for the fiscal years ended, December 31, 2006 ("FY `06") and
December 31, 2005 ("FY `05") (the "Financial Statements") have been made
available to the Buyer and have been prepared from the books and records of the
Company on a consistent basis. December 31, 2006 is referred to herein as the
"Cutoff Date." The Company's Sales for FY '06 and FY `05 were no less than
$4,900,000 and $5,300,000, respectively, the Company's Distributions for FY '06
and FY `05 were no less than $972,000 and $2,500,000, respectively and the wages
and salaries paid to members of the Gantt family by the Company for FY '06 and
FY `05 were no less than $1,200,000 and $847,000, respectively.
Section 4.10. No Undisclosed Liabilities.
Except as set forth in Schedule 4.10, the Company has no liabilities or
obligations of any nature (whether known and whether absolute, accrued,
contingent or otherwise) and, to the Shareholders' Knowledge there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in any material liabilities to the Company, other than those
that are reflected or reserved against in the balance sheets contained in the
Financial Statements for 2006, except for liabilities incurred in the Ordinary
Course of Business since the Cutoff Date.
Section 4.11. Absence of Certain Changes or Events.
Since the Cutoff Date, the Company has used commercially reasonable
efforts to preserve the business organization of the Company intact, to keep
available to the Company the services of all current officers and employees of
the Company and to preserve the goodwill of the suppliers, customers, employees
and others having business relations with the Company as of such date.
9
Except as set forth on Schedule 4.11, since the Cutoff Date, the Company
has not suffered any Material Adverse Change in its assets, business, financial
condition or results of operation, nor have any events occurred that have had,
or might reasonably be expected to have, a material adverse effect on the
financial condition or results of operations of the Company, taken as a whole.
Except as set forth on Schedule 4.11, since the Cutoff Date, the Company has not
(a) incurred damage to or destruction of any Asset or Assets individually or in
the aggregate having a replacement cost in excess of $10,000, whether or not
covered by insurance; (b) incurred any obligation or liability (fixed or
contingent) not in the ordinary course of business in excess of $10,000; (c)
made or entered into contracts or commitments to make any capital expenditures
in excess of $10,000; (d) 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; (e) sold,
transferred or leased any Asset or Assets outside of the Ordinary Course of
Business individually or in the aggregate having a replacement cost in excess of
$10,000, or canceled or compromised any debt or material claims, except in each
case, for the sale of inventory in the ordinary course of business; (f) 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 owned by
the Company; (g) amended or terminated any material Contracts; (h) waived or
released any other rights of material value to the Company; (i) declared or paid
any dividend on its capital stock, or set apart any money for distribution to or
for its Shareholdesr other than salary and reimbursement of expenses in amounts
consistent with past practices; (j) redeemed any portion of its capital stock;
(k) entered into, or amended the terms of, any employment or consulting
agreement so as to cause such agreement to not be terminable by the Company on
less than 30-days notice without material liability to the Company; (l) incurred
any indebtedness for borrowed money or guaranteed any indebtedness of another
Person, or (m) entered into any transactions not in the Ordinary Course of
Business which would, individually or in the aggregate, materially and adversely
affect the Business.
Section 4.12. 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 4.12 (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 and are set forth in Schedule 4.12. The Company
enjoys peaceable and undisturbed possession under all such leases. All Assets
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 4.12 contains a complete list of each parcel of real property
owned or leased by the Company. The Company will make available 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 granting such leasehold
interests, rights, options or other interests and (b) with respect to real
property owned by the Company, if any, all deeds, other instruments of title and
policies of title insurance indicating and describing the Company's ownership of
such real property, as well as copies of any surveys of such real property, in
the Company's possession. Except as set forth in Schedule 4.12, 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 reasonably good operating condition and repair, ordinary wear and tear
excepted, are usable in the Ordinary Course of Business and are adequate and
suitable for the uses to which they are being put.
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Section 4.13. Equipment.
Set forth on Schedule 4.13 is (i) a correct and complete list and
description of all items of equipment used in the Business having individually a
fair market value of $10,000.00 or more as of the Cutoff Date, (ii) a list of
all items of equipment having a fair market value of $10,000 or more disposed of
since the Cutoff Date, and (iii) a description of all items of equipment used in
the Business as of the date of this Agreement acquired since the Cutoff Date, at
a cost in excess of $10,000 (collectively, the "Equipment").
Section 4.14. 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 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
4.14 is set forth a correct and complete list of (a) all currently effective
insurance policies and bonds covering the Assets or the Business, 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 $10,000, and (ii) claims for
product liability, damages, contribution or indemnification and settlements
(including pending settlement negotiations) resulting therefrom which
individually are in excess of $10,000. There are no pending or threatened
terminations or premium increases with respect to any of the policies or bonds
on Schedule 4.14 other than premium increases in the Ordinary Course of
Business, and there is no 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 is in
compliance with all material conditions contained in such policies or bonds,
except for noncompliance which, individually or in the aggregate, would not be
reasonably expected to have a material adverse effect on the Business.
Section 4.15. Agreements, Arrangements
(a) Except for open purchase orders in the ordinary course of business and
as set forth on Schedule 4.15, the Company is not a party to, nor are the Assets
or Shares subject to or bound by any:
(i) lease agreement (whether as lessor or lessee) where the annual
obligation of the Company exceeds $10,000;
(ii) 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;
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(iii) 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);
(iv) 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;
(b) Except for open purchase orders in the ordinary course of business,
agreements which may be terminated on no more than thirty (30) days notice
without material liability to the Company or which are set forth on Schedule
4.15, the Company is not a party to any:
(i) agreement, contract or order with any buying agent, supplier or
other Person involved in the acquisition of supplies with an annual cost
to the Company in excess of $10,000;
(ii) non-competition, secrecy or confidentiality agreements, or any
other agreement restricting the Company from doing business anywhere in
the world;
(iii) 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 $10,000;
(iv) agreement with any distributor, dealer, leasing company, sales
agent or representative,;
(v) 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 $10,000;
(vi) 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;
(vii) agreement guaranteeing, indemnifying or otherwise becoming
liable for the obligations or liabilities of another Person;
(viii) agreement for the incurrence of any capital expenditure in
excess of $10,000;
(ix) advertising, publication or printing agreement; and
(x) 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.
