EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
AGREEMENT (the "AGREEMENT"), dated as of July 15, 2004, is between and
among AROTECH CORPORATION, a Delaware corporation (the "BUYER") with its
principal place of business located at 000 Xxxx 00xx Xxxxxx, Xxxxx 000, Xxx
Xxxx, Xxx Xxxx 00000, ARMOUR OF AMERICA, INCORPORATED, a California corporation
with its principal place of business at 0000 Xxxx 000xx Xxxxxx, Xxxxxxx,
Xxxxxxxxxx 00000 (the "COMPANY"), and XXXXXX X. XXXXXXXXX, the sole shareholder
of the Company, with a principal residence at 000 Xxxxxxxx Xxxxx #000X, Xxxxxxx
Xxxxx, Xxxxxxxxxx 00000 (the "SHAREHOLDER").
WHEREAS, the Buyer has proposed to purchase and the Shareholder has
proposed to sell all of the outstanding shares of Common Stock issued by the
Company (the "COMPANY COMMON STOCK") and the shareholder and sole member of the
Board of Directors of the Company has determined that it is in the best
interests of the Company and the Shareholder to consent to that purchase and
sale (the "PURCHASE/SALE") upon the terms and conditions set forth herein;
NOW, THEREFORE, the Buyer, the Company and the Shareholder hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. For the purposes of this Agreement, the terms
listed below shall have the following meanings:
1.1.1 "AGREEMENT" shall mean this agreement, as it may be
amended from time to time.
1.1.2 "AROTECH COMMON STOCK" shall mean the Common Stock, with
$0.01 par value, issued by the Buyer.
1.1.3 "ASSOCIATION" shall have the meaning defined in Section
10.2.
1.1.4 "BURDENSOME CONDITION" shall have the meaning defined in
Sections 6.2.9.
1.1.5 "BUYER" shall mean Arotech Corporation, a Delaware
corporation.
1.1.6 "BUYER'S ACCOUNTANT" shall mean Stark, Winter, Xxxxxxxxx
& Co., LLP, or any other certified public accountant that shall be
designated by Buyer.
1.1.7 "CLAIM" shall have the meaning defined in Section 8.4.
1.1.8 "CLOSING" shall have the meaning defined in Section 7.1.
1.1.9 "CLOSING CONSIDERATION" shall have the meaning defined
in Section 2.3.
1.1.10 "CLOSING CASH CONSIDERATION" shall have the meaning
defined in Section 2.3.
1.1.11 "CLOSING DATE" shall have the meaning defined in
Section 7.1.
1.1.12 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
1.1.13 "COMPANY" shall mean Armour of America, Inc., a
California corporation.
1.1.14 "COMPANY COMMON STOCK" shall mean the Company's Common
Stock, par value $1.00 per share.
1.1.15 "COMPANY FINANCIAL STATEMENTS" shall have the meaning
defined in Section 3.14.
1.1.16 "DISCLOSURE SCHEDULE" shall have the meaning defined in
Section 1.3.
1.1.17 "DISPUTE NOTICE" shall have the meaning defined in
Section 10.1.
1.1.18 "DOWN PAYMENT" shall have the meaning defined in
Section 2.3.1.
1.1.19 "EBIT" shall mean the income of the Company before any
deductions for interest expenses or taxes, but otherwise as determined
in accordance with generally accepted accounting principles,
consistently applied from period to period.
1.1.20 "EBIT CALCULATION PERIOD" shall have the meaning
defined in Section 2.5.3.
1.1.21 "EARNOUT CONSIDERATION" shall have the meaning defined
in Section 2.5.
1.1.22 "EARNOUT ORDER" shall have the meaning defined in
Section 2.5.1.
1.1.23 "EARNOUT STOCK CONSIDERATION" shall have the meaning
defined in Section 2.5.1.
1.1.24 "ESCROW AGENT" shall mean M. Xxxx Xxxxxxxx, Esq.
1.1.25 "ESCROW AGREEMENT" shall have the meaning defined in
Section 2.3.
1.1.26 "ESCROW CONSIDERATION" shall have the meaning defined
in Section 2.3.
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1.1.27 "ESCROW ORDER" shall have the meaning defined in
Section 2.4.1.
