EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
Dated as of July 25, 2005
by and between
▇▇▇▇▇ Industries, Incorporated,
as the Buyer
and
Air Industries Machining, Corp.,
as the Company,
and
▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
as Shareholder,
and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
as Shareholder,
and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
as Shareholder,
and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
as Shareholder.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made and entered into as of July 25, 2005
(the "Agreement") by and among ▇▇▇▇▇ Industries, Incorporated, a Delaware
corporation (the "Buyer"), Air Industries Machining, Corp., a New York
corporation (the "Company"), and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Shareholders of the Company (each, a
"Shareholder", and collectively, the "Shareholders").
RECITALS
WHEREAS, the Shareholders are the record and beneficial owners of 95
shares of common stock, no par value, of the Company (the "Shares"), which is
one hundred percent (100%) of the issued and outstanding capital stock of the
Company; and
WHEREAS, the Buyer desires to purchase from the Shareholders, and the
Shareholders desire to sell to the Buyer, the Shares on the terms and conditions
set forth in this Agreement. The business currently being conducted by the
Company is referred to herein as the "Business";
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, on the basis of and
in reliance on their respective representations, warranties, covenants,
obligations, indemnities and agreement set forth in this Agreement, and upon the
terms and subject to the conditions contained herein, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used herein the following terms shall have the following meanings and
shall include in the singular number the plural and in the plural number the
singular unless the context otherwise requires (capitalized terms not defined in
this Article 1 shall have the meanings ascribed to such terms elsewhere in this
Agreement):
"Affiliate" means, as to a Person, any other Person that, directly or
indirectly, through one or more intermediaries controls, is controlled by or is
under common control with the first-mentioned Person.
"Affiliated Group" means any affiliated group within the meaning of Code
ss. 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Appraisal Report" means the Appraisal Report by ▇▇▇▇▇▇ Group, Inc., dated
February 7, 2005, effective as of January 13, 2005.
"Assets" means all of the assets of the Company including, without
limitation, the following:
(a) the Business of the Company as a going concern, and the goodwill
pertaining thereto;
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(b) all items of inventory owned by the Company including, without
limitation, all raw materials, work-in-progress and finished products of the
Company;
(c) all vehicles, machinery, equipment, furniture, fixtures and supplies
of the Company, including containers, packaging and shipping material, tools and
spare parts and other similar tangible personal property owned by the Company;
(d) all of the Company's right, title and interest in and to the United
States and foreign rights with respect to copyrights, licenses, patents,
trademarks, trademark rights, trade names, service marks, service right marks,
trade secrets, shop rights, know-how, technical information, techniques,
discoveries, designs, proprietary rights and non-public information and
registrations, reissues and extensions thereof and applications and licenses
therefor, owned or used, or proposed to be used, in the Business (all of such
rights being collectively referred to hereinafter as the "Rights")
(e) all books and records of the Company (including corporate and tax
records) including all in-house mailing lists, other customer and supplier
lists, trade correspondence, production and purchase records, promotional
literature, data storage tapes and computer disks, computer software, order
forms, accounts payable records (including invoices, correspondence and all
related documents), accounts receivable ledgers, all documents relating to
uncollected invoices, and all shipping records;
(f) all contracts, agreements and purchase and sale orders for goods; all
corporate opportunities under discussion and related to the Business, including
any documentation related thereto;
(g) all trade receivables of the Company and all advance payments, prepaid
items, rights to offset and credits of all kinds of the Company;
(h) all tangible personal property owned by the Company which is not
specifically included in, or specifically excluded by, the foregoing subsections
(a) through (g);
(i) all rights under or pursuant to all warranties, representations and
guarantees made by suppliers in connection with the Assets, all claims, causes
of action, rights of recovery and rights of set-off of any kind against any
person or entity relating to the Assets or the Business; and
(j) any and all other assets of the Company including those reflected as
such in the Financial Statements, with such additions thereto and deletions
therefrom as have occurred or shall occur in the ordinary course of business
between December 31, 2004 and the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means, collectively, the Confidentiality
Agreement dated March 8, 2005 among ▇▇▇▇▇ & Company, ▇▇▇▇▇ Industries
Acquisition Group, Inc. and the Company and the Non-Circumvention and
Non-Disclosure Agreement dated November 19, 2003 among ▇▇▇▇▇ & Company, ▇▇▇▇▇
Industries Acquisition Group, Inc., the Company and affiliates of the Company.
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"Contracts" shall mean all agreements, indentures, mortgages, policies,
arrangements, and other instruments, including all amendments thereto (or where
they are verbal, written summaries of the material terms thereof), fixed or
contingent, required to be disclosed on Schedule 4.17 or on the Contracts List,
as the case may be.
"Contract List" means the list of Contracts described in Section 4.17(d)
or 4.17(f) to which the Company is a party or the Assets or Shares are subject,
or by which the Assets or Shares are bound, as of the date set forth therein;
provided, however, if an additional list or lists of such Contracts have been
made available to the Buyer pursuant to Section 6.1 (a) after the date hereof,
then "Contract List" means the list of such Contracts made available to Buyer at
the latest date.
"Credit Documents" means the Credit Agreement, dated August 15, 2003 by
and between the Company and Citibank, N.A., and related documents.
"Environmental Damages" means all claims, judgments, damages (other than
special or consequential damages), losses, penalties, fines, liabilities,
encumbrances, liens, costs and expenses of defense of a claim, and costs and
expenses of reporting, investigating, removing and/or remediating Hazardous
Materials, of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, including reasonable attorneys' fees
and disbursements and consultants' fees, any of which are incurred at any time
arising out of, based on or resulting from: (i) the presence or release of
Hazardous Materials in or into the environment, on or prior to the Closing Date,
in violation of applicable Environmental Laws upon, beneath or from any real
property or other location (whether or not owned by the Company) where the
Company conducted operations or generated, stored, sent, transported or disposed
of Hazardous Materials; or (ii) any violation of Environmental Laws by the
Company on or prior to the Closing Date. Environmental Damages attributable to
any individual shall include only that portion of any punitive damages assessed
against the Company as direct result of actions taken by or omissions of that
individual.
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws, codes, regulations, ordinances, rules, judgments,
injunctions, orders, decrees, permits, franchises or licenses relating to
pollution, hazardous substances, hazardous wastes, petroleum or otherwise
relating to protection of the environment, natural resources or human health,
including but not limited to: the Clean Air Act; Clean Water Act; Resource
Conservation and Recovery Act ("RCRA"); Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"); Emergency Planning and Community
Right-to-Know Act; Federal Insecticide, Fungicide and Rodenticide Act; Safe
Drinking Water Act; Toxic Substances Control Act; Hazardous Materials
Transportation Act; Occupational Safety and Health Act; and Endangered Species
Act of 1973, each as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means U.S. generally accepted accounting principles.
"Hazardous Materials" means any substance in amounts and concentrations
that: (i) require reporting, investigation, removal or remediation under any
Environmental Law; (ii) are regulated as a "hazardous waste," "hazardous
substance" or "pollutant" or "contaminant" under any Environmental Law; (iii)
cause a nuisance, trespass or other tortious condition or poses a hazard to the
health or safety of persons; or (iv) contain gasoline, diesel fuel or other
petroleum fuels, PCBs, asbestos or urea formaldehyde foam insulation.
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"IRS" means the Internal Revenue Service.
"Kfoury Agreement" means the Employment Agreement dated May 25, 1984
between the Company and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as amended by the Amendment and
Modification dated June 1, 1995 by and among the Company, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
"Knowledge of the Buyer" means actual knowledge after reasonable inquiry.
"Knowledge of the Shareholders" means actual knowledge after reasonable
inquiry, of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and actual
knowledge of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ without any obligation on the part of ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ to make inquiry.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including (without limitation) any liability for Taxes.
"Material Adverse Change" means a significant deterioration in the
business, financial condition, or results of operations of the Company, or a
significant impairment of the ability of the Company, taken as a whole, to carry
on its business and perform its obligations substantially as theretofore
conducted including, but not limited to, changes caused by law, regulation,
judgment, order or decree of general applicability to such companies.
"Officer Notes" means the obligations of the Company to the individuals
set forth on Schedule 4.10 annexed hereto.
"Ordinary Course of Business" means the ordinary course of business of the
Company consistent with past practice.
"Permits" shall mean any and all licenses, permits, orders or approvals of
any federal, state, local or foreign governmental or regulatory body necessary
for the operation of the Business by the Company.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity.
"Public Company" means a Person the shares of which are quoted on a
national securities exchange, on an electronic securities exchange or listed for
trading on the OTC Bulletin Board.
"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.
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"Real Property" means the real property described on Schedule 8.2 annexed
hereto.
"Real Property Documents" means the Purchase and Sale Agreement(s) and
related documents and instruments whereby the Buyer or its designee shall
purchase the Real Property from the holders thereof.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment of any Hazardous Material (including the abandonment or
discarding of barrels, containers, and other closed receptacles containing any
Hazardous Material).
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, (d) in the case of real property, rights of way, building use
restrictions, variances and easements, provided the same do not in any material
respect interfere with the Company's operation of the Business and (e) other
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Shareholders Agreement" means the Shareholders Agreement dated June 6,
1995 among the Shareholders.
"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 Dispute" means an adjustment proposed by a Taxing authority that, if
pursued successfully, could give rise to a claim for indemnification under
Section 10.5.
"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.
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"Transaction Documents" means this Agreement, the Ancillary Documents, the
Note, the ▇▇▇▇▇▇▇▇▇▇ Note, the Dario Note, the Employment Agreements, the
Consulting Agreement, and the Real Property Documents.
ARTICLE 2
SALE AND PURCHASE OF SHARES
Section 2.1. Purchase and Sale of Shares.
In exchange for the consideration specified herein, and upon and subject
to the terms and conditions of this Agreement, Buyer agrees to purchase and
acquire from Shareholders, and Shareholders agree to sell, assign, transfer,
convey and deliver to Buyer, all right, title and interest in and to the Shares.
Section 2.2. Delivery of Possession and Instruments of Transfer.
At the Closing (as hereinafter defined), the Shareholders shall sell,
transfer, assign and deliver to Buyer, against payment of the Purchase Price
therefor as provided in Section 2.3, certificates representing the Shares, duly
endorsed in blank or accompanied by duly executed stock powers with signatures
guaranteed or notarized, and such other instruments of transfer requested by and
reasonably satisfactory to Buyer and its counsel for consummation of the
transactions contemplated under this Agreement and as are necessary to vest in
Buyer, title in and to the Shares, free and clear of any lien, encumbrance,
security agreement, equity, option, claim, charge or restriction, other than
restrictions imposed by federal or applicable state securities laws.