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Correct and complete copies of all items required to be shown on Schedule
4.15 will be delivered or made available to Buyer prior to the date hereof.
(c) 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).
(d) Except as set forth on Schedule 4.15, 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 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 defaults, if any, which have been
indicated on Schedule 4.15.
Section 4.16. Patents, Trademarks, Copyrights.
Schedule 4.16 sets forth (i) the registered and beneficial owner and the
expiration date, to the extent applicable, for each patent or trademark
("Right") owned or used 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 4.16, neither any of 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. To the Sharholders' Knowledge, neither the
validity of the Rights, nor the use thereof by the Company, is the subject of
any pending or threatened opposition, interference, cancellation, nullification,
conflict, concurrent use, litigation or other proceeding. To the Shareholders'
Knowledge, the conduct of the Business as currently operated, and the use of the
Assets does not conflict with, or infringe upon, any legally enforceable rights
of third parties.
Section 4.17. Permits.
Set forth on Schedule 4.17 is a complete list of all Permits issued to the
Company (the "Company Permits"). The Permits set forth in Schedule 4.17 are all
Permits required to permit the Company to carry on the Business as currently
conducted.
Section 4.18. Compliance with Applicable Laws.
The conduct by the Company of the Business does not violate or infringe,
and to the Shareholders' Knowledge there is no reasonable 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.
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Section 4.19. Litigation.
Except as set forth on Schedule 4.19, there is no claim, action, suit,
proceeding, arbitration, reparation, investigation or hearing, pending against
the Company or which could prevent the consummation of the transaction
contemplated hereby, before any court or governmental, administrative or other
competent authority or private arbitration tribunal, nor (i) to the Knowledge of
the Shareholders, is any such claim threatened and (ii) are there any facts
known to the Shareholders which could reasonably be expected to give rise to
claim, action, suit, proceeding, arbitration, investigation or hearing, which
could result in a Material Adverse Change, 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
obligation. 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 4.20. Customers, Suppliers, Distributors and Agents.
Schedule 4.20 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, 2006.
Neither of the Shareholders has 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 4.20 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 4.21. Employee Benefit Plans.
(a) No other corporation or other entity would now or in the past
constitute a single employer within the meaning of Section 414 of the Code with
the Company, except as listed on Schedule 4.21(a). The Company and any other
entities which now or in the past constitute a single employer within the
meaning of Section 414 of the Code are hereinafter collectively referred to as
the "Company Group."
(b) Schedule 4.21(b) contains a true and complete list of all of 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 Group
(collectively "Participants"), and indicating, with respect to each, the
agreements or plans for which the Company currently maintains or contributes to
or on behalf of its employees and the amount of the Company's total obligation
thereunder:
14
(i) Any employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any trust or other funding agency created thereunder,
or under which any member of the Company Group, with respect to
employees, has any outstanding, present, or future obligation or
liability, or under which any employee or former employee has any
present or future right to benefits which are covered by ERISA; or
(ii) Any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus,
vacation, severance, disability, hospitalization, medical, life
insurance, split dollar or other employee benefit plan, program,
policy, or arrangement, whether written or unwritten, formal or
informal, which any member of the Company Group maintains or to
which any member of the Company Group has any outstanding, present
or future obligations to contribute or make payments under, whether
voluntary, contingent or otherwise.
The plans, programs, policies, or arrangements described in subparagraph (a) or
(b) above are hereinafter collectively referred to as the "Company Plans." There
will be 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 (A) all documents, including without
limitation, Forms 5500, relating to any Company Plans required to have been
filed prior to the date hereof with governmental authorities for each of the
three most recently completed plan years; (B) attorney's response to an
auditor's request for information for each of the three most recently completed
plan years; and (C) financial statements and actuarial reports, if any, for each
Company Plan for the three most recently completed plan years.
(c) Except as to those plans identified on Schedule 4.21(c) as
tax-qualified Company Plans (the "Company Qualified Plans"), no member of the
Company Group maintains or previously maintained a Company Plan which meets or
was intended to meet the requirements of Section 401(a) of the Code. The IRS has
issued favorable determination letters to the effect that each Company Qualified
Plan qualifies under Section 401(a) of the Code and that any related trust is
exempt from taxation under Section 501(a) of the Code, and such determination
letters remain in effect and have not been revoked. Copies of the most recent
determination letters and any outstanding requests for a determination letter
with respect to each Company Qualified Plan, if any, will be delivered to the
Buyer. No Company Qualified Plan has been amended since the issuance of the most
recent determination letter for such Company Qualified Plan. The Company
Qualified Plans currently comply in form with the requirements under Section
401(a) of the Code, other than changes required by statutes, regulations and
rulings for which amendments are not yet required. No issue concerning
qualification of the Company Qualified Plans is pending before or is threatened
by the IRS. The Company Qualified Plans have been administered according to
their terms (except for those terms which are inconsistent with the changes
required by statutes, regulations, and rulings for which changes are not yet
required to be made, in which case the Company Qualified Plans have been
administered in accordance with the provisions of those statutes, regulations
and rulings) and in accordance with the requirements of IRC Section 401(a). No
member of the Company Group or any fiduciary of any Company Qualified Plan has
done anything that would adversely affect the qualified status of the Company
Qualified Plans or the related trusts. Any Company Qualified Plan which is
required to satisfy Section 401(k)(3) and 401(m)(2) of the Code has been tested
for compliance with, and has satisfied the requirements of, Sections 401(k)(3)
and 401(m)(2) of the Code for each plan year ending prior to the Closing Date.