1.1.28 "EXTRAORDINARY COSTS" shall have the meaning defined in
Section 2.5.4.
1.1.29 "FORCE MAJEURE" with respect to any party to this
Agreement shall mean all prevention, delays or stoppages when the same
is caused by and due to Acts of God (e.g., fire, flood, earthquake) and
extraordinary acts of man (e.g., war, insurrection, civil unrest,
strike) and/or other extraordinary, causes not reasonably foreseeable
and beyond the reasonable control of the party obligated to perform,
except that Force Majeure shall only excuse the performance of such
party for the period of time equal to the duration of any such
prevention, delays and/or stoppages, after which time the performance
of all obligations under this Agreement shall no longer be excused. The
inability of Buyer to raise or pay all or any part of the Purchase
Price due to a loan, credit application or asset sale being denied or
refused by a lender or lenders, or a buyer or buyers, shall not be
considered Force Majeure.
1.1.30 "GOVERNMENTAL AUTHORITY" shall mean any nation,
territory or government, foreign or domestic, any state, local or other
political subdivision thereof, and any bureau, tribunal, board,
commission, department, agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of
government, including, without limitation, all taxing authorities.
1.1.31 "INDEMNIFIED PARTY" shall have the meaning defined in
Section 8.3.
1.1.32 "INDEMNIFYING PARTIES" shall have the meaning defined
in Section 8.4.
1.1.33 "INDEMNITY NOTICE" shall have the meaning defined in
Section 8.4.
1.1.34 "INTELLECTUAL PROPERTY" shall mean any and all
proprietary technology, knowledge, formulas, specifications, processes,
techniques, technical data and other know-how, whether now existing or
hereafter developed, including without limitation Patents and Marks, to
which the Company has any rights. Until such time as any particular
patent has issued in accordance with the terms of a patent application,
the term "Intellectual Property" shall be deemed to include all
inventions claimed in such patent application. The term "Intellectual
Property" shall also include all proprietary technology, knowledge,
formulas, specifications, processes, techniques, technical data and
other know-how included in any patent application but which have not
been included within an allowed claim in any patent.
1.1.35 "INTERIM FINANCIAL STATEMENTS" shall have the meaning
defined in Section 3.14.
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1.1.36 "LIEN" shall mean any interest, consensual or
otherwise, in property, whether real, personal or mixed property or
assets, tangible or intangible, securing an obligation owed to, or a
claim by a third Person, or otherwise evidencing an interest of a
Person other than the owner of the property, whether such interest is
based on common law, statute or contract, and including, but not
limited to, any security interest, security title or lien arising from
a mortgage, recordation of abstract of judgment, deed of trust, deed to
secure debt, encumbrance, restriction, charge, covenant, restriction,
claim, exception, encroachment, easement, right of way, license,
permit, incorporeal hereditament, pledge, conditional sale, option
trust (constructive or otherwise) or trust receipt or a lease,
consignment or bailment for security purposes and other title
exceptions and encumbrances affecting the property.
1.1.37 "LOSSES" shall have the meaning defined in Section 8.1.
1.1.38 "MARKS" shall mean all trademarks, service marks, trade
dress and trade names, including all registrations and applications
with respect thereto, and all copyright registrations owned by the
Company or in which the Company has any rights or licenses.
1.1.39 "MATERIAL ADVERSE CHANGE" means any material adverse
change in the business (as now conducted or as proposed to be conducted
by the Company at the date hereof and at the Closing Date), assets,
financial condition, liabilities, operations or prospects of the
Company.
1.1.40 "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business (as now conducted or as proposed to be conducted
by the Company at the date hereof and at the Closing Date), assets,
financial condition, liabilities, operations or prospects of the
Company.
1.1.41 "ORGANIZATIONAL DOCUMENTS" shall mean a corporation's
Articles of Incorporation, Certificate of Incorporation, By-Laws or
equivalent organizational documents.
1.1.42 "PATENTS" shall mean shall mean the Company's right,
title and interest in and to all unexpired domestic and foreign
patents, patent applications, similar grants and applications therefor,
and any improvements, continuations, continuations-in-part,
divisionals, extensions, reissues, reexaminations or substitutions
thereof, and any and all inventions embodied within the foregoing.