Section 2.3. Purchase Price.
The total consideration payable by the Buyer to each of the Shareholders
for the Shares (the "Purchase Price") shall be as follows:
(a) The Buyer shall deliver to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("LP") (i) $1,054,193 by
wire transfer of same-day funds to such bank and account therein as LP directs,
(ii) a five-year secured subordinated promissory note dated the Closing Date,
substantially in the form of Exhibit A annexed hereto, in the aggregate
principal amount of $711,091 (the "Note") and (iii) 253,214 shares of the Common
Stock of the Buyer.
(b) The Buyer shall deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("JP") $1,127,213 by wire
transfer of same-day funds to such bank and account therein as JP directs.
(c) The Buyer shall deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("PR") (i) $466,445 by
wire transfer of same-day funds to such bank and account therein as PR directs,
(ii) a five-year convertible promissory note in the form of Exhibit B-1 hereto,
in the aggregate principal amount of $332,631 (the "▇▇▇▇▇▇▇▇▇▇ Note") and (iii)
118,423 shares of the Common Stock of the Buyer.
(d) The Buyer shall deliver to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("DP") (i) $446,445 by wire
transfer of same day funds to such bank and account therein as DP directs, (ii)
a five-year convertible promissory note in the form of Exhibit B-2 hereto, in
the aggregate principal amount of $332,631 (the "Dario Note") and (iii) 118,423
shares of the Common Stock of the Buyer.
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ARTICLE 3
CLOSING
Section 3.1. Date, Time and Place of Closing.
The closing of the transactions contemplated by this Agreement and the
Transaction Documents (the "Closing") will take place at the offices of ▇▇▇▇▇ &
▇▇▇ ▇▇▇▇▇▇ LLP, ▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ at 10:00 a.m. local time, on
September 15, 2005, or at such other date, time or place fixed by written
consent of the Buyer and the Shareholders. All proceedings to take place at the
Closing will take place simultaneously, and no delivery will be considered to
have been made until all such proceedings have been completed. The time and date
of the Closing is referred to as the "Closing Date".
Section 3.2. Required Documents.
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.
Section 3.3. Covenant of Further Assurance.
The Shareholders, at any time and from time to time after the Closing Date
(except in the case of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ whose obligation under this Section shall
terminate six months after the Closing Date), upon request of the Buyer and
without further cost or expense to the Shareholders, 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 (referred to herein collectively as the "Ancillary Documents")
and take such other action as the Buyer reasonably may request to transfer to
and vest in the Buyer, and to put the Buyer in possession of, all of the Shares,
free and clear of all restrictions, claims or encumbrances, other than
restrictions on transfer under federal and applicable state securities laws, and
otherwise to carry out the transactions contemplated by this Agreement, provided
that same are at no cost to the Shareholders.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As an inducement to Buyer to enter into this Agreement and perform its
obligations hereunder, each Shareholder, severally with respect to the
representations and warranties that relate to such Shareholder or are made to
the Knowledge of such Shareholder, and jointly and severally with the other
Shareholders with respect to the representations and warranties that relate to
the Company (except that with respect to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, those representations
and warranties that relate to the Company are made to his Knowledge), hereby
represents and warrants to the Buyer as of the date hereof and as of the Closing
Date (or if an earlier date as specified in such representation and warranty, as
of such earlier date):
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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, properties and
business 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 jurisdiction in which the conduct of the Business requires such
qualification, except where the failure to so qualify could not be reasonably
expected to have a material adverse effect on the Business. The minute books,
stock ledgers and stock transfer records of the Company in the possession of the
Company have been 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. Except as set forth in Schedule 4.1, such
stock ledgers and stock transfer records reflect all issuances and registrations
of transfer of all shares of capital stock of the Company, and the certificates
representing all canceled shares of capital stock (or affidavits of loss in lieu
thereof) have been returned to the stock ledger.
Section 4.2. Shares.
Such Shareholder has good, valid and marketable title to the number of
Shares set forth on Schedule 4.2 opposite the name of such Shareholder, free and
clear of any covenant, condition, restriction, voting arrangement, lien, charge,
encumbrance, security agreement, option or adverse claim, other than
restrictions on transfer under the Shareholders Agreement, the Kfoury Agreement,
and federal and applicable state securities laws and other than pursuant to the
Credit Documents. Upon delivery of the certificates representing such
Shareholder's Shares and payment of the applicable portion of the Purchase Price
for those Shares pursuant to Section 2.3, such Shareholder will transfer good
and marketable title to the Shares, free and clear of any adverse claim, to the
Buyer.
Section 4.3. Adequate Representation.
Such Shareholder has discussed with such professional, legal, tax and
financial advisors as he has independently chosen to engage the implications of
and obligations resulting from the execution of this Agreement and the
consummation of the transactions contemplated hereby and has received adequate
legal, tax and financial representation with respect to the drafting and
negotiation of this Agreement and the structure of the transactions contemplated
hereby.
Section 4.4. Capital Stock.
(a) The Company has authorized capital stock consisting solely of 200
shares of common stock, no par value, of which 95 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. To the Knowledge of the Shareholders, no person to whom
9
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. 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 as described in Schedule 4.5, have been made available
to the Buyer. The Articles of Incorporation and By-Laws are in full force and
effect.
Section 4.6. Subsidiaries, Divisions and Affiliates.
The Company has no Subsidiaries. The Business has been conducted solely by
the Company and not through any Affiliate, joint venture or other Person or
under any other name.
Section 4.7. Equity Investments.
The Company does not own or have any rights to any equity interest,
directly or indirectly, in any corporation, partnership, joint venture, firm or
other entity.
Section 4.8. Authorization.
The Company has full corporate power and authority and has taken all
action necessary to enter into this Agreement and to carry out the transactions
contemplated hereby. Such Shareholder possesses the legal right and capacity to
execute, deliver and perform this Agreement, without obtaining any approval,
authorization, consent or waiver or giving any notice, except as set forth in
Schedule 4.8. The Shareholders have taken all shareholder action required by
applicable law, the Company's Articles of Incorporation, By-laws or otherwise,
to be taken by them to authorize the execution and delivery by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby. This Agreement and all other Transaction Documents to which
the Company is a party have been, or will be, duly executed and delivered by the
Company and constitute (or when executed will constitute) the legal, valid and
binding obligations of the Company enforceable against it in accordance with
their respective terms, except to the extent such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, receivership, fraudulent
conveyance or similar laws affecting or relating to the enforcement of
creditors' rights generally, and by equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law). This Agreement and
all other Transaction Documents to which such Shareholder is a party have been,
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or will be, duly executed and delivered by such Shareholder and constitute the
legal, valid and binding obligations of such Shareholder, enforceable against
such Shareholder in accordance with their respective terms, except to the extent
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, fraudulent conveyance or similar laws affecting or
relating to the enforcement of creditors' rights generally, and by equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law).
Section 4.9. Effect of Agreement.
Except as set forth in Schedule 4.9, the execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation by the Company and the Shareholders of the transactions
contemplated hereby, will not, with or without the giving of notice and the
lapse of time, or both, (a) violate any provision of law, statute, rule,
regulation or executive order to which the Company, the Shareholders or the
Business is subject; (b) violate any judgment, order, writ or decree of any
court applicable to the Company, Shareholders or the Business; or (c) result in
the breach of or conflict with any term, covenant, condition or provision of,
or, constitute a default under, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the Assets or Shares
pursuant to the Articles of Incorporation, the By-laws, any commitment, contract
or other agreement or instrument, including any of the Contracts to which the
Company is a party or by which any of the Assets or Shares are bound.
Section 4.10. Officer Notes.
The aggregate outstanding principal amount of the Officer Notes as of the
date hereof is the amount set forth on Schedule 4.10.
Section 4.11. Governmental and Other Consents.
Except as set forth on Schedule 4.11, (i) no notice to, consent,
authorization or approval of, or exemption by, any governmental or public body
or authority is required in connection with the execution, delivery and
performance by the Company or such Shareholder of this Agreement or any other
Transaction Documents to which the Company or such Shareholder is a party, or
the taking of any action herein contemplated; and (ii) no notice to, consent,
authorization or approval of, any Person under any agreement, arrangement or
commitment of any nature which the Company or such Shareholder is party to or
which the applicable Shares or Assets are bound by or subject to, or from which
the Company receives or is entitled to receive a benefit, is required in
connection with the execution, delivery and performance by the Company or such
Shareholder of this Agreement or any other Transaction Documents to which the
company or such Shareholder is a party, or the taking of any action herein
contemplated.
Section 4.12. Financial Statements.
Correct and complete copies of the audited Balance Sheets and Income
Statements of the Company as of, and for the fiscal years ended, December 31,
2003 and December 31, 2004 (collectively, the "Audited Financials"), and an
unaudited balance sheet and income statement of the Company as of, and for the
quarter ended, March 31, 2005 (the "Stub Financials" and collectively with the
Audited Financials, the "Financial Statements") have been made available to the
Buyer. March 31, 2005 is referred to herein as the "Cutoff Date." The Financial
Statements: (i) are consistent in all material respects with the books and
records of the Company; (ii) have been prepared in accordance with GAAP
consistently applied; (iii) reflect and provide adequate reserves and
disclosures in respect of all liabilities of the Company, including all
contingent liabilities, as of the respective dates of the Financial Statements,
and (iv) present fairly in all material respects the financial position of the
11
Company at such dates and the results of operations and cash flows of the
Company for the periods then ended, except that the Stub Financials do not
reflect the impact of normal recurring year-end adjustments, which adjustments
would not have a material impact on the financial results reflected in the Stub
Financials. The Company does not have any material liabilities, and there is no
existing condition, situation or set of circumstances known which could
reasonably be expected to result in any material Liabilities to the Company,
other than liabilities reflected on the Financial Statements or incurred in the
Ordinary Course of Business since the Cutoff Date.
Section 4.13. 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. Except as
set forth in Schedule 4.13, since December 31, 2004, no customer of the Company
whose purchases represented more than 5% of the Company's sales during 2004 has
disclosed to the Company any plan or intention to reduce or terminate its volume
of purchases from the Company or change the nature or way of doing its business
with the Company. Since the Cutoff Date, the Company has conducted its Business
in the ordinary course, has maintained its rates and charges without reduction
and has maintained its assets and properties in at least as good order and
condition as existed on such date, ordinary wear and tear excepted.