15
(d) Each member of the Company Group is in compliance with the
requirements prescribed by any and all statutes, orders, governmental rules and
regulations applicable to the Company Plans and all reports and disclosures
relating to the Company Plans required to be filed with or furnished to any
Governmental Body, participants or beneficiaries prior to the Closing Date have
been or will be filed or furnished in a timely manner and in accordance with
applicable Legal Requirements.
(e) No termination or partial termination of any Company Qualified Plan
has occurred nor has a notice of intent to terminate any Company Qualified Plan
been issued by a member of the Company Group.
(f) No member of the Company Group maintains or has maintained an
"employee benefit pension plan" within the meaning of ERISA Section 3(2) that is
or was subject to Title IV of ERISA.
(g) Any Company Plan can be terminated on or prior to the Closing Date
without liability to any member of the Company Group or the Buyer, including
without limitation, any additional contributions, penalties, premiums, fees or
any other charges as a result of the termination, except to the extent of funds
set aside for such purpose or reflected as reserved for such purpose on the
Balance Sheet.
(h) Each member of the Company Group has made full and timely payment of,
or has accrued, pending full and timely payment, all amounts which are required
under the terms of each of the Company Plans and in accordance with applicable
Legal Requirements and Contracts to be paid as a contribution to each Company
Plan. In conformity with GAAP, the Balance Sheet accurately reflects all
obligations for accrued benefits under any non-qualified deferred compensation
or supplemental retirement plans.
(i) No member of the Company Group has any past, present or future
obligation or liability to contribute or has contributed to any multiemployer
plan as defined in ERISA Section 3(37).
(j) No member of the Company Group nor any other "disqualified person" or
"party in interest" (as defined in Section 4975 of the Code and ERISA Section
3(14), respectively) with respect to the Company Plans, has engaged in any
"prohibited transaction" (as defined in Section 4975 of the Code or ERISA
Section 406). All members of the Company Group and all "fiduciaries" (as defined
in ERISA Section 3(21)) with respect to the Company Plans, including any members
of the Company Group which are fiduciaries as to a Company Plan, have complied
in all respects with the requirements of ERISA Section 404. No member of the
Company Group and no party in interest or disqualified person with respect to
the Company Plans has taken or omitted any action which could lead to the
imposition of an excise tax under the Code or a fine under ERISA.
(k) Each member of the Company Group has complied with the continuation
coverage requirements of Section 4980B of the Code, Section K, Chapter 100 of
the Code and ERISA Sections 601 through 608 ("COBRA"), and with the portability,
access and renewability provisions of ERISA Sections 701 through 712.
16
(l) No member of the Company Group has made or is obligated to make any
nondeductible contributions to any Company Plan.
(m) No member of the Company Group is obligated, contingently or
otherwise, under any agreement to pay any amount which would be treated as a
"parachute payment," as defined in Section 280G(b) of the Code (determined
without regard to Section 280G(b)(2)(A)(ii) of the Code).
(n) Other than routine claims for benefits, there are no actions, audits,
investigations, suits or claims pending, or threatened against any Company Plan,
any trust or other funding agency created thereunder, or against any fiduciary
of any Company Plan or against the assets of any Company Plan.
(o) The consummation of the transactions contemplated hereby will not
accelerate or increase any liability under any Company Plan because of an
acceleration or increase of any of the rights or benefits to which Participants
may be entitled thereunder.
(p) Other than health continuation coverage required by COBRA, no member
of the Company Group has any obligation to any retired or former employee,
director or other service provider or any current employee, director or other
service provider of the Company upon retirement or termination of employment
under any Company Plan.
(q) Since January 1, 2007, no member of the Company Group has (i)
increased the rate of compensation payable or to become payable to any of the
employees of the Company, other than in the Ordinary Course of Business and
consistent with past practice; (ii) made any commitment and has not incurred any
liability to any labor union; (iii) paid or agreed to pay any bonuses or
severance pay; (iv) increased any benefits or rights under any Company Plan; or
(v) adopted any new plan, program, policy or arrangement, which if it existed as
of the Closing Date, would constitute a Company Plan.
Section 4.22. Powers of Attorney.
Except as set forth on Schedule 4.22, no person has any power of attorney
to act on behalf of the Company or either Shareholder in connection with any of
the Company's or the Shareholders' properties or business affairs other than
such powers to so act as normally pertain to the officers of the Company.
Section 4.23. Labor Matters.
(a) Except as set forth in Schedule 4.23, the Company is not a party to
any contract or collective bargaining agreement with any labor organization.
Except as set forth in Schedule 4.23, no organizing effort or question
concerning representation is pending regarding 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
adequately reserved for.
17
(c) There is no 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 which, if adversely determined for the Company would result in a
Material Adverse Change.
(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 4.24. Personnel.
(a) Schedule 4.24 (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. Schedule 4.24(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 in excess of $10,000 upon not more than thirty (30) days notice. Such
Schedule 4.24(a) shall be updated by the Company to be complete and accurate in
all material respects as of the Closing Date. The total aggregate obligation for
severance and any other compensation that would be due as the result of a change
of control or termination of all employment or consulting agreements (whether
written or oral) relating to the Company employees, officers, directors,
consultants and independent contractors does not exceed $200,000.