1.1.43 "PERSON" shall mean any individual or any corporate or
other entity, including without limitation federal, state, local and
foreign governmental agencies and all subdivisions thereof.
1.1.44 "PLAN" shall have the meaning defined in Section 3.19.
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1.1.45 "PURCHASE PRICE" shall have the meaning defined in
Section 2.2.
1.1.46 "PURCHASE/SALE" shall mean the purchase and sale of the
Company Common Stock pursuant to this Agreement
1.1.47 "REQUISITE REGULATORY APPROVAL" shall have the meaning
defined in Section 6.1.2.
1.1.48 "RESOLUTION NOTICE" shall have the meaning defined in
Section 10.1.
1.1.49 "REVIEW NOTICE" shall have the meaning defined in
Section 10.1.
1.1.50 "SHAREHOLDER" shall mean Xxxxxx X. Xxxxxxxxx.
1.1.51 "SHAREHOLDER'S ACCOUNTANT" shall mean Xxxxxxxx &
Ebenhoch.
1.1.52 "STOCK DEPOSIT DATE" shall have the meaning defined in
Section 2.5.1.
1.1.53 "SUBCHAPTER S TAX LIABILITY" shall mean the federal and
state income Taxes payable by the Shareholder with respect to the
taxable income realized by the Company in 2003 and 2004 that is
allocated to the Shareholder pursuant to Subchapter S of the Code,
calculated for the Shareholder upon the assumption that such allocated
taxable income will be subject to income tax at the highest marginal
rate under the Code or other applicable taxing statute.
1.1.54 "TAX" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code ss. 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, assessment or levy of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed
or not.
1.1.55 "TAX RETURN" means any federal, state, local or foreign
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
1.1.56 "TRADE SECRETS" shall mean shall mean any and all
proprietary technology, knowledge, formulas, specifications, processes,
techniques, technical data and other know-how, whether now existing or
hereafter developed, to which the Company has any rights. Until such
time as any particular patent has issued in accordance with the terms
of a patent application, the term "Trade Secrets" shall be deemed to
include all inventions claimed in such patent application. The term
"Trade Secrets" shall also include all proprietary technology,
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knowledge, formulas, specifications, processes, techniques, technical
data and other know-how included in any patent application but which
have not been included within an allowed claim in any patent.
1.1.57 "UNAFFILIATED ACCOUNTANT" shall have the meaning
defined in Section 10.1.
1.2 OTHER DEFINITIONAL MATTERS. Other terms used herein are defined in
the preamble and elsewhere in this Agreement Terms defined in the singular shall
have a comparable meaning when used in the plural, and vice versa.
1.3 DISCLOSURE STANDARDS. Immediately prior to the execution and
delivery of this Agreement, the Shareholder has delivered to the Buyer, and the
Buyer has delivered to the Shareholder, a schedule ("DISCLOSURE SCHEDULE")
setting forth, among other things, on schedules corresponding to the Sections
hereof, items the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a provision hereof or
as an exception to one or more of such party's representations, warranties or
covenants contained in this Agreement, or that are necessary to make the
statements made in this Agreement and in the Disclosure Schedule, individually
and taken as a whole, not misleading.
ARTICLE II
PURCHASE/SALE AND TRANSFER OF COMPANY COMMON STOCK
2.1 PURCHASE/SALE. Subject to the terms and conditions of this
Agreement, the Buyer shall purchase and the Shareholder shall sell all of the
Company Common Stock at the Closing, effective as of the Closing Date.
2.2 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE")
for all of the issued and outstanding shares of the Company Common Stock is the
sum of the Closing Consideration established pursuant to Section 2.3 and the
Earnout Consideration established pursuant to Section 2.5; provided, however,
that under no circumstances shall the aggregate Purchase Price to be paid by the
Buyer be in excess of $40,000,000.
2.3 CLOSING CONSIDERATION. The portion of the Purchase Price payable in
cash at the Closing (the "CLOSING CONSIDERATION") will be an amount equal to (i)
$22,000,000 in cash to the Shareholder at the closing (the "CLOSING CASH
CONSIDERATION"), and (ii) $3,000,000 in cash (the "ESCROW CONSIDERATION") to the
Escrow Agent, to be held in an escrow account (the "ESCROW ACCOUNT") pursuant to
the terms of an escrow agreement in substantially the form of Exhibit 2.3 hereto
(the "ESCROW AGREEMENT"), a copy of which has been executed by the parties
thereto simultaneously with the execution of this Agreement.