Except as set forth on Schedule 4.13, since the Cutoff Date, the Company
has not: (a) suffered any adverse change in, or the occurrence of any events
which, individually or in the aggregate, has or have had, or might reasonably be
expected to have, a material adverse effect on the financial condition or
results of operations of the Business, taken as a whole; (b) incurred damage to
or destruction of any Asset or Assets individually or in the aggregate having a
replacement cost in excess of $50,000, whether or not covered by insurance; (c)
incurred any obligation or liability (fixed or contingent) not in the ordinary
course of business in excess of $50,000; (d) made or entered into contracts or
commitments to make any capital expenditures in excess of $100,000; (e)
encumbered any of the Assets with any Security Interest in addition to Security
Interests in existence as of the Cutoff Date other than Security Interests
imposed by operation of law; (f) sold, transferred or leased any Asset or Assets
individually or in the aggregate having a replacement cost in excess of $50,000,
or canceled or compromised any debt or material claims, except in each case, in
the ordinary course of business; (g) sold, assigned, transferred or granted any
rights under or with respect to any licenses, agreements, patents, inventions,
trademarks, trade names, copyrights or formulae or with respect to know-how or
any other intangible asset including, but not limited to, the Rights; (h)
amended or terminated any contracts, agreements, leases or arrangements which
otherwise would have been required to be set forth on Schedule 4.17 hereto; (i)
12
waived or released any other rights of material value to the Company; (j)
declared or paid any dividend on its capital stock, or set apart any money for
distribution to or for its Shareholders; (k) redeemed any portion of its capital
stock; (1) entered into, or amended the terms of, any employment or consulting
agreement not terminable by the Company on less than 30-days notice without
material liability to the Company; (m) incurred any indebtedness for borrowed
money or guaranteed any such indebtedness of another Person, in addition to the
Company's indebtedness, including without limitation pursuant to the Credit
Documents, as of the Cutoff Date or (n) entered into any transactions not in the
ordinary course of business which would, individually or in the aggregate,
materially adversely affect the Business.
Section 4.14. Title to Assets; Absence of Liens and Encumbrances.
The Company has good and marketable title to, and owns outright, the
Assets, free and clear of all Security Interests, other than those disclosed in
the Financial Statements and those set forth in Schedule 4.14 (the "Permitted
Encumbrances"). The leases and other agreements or instruments under which the
Company holds, leases or is entitled to the use of any real or personal property
included in the Assets are in full force and effect. 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 4.14 contains a complete list and legal description of each
parcel of real property owned or leased by the Company and a general description
of all structures and improvements thereon. The Company has made available or
furnished to Buyer true and complete copies of (a) all leases, licenses or other
occupancy agreements, including amendments and supplements thereto, to which the
Company is a party respecting any real property and all other instruments
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 4.14, all buildings, structures, appurtenances and material items of
machinery, equipment and other material tangible assets used by the Company in
the conduct of the Business are in 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.
Section 4.15. Equipment.
Set forth on Schedule 4.15 is (i) a correct and complete copy of the
Appraisal Report, which includes a description of all items of equipment used in
the Business having individually a fair market value of $50,000.00 or more as of
January 13, 2005, (ii) a list of all items of equipment included in the
Appraisal Report disposed of since January 13, 2005 and (iii) a description of
all items of equipment used in the Business as of the Cutoff Date acquired since
January 13, 2005, at a cost in excess of $50,000 (collectively, the
"Equipment"). Except as set forth on Schedule 4.15, none of the Equipment has
been disposed of since the Cutoff Date.
Section 4.16. Insurance.
There is now and there will be as of the Closing, in full force and effect
with a reputable insurance company fire and extended insurance coverage with
respect to all material tangible Assets in reasonable commercial amounts. There
are no 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
13
facilities be installed on or in connection with, any of the Assets. Except as
set forth on Schedule 4.16, the Company carries, worker's compensation insurance
in reasonable amounts, and other insurance which is reasonably necessary to the
conduct of the Business. On Schedule 4.16 is set forth a correct and complete
list of (a) all currently effective insurance policies and bonds covering the
Assets or the Business, and their respective annual premiums (as of the last
renewal or purchase of new insurance) and (b) for the three-year period ending
on the date hereof, (i) all accidents, casualties or damage occurring on or to
the Assets or relating to the Business which resulted in claims individually in
excess of $50,000, and (ii) claims for product liability, damages, contribution
or indemnification and settlements (including pending settlement negotiations)
resulting therefrom which individually are in excess of $50,000. Except as set
forth on Schedule 4.16, as of the date hereof there are no disputes with
underwriters of any such policies or bonds, and all premiums due and payable
have been paid. There are no pending or, to the Knowledge of the Shareholders,
threatened terminations or premium increases with respect to any of such
policies or bonds other than premium increases in the Ordinary Course of
Business, and to the Knowledge of the Shareholders, 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 4.17. Agreements, Arrangements
4.17.1 Except as set forth on Schedule 4.17, Schedule 4.10 and in the
Contract List made available to the Buyer, as of the date of the Contract List,
the Company is not a party to, nor are the Assets or Shares subject to or bound
by any:
(a) lease agreement (whether as lessor or lessee) where the annual
obligation of the Company exceeds $50,000;
(b) license agreement, assignment or contract (whether as licensor or
licensee, assignor or assignee) relating to trademarks, trade names, patents, or
copyrights (or applications therefor), unpatented designs or processes,
formulae, know-how or technical assistance, or other proprietary rights, other
than agreements relating to off-the-shelf software used in the conduct of the
Business;
(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without material
liability to the Company upon notice to the employee or independent contractor
of not more than 30 days, or (ii) provides payments (contingent or otherwise) of
more than $50,000 per year (including all salary, bonuses and commissions)
(d) agreement, contract or order with any buying agent, supplier or other
Person involved in the acquisition of supplies with an annual cost in excess of
$50,000;
14
(e) non-competition, secrecy or confidentiality agreements, or any other
agreement restricting the Company from doing business anywhere in the world;
(f) agreement or other arrangement for the sale of goods or services to
any third party (including the government or any other governmental authority)
in annual amounts in excess of $50,000;
(g) agreement with any labor union;
(h) agreement with any distributor, dealer, leasing company, sales agent
or representative, other than contracts or orders for the purchase, sale or
license of goods made in the usual and ordinary course of business at an
aggregate price per contract of more than $50,000 and a term of more than six
months under any such contract or order;
(i) agreement, contract or order with any manufacturer, leasing company,
supplier or customer (including those agreements which allow discounts or
allowances or extended payment terms), where the annual obligation of the
Company is more than $50,000;
(j) agreement with any distributor or brokerage company, leasing company,
management company or any other individual or entity who assists, places,
brokers or otherwise is involved with the marketing or distribution of the
products of the Business to its customers;
(k) joint venture or partnership agreement with any other Person;
(1) agreement guaranteeing, indemnifying or otherwise becoming liable for
the obligations or liabilities of another Person;
(m) agreement with any banks or other persons, for the borrowing or
lending of money or payment or repayment of draws on letters of credit or
currency swap or exchange agreements (other than purchase money security
interests which may, under the terms of invoices from its suppliers, be granted
to suppliers with respect to goods so purchased);
(n) agreement with any bank, finance company or similar organization which
acquires from the Company receivables or contracts for sales on credit;
(o) agreement granting any person a Security Interest on any of the
Assets, including, without limitation, any factoring or agreement for the
assignment of receivables or inventory, other than in the Ordinary Course of
Business;;
(p) agreement for the incurrence of any capital expenditure in excess of
$50,000;
(q) advertising, publication or printing agreement; and
(r) agreement giving any party the right to renegotiate or require a
reduction in prices to be paid or the repayment of any amount previously paid,
to the Company.
15
Correct and complete copies of all items required to be shown on Schedule
4.17 have been separately delivered or made available to Buyer prior to the date
hereof. Correct and complete copies of any item on the Contract List will be
made available to the Buyer following receipt of a request for such item from
the Buyer.
4.17.2 Each of the Contracts is valid, in full force and effect and
enforceable in accordance with its terms, except to the extent such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, fraudulent conveyance or similar laws affecting or
relating to the enforcement of creditors' rights generally, and by equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or at law).
4.17.3 Except as set forth on Schedule 4.17, the Company has fulfilled, or
has taken all action reasonably necessary to enable it to fulfill when due, all
of its respective obligations under the Contracts, except where the failure to
do so would not reasonably be expected to have individually a material adverse
affect on the Business, taken as a whole. 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 (a) could not
reasonably be expected to result in any material loss to or liability of the
Company or (b) have been indicated on Schedule 4.17.
Section 4.18. Patents, Trademarks, Copyrights.
Schedule 4.18 sets forth (i) the registered and beneficial owner and the
expiration date, to the extent applicable, for each of the Rights owned or used
by the Company and (ii) the product, service, or products or services of the
Company which make use of, or are sold, licensed or made under, each such Right.
All of the Rights are included in the Assets and constitute all Rights necessary
for the conduct of the Business by the Company. Except as set forth on Schedule
4.18, neither the Shareholders nor the Company has sold, assigned, transferred,
licensed, sub-licensed or conveyed the Rights, or any of them, or any interest
in the Rights, or any of them, to any Person, and the Company has the entire
right or right, title and interest (free and clear of all Security Interests) in
and to the Rights owned or used by the Company to conduct the Business; neither
has the validity of such items been, nor is the validity of such items, nor the
use thereof by the Company, the subject of any pending or, to the Knowledge of
the Shareholders, threatened opposition, interference, cancellation,
nullification, conflict, concurrent use, litigation or other proceeding. To the
Knowledge of the Shareholders the conduct of the Business as currently operated,
and the use of the Assets does not conflict with, or infringe, legally
enforceable rights of third parties. Except as set forth on Schedule 4.18, to
the Knowledge of the Shareholders, there is no infringement of any proprietary
right owned or licensed by the Company.
Section 4.19. Permits.
The Company has all Permits required to permit it to carry on the Business
as currently conducted other than Permits, which the failure to obtain would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Business, taken as a whole. Set forth on Schedule 4.19 is
a complete list of all such Permits issued to the Company (the "Company
Permits").
16
Section 4.20. Compliance with Applicable Laws.
The conduct by the Company of the Business does not violate or infringe,
and there is no meritorious basis for any claims of violation or infringement
of, any law, statute, ordinance, regulation or executive order currently in
effect and applicable to the Company, except in each case for violations or
infringements which could not be reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the Business, taken as a whole.