(b) 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 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 4.24(c) contains a complete and accurate list of all retired
employees or directors of the Company receiving benefits or scheduled to receive
benefits in the future from the Company together with a description of such
benefits.
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Section 4.25. Environmental Matters.
Except as set forth on Schedule 4.25, (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
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 4.26. Tax Matters.
(a) The Company has filed all Tax Returns that it was required to file or
has obtained valid extensions of time to file such Tax Returns. All such Tax
Returns were correct and complete in all material respects. All Taxes owed by
the Company have been paid or adequately reserved for. Except as set forth in
Schedule 4.26, 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). No written 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. 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 (other than taxes of a de
minimus amount) 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 pending or threatened claim by any authority for
additional Taxes for any period for which Tax Returns have been filed. Schedule
4.26 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, 2002,
indicates those Tax Returns that have been audited by the respective taxing
authority, and indicates those Tax Returns that currently are the subject of
audit. There have been 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 (other than valid
extensions of time to file Tax Returns) assessment or deficiency.
19
(e) The Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. The Company has not made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. 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 or (ii) does not have any
Liability for the Taxes of any Person (other than the Company) under Treas. Reg.
Section 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 ss. 1361(b) of the Code and any comparable
provisions of state or local law at all times since January 1, 2003. The
validity of the election of "S Corporation" status has not been challenged by
the Internal Revenue Service nor is there any basis for such a challenge. Since
the date of its incorporation, except as set forth in Schedule 4.26, 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 ss. 481(c) of the Code (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 (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 dated December 31, 2006 (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 4.27. Recent Dividends and Other Distributions.
Except as set forth on Schedule 4.27, there has been no dividend or other
distribution of assets or securities or payment, whether salary or bonus,
whether consisting of money, property or any other thing of value, declared,
issued or paid to or for the benefit of the Shareholder by the Company since
December 31, 2006.
Section 4.28. Inventory.
The inventory of the Company as of the date hereof is adequate and
appropriate for the conduct of the business of the Company as it is currently
being conducted. Current inventory levels are not in excess of the normal
operating requirements of the Company in the Ordinary Course of Business
consistent with past practice. Except as set forth in Schedule 4.28, 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.
20
Section 4.29. 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 the Cutoff Date 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
five (5) days prior to the Closing.
Section 4.30. 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 4.30, 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 to the Shareholders'
Knowledge, the accounts receivable are not and the accounts receivable as of the
Closing Date 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 or reserved for in the Financial Statements, to
the Seller's Knowledge, such accounts receivable are collectible in the ordinary
course of business.
Section 4.31. Brokers and Finders.
Neither the Shareholders 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 Shareholders agree
to indemnify, defend 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
Shareholders.
Section 4.32. Insider Interests.
Except as set forth in Schedule 4.32, 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 4.33. Investment Intent.
Each of the Shareholders is acquiring the Purchase Price Shares, 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
neither of the Shareholders has any plan to enter into any such agreement or
arrangement.
21
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.
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. 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.
22
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, defend and hold the
Shareholder 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.
Except as may be described in the SEC Reports (as defined below), 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 SEC Reports, 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 SEC Reports; Financial Statements.
Buyer has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") for the periods on or after
January 1, 2006 (such filings, and any other filings made by the Company
pursuant to the Securities Act (as defined below) are hereinafter referred to as
the "SEC Reports", each of which has complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act), as the case may be, each as in effect on the dates such forms,
reports and documents were filed. None of such SEC Reports contained when filed
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein in light of the circumstances under which they
were made not misleading. The consolidated financial statements of Buyer
included in the SEC Reports have been prepared in accordance with GAAP applied
on a consistent basis (except as may be indicated in the notes thereto), and
fairly and accurately present, in all material respects, the consolidated
financial position of Buyer and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended, except, in the case of unaudited interim
financial statements, for normal year-end audit adjustments and the fact that
certain information and notes have been condensed or omitted in accordance with
the applicable rules of the SEC. Buyer has no material liabilities whether
accrued or contingent, except as disclosed in the SEC Reports or which have
arisen in the ordinary course of the Buyer's business since the date of the
latest of such reports, except for such liabilities that will not cause a
Material Adverse Change.
23
Section 5.7 Absence of Changes.
Except as set forth on Schedule 5.7 or reflected in the SEC Reports, since
September 30, 2006, there has not been: (i) any events, changes or effects with
respect to Buyer or its subsidiaries that are outside the ordinary course of
business; (ii) any declaration, payment or setting aside for payment of any
dividend (except to Buyer or any subsidiary wholly owned by Buyer) or other
distribution or any redemption, purchase or other acquisition of any shares of
capital stock or securities of Buyer or any subsidiary; (iii) any return of any
capital or other distribution of assets to stockholders of Buyer or its
subsidiaries (except to Buyer or any subsidiary wholly owned by Buyer); (iv) any
material change by Buyer to its accounting policies, practices, or methods; (v)
any amendment to the certificate of incorporation or bylaws or other
organizational documents of Buyer or its subsidiaries; (vi) any sale or transfer
of any material portion of its assets or of any material asset, except in the
ordinary course of business; (vii) pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Security Interest, except
for pledges of immaterial assets made in the ordinary course of business and
consistent with past practices; (viii) any commencement or settlement of
material legal proceedings; (ix) any action taken by any public body or entity
which affects, in any material respect, the business of Buyer.
Section 5.8 Compliance with Applicable Law.