2.3.1 On or prior to the date hereof, the Buyer has
transferred to the Escrow Agent the sum of $500,000 (the "DOWN
PAYMENT"), receipt of which the Shareholder hereby acknowledges, to be
held by the Escrow Agent in the Escrow Account pursuant to the terms of
the Escrow Agreement.
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2.3.2 The Closing Cash Consideration shall be paid at the
Closing by (i) release to the Shareholder of the Down Payment, and (ii)
delivery to the Shareholder by wire transfer of funds to an account
specified by the Shareholder pursuant to Section 7.2.1 hereof in the
amount of $21,500,000, or such lesser amount as shall be due after
operation of the provisions of Section 7.1 hereof.
2.3.3 The Escrow Consideration shall be paid at the Closing by
wire transfer of funds to an account specified by the Escrow Agent
pursuant to Section 7.2.2 hereof in the amount of $3,000,000, to be
held in escrow in the Escrow Account pursuant to the terms of the
Escrow Agreement.
2.4 ESCROW CONSIDERATION. The Escrow Consideration shall be released
from the Escrow Account as follows:
2.4.1 Within 15 days after the receipt by the Company prior to
December 31, 2005 and delivery to the Escrow Agent of signed purchase
orders or contracts, with estimated gross profit margins relatively
consistent with historical levels, from specific programs that are
identified in writing by the Buyer and the Shareholder, in the
cumulative amount of not less than $2,000,000 (an "ESCROW ORDER"), the
amount of $3,000,000 will be released to the Shareholder from the
Escrow Account. Any dispute with respect to this subsection shall be
resolved in the manner specified in Section 10.1.
2.4.2 Any money remaining in the Escrow Account on January 1,
2006 shall be returned to the Buyer as soon as practicable after such
date.
2.5 EARNOUT CONSIDERATION. The portion of the Purchase Price
payable on the basis of the operations of the Company following the Closing (the
"EARNOUT CONSIDERATION") will equal the following:
2.5.1 If at any time prior to December 31, 2005 the Company
receives signed purchase orders or contracts, which shall be promptly
delivered to the Escrow Agent, with estimated gross profit margins
relatively consistent with historical levels, in the cumulative amount
of at least $15,000,000, from specific programs that are identified in
writing by the Buyer and the Shareholder (an "EARNOUT ORDER"), then the
Buyer shall pay or shall cause the Company to pay and deliver to the
Shareholder cash or, at Buyer's option, an amount in Arotech Common
Stock having a value equal to $15,000,000 (the "EARNOUT STOCK
CONSIDERATION"), with such payment and delivery to be made 15 days
after receipt of such a signed purchase order or contract, (the "STOCK
DEPOSIT DATE"). The number of shares of Arotech Common Stock to be
delivered to the Shareholder shall be determined based upon the average
of the last sale price during the five trading days immediately
preceding the date of the Earnout Order. The Buyer shall then have a
period of up to 60 days after the Stock Deposit Date in which to
register and sell the Earnout Stock Consideration, such that the
Shareholder receives $15,000,000 in net cash proceeds pursuant to the
procedures established in Section 2.5.2 below. Any questions regarding
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the computation of the Earnout Stock Consideration shall be resolved in
the manner specified in Section 10.1. The Buyer, Shareholder and the
Company shall use their commercially reasonable best efforts to obtain
such signed purchase orders or contracts for the Earnout Order by
December 31, 2005. However, the Shareholder shall receive the Earnout
Stock Consideration if the Earnout Order is a linked contract
consisting of a prototype order obtained by December 31, 2005 followed
by a production order, the latter of which must be signed by June 30,
2006.