The Company is not in default under any Company Permit, under any governmental
or administrative order or demand directed to it, or with respect to any order,
writ, injunction or decree of any court applicable to it which, in any case,
would not reasonably be expected to have a material adverse effect on the
financial condition or results of operations of the Business.
Section 4.21. Litigation.
Except as set forth on Schedule 4.21, there is no claim, action, suit,
proceeding, arbitration, reparation, investigation or hearing or notice of
hearing, pending or, to the Knowledge of the Shareholders, threatened, before
any court or governmental, administrative or other competent authority or
private arbitration tribunal, which could not reasonably be expected to have a
material adverse effect on the Business, or to prevent the consummation of the
transactions contemplated by this Agreement; nor to the Knowledge of the
Shareholders 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 reasonably be expected to have a material adverse effect,
individually or in the aggregate, upon the Business, or prevent the consummation
of the transactions contemplated by this Agreement. The Company has not waived
any statute of limitations or other affirmative defense with respect to any of
these obligations. There is no continuing order, injunction or decree of any
court, arbitrator or governmental, administrative or other competent authority
to which the Company is a party, or to which the Assets or Business is subject.
Neither the Company nor any current officer, director, or employee of the
Company has been permanently or temporarily enjoined or barred by order,
judgment or decree of any court or other tribunal or any agency or other body
from engaging in or continuing any conduct or practice in connection with the
Business.
Section 4.22. Customers, Suppliers, Distributors and Agents.
Schedule 4.22 sets forth (a) the ten largest (in dollar value) purchasers
of goods and/or services from the Company and (b) the ten largest (in dollar
value) providers of goods and/or services to the Company the fiscal year ended
December 31, 2004.
Except as set forth on Schedule 4.22, the Company does not have any
knowledge that any Person set forth on Schedule 4.22 will cease to continue such
relationship, or will substantially reduce the extent of such relationship, at
any time prior to or after the Closing Date. The Company does not have any
knowledge of (i) any contemplated material and adverse modification or change in
the business relationship of the Company with, or (ii) any existing condition or
state of facts which will materially adversely affect, or has a reasonable
likelihood of materially adversely affecting the business relationship of the
Company with the Persons listed on Schedule 4.22 or which has prevented or will
prevent the Business from being carried on under its new ownership after the
Closing in substantially the same manner as it is currently carried on.
17
Section 4.23. Books and Records.
Except as set forth on Schedule 4.1, the books of account and other
financial and corporate records of the Company are in all material respects
complete, correct and up to date, with all necessary signatures.
Section 4.24. Employee Benefit Plans.
Schedule 4.24 sets forth a correct and complete list of each and every
employee benefit plan, including each pension, profit sharing, stock bonus,
bonus, deferred compensation, severance, stock option or purchase plan, or other
retirement plan or arrangement, covering employees of the Company that is
sponsored, maintained or contributed to by the Company (the "Employee Benefit
Plans"). Except with respect to any Employee Benefit Plan which is a
"multi-employer plan" within the meaning of Section 3(37) of ERISA
("Multi-Employer Plan"), the Shareholders have delivered or made available to
Buyer complete and accurate copies of (i) all Employee Benefit Plans and all
amendments thereto; (ii) the trust instrument or insurance contract, if any,
forming a part of the Employee Benefit Plans, and all amendments thereto; (iii)
the most recent and preceding year's Internal Revenue Service Form 5500, if any,
and all schedules thereto; (iv) the most recent Internal Revenue Service
determination or opinion letter, or if no letter has been issued, any pending
application to the Internal Revenue Service for a determination letter regarding
qualified status; and (v) the summary plan description, if any. Except for
errors or omissions as would not be reasonably be expected to have a materially
adverse impact on the Company, (i) the Company has complied in all material
respects with all of the rules and regulations governing each of the Employee
Benefit Plans, including, without limitation, rules and regulations promulgated
pursuant to ERISA and the Code, by the Department of Treasury, Department of
Labor, and the Pension Benefit Plans Guaranty Corporation and (ii) each of the
Employee Benefit Plans (excluding any Multi-Employer Plan) has been operated in
all material respects in accordance with its provisions and in all material
respects is in compliance with such rules and regulations. Neither the Company
nor any Employee Benefit Plans (excluding any Multi-Employer Plan) or any
fiduciaries thereof have engaged in any prohibited transaction, as that term is
defined in Section 406 of ERISA or Section 4975 of the Code, nor have any of
them committed any material breach of fiduciary responsibility with respect to
any of such Employee Benefit Plans.
Section 4.25. Powers of Attorney.
Except as set forth on Schedule 4.25, no person has any power of attorney
to act on behalf of the Company or the Shareholders in connection with any of
the Company's or the Shareholder's properties or business affairs other than
such powers to so act as normally pertain to the officers of the Company.
Section 4.26. Labor Matters.
(a) Except as set forth in Schedule 4.26, the Company is not a party to
any contract or collective bargaining agreement with any labor organization.
Except as set forth in Schedule 4.26, no organizing effort or question
concerning representation question is pending respecting the employees of the
Company, and no such question has been raised within the preceding three years.
18
(b) All reasonably anticipated material obligations of the Company,
whether arising by operation of law, contract, past custom or otherwise, for
unemployment compensation benefits, pension benefits, salaries, wages, bonuses
and other forms of compensation payable to the officers, directors and other
employees and independent contractors of the Company have been paid or reserved
for.
(c) To the Knowledge of such Shareholder, 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.
(d) The Company has withheld and paid to the appropriate governmental
authorities or is withholding for payment not yet due to such authorities all
amounts required to be withheld from the employees of the Company. The Company
is not liable for any arrears of such amounts or penalties thereon for failure
to comply with any of the foregoing. The Company is in compliance in all
material respects with all applicable laws, rules and regulations relating to
the employment of labor, including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes and other amounts as
required by appropriate governmental authorities.
Section 4.27. Environmental Matters.
Except as set forth on Schedule 4.27, (i) the Company is in compliance
with all applicable Environmental Laws; (ii) the Company has not transported,
stored and disposed of any Hazardous Materials upon real property owned or
leased by it in contravention of applicable Environmental Laws; (iii) there has
not occurred, nor is there presently occurring, a Release of any Hazardous
Materials by the Company on, into or beneath the surface of any parcel of real
property in which the Company has (or will have after giving effect to the
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. This Section 4.27 shall be the sole and exclusive source of
the Shareholders' representations and warranties with respect to environmental
matters, and any and all representations and warranties in other sections of
this Article 4 shall be deemed not to apply to such matters.
Section 4.28. Tax Matters.
(a) The Company has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All Taxes owed
by the Company have been paid. Except as set forth in Schedule 4.28, the Company
is not currently the beneficiary of any extension of time within which to file
any Tax Return that has not already been timely filed (with due regard to such
extension). No claim has ever been made by an authority in a jurisdiction where
19
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 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
4.28 lists all federal, state, local, and foreign income Tax Returns filed with
respect to the Company (including Tax Returns filed by each Shareholder relating
to Company activities) for taxable periods ended on or after December 31, 2002,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Shareholders have delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company since December 31, 2002.
(d) The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Company has not filed a consent under Code ss.341(f) concerning
collapsible corporations. The Company has not made any payments, is 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 Code ss.280G. The Company has not been a United States real property
holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(1)(A)(ii). The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could be reasonably expected to give rise to a substantial understatement of
federal income Tax within the meaning of Code ss.6662. The Company is not a
party to any Tax allocation or sharing agreement. The Company (i) has not been a
member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was ACER) or (ii) does not have
any Liability for the Taxes of any Person (other than of ACER) under Reg. ss. 1
1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, or by contract.
(f) The Company has maintained its status as a "small business
corporation" within the meaning of Code ss. 1361(b) and any comparable
provisions of state or local law at all times since the effective date of the
election of such status, December 1, 1986. 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 December 1, 1986, except as set
forth in Schedule 4.28, the Company has not been taxed other than as a "small
business corporation".
(g) The Company has not agreed to, and is not required to include in its
income, any adjustment pursuant to Code ss. 481(c) (or comparable provisions of
any state or local law) by reason of a change in accounting method or otherwise.
20
(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 (including any notes thereto) contained in the
Financial Statements and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
Section 4.29. Recent Dividends and Other Distributions.
Except as set forth on Schedule 4.29, there has been no dividend or other
distribution of assets or securities whether consisting of money, property or
any other thing of value, declared, issued or paid to or for the benefit of the
Shareholders by the Company since December 31, 2004.
Section 4.30. Inventory.
The inventory set forth in the Financial Statements has been valued in
accordance with GAAP consistently applied. The inventory is adequate and
appropriate for the conduct of the business of the Company as it is currently
being conducted. Inventory levels are not in excess of the normal operating
requirements of the Company in the ordinary course of business consistent with
past practice. The value at which the inventory is carried on the Financial
Statements reflects the normal inventory policy of the Company consistent with
past practice. Except as set forth in Schedule 4.30, all of the Inventory is of
a quantity and quality maintained in the ordinary course of business at regular
prices or usable in the ordinary course of business.
Section 4.31. Purchase and Sale Obligations.
All purchases, sales and orders and all other commitments for purchases,
sales and orders made by or on behalf of the Company since March 31, 2005 have
been made in the usual and ordinary course of its business in accordance with
normal practices. On the Closing Date, the Company shall deliver to Buyer a
schedule of all such uncompleted purchase and sale orders and other commitments
with respect to any of the Company's obligations as of a date not earlier than
ten (10) days prior to the Closing.
Section 4.32. Shareholders Agreement
Each of the Shareholders covenants and agrees that any obligation any
other Shareholder might have had under the Shareholders Agreement to obtain his
consent to the sale of Shares by such other Shareholder pursuant to this
Agreement has been satisfied. Further, each Shareholder hereby waives any right
of first refusal or similar right he might have had to purchase Shares to be
acquired by Buyer pursuant to this Agreement.
Section 4.33. Accounts Receivable and Accounts Payable.
A true and correct aged (30-60-90 days) list of all accounts receivable
and accounts payable of the Company as of the end of the calendar month
preceding the date hereof has been furnished to the Buyer. Except as set forth
on Schedule 4.33, to the Knowledge of the Shareholders, 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
21
books of the Company, and the accounts receivable are not and will not be
subject to any recoupments, set-offs or counter-claims, other than set-offs from
the purchase of inventory by the Company and returns, in each case in the
ordinary course of business consistent with past practice. Except as otherwise
reflected in the Financial Statements to the Knowledge of the Shareholders, such
accounts receivable are collectible in the ordinary course of business.