(a) Except as set forth in Schedule 5.8, Buyer and its subsidiaries hold
all material permits, licenses, authorizations, variances, exemptions, orders
and approvals from all governmental authority, and have filed all material
notifications, registrations and listings to all governmental authority, all of
which are in full force and effect (the "Buyer Permits"), except for failures to
hold such permits, licenses, authorizations, variances, exemptions, orders and
approvals and failures to have filed such notifications, registrations and
listings, which would not reasonably be expected to have a Material Adverse
Change. Buyer and its subsidiaries are in compliance with the terms of the Buyer
Permits. Buyer has not received any notice from any governmental authority that
the businesses of Buyer and its subsidiaries are being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations or possible violations which are not material to Buyer's business. To
the Knowledge of Buyer, no investigation or review by any governmental authority
with respect to Buyer or its subsidiaries is pending or threatened nor has any
governmental authority indicated to Buyer an intention to conduct the same.
(b) The transactions contemplated by this Agreement will not cause
the revocation or cancellation of any Buyer Permit except for any such event
that would not individually or in the aggregate be expected to reasonably cause
a Material Adverse Change.
Section 5.9 No Consents Required.
Except as set forth on Schedule 5.9, 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. Except as set forth on
Schedule 5.9, no notice to, consent, authorization or approval of, any Person
under any agreement, arrangement or commitment of any nature which the Buyer is
24
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 5.10 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.
ARTICLE 6
CERTAIN COVENANTS OF THE SHAREHOLDER
The Shareholders hereby covenants and agrees 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. Within five (5) business days of their preparation, the
Shareholders shall cause the Company to deliver to the Buyer all internal
periodic financial reports prepared by the Company.
Section 6.2. No Solicitation or Negotiation.
(a) Prior to the Closing or the termination of this Agreement, the
Shareholders will not, and will not permit the Company, or any of its 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
25
(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 Shareholders will, and will cause the Company, and its 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 either Shareholder,
the Company or any officer, director, Affiliate, employee, representative or
agent of the Company is 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 which
consent shall not be unreasonably withheld or delayed, the Shareholders will
cause the Company to use commercially reasonable efforts to preserve the
Business in all material respects.
(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 Shareholders will
cause the Company to continue the operation of the Business in the Ordinary
Course consistent with past practices, and to use commercially reasonable
efforts to maintain the assets, properties and rights of the Company in at least
as good order and condition as exists on 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
Shareholders will not permit the Company to:
(i) incur, discharge or satisfy any obligation or liability or any
Security Interest, or claim, except in the ordinary course of business or
in connection with the performance of this Agreement;
(ii) incur any debt for borrowed money or increase the amount of any
existing debt for borrowed money, other than in the ordinary course of
business;
26
(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 since
December 31, 2006; 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;
(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 $25,000;
(v) make any loan to either Shareholder or any relative or Affiliate
of the Shareholders, or declare, set aside or pay to the Shareholder any
dividend or other distribution in respect of its capital stock, transfer
any asset or pay any money to the Shareholder or any relative or Affiliate
of the Shareholder other than (A) the payment of wages, salaries, bonuses
and other benefits in the ordinary course of business to the Shareholder
in his capacity as an employee of the Company and (B) to pay S-corporation
taxes on the income of the Company; or enter into or agree to enter into
any transaction with or for the benefit of the Shareholder or any relative
or Affiliate of the Shareholder other than the transactions contemplated
pursuant to this Agreement. Notwithstanding the foregoing, Buyer
acknowledges that the Company may pay bonuses to members of the Gantt
family and declare and pay dividends to the Shareholder, provided that the
same do not cause the Company to fail to meet the condition set forth in
Section 8.1(g) and shall be considered when computing the adjustment
provided for in Section 2.3(c);
(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) 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; enter into or amend
any contract for the employment of any officer, employee or other person
so that it may not be terminated 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;
(viii) enter into any contract, except in the Ordinary Course of
Business, that is not terminable upon 30 days notice or less without
material liability to the Company;
27
(ix) 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;
(x) settle any material administrative or judicial proceedings;
(xi) amend the certificate of incorporation or the bylaws of the
Company in a manner that would adversely affect or delay the consummation
of the transactions contemplated hereby; or
(xii) make any investment in the assets or securities of any Person.
Section 6.4. Compliance with Laws.
The Shareholders will use commercially 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. Insurance.
The Shareholders will cause the Company to maintain its existing insurance
policies in full force and effect.
Section 6.6. Permits.
The Shareholders will use his commercially reasonable efforts to cause all
Company Permits to remain in full force and effect. The Shareholders 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 6.7. Other Changes.
Except as otherwise expressly provided in this Agreement, the Shareholders
will not take any action, and will use his commercially 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 a Shareholder
hereunder to be untrue or incomplete in any material respect as of the date of
such change or (ii) Material Adverse Change.
Section 6.8. Approvals and Consents of Shareholders.
The Shareholders shall use commercially 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 reasonable efforts to
ensure that the other conditions set forth in Article 8 hereof are satisfied by
the Closing Date.
28
Section 6.9. Phase II Environmental Report.
If required by the Buyer's lender and if the Phase I Environmental Site
Assessment performed on the Company Real Property recommends that a Phase II
Environmental Site Assessment ("Phase II") be performed, the Company will apply
for and obtain a Phase II of the Company's Real Property. The Company will
deliver to the Buyer a copy of all resulting Phase II reports promptly after
receipt thereof. The cost of the Phase II shall be borne equally by Buyer and
the Company.
ARTICLE 7
ADDITIONAL COVENANTS
Section 7.1. Non-Competition
For a period of five (5) years following the Closing Date (a) neither of
the Shareholders, whether individually, as a director, manager, member,
stockholder, partner, owner, employee, consultant or agent of any business, or
in any other capacity, shall engage, directly or indirectly through any other
person, in any business, enterprise or employment which competes with the
business of the Company as conducted as of the date hereof and as of the date of
the termination of the engagement of the Shareholder by the Company, (b) neither
of the Shareholders shall, directly or indirectly, for herself or himself, or on
behalf of or in conjunction with any other person, solicit or attempt to solicit
the business or patronage of, or interfere with the business relationship of the
Company, the Buyer and any of their respective subsidiaries with any customer of
the Company, and (c) neither of the Shareholders shall directly or indirectly
cause any other person to employ, solicit, disturb, entice away, or in any other
manner persuade any employee of the Company, the Buyer and any of their
respective subsidiaries to discontinue or alter his or her relationship with the
Company, the Buyer and any of their respective subsidiaries.