2.5.2 In connection with the Earnout Stock Consideration, the
Buyer will implement as rapidly as possible the sale, in one or more
transactions, of that number of the shares of the Earnout Stock
Consideration as will be required to generate net proceeds to the
Shareholder (after all transactional expenses) of $15,000,000 and,
within three (3) business days following each such sale, to disburse
such net proceeds to the Shareholder by wire transfer to an account or
accounts designated by the Shareholder. Unless at the written directive
of the Shareholder, no sales of shares of the Earnout Stock
Consideration will be completed at a price that is less than 80% of the
price per share that was the valuation basis for the issuance of the
Earnout Stock Consideration. All cumulative net proceeds in excess of
$15,000,000 shall be delivered to the Buyer. If any such excess
cumulative net proceeds are not delivered to the Buyer, the Buyer may
deduct an amount equal to such excess cumulative net proceeds from any
Earnout Consideration to be paid. If as of the sixtieth (60th) day
following the Stock Deposit Date, the cumulative net proceeds from the
sale of the Earnout Stock Consideration distributed to the Shareholder
equals less than $15,000,000, then the Shareholder shall have the
right, as of or at any time after such sixtieth (60th) day, exercisable
by written notice delivered to the Buyer, to require that the Buyer pay
to the Shareholder in cash any remaining sums due in order to cause the
amount of Earnout Stock Consideration paid to be equal to $15,000,000.
2.5.3 The Buyer shall pay to the Shareholder as the Earnout
Consideration for operations of the Company an additional amount,
one-half in cash and one-half in registered stock (valued at the
average of the last sale price of the Buyer's common stock on the
Nasdaq National Market during the five trading days immediately
preceding the payment date) equal to the amount, if any, by which (i)
3.0 times the amount by which EBIT realized by the Company from all
operations (not including any EBIT realized by the Company from a
Navair CH-46 order (under contract dated 6/10/04), an Escrow Order,
and/or an Earnout Order which have become part of the Purchase Price)
during the eighteen months ending December 31, 2005 (the "EBIT
CALCULATION PERIOD") exceeds (ii) $9,000,000; provided, however, that
under no circumstances shall the amount of Earnout Consideration
payable by the Buyer pursuant to this subsection exceed $7,000,000.
However, if the Shareholder does not receive any Escrow Consideration
and/or Earnout Stock Consideration, then the EBIT contribution from the
respective contracts that could have resulted in such Consideration
shall be included in the EBIT Calculation Period. For such purposes the
EBIT realized by the Company for the EBIT Calculation Period will be
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determined in accordance with U.S. generally accepted accounting
principles consistently applied from period to period, but subject to
the limitation on Extraordinary Costs of the Company as provided in
Section 2.5.4. The Buyer will cause the Buyer Accountants, not later
than March 31, 2006, to prepare and deliver to the Shareholder and the
Buyer an audited financial statement of the Company for the EBIT
Calculation Period, together with a computation prepared by the Buyer's
Accountants of the Company's EBIT for the EBIT Calculation Period based
upon the information contained in that financial statement and the
Earnout Consideration payable to the Shareholder based upon that EBIT.
Not later than April 30, 2006, the Buyer shall pay to the Shareholder,
by wire transfer of funds, the amount specified by the Buyer's
Accountants as the Earnout Consideration. Any questions regarding that
computation of the Earnout Consideration shall be resolved in the
manner specified in Section 10.1.
2.5.4 During the EBIT Calculation Period, the Buyer will cause
the operation of the Company's business to be conducted in a
commercially reasonable manner consistent with past practices and in
the ordinary course. In computing the EBIT for purposes of the Earnout
Consideration, expenses outside the ordinary course that are not
consistent with past practices ("EXTRAORDINARY COSTS") shall not be
deducted from EBIT, it being agreed that all costs in connection with
the addition of a marketing manager, an operations manager, and the
leasing of additional space shall not be considered Extraordinary
Costs.
2.5.5 If the EBIT for the EBIT Calculation Period (not
including EBIT realized by the Company from a Navair CH-46 order (under
contract dated 6/10/04), an Escrow Order, and/or an Earnout Order)
equals or exceeds $9.0 million, and EBIT for the twelve months ended
June 30, 2004 (not including any EBIT realized by the Company from a
Navair CH-46 order (under contract dated 6/10/04), an Escrow Order,
and/or an Earnout Order) equals or exceeds $6.0 million, then Buyer
shall pay Shareholder by wire transfer of funds, by no later than April
30, 2006, the amount of such EBIT for the twelve months ended June 30,
2004 that is in excess of $6.0 million. However, if the Shareholder
does not receive any Escrow Consideration and/or Earnout Stock
Consideration, then the EBIT contribution from the respective contracts
that could have resulted in such Consideration shall be included in the
EBIT Calculation Period.