Section 4.35. 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 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 4.36. Personnel.
Schedule 4.36 sets forth a true and complete list of:
(a) the Company's employees, as of a date not earlier than twenty (20)
days prior to the date hereof which list sets forth with respect to each such
employee the department, current base rate, and date of hire; and
(b) the name and title or job description of each director and officer,
and each other key employee, of the Company as of a date not earlier than twenty
(20) days prior to the date hereof.
Section 4.37. Insider Interests.
Except as set forth in Schedule 4.37, no Shareholder, officer or director
of the Company is presently 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.
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.
22
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 and all necessary action on the part of the stockholders of the Buyer.
This Agreement and the other Transaction Documents to which the Buyer is a party
have been, or will be, duly executed and delivered by the Buyer and constitute
(or when executed will constitute) the valid, legal and binding obligations of
the Buyer, enforceable against the Buyer in accordance with their respective
terms, except to the extent such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, receivership, fraudulent conveyance or
similar laws affecting or relating to the enforcement of creditors' rights
generally, and by equitable principles (regardless of whether enforcement is
sought in a proceeding in equity or at law).
Section 5.3. Conflicts; Defaults.
The execution and delivery of this Agreement and the other agreements and
instruments executed or to be executed in connection herewith by the Buyer do
not, and the performance by the Buyer of its obligations hereunder and
thereunder and the consummation by the Buyer of the transactions contemplated
hereby or thereby, will not: (i) violate, conflict with, or constitute a breach
or default under any of the terms of its certificate of incorporation or bylaws;
(ii) require any authorization, approval, consent, registration, declaration or
filing with, from or to any governmental authority; (iii) violate any law,
statute, judgment, decree, injunction, order, writ, rule or regulation
applicable to the Buyer; or (iv) conflict with or result in a breach of, create
an event of default (or event that, with the giving of notice or lapse of time
or both, would constitute an event of default) under, or give any third party
the right to terminate, cancel or accelerate any obligation under, any contract,
agreement, note, bond, guarantee, deed of trust, loan agreement, mortgage,
license, lease, indenture, instrument, order, arbitration award, judgment or
decree to which the Buyer is a party or by which such party is bound and which
would affect the consummation of the transactions contemplated hereby. There is
no pending or, to the Knowledge of the Buyer, threatened action, suit, claim,
proceeding, inquiry or investigation before or by any governmental authorities,
involving or that could reasonably be expected to restrain or prevent the
consummation of the transactions contemplated by this Agreement.
Section 5.4. Brokers, Finders and Agents.
Neither the Buyer nor any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement and the Buyer agrees to indemnify and hold the Shareholders
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.
23
Section 5.5 Litigation.
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.
There is no continuing order, injunction or decree of any court, arbitrator or
governmental, administrative or other competent authority to which the Buyer is
a party. Neither the Buyer nor any current officer, director, or employee of the
Buyer has been permanently or temporarily enjoined or barred by order, judgment
or decree of any court or other tribunal or any agency or other body from
engaging in or continuing any conduct or practice.
Section 5.6 No Consents Required.
No notice to, consent, authorization or approval of, or exemption by, any
governmental or public body or authority is required in connection with the
execution, delivery and performance by the Buyer of this Agreement or any other
Transaction Documents to which the Buyer is a party, or the taking of any action
herein contemplated. No notice to, consent, authorization or approval of, any
Person under any agreement, arrangement or commitment of any nature which the
Buyer is party to or which the assets of Buyer are bound by or subject to, or
from which the Buyer receives or is entitled to receive a benefit, is required
in connection with the execution, delivery and performance by the Buyer of this
Agreement or any other Transaction Documents to which the Buyer is a party, or
the taking of any action by Buyer herein contemplated.
Section 5.7 Investment Intent.
The Buyer is purchasing the Shares for its own account, not for the
benefit or account of any other person, for investment purposes only, and not
with a view to, or in connection with, the distribution or resale thereof. The
Buyer has no agreement or other arrangement with any person to sell, transfer or
pledge any part of the Shares and the Buyer has no plans to enter into any such
agreement or arrangement. At the Closing, each shareholder of Buyer will be an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
of 1933, as amended.
Section 5.8. Adequate Representation.
Buyer has discussed with such professional, legal, tax and financial
advisors as it has independently chosen to engage the implications of and
obligations resulting from the execution of this Agreement and the consummation
of the transactions contemplated hereby and has received adequate legal, tax and
financial representation with respect to the drafting and negotiation of this
Agreement and the structure of the transactions contemplated hereby.
24
ARTICLE 6
CERTAIN COVENANTS OF THE SHAREHOLDERS
The Shareholders hereby covenant and agree with the Buyer that they shall
do, or cause to be done, the following, between the date of this Agreement and
the Closing Date, it being acknowledged by Buyer that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ does not
participate in the management of the Company and is therefore agreeing to take
only those actions that may be necessary in his capacity as a shareholder of the
Company to consummate the transactions contemplated hereby and agreed by Buyer
that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall not be liable for any breach by the Company or the
other Shareholders of the following covenants and agreements:
Section 6.1. Access and Information.
(a) The Shareholders will cause the Company to afford to the Buyer and the
Buyer's accountants, counsel and other representatives reasonable access from
time to time during normal business hours, after the provision of reasonable
prior written notice thereof, throughout the period from the date hereof until
the Closing Date to the properties, books, contracts, commitments, personnel,
independent accountants and records of the Company. During such period, the
Shareholders will cause the Company to furnish or make available to the Buyer
and the Buyer's accountants, counsel and other representatives copies of such
documents and all such other information concerning the Company as the Buyer
reasonably may request. The Shareholders will cause the Company to cooperate
with the Buyer in the Buyer's efforts to obtain reasonable access, from time to
time until the Closing Date, after the provisions of reasonable prior written
notice thereof, to key customers of the Company for the purpose of obtaining
information about their business with the Company from such customers'
perspective and their intentions regarding ongoing relationships with the
Company after the Closing.
(b) The Buyer will hold, and continue to hold, and cause its
representatives to hold , and continue to hold, in confidence all documents and
information concerning the Company furnished to they Buyer in connection with
the transactions contemplated hereby pursuant to the terms of the
Confidentiality Agreement.
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 any Shareholder,
the Company or any officer, director, Affiliate, employee, representative or
agent of the Company are approached with respect to, or are otherwise made aware
of, any such discussions or any such inquiries or proposals and will, in any
such notice to the Buyer, indicate in reasonable detail the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or other contact. The Shareholders
will not, and will not permit the Company to, release any Person from, or waive
any provision of, any confidentiality or standstill agreement to which the
Company is a party, without the prior written consent of the Buyer.
Section 6.3. Conduct of the Business of the Company.
(a) From the date hereof through the Closing Date or the termination of
this Agreement, as the case may be, except as otherwise permitted or
contemplated by this Agreement or consented to in writing by the Buyer, which
consent shall not be unreasonably withheld or delayed, the Shareholders will
cause the Company to (i) preserve in all material respects the Business of the
Company, (ii) use its commercially reasonable best efforts to keep available to
the Company the services of all current officers and key employees identified on
Schedule 4.36 and (iii) use its commercially reasonable best efforts to preserve
in all material respects the goodwill of the suppliers, customers, employees and
others currently having business relations with the Company.
(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 of the Company in
the ordinary course, and 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, equities or claims, except in the ordinary course of
business or in connection with the performance of this Agreement;
26
(ii) incur any debt or increase the amount of any existing debt,
other than in the ordinary course of business;
(iii) increase or establish any reserve for taxes or other
liabilities on its books or otherwise provide therefor, except for taxes
or other liabilities arising in the ordinary course of business since
December 31, 2004; 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 $100,000 in the aggregate;
(v) make any loan to any Shareholder or any relative or Affiliate of
any Shareholder, or declare, set aside or pay to any Shareholder any
dividend or other distribution in respect of its capital stock, transfer
any asset or pay any money to any Shareholder or any relative or Affiliate
of any Shareholder other than the payment of wages, salaries, bonuses and
other benefits in the ordinary course of business to Shareholders who are
also employees of the Company; or enter into or agree to enter into any
transaction with or for the benefit of any Shareholder or any relative or
Affiliate of any Shareholder other than the transactions contemplated
pursuant to this Agreement;
(vi) reclassify or change in any manner the outstanding shares of
capital stock of the Company or issue or agree to issue, sell, transfer,
pledge, encumber or deliver any stock, bond, debenture or other security
of the Company or any warrant, obligation, subscription, option,
convertible security or other commitments under which any additional
shares of capital stock of the Company may be authorized, issued or
transferred from treasury except as contemplated by this Agreement and the
other Transaction Documents;
(vii) except as set forth in Schedule 6.03(b)(vii), grant any
increase in the compensation payable to any officer, director, consultant,
employee or agent, except for increases in the compensation payable in the
ordinary course of business to employees in amounts and at times
consistent with past practice; fail to pay or accrue for compensation
payable to officers, directors, consultants, employees or agents in
compliance with existing agreements or arrangements or consistent with
prior periods; enter into or amend any contract for the employment of any
officer, employee or other person that is not terminable upon 30 days
notice or less without material liability to the Company; enter into any
contract or collective bargaining agreement with any labor union; enter
into or agree to enter into any bonus, pension, profit-sharing,
retirement, stock purchase, stock option, deferred compensation, incentive
compensation, hospitalization, insurance or similar plan, contract or
understanding providing for employee benefits, other than in the ordinary
course of business consistent with past practice;
(viii) enter into any contract, except in the ordinary course of
business consistent with past practice, that is not terminable upon 30
days notice or less without material liability to the Company; enter into
any contract, except in the ordinary course of business consistent with
past practice, continuing for a period of more than three months from its
date that is not terminable upon 30 days notice or less without material
liability to the Company;
27
(ix) enter into any agreement or instrument, except in the ordinary
course of business consistent with past practice, relating to the
borrowing or lending of money or extension of credit or guarantee or
indemnify any person or entity with respect to any obligation for borrowed
money or otherwise or make or permit to be made any amendment,
modification, cancellation or termination of any material contract,
agreement, lease, license, finance agreement or written evidence of
indebtedness, except as contemplated by this Agreement;
(x) extend credit to any customer in excess of amounts in accordance
with past practice or depart from the normal and customary trade, discount
and credit policies of the Company;
(xi) settle any administrative or judicial proceedings;
(xii) amend the certificate of incorporation or the bylaws of the
Company in a manner that would adversely affect or delay the consummation
of the transactions contemplated hereby; or
(xii) make any investment in the assets or securities of any Person
in excess of $100,000 in the aggregate.