Each of the Shareholders acknowledges and agrees that the business of the
Company is of a worldwide nature and that any geographic limitation on the
foregoing covenant would be ineffective to adequately protect the interests of
the Company. Each of the Shareholders further acknowledges and agrees that the
foregoing covenant is an integral part of this Agreement, is fair and reasonable
in light of all of the facts and circumstances of the relationship between the
Shareholders, the Company and the Buyer. In the event any court of competent
jurisdiction determines that, notwithstanding the foregoing acknowledgments, the
scope of the restricted activities of the foregoing covenant is excessive or not
enforceable, or that the foregoing covenant is not enforceable unless it is
subject to a geographic limitation, this Agreement shall be deemed amended to
reflect the maximum restrictions on activities and geographic scope allowable
pursuant to such court's determination.
Buyer acknowledges the John Gantt is a certified welding inspector and that
nothing contained herein shall be deemed to prevent him from acting as a welding
inspector for any entity not engaged in a business competitive with that of the
Company or, in any event for any of Northrop Grumman, Boeing Corp., Lockheed
Martin, Senior Flexonic and Sandia Laboratories.
29
Section 7.2 Further Assurances.
Shareholders and Buyer covenant and agree to deliver and acknowledge (or
cause to be executed, delivered and acknowledged), from time to time, at the
request of any other party and without further consideration, all such further
instruments and take all such further actions as may be reasonably necessary or
appropriate to carry out the provisions and intent of this Agreement.
Section 7.3 Approvals and Consents of Buyer.
The Buyer shall use its 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
Shareholders copies, reasonably satisfactory in form and substance to
Shareholders, of such approvals and consents. The Buyer shall also use its
reasonable efforts to ensure that the other conditions set forth in Article 8
hereof are satisfied as of the Closing Date.
ARTICLE 8
CONDITIONS OF CLOSING
Section 8.1. Conditions of the Buyer.
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 (any of which may be waived in writing, in
whole or in part, by the Buyer:
(a) The representations and warranties of the Shareholders 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 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 Material Adverse
Change since the date hereof.
(c) The Shareholders shall have furnished the Buyer with certificates,
executed by 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 by the
Shareholders to consummate the transactions contemplated hereby shall have been
obtained on terms and conditions reasonably satisfactory to the Buyer and its
counsel. The Shareholders shall have furnished to the Buyer, in form and
substance reasonably satisfactory to the Buyer, (i) executed consents to the
sale of the Shares to the Buyer from the applicable governmental authority,
30
customer or other person under any Contract or Permit that purported to
restrict, directly or indirectly, any sale or transfer of the Shares and (ii)
executed waivers from the applicable governmental authority, customer or other
person of any right to terminate or to restrict the rights or powers of the
Company or any Subsidiary under any Permit upon any such sale or transfer.
(f) John Gantt shall have entered into the Consulting Agreement (as
defined below) and the Shareholders shall have entered into the Escrow
Agreement.
(g) 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
C annexed hereto.
(h) 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.
(i) The Shareholders, 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 and the Transaction Documents.
(j) The Company and the Shareholders shall have delivered to the Buyer
such other certificates, documents, and instruments as the Buyer may reasonably
request in connection with the consummation of the Agreement.
(k) The Company shall have sufficient, detailed and organized records to
allow the Buyer to prepare such audited financial statements as are required for
the Buyer to satisfy its reporting requirements under the Securities Exchange
Act of 1934.
(l) The Buyer shall have secured the consent of PNC Bank, or any successor
or replacement lender thereto, to the consummation of the transactions
contemplated hereby.
(m) The Company shall have obtained an extension of the Lease on its
premises to December 31, 2007, upon terms and conditions reasonably acceptable
to the Buyer. The Buyer acknowledges that terms comparable to those in effect as
of the date hereof are satisfactory.
Section 8.2. Conditions of the Shareholders.
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 (any of which may be waived in
writing, in whole or in part, by the Shareholder):
(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.
31
(b) The Buyer shall have furnished the Shareholders with a certificate,
executed on behalf of the Buyer by one of its executive officers and dated the
Closing Date, confirming the matters expressed in Section 8.2(a).
(d) All consents of third parties required for the Buyer to consummate the
transactions contemplated hereby shall have been obtained on terms and
conditions reasonably satisfactory to the Shareholders.
(e) The Buyer shall have executed and delivered a Consulting Agreement for
John Gantt, providing for an initial term of six-months, subject to extension
for an additional three months upon mutual agreement of the parties, with
compensation of $30,000 per month for no more than twenty (20) hours of work per
week, a covenant not-to-compete with the Buyer and the Company for a period of
five years, and such other terms as may be agreed to by the Buyer and Mr. Gantt
(the "Consulting Agreement") substantially in the form annexed hereto as Exhibit
D.
(f) The Buyer and the Shareholders shall have entered into a Registration
Rights Agreement substantially in the form annexed hereto as Exhibit E, pursuant
to which the Buyer has agreed to provide certain piggy-back registration rights
under the Securities Act, in connection with the Purchase Price Shares (the
"Registration Rights Agreement").