2.5.6 In the event that prior to December 31, 2005, (i) the
Buyer shall sell the Company or its business, or (ii) the Buyer shall
sell fifty and one tenth percent (50.1%) of the Common Stock of the
Buyer, or (iii) the Buyer shall sell or cede majority control of the
Board of Directors of the Buyer, the amount of the Escrow and Earnout
Consideration shall be a lump-sum payment of $7,000,000, irrespective
of the C-17 contract status or the level of EBIT achieved, and shall be
paid within 10 days of such event. The Escrow Consideration and the
Earnout Consideration associated with the Earnout Order shall be
obligations of the Company to be assumed by any purchaser of the assets
or stock of the Company, and shall remain in full force and effect as
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obligations of the Company. However, such payments cannot result in the
Purchase Price exceeding $40,000,000.
2.6 TRANSFER OF SHARES. At the Closing, the Shareholder shall transfer
all of the shares of Company Common Stock registered in the Shareholder's name
or otherwise beneficially owned by the Shareholder to the Buyer by endorsing (by
means of an undated stock power executed in blank) and delivering to the Buyer
the original Stock Certificate(s) representing such shares of Company Common
Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to the Buyer that:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as presently conducted and as proposed to be conducted and
to carry out the transactions contemplated hereby. The Company is not, by the
manner in which it conducts its business or owns or leases its property,
required to be qualified as a foreign corporation to do business in any other
jurisdictions. The Disclosure Schedules contain true, complete and accurate
copies of the Organizational Documents of the Company.
3.2 ORGANIZATIONAL DOCUMENTS; CORPORATE RECORDS. The Company has
heretofore made available to the Buyer a complete and correct copy of its
Organizational Documents, each as amended to date. Such Organizational Documents
are in full force and effect. The Company is not in violation of any provision
of its Organizational Documents. The minute books of the Company, which have
heretofore been made available in their entirety to the Buyer, contain in all
material respects true and correct records of all meetings held or true and
complete records of all other corporate actions taken at any time by written
consent or otherwise by its shareholders or Board of Directors or by any
committee of the Board of Directors.
3.3 CAPITALIZATION.
3.3.1 The authorized capital stock of the Company consists of
seventy-five thousand (75,000) shares of the Company Common Stock. As
of the date hereof and as of the Closing Date and the Closing, one
hundred thirteen (113) shares of the Company Common Stock are issued
and outstanding, all of which are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof.
3.3.2 Except as set forth in Schedule 3.3.2, (i) there are no
outstanding subscriptions, options, warrants, calls, preemptive or
other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or
obligating the Company to issue or sell any shares of capital stock of,
or other equity interests in, the Company and (ii) there are no
outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of, or other
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equity interests in, the Company or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise)
in, any other entity.
3.4 OWNERSHIP OF COMPANY COMMON STOCK. All of the shares of Company
Common Stock are held of record and beneficially by the Shareholder, in the
amount set forth opposite the Shareholder's name on the signature page hereof,
free and clear of all Liens of any nature whatsoever, and no other shares of
Company Common Stock are issued or outstanding. All of the shares of Common
Stock are duly authorized, validly issued in compliance with all applicable
laws, and are fully paid and nonassessable and free of preemptive or similar
rights created by statute, the Organizational Documents of the Company, or any
other agreement to which the Company is a party or by which it is bound.
3.5 AUTHORITY.
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3.5.1 The Shareholder has the requisite legal capacity, power
and authority to enter into and to perform his obligations under this
Agreement and this Agreement has been duly and validly executed and
delivered by the Shareholder and constitutes the valid and binding
obligation of the Shareholder, enforceable against the Shareholder in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general applicability relating to or affecting creditors'
rights generally and by the application of general principles of
equity.