Notwithstanding the foregoing, on or prior to the Closing Date the Company
shall be permitted to declare and distribute to its Shareholders dividends in an
amount equal to the sum of (i) $346,747 (the estimated liability of the
Shareholders of the Company for income of the Company allocable to them under
Subchapter S for calendar year 2004) plus (ii) forty percent (40%) of the income
of the Company allocable to the Shareholders under Subchapter S for the period
from January 1, 2005, to the Closing Date (the "2005 Tax Distribution"), less
any distributions made to the Shareholders from and after June 1, 2005.
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. Performance of Obligations.
The Shareholders will cause the Company to perform, in a timely manner and
in all material respects, its obligations under each Contract and otherwise to
use its commercially reasonable best efforts to keep each such Contract in full
force and effect.
Section 6.6. Insurance.
28
The Shareholders will cause the Company to maintain its existing insurance
policies in full force and effect.
Section 6.7. Permits.
The Shareholders will use its commercially reasonable best 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 6.8. Other Changes.
Except as otherwise expressly provided in this Agreement, the Shareholders
will not take any action, and will use their commercially reasonable best
efforts to prevent the occurrence of any event within the control of the Company
or the Shareholders, that would cause any representation or warranty contained
herein to be untrue or incomplete in any material respect on or before the
Closing Date. The Shareholders will give prompt written notice to the Buyer of
any (i) change that would render any representation or warranty made by the
Shareholders hereunder to be untrue or incomplete in any material respect as of
the date of such change or (ii) Material Adverse Change. Such notice shall be
deemed to amend the applicable schedule hereto to have qualified the applicable
representation and warranty and to cure any breach that may have existed.
Section 6.9. Approvals, Consents and Further Assurances.
The Shareholders shall use their commercially reasonable best efforts to
obtain in writing as promptly as possible all approvals, consents and waivers
required in order to effectuate the transactions contemplated hereby, and shall
deliver to Buyer copies, reasonably satisfactory in form and substance to Buyer,
of such approvals and consents. The Shareholders shall also use their
commercially reasonable best efforts to ensure that the other conditions set
forth in Article 8 hereof are satisfied by the Closing Date.
29
ARTICLE 7
COVENANTS OF THE BUYER
Section 7.1. Further Assurances.
Buyer shall execute such documents and other papers and take such further
actions as may be reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby. Buyer shall use its
commercially reasonable best efforts to fulfill or obtain the fulfillment of the
conditions to the Closing.
Section 7.2. Option Plan.
No later than sixty (60) days from the Closing Date Buyer shall adopt an
Incentive and Stock Option Plan in substantially the form annexed hereto as
Exhibit C.
Section 7.3. Use of Name.
Subsequent to the Closing, Buyer shall adopt the name "Air Industries
Machining" or otherwise cause its subsidiary operating the Business to use that
name.
Section 7.4. Financing from Private Offering.
The Buyer will use its commercially reasonable best efforts to cause the
Buyer to secure a minimum of $5,500,000 of financing from a private offering to
be available for the consummation of the transactions contemplated hereby. From
the date hereof to the Closing, Buyer will regularly apprise all the
Shareholders of the status of its efforts to secure such financing and to
consummate the merger referred to in the immediately succeeding section.
Section 7.5. Merger with a Public Company.
The Buyer will use its commercially reasonable efforts to cause the
Company to enter into an agreement with a Public Company with which the Buyer
will merge contemporaneously with the Closing of the transactions contemplated
hereby.
Section 7.6. Closing Balance Sheet.
Prior to the Closing the parties shall review the financial records of the
Company to determine the amount of the 2005 Tax Distribution. Buyer acknowledges
that any financial information provided by the Company or Shareholders in
connection with such determination will reflect the Company's best estimate of
its accounts as of the date thereof.
As soon as practicable after the Closing Date (but not later than 90 days
after the Closing Date), Buyer will prepare, and cause a recognized firm of
independent accountants (the "Auditors") to audit and report upon, the balance
sheet of the Company at the close of business on the Closing Date. Such balance
sheet shall be referred to herein as the "Closing Balance Sheet". The Closing
Balance Sheet will be prepared in accordance with generally accepted accounting
30
principles consistent with the accounting policies, practices and assumptions
utilized by the Company in the preparation of its Stub Financials. Shareholders
will provide the Company and the Auditors with such assistance as may be
reasonably necessary in connection with the preparation and audit of the Closing
Balance Sheet and, in general, will cooperate with the Company and the Auditors
in facilitating such audit and the Buyer shall consult with the Shareholders
during the preparation of the Closing Balance Sheet and shall allow the
Shareholders to observe the physical inventory taken in connection therewith.
Immediately after the audit of the Closing Balance Sheet has been
completed, the Buyer will cause the Auditors to determine the proper amount of
the 2005 Tax Distribution. The Auditor's determination of the 2005 Tax
Distribution at the Closing Date shall be delivered to the Shareholders no later
than 90 days after the Closing Date (the "2005 Tax Distribution Statement").
During the 25-day period following the Shareholders' receipt of the 2005 Tax
Distribution Statement, the Shareholders' accountants will be permitted to
review the audit working papers of the Auditors relating to 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 their accountants in facilitating such review. The 2005 Tax
Distribution 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 2005 Tax Distribution
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. If a Notice of Disagreement is received in a timely manner, the
2005 Tax Distribution Statement, as it may be amended pursuant to clauses (x)
and (y) below, 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 or Third Arbitrator (as such
terms are defined below). The 2005 Tax Distribution Statement that becomes final
and binding on the parties in accordance with the terms of this Section is
referred to herein as the "Final Statement".
During the 15-day period following the delivery of any Notice of
Disagreement, the parties shall attempt in good faith to resolve any differences
which they may have. If, at the end of such 15-day period, the parties have not
reached agreement on such matters, either the Shareholders or the Buyer shall
submit the matters which remain in dispute to the arbitrators (the
"Arbitrators"), for review and resolution. The Arbitrators shall be two persons
or entities, one of which shall be selected by the Buyer and one of which shall
be selected by the Shareholders. If within 20 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 metropolitan New York (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. The fees of the
Auditors incurred in connection with the audit of the Closing Balance Sheet and
the preparation of the 2005 Tax Distribution Statement and in any arbitration
shall be borne by the Company, and the fees of the Shareholders' accountants
incurred in connection with their review of the Closing Balance Sheet and the
2005 Tax Distribution Statement and in any arbitration shall be borne by the
Shareholders.
31
If the amount of the 2005 Tax Distribution reflected on the Final
Statement is greater than the amount of the 2005 Tax Distribution as tentatively
determined in accordance with Section 6.3, the excess shall be paid to the
Shareholders by the Company pro-rata in proportion to their Shares held
immediately before the Closing Date within thirty days of the determination of
the Final Statement. If the amount of the 2005 Tax Distribution reflected on the
Final Statement is less than the 2005 Tax Distribution as tentatively determined
in accordance with Section 6.3, the Shareholders, other than ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ who
shall be liable only for any excessive amount of the 2005 Tax Distribution
received by him, shall be jointly and severally liable to the Company for the
shortfall which shall be paid by the Shareholders to the Company within ten days
of the determination of the Final Statement.
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; and, further, Buyer agrees that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
shall have no liability for the failure of the other Shareholders or the Company
to fulfill those conditions that require actions by the other Shareholders or
the Company):
(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 date hereof and as of the Closing Date as though such representations and
warranties were made anew at and as of such date (or if an earlier date is
specified in such representation and warranty, as of such earlier date), and the
Shareholders shall have duly performed in all material respects all agreements
and covenants herein required to be performed by them on or before the Closing
Date.
(b) The Company shall not have suffered or incurred any Material Adverse
Change since the date hereof.
(c) The Shareholders shall have furnished the Buyer with certificates,
executed by each of the Shareholders and dated the Closing Date, confirming the
matters expressed in Section 8.1(a) and (b), it being understood that the
certificate of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ will be limited to those matters particular to
him, be to the best of his knowledge with respect to those matters related to
the Company and shall not cover any matters related to the other Shareholders.
32
(d) The Shareholders shall have furnished to the Buyer (i) certificates of
the Secretary of State of the State of New York, dated as of a date not more
than five business days prior to the Closing Date, attesting to the
organization, qualifications to do business and good standing of the Company and
(ii) a certificate of the Secretary of the Company, certifying to the Articles
of Incorporation and By-laws of the Company.
(e) All approvals and consents of third parties required to consummate the
transactions contemplated hereby shall have been obtained on terms and
conditions reasonably satisfactory to the Buyer and its counsel.
(f) There shall be in effect Employment Agreements between the Company and
each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ substantially in the forms annexed
hereto as Exhibits B-1 and B-2 annexed hereto (the "Employment Agreements").
(g) The Buyer shall have entered into a ten (10) year consulting agreement
with ▇▇▇▇▇▇ ▇▇▇▇▇▇, effective as of the Closing Date, substantially in the form
of Exhibit D annexed hereto (the "Consulting Agreement").
(h) The Company 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, customer or
other person under any Contract or Permit that purported to limit, 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.
(i) The Shareholders shall have furnished to the Buyer a copy of the
Company's Financial Statements for the year ended 2004 showing revenues in
excess of $24 million and EBITDA in excess of $2 million.
(j) The Buyer shall have received an opinion, dated the Closing Date, of
counsel to the Shareholders and the Company in substantially the form of Exhibit
E annexed hereto.
(k) Such members of the Board of Directors and such officers of the
Company as may be designated by the Buyer at least five days prior to the
Closing Date shall have tendered their resignations, effective at the Closing,
as such directors and officers.
(l) Each Shareholder and each officer and director of the Company shall
have executed and delivered releases, in form and substance reasonably
satisfactory to the Buyer, releasing the Company from any liability or
obligation owed by the Company to such person as of the Closing Date, other than
obligations arising under this Agreement.
(m) 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.
33
(n) The Buyer shall have secured a minimum of $5,500,000 of financing from
a private offering to be available for the consummation of the transactions
contemplated by this Agreement.
(o) The Buyer shall have entered into an agreement with a Public Company
in which to merge contemporaneously with the Closing of the transactions
contemplated by this Agreement.
(p) The purchase contemplated by the Real Property Documents shall have
been consummated.
If one or more Shareholders fails to fulfill any condition which gives
Buyer the right not to close with respect to the Shares held by such
Shareholder, Buyer shall nevertheless have the right to purchase the Shares held
by the other Shareholders.