(g) The Buyer and the Shareholder shall have entered into the Escrow
Agreement and a Pledge Agreement mutually acceptable to the Shareholders and
Buyer granting a security interest and pledge in and to the Shares as security
for the Buyer's obligations under the Note, subject and subordinate to the first
priority lien and security interest of Buyer's senior lender or lenders, shall
have been executed by Buyer, together with any additional documents and
agreements which the Shareholders may reasonably request to evidence and perfect
such pledge, including but not limited to, a control agreement, acknowledgement
of pledge and UCC financing statements.
(h) The Buyer shall have obtained an assignment of the lease for the
Company's current facilities or shall have provided the Shareholder with
reasonable security as to any claim that may arise thereunder as a result of the
consummation of the transaction contemplated hereby
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. If the
Shareholders fail to deliver to the Buyer any Tax Return contemplated by the
first sentence of this Section, the Buyer will prepare such Tax Returns or cause
them to be prepared at the expense of the Shareholders. In the case of Tax
Returns prepared by the Buyer, the Buyer will provide the Shareholders with
drafts of any such Tax Returns that include any period ending on or prior to the
Closing Date no later than 30 days before their due date (with regard to
extensions actually granted) and will permit the Shareholders to review, comment
on and approve such draft Tax Returns. The Shareholders will not unreasonably
32
withhold or delay his approval to any such draft Tax Returns. In the case of Tax
Returns of the Company prepared by the Shareholders, the Shareholders will
prepare such Tax 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 at least 30 days before the due
date thereof, 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. For the
avoidance of doubt, the Shareholders shall be responsible for payment of all
taxes attributed to the activities of the Company up to the Closing Date.
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.
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 eighteen (18) 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.
33
Section 10.2. Indemnification by the Shareholders.
Subject to the provisions of Section 10.5 below, each Shareholder hereby
covenants and agrees with Buyer that such Shareholder 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: (i)
any claim, liability, obligation or expense arising out of or related to the
operation of the Company's Business on or prior to the Closing Date not
reflected in the Financial Statements or herein, and (ii) any breach of any
representation or warranty in this Agreement or the non-fulfillment in any
material respect of any agreement, covenant or obligation by the Company or a
Shareholder made in this Agreement (including without limitation any Exhibit or
Schedule hereto and any certificate or instrument delivered in connection
herewith).
Section 10.3. Indemnification by Buyer.
Buyer hereby covenants and agrees with the Shareholders that Buyer shall
indemnify the Shareholders (the "Shareholder Indemnified Party") and hold them
harmless from, against and in respect of any and all Damages incurred by the
Shareholder Indemnified Party 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).
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
34
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 retain 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 Limitation on Rights of Indemnification.
(a) No Buyer Indemnified Party shall have the right to
indemnification under this Agreement unless and until the aggregate amount of
any and all such indemnification claims made by the Buyer Indemnified Party
under this Agreement exceeds $150,000 (the "Basket"), at which time the Buyer
Indemnified Party shall be entitled to the entire amount in excess of the
Basket; provided, however, that the Basket shall not apply to (i) breaches of
the covenants or agreements set forth herein; (ii) claims arising out of fraud.
(b) The aggregate liability of the Shareholders pursuant to this
Article X shall not exceed $2,000,000; provided, however, that the provisions of
this Section 10.5(b) shall not apply to: (i) breaches of Shareholders'
representations and warranties relating to tax matters, ERISA matters and
environmental matters; (ii) breaches of the covenants or agreements set forth
herein and (iii) claims arising out of fraud.
(c) Except in the event of fraud, the remedies provided in Sections
10.2, 10.3 and 11.2 hereof shall be the sole and exclusive remedies of the Buyer
Indemnified Party and Shareholder Indemnified Party from and after the Closing
in connection with any breach of representation or warranty or non-performance,
partial or total, of any covenant or agreement contained in this Agreement;
provided, that, nothing contained herein shall prevent any party from seeking
equitable remedies (including specific performance or injunctive relief) in
connection therewith.
Section 10.6. 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.
35
If a Shareholder shall have paid a 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 the Shareholder the amount of such prior
payment made by the Shareholder; 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 10.7. Escrow.
The Escrow Shares (valued as provided in the Escrow Agreement for purposes
of satisfying any Damages incurred by the Buyer) (the "Indemnity Amount") shall
be held in escrow pursuant to the Escrow Agreement. The Escrow Shares will be
released from such account pursuant to the Escrow Agreement and Section 10.8
hereof.
Section 10.8. Release of Escrow Shares.
In the event there is no claim for indemnification against the
Shareholders pursuant to this Article 10 which is outstanding or has not been
finally settled or resolved (each such claim an "Unresolved Claim") on the date
that the Warranty Period expires, or the next Business Day if such date is not a
business day (the "Distribution Date"), the Escrow Shares shall be distributed
to the Shareholder. In the event one or more Unresolved Claims shall exist on
the Distribution Date, an amount of Escrow Shares equal in value as of the
Distribution Date to the Indemnity Amount minus the amount of such Unresolved
Claims shall be distributed to the Shareholders; provided, however, that all
amounts withheld with respect to Unresolved Claims shall be disbursed to the
Shareholders immediately upon resolution thereof to the extent that the
Shareholders are relieved from liability.
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 the 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 the Buyer if all of the conditions set forth in Section 8.1
shall not have been satisfied on or before the Closing Date, other than
through failure of the Buyer to fully comply with its obligations
hereunder, and shall not have been waived by Buyer on or before such date;
or
36
(ii) by the Shareholders, if all of the conditions set forth in
Section 8.2 shall not have been satisfied on or before the Closing Date,
other than through failure of the Shareholder to fully comply with their
obligations hereunder, and shall not have been waived by the Shareholder
on or before such date.