3.5.2 The Company has full corporate power and authority (i)
to execute and deliver this Agreement; (ii) to perform its obligations
under this Agreement and (iii) to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly approved by the Board of Directors and
shareholders of the Company and no other corporate or other proceedings
on the part of the Company are necessary to approve this Agreement or
to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by the Company and
constitutes valid and binding obligations of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
3.6 NO CONFLICT.
3.6.1 Except as provided in Schedule 3.6, neither the
execution, delivery and performance of this Agreement by the Company,
nor the consummation by the Company of the transactions contemplated
hereby or thereby, nor compliance by the Company with any of the terms
or provisions hereof or thereof, will (i) conflict with, violate or
result in a breach of any provision of the Organizational Documents of
the Company, (ii) conflict with, violate or result in a breach of any
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statute, code, ordinance, rule, regulation, order, writ, judgment,
injunction or decree applicable to the Company, or by which any
property or asset of the Company is bound or affected, or (iii)
conflict with, violate or result in a breach of any provisions of or
the loss of any benefit under, constitute a default (or an event,
which, with notice or lapse of time, or both, would constitute a
default) under, or, except as set forth in Schedule 3.6, give to others
any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien, pledge, security interest, charge
or other encumbrance on any property or asset of the Company pursuant
to any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
the Company is a party, or by which the Company is bound or affected.
3.6.2 Except as provided in Schedule 3.6, neither the
execution, delivery nor performance of this Agreement by the
Shareholder nor the consummation of the transactions contemplated
hereby, nor compliance by the Shareholder with any of the terms and
conditions hereof, will (i) conflict with, violate or result in the
breach of any provision of any statute, code, ordinance, rule,
regulation, order, writ, judgment, injunction or decree applicable to
the Company or to the Shareholder or by which the Company Common Stock
held by the Shareholder is bound or affected or (ii) conflict with,
violate or result in the breach of any provision of or any loss of any
benefit under, constitute a default (or an event, which, with notice of
lapse of time or both, will constitute a default) under or result in
the creation of a Lien, pledge, security interest, charge or any other
encumbrance on any Company Common Stock owned by the Shareholder,
pursuant to any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, contract, agreement, lease,
license, permit, franchise or other instrument or other obligation to
which the Shareholder is party.
3.6.3 Except as provided in Schedule 3.6, neither the
execution, delivery and performance of this Agreement by the Company or
the Shareholder, nor the consummation by the Company or the Shareholder
of the transactions contemplated hereby, nor compliance by the Company
or the Shareholder with any of the terms or provisions hereof or
thereof, will result the cancellation or termination of, or give any
party the right to cancel, modify or amend: (i) any security clearance
held by the Company, the Shareholder or any employee of the Company and
used or useful in connection with its business or (ii) any agreement
for the sale of materials, products, services or supplies or
qualification authorizing or permitting the Company to sell materials,
products, services or supplies or qualification to any person.
3.7 CONSENTS AND APPROVALS. Except as provided in Schedule 3.7, the
execution, delivery and performance of this Agreement by the Company or the
Shareholder does not require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority or with any third
party. Neither the Company nor the Shareholder is aware of any reason why the
approvals, consents and waivers referred to herein should not be obtained.
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3.8 ABSENCE OF CERTAIN PAYMENTS. Neither the Company, nor any director,
officer, agent, employee or other person acting on behalf of the Company, has
used any funds of the Company for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, or made any direct or
indirect unlawful payments to government officials or employees from corporate
funds, or established or maintained any unlawful or unrecorded funds, or
violated any provisions of the Foreign Corrupt Practices Act of 1977 or any
rules or regulations promulgated thereunder.
3.9 COMPLIANCE. The Company has secured and maintained all material
licenses, franchises, permits or authorizations for the lawful conduct of its
business. The Company has in all material respects complied with and is not in
material conflict with, or in default or material violation of, (i) any statute,
code, ordinance, law, rule, regulation, order, writ, judgment, injunction or
decree, published policies and guidelines of any Governmental Authority,
applicable to the Company or by which any property or asset of the Company is
bound or affected or (ii) any note, bond, mortgage, indenture, deed of trust,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any
property or asset of the Company is bound or affected.
3.10 TAXES AND TAX MATTERS.
3.10.1 The Company has filed all Tax Returns that it has been
required to file since January 1, 1999. All such Tax Returns were
correct and complete in all respects. All such Tax Returns were filed
on the basis that the Company was an electing corporation under
Subchapter S of the Code. All Taxes owed by the Company with respect to
its income (whether or not shown on any Tax Return) have been paid.