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 Shareholders):
(a) The representations and warranties of the Buyer set forth in this
Agreement shall be true, correct and complete in all material respects as of the
Closing Date as though such representations and warranties were made anew at and
as of such date (or if an earlier dates is specified in such representation and
warranty, as of such earlier date), and the Buyer shall have duly performed in
all material respects all agreements and covenants herein which are required to
be performed by the Buyer on or before the Closing Date.
(b) The Buyer shall have furnished the Shareholders with a certificate,
executed on behalf of the Buyer by one of its executive officers and dated the
Closing Date, confirming the matters expressed in Section 8.2(a).
(c) All consents of third parties required to consummate the transactions
contemplated hereby shall have been obtained on terms and conditions reasonably
satisfactory to the Shareholders.
(d) The Shareholders shall have received an opinion, dated the date of the
Closing, of counsel to the Buyer in substantially the form of Exhibit F annexed
hereto.
(e) In addition to the capital necessary to consummate the transactions
contemplated hereby, Buyer shall have received additional capital contributions
of no less than $1,200,000 or shall have otherwise caused $1,200,000 to be made
available exclusively for use as working capital for the Business on terms
generally available in the market for companies similar to the Company.
(f) Buyer shall have obtained a capital expenditure credit facility of no
less than $1,500,000, which credit facility shall be available exclusively for
the use of the Business on terms generally available in the market for companies
similar to the Company.
(g) The Buyer shall have obtained from Citibank, N.A. and those other
creditors of the Company (collectively, the "Guaranteed Creditors") whose
obligations have been guaranteed by one or more Shareholders, releases, in form
and substance satisfactory to the concerned Shareholder, of any guaranty or
similar instrument he may have issued to the Guaranteed Creditors in respect of
the Company's obligations.
34
(h) Simultaneously with the consummation of the transaction contemplated
hereby, the Buyer shall have consummated a merger with a Public Company.
(i) Buyer or a Person designated by Buyer shall have purchased the Real
Property described on Schedule 8.2 for an aggregate price of no less than
$4,200,000 in cash pursuant to the Real Property Documents.
(j) Buyer shall have secured a minimum of $5,500,000 of financing from a
private offering to be available for the consummation of the transactions
contemplated hereby.
(k) The Officer Notes shall have been paid in full, subject to a maximum
liability of $247,829, after giving effect to the satisfaction of a portion of
such Notes from the proceeds derived by terminating certain insurance policies
held by the Company as listed in Schedule 4.16.
If one or more Shareholders fails to fulfill any condition which gives
Buyer the right not to close with respect to the Shares held by such
Shareholder, Buyer shall nevertheless have the right to purchase the Shares held
by the other Shareholders.
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 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
withhold or delay their 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 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. Any
out-of-pocket expense incurred by the Buyer or the Company in preparing or
filing any Tax return, for a period ending on or prior to the Closing Date, will
be paid by the Shareholders.
35
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 fourteen (14) months after the
Closing Date (the "Warranty Period") and shall thereupon terminate and expire
and shall be of no force or effect thereafter, except (i) with respect to any
claim, written notice of which shall have been delivered to Buyer or the
Shareholders, as the case may be, in accordance with Section 10.6 and prior to
the end of the Warranty Period, such claim shall survive the termination of such
Warranty Period for as long as such claim is unsettled, and (ii) with respect to
any litigation which shall have been commenced to resolve such claim on or prior
to such date. Notwithstanding the foregoing, solely with respect to the
representations and warranties regarding taxes (Section 4.28), ERISA matters
(Section 4.24), and environmental matters (section 4.27), the applicable
Warranty Period shall be the applicable statute of limitations.
Section 10.2. Indemnification by the Shareholders.
The Shareholders hereby covenant and agree with Buyer that the
Shareholders shall indemnify Buyer and its shareholders, respective directors,
officers, employees and Affiliates of Buyer, and each of their successors and
assigns (individually, a "Buyer Indemnified Party"), and hold them harmless
from, against and in respect of any and all costs, losses, claims, liabilities
(including for Taxes), fines, penalties, damages (other than special,
consequential or punitive 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 that has not been disclosed in this Agreement, including, without
limitation, the Schedules hereto, or in the Financial Statements 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 such Shareholder made in this Agreement (including without
36
limitation any Exhibit or Schedule hereto and any certificate or instrument
delivered in connection herewith); provided that the indemnification obligations
of each Shareholder pursuant to this Article 10 shall be (A) several, but not
joint, solely with respect to the indemnification obligations pursuant to this
Article 10 resulting from any breach of any representation or warranty made by
such Shareholder solely with respect to himself or his ownership of Shares, and
(B) joint and several with respect to all other indemnification obligations of
the Shareholders pursuant to this Article 10, provided, however, that ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ shall be responsible for no more than 22.63% of the Damages incurred
by Buyer Indemnified Parties resulting from a claim, liability, obligation or
expense described in clause (i) above or 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 any Shareholder related to
any matter other than those made by him solely with respect to himself or the
ownership of his Shares.
Notwithstanding anything in the prior paragraph to the contrary,
indemnification with respect to environmental matters shall be made exclusively
in accordance with Sections 10.4, 10.5, 10.6 and 10.7.
Section 10.3. Indemnification by Buyer.
Buyer hereby covenants and agrees with the Shareholders that Buyer shall
indemnify each Shareholder (individually a "Shareholder Indemnified Party") and
hold him harmless from, against and in respect of any and all Damages incurred
by such Shareholder resulting from any misrepresentation, breach of any
representation or warranty in this Agreement or the non-fulfillment in any
material respect of any agreement, covenant or obligation by Buyer made in this
Agreement (including without limitation any Exhibit or Schedule hereto and any
certificate or instrument delivered in connection herewith).
Section 10.4. Environmental Indemnification; Remediation.
(a) The Shareholders shall be liable for and jointly and severally will
indemnify the Buyer Indemnified Parties and hold them harmless from, against and
in respect of all Environmental Damages, asserted against, resulting from,
imposed upon or incurred or suffered by the Buyer Indemnified Parties as a
result of or arising from any breach of any representation or warranty contained
in Section 4.27, provided, however, that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall be responsible
for no more than 22.63% of the Environmental Damages incurred by Buyer
Indemnified Parties as a result of or arising from any breach of any
representation or warranty contained in Section 4.27.
(b) The parties hereto acknowledge and agree that all matters of
non-compliance by the Company prior to the Closing Date with applicable
Environmental Laws, the existence of which matter of non-compliance is a breach
of any representation or warranty contained in Section 4.27 hereof, may be
remediated under the direction and supervision of the Company, and that the
Shareholders shall be liable for the costs and expenses incurred in performing
such remediation of each such matter, up to a maximum amount, in the case of
each such matter, equal to the reasonable costs and expenses of performing such
remediation in compliance with the least stringent standards consistent with the
Environmental Laws applicable to the Company as of the Closing Date and in as
cost-effective a manner as is practicable.
37
Section 10.5. Limitation on Indemnification Obligations; Sole and Exclusive
Remedy.
(a) Notwithstanding anything contained herein to the contrary, (i) the
Shareholders shall not have any liability under this Article 10 until the
aggregate amount to which the Buyer Indemnified Parties would otherwise be
entitled pursuant to this Article 10 exceeds $560,000 (the "Hurdle Rate"), and
then only for such indemnifiable Damages in excess of the Hurdle Rate, (ii) the
aggregate amount of indemnifiable Damages in excess of the Hurdle Rate for which
the Shareholders shall be liable with respect to this Article 10 (other than
with respect to representations and warranties set forth in Sections 4.2
(Shares), 4.4 (Capital Stock) and 4.8 (Authorization) hereof) shall not exceed
$2,500,000 (the "Cap Amount"), (iii) the sole and exclusive remedy and recourse
of the Buyer Indemnified Parties against the Shareholders with respect to or
directly relating to the matters set forth in Sections 10.2 and 10.4 hereof
shall be (A) pursuant to this Article 10 and (B) subject to the Cap Amount,
except with respect to the representations and warranties set forth in Sections
4.2 (Shares), 4.4 (Capital Stock) and 4.8 (Authorization) hereof, which shall
not exceed the Purchase Price , provided, however, that ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall be
responsible for no more than 22.63% of the aggregate amount of indemnifiable
Damages in excess of the Hurdle Rate for which the Shareholders shall be liable
as provided in this Article 10 (other than with respect to representations and
warranties of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ set forth in Sections 4.2 (Shares), 4.4 (Capital
Stock) and 4.8 (Authorization) hereof) and (iv) the sole and exclusive remedy
and recourse of the Buyer Indemnified Parties against ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ with
respect to or directly relating to the matters set forth in Sections 10.2 and
10.4 hereof shall be (A) pursuant to this Article 10 and (B) subject to the Cap
Amount, except with respect to the representations and warranties set forth in
Section 4.2 (Shares) hereof, which shall not exceed the portion of the Purchase
Price paid to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
(b) The sole and exclusive remedy and recourse of the Shareholder
Indemnified Parties against the Buyer with respect to or directly relating to
the matters set forth in Sections 10.3 hereof shall be pursuant to this Article
10.
Section 10.6. Right to Defend.