(c) by mutual consent of the Buyer and of the Shareholders; or
(d) by either the Buyer or the Shareholders if the Closing shall not have
occurred, other than through failure of such party to fulfill its obligations
hereunder, on or before May 30, 2007.
Section 11.2. Effect of Termination.
In the event that this Agreement shall be terminated pursuant to Section
11.1(c) or (d), all further obligations of the Buyer and the Shareholders shall
terminate without further liability of either party. If this Agreement is
terminated by either party as a result of a breach by the other of any of its
representations, warranties or covenants contained herein, in addition to such
other remedies it may have at law, the non-breaching party shall be entitled to
seek specific performance without the necessity of providing such bond as may
otherwise be required by the Court
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.
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 Party, the Shareholder Indemnified Party or their respective
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
37
Section 12.4. Assignment; Delegation.
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; provided, however, that at Closing Buyer may assign this Agreement to
an entity in which Buyer holds and continues to hold a greater than ninety
percent (90%) equity interest, without the prior written consent of the Company
and the Shareholders, provided, however, Buyer shall remain liable for the
performance of its obligations under this Agreement. Any assignment or
delegation in violation of this Section 12.4 shall be null and void.
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: Michael Gales
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 either Shareholder, to:
Lugenia Gantt or John Gantt
c/o Welding Metallurgy, Inc.
31 Lamar Street
West Babylon New York
With copies to:
Adam P. Silvers, Esq.
Ruskin Moscou Faltischek, P.C.
1425 Reckson Plaza
Uniondale, New York 11556
(516) 663-6519 direct
(516) 663-6719 fax
38
or at such other address as the Shareholder may have advised the Buyer in
writing; and
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).
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, statements, representations or promises, oral and written, among the
parties hereto 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 proper New York State court 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.
39
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 Shareholder regarding the sale
of the Business and transfer of ownership thereof to Buyer.
Section 12.13. 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 12.14. Press Releases and Public Announcements.
Except as required by applicable law, rule or regulation, neither the
Buyer nor the Shareholders will issue any press release or make any public
announcement disclosing the execution and delivery of this Agreement.
Notwithstanding the foregoing, the Buyer shall be permitted to file a Current
Report on Form 8-(k) with the Securities and Exchange Commission advising of the
execution and delivery of this Agreement and issue a press release, the
substance of which shall be subject to the consent of the Shareholders, not to
be unreasonably withheld, in connection with such filing.
Section 12.15. 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.
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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:
------------------------------
Name: PETER RETTALIATA
Title: President
----------------------------------
LUGENIA GANTT
----------------------------------
JOHN GANTT
41
GALES INDUSTRIES INCORPORATED
For Immediate Release
Gales Industries Announces Acquisition of Welding Metallurgy
Latest Acquisition to Enhance Service Platform and Boost Revenues and Earnings
BAY SHORE, NY -- March 15, 2007 -- Gales Industries Incorporated (OTCBB: GLDS)
today announced that it will acquire all of the outstanding shares of Welding
Metallurgy, Inc., a metallurgical engineering and welding services provider and
manufacturer based in West Babylon, Long Island, NY. As part of the purchase
agreement, Gales Industries has agreed to pay approximately $6 million in a
combination of cash, restricted stock, and debt. The closing of the acquisition
is expected to be on or about May 2007, and is subject to standard due diligence
and applicable financial reporting requirements.
"We are pleased to announce our third acquisition -- and the second in less than
four months. We are clearly executing on our consolidation strategy," said Gales
CEO Peter Rettaliata. "Welding Metallurgy allows us to significantly increase
our core competencies and provides us with the ability to capture a larger share
of the market. Welding Metallurgy has entrenched relationships with three
primary customers, two of which represent substantial growth opportunities for
Gales. This acquisition is a perfect complement to the other businesses
presently part of or identified to be consolidated as platform companies for
Gales."
Mr. Rettaliata continued, "While expanding our vertical integration, the
acquisition will increase our consolidated revenues by approximately ten percent
as compared to the approximate trailing twelve months revenue for Gales and
Sigma Metals, our second acquisition, which will be completed shortly. At a cost
of approximately three times estimated adjusted earnings*, Welding Metallurgy is
an attractive acquisition from both business and valuation perspectives, and
will be accretive to earnings."
Current customers of Welding Metallurgy include Northrop Grumman's Florida
units, Boeing Helicopter's Philadelphia, Pennsylvania unit, and Middle River
Aircraft Systems of Baltimore, Maryland, among others. Boeing Helicopter and
Middle River are two of the larger customers and represent new customers for
Gales; Northrop Grumman of Florida has an ongoing manufacturing and supply
agreement with Gales' subsidiary Air Industries Machining Corp. Under Gales'
consolidation and market share expansion initiatives, the Company intends to
leverage customers of one subsidiary to expand revenue generating opportunities
for other business units.
Founded in 1979, Welding Metallurgy stands as one of the premiere suppliers of
welded assemblies for the aerospace and other industrial sectors. Although
specialty welding is its primary service, the company also has manufactured
components for various sub-sectors of the commercial and military aerospace
industries for over 20 years. These components include manifold and torque
tubes, tube and duct assemblies, tank assemblies, structural assemblies and
acoustic muffler assemblies. Welding Metallurgy's staff of over 30 employees
maintains a thorough knowledge of many aircraft platforms, including E2-C,
J-STARS, EA6B, A6-E, F-14, A-10, and A340. Legal representation for Gales
Industries in this transaction was provided by Eaton & Van Winkle LLP of New
York, NY. Legal representation for Welding Metallurgy in this transaction was
provided by Ruskin Moscou Faltischek, P.C. of Uniondale, 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.
* Estimated adjusted earnings is defined as estimated earnings before interest,
taxes, depreciation and amortization (EBITDA) plus certain compensation
adjustments.
# # #
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