If the facts giving rise to any such indemnification shall involve any
actual claim or demand by any third party against a Buyer Indemnified Party or
Shareholder Indemnified Party (referred to herein as an "Indemnified Party"),
then the Indemnified Party will give prompt written notice of any such claim to
the indemnifying party, which notice shall set forth in reasonable detail the
nature, basis and amount of such claim (the "Notice of Third Party Claim"). It
is a condition precedent to the applicable indemnifying party's obligation to
indemnify the applicable Indemnified Party for such claim that such Indemnified
Party timely provide to such indemnifying party the applicable Notice of Third
Party Claim, provided that the failure to provide such Notice of Third Party
Claim shall only relieve such indemnifying party of its or his obligation to
indemnify for such claim only to the extent that such indemnifying party has
been prejudiced by such Indemnified Party's failure to give the Notice of Third
Party Claim as required. The indemnifying party receiving such Notice of Third
Party Claim may (without prejudice to the right of any Indemnified Party to
participate at its own expense through counsel of its own choosing) undertake
the defense of such claims or actions at its expense with counsel chosen and
paid by its giving written notice (the "Election to Defend") to the Indemnified
Party within thirty (30) days after the date the Notice of Third Party Claim is
deemed received; provided, however, that the indemnifying party receiving the
Notice of Third Party Claim may not settle such claims or actions without the
consent of the Indemnified Party, which consent will not be unreasonably
withheld or delayed, except if the sole relief provided is monetary damages to
be borne solely by the indemnifying party; and, provided further, if the
defendants in any action include both the indemnifying party and the Indemnified
38
Party, and the Indemnified Party shall have reasonably concluded that counsel
selected by the indemnifying party has a conflict of interest because of the
availability of different or additional defenses to the parties, the Indemnified
Party shall cooperate in the defense of such claim and shall make available to
the indemnifying party pertinent information under its control relating thereto,
but the Indemnified Party shall have the right to its own counsel and to control
its defense and shall be entitled to be reimbursed for all reasonable costs and
expenses incurred in such separate defense. In no event will the provisions of
this Article reduce or lessen the obligations of the parties under this Article,
if prior to the expiration of the foregoing thirty (30) day notice period, the
Indemnified Party furnishing the Notice of Third Party Claim responds to a third
party claim if such action is reasonably required to minimize damages or avoid a
forfeiture or penalty or because of any requirements imposed by law. If the
indemnifying party receiving the Notice of Third Party Claim does not duly give
the Election to Defend as provided above, then it will be deemed to have
irrevocably waived its right to defend or settle such claims, but it will have
the right, at its expense, to attend, but not otherwise to participate in,
proceedings with such third parties; and if the indemnifying party does duly
give the Election to Defend, then the Indemnified Party giving the Notice of
Third Party Claim will have the right at its expense, to attend, but not
otherwise to participate in, such proceedings. The parties to this Agreement
will not be entitled to dispute the amount of any Damages (including reasonable
attorney's fees and expenses) related to such third party claim resolved as
provided above.
Section 10.7. 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.
If the Shareholders shall have paid Buyer Indemnified Party for an
indemnified claim arising out of Section 4.21 hereof or otherwise, and the Buyer
Indemnified Party or the Company subsequently receives payment under insurance
policies (existing prior to the Closing) covering such claim, the Buyer
Indemnified Party shall repay to such Shareholders the amount of such prior
payment made by Shareholders; provided, however, such repayment shall not exceed
the actual amount received by the Buyer Indemnified Party under such policy,
less all reasonable fees (including attorneys' fees) incurred by the Buyer
Indemnified Party in pursuing and collecting under such policy.
ARTICLE 11
TERMINATION
Section 11.1. Termination Events.
39
Subject to the provisions of Section 11.2, this Agreement may be
terminated by written notice given at or prior to the Closing Date in the manner
hereinafter provided:
(a) by either Buyer or the Shareholders if a material default or breach
shall be made by the other party hereto with respect to the due and timely
performance of any of its covenants and agreements contained herein, or with
respect to the due compliance with any of its representations, warranties or
covenants, and, after notice of such default has been received by the defaulting
party, such default cannot be cured prior to the Closing Date, or the date that
is fifteen (15) days after the receipt of such notice, whichever is later, and
has not been waived;
(b) (i) by Buyer if all of the conditions set forth in Section 8.1 shall
not have been satisfied on or before the Closing Date, other than through
failure of Buyer to fully comply with its obligations hereunder, and shall
not have been waived by Buyer on or before such date; or
(ii) by the Shareholders, if all of the conditions set forth in
Section 8.2 shall not have been satisfied on or before the Closing Date,
other than through failure of the Shareholders to fully comply with its
obligations hereunder, and shall not have been waived by all of the
Shareholders on or before such date.
(c) by mutual consent of Buyer and all of the Shareholders; or
(d) by either Buyer or the Shareholders if the Closing shall not have
occurred, other than through failure of any such party to fulfill its
obligations hereunder, on or before October 15, 2005. Time shall be of the
essence as to this provision only.
Termination of this Agreement by any Shareholder shall be effective only
as to the obligations of such Shareholder and the Buyer with respect to the
Shares held by such Shareholder, and the Buyer and remaining Shareholders shall
be free to consummate the transactions contemplated hereby with respect to the
Shares of such other Shareholders. Likewise, Buyer shall have the right to
terminate this Agreement as set forth above with respect to each of the
Shareholders on an individual basis and termination of this Agreement by Buyer
shall be effective only as to the obligations of the Buyer and those
Shareholders designated by Buyer with respect to the Shares held by such
Shareholders, and the Buyer and remaining Shareholders shall be free to
consummate the transactions contemplated hereby with respect to the Shares of
such other Shareholders. Notwithstanding the foregoing, if Buyer purchases the
Shares of any Shareholder pursuant to this Agreement, it will purchase the
Shares of all Shareholders who tender their Shares including those Shareholders
who have violated a representation, covenant or condition hereof other than
those representations affecting the ability of any Shareholder to transfer clear
valid title to his Shares.
Section 11.2. Effect of Termination.
(a) In the event that this Agreement shall be terminated pursuant to
Section 11.1, all further obligations of Buyer and those Shareholders as to
which the termination is effective under this Agreement, except pursuant to
Sections 6.1.(b), 12.11 and 12.15, shall terminate without further liability of
either party.
40
(b) (i) If this Agreement is terminated by one or more Shareholders
pursuant to Section 11.1(a) or because one or more of the conditions set
forth in Section 8.2 is not satisfied as a result of the Buyer's failure
to comply with its obligations hereunder, then each of such Shareholders
(and the Company, if terminated by all the Shareholders) shall have the
right to be reimbursed by the Buyer for all reasonable out-of-pocket costs
(including reasonable legal and accounting costs) actually incurred by him
or it in connection with the transactions contemplated hereby and neither
such Shareholder and, in the case this Agreement is terminated as provided
in this clause by all Shareholders, the Company shall have any further
recourse against the Buyer.
(ii) If this Agreement is terminated by the Buyer pursuant to
Section 1l.1(a) or because one or more of the conditions set forth in
Section 8.1 is not satisfied as a result of any Shareholder's failure to
comply with its obligations hereunder, then Buyer shall only have the
right to be reimbursed by the Company for all reasonable out-of-pocket
costs (including reasonable legal and accounting costs) actually incurred
by the Buyer subsequent to September 30, 2004, in connection with the
transactions contemplated hereby, and the Buyer shall have no further
recourse against the Company or any Shareholder.
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. If the transactions
contemplated hereby are consummated, the Company shall pay pro-rata all
reasonable legal and accounting expenses incurred by all of the Shareholders in
connection with the negotiation and consummation of this Agreement and any all
related agreements, up to a maximum of $250,000.
Section 12.2. Waivers.
No action taken pursuant to this Agreement, including any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein or in any other documents. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach. Any party hereto may, at or
before the Closing, waive any conditions to its obligations hereunder which are
not fulfilled.
Section 12.3. Binding Effect; Benefits.
This Agreement shall inure to the benefit of the parties hereto and shall
be binding upon the parties hereto and their respective successors and assigns.
Except as otherwise set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto, the
Buyer Indemnified Parties, the Shareholder Indemnified Parties or their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
41
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 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:
▇▇▇▇▇ Industries Incorporated
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Buyer may have advised the other parties hereto
in writing; and
If to the Company, to:
Air Industries Machining, Corp.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
42
With copies to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
and
Forchelli, Curto, Schwartz, Mineo, ▇▇▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇ ▇▇▇▇
or at such other address as the Company may have advised the Buyer in writing;
and
If to the Shareholders, to each Shareholder at the address set forth
beneath his signature on the execution page hereof with, in the case of all
Shareholders, a copy to ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP at the address set forth above and a
copy to Forchelli, Curto, Schwartz, Mineo, ▇▇▇▇▇▇▇ & ▇▇▇▇, LLP at the address
set forth above, or at such other address as each such Shareholder may have
advised the Buyer in writing.
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 and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements,
representations, warranties, statements, promises and understandings, whether
written or oral, with respect to the subject matter hereof. No party hereto
shall be bound by or charged with any written or oral arguments,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement or in any Schedule or Exhibits hereto
or any other Transaction Documents, or in certificates and instruments to be
delivered pursuant hereto on or before the Closing.
Section 12.7. Headings; Certain Terms.
The section and other headings contained in this Agreement are for
reference purposes only and shall not be deemed to be a part of this Agreement
or to affect the meaning or interpretation of this Agreement.
Section 12.8. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which when executed, shall be deemed to be an original and all of which together
shall be deemed to be one and the same instrument.
Section 12.9. Governing Law.
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This Agreement, and the rights and obligations of the parties hereto under
this Agreement, shall be governed by, construed and enforced in accordance with
the laws of the State of New York, without giving effect to the choice of law
principles thereof. Any action arising out of the breach or threatened breach of
this Agreement shall be commenced in a state court of New York and each of the
parties hereby submits to the jurisdiction of such courts for the purpose of
enforcing this Agreement.
Section 12.10. Severability.
If any term or provision of this Agreement shall to any extent be finally
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement shall not be affected thereby, and each term and
provision of the agreement shall be valid and enforced to the fullest extent
permitted by law.
Section 12.11. Amendments.
This Agreement may not be modified or changed except by an instrument or
instruments in writing signed by the party or parties against whom enforcement
of any such modification or amendment is sought.
Section 12.12. Transaction Taxes.
The Shareholders shall pay any and all taxes arising out of the transfer
of the Shares to the Buyer and imposed upon the sale of the Business and
transfer of ownership thereof to Buyer.
Section 12.13. Section References.
All references contained in this Agreement to any section number are
references to sections of this Agreement unless otherwise specifically stated.
Section 12.14. Exhibits and Schedules.
The Exhibits and Schedules attached hereto or referred to herein are
incorporated herein and made a part hereof. As used herein, the expression "this
Agreement" includes such Exhibits and Schedules.
Section 12.15. Press Releases and Public Announcements.
Neither the Buyer nor the Shareholders will issue any press release or
make any public announcement disclosing the execution and delivery of this
Agreement. At such time as Buyer enters into an agreement relating to the
acquisition of Buyer by a Public Company, Buyer and such Public Company shall be
permitted to make such announcements as counsel to such Public Company shall
deem necessary; provided, however, that each such announcement shall be approved
by the Shareholders prior to the making of such announcement by the Buyer or
such Public Company, which approval shall not be unreasonably withheld or
delayed or conditioned.
Section 12.16. Survival.
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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 except for the obligations of
Buyer to maintain the confidentiality of the Company's information as set forth
in Section 6.1(b).
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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.
▇▇▇▇▇ INDUSTRIES, INCORPORATED
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Chairman
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
AIR INDUSTRIES MACHINING, CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
46