Except for taxes payable with respect to the Company's operation in
2004 that are not yet due and payable, all Taxes owed by the
Shareholder with respect to the income of the Company (whether or not
shown on any Tax Return) have been paid. The Company is not currently
the beneficiary of any extension of time within which to file any Tax
Return. The Company is not required to file Tax Returns in any
jurisdiction where the Company does not file Tax Returns. There are no
Liens on any of the assets of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax.
3.10.2 The Company has withheld and paid all Taxes required to
be withheld or paid by the Company in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder,
or other third party.
3.10.3 There is no dispute or claim concerning any Tax
Liability of the Company either (i) claimed or raised by any authority
in writing or (ii) as to which any of the Company and the directors and
officers (and employees responsible for Tax matters) of the Company has
knowledge based upon personal contact with any agent of such authority.
The Company has delivered to the Buyer correct and complete copies of
all federal income Tax Returns filed by the Company since January 1,
1999, none of which have been the subject of any examination reports,
or statements of deficiencies.
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3.10.4 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.
3.10.5 The Company elected as of 1972 to report its taxes
under Subchapter S of the Code and such election remains in effect as
of the date of this agreement.
3.11 ASSETS. The Company has good and marketable title to all of the
assets it purports to own, and owns all of such assets free and clear of any
Liens, other than (i) statutory liens securing current taxes and other
obligations that are not yet delinquent, (ii) minor imperfections of title and
encumbrances that do not materially detract from or interfere with the present
use or value of such properties and (iii) liens disclosed in Schedule 3.11. The
assets that the Company owns are all of the assets necessary for the continued
conduct of the Company's business in the manner in which it has heretofore been
conducted. The Company does not have any leased property (real or personal)
except as disclosed in Schedule 3.11.
3.12 CONDITION OF ASSETS. All of the assets of the Company, including
any assets held under leases or licenses, will be in the same condition and
repair as of the date of this Agreement, ordinary wear and tear excepted.
3.13 EQUITY INVESTMENTS. Except as set forth in Schedule 3.13, the
Company does not currently own any capital stock or other proprietary interest,
directly or indirectly, in any corporation, association, trust, partnership,
joint venture or other entity.
3.14 FINANCIAL STATEMENTS. The balance sheets and related statements of
operations and cash flows of the Company (the "COMPANY FINANCIAL STATEMENTS")
prepared by the Shareholder's Accountant as of and for the periods ended
December 31, 2003 and 2002, and the internally prepared balance sheet and
related statement of operations of the Company as of and for the period ended
March 31, 2004 (the "INTERIM FINANCIAL STATEMENTS"), that are included as
Exhibit 3.14 fairly present in all material respects the financial position of
the Company as at such dates and the results of its operations for the periods
then ended, subject to, in the case of the Interim Financial Statements,
adjustments required in the normal course for the three months ended March 31,
2004. Since the date of the Interim Financial Statements, there has been no
Material Adverse Change. To the knowledge of the Shareholder based upon his
general familiarity with the financial condition and results of operations of
the Company and upon his review of the preliminary drafts of the internally
prepared balance sheet and related statement of operations of the Company as of
and for the nine-month period ended March 31, 2004, the unaudited financial
statements of the Company for that nine-month period, consistently applied from
period to period, will reflect EBIT of not less than $4,500,000 and net worth as
of March 31, 2004 of not less than $6,000,000, except that it is understood that
the net worth as reflected in the financial statements shall be reduced by (a)
approximately $1.3 million for valuation of molds, and (b) sums paid between
January 1, 2004 and March 31, 2004 in respect of the Shareholder's Subchapter S
Tax Liabilities. Since March 31, 2004, the Company has made no distributions to
the Shareholder, except for taxes.
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3.15 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Company Financial Statements, the Company has no liabilities of any nature
(matured or unmatured, accrued, fixed or contingent, including, without
limitation, any liabilities for unpaid taxes), except as have accrued in the
ordinary course of business from the date of the Interim Financial Statements to
the date of this Agreement and to the Closing Date.
3.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Interim Financial Statements, except as set forth in Schedule 3.16, the Company
has conducted its business only in the ordinary course and in manners consistent
with past practice and there has not been (i) either individually or in the
aggregate, any change or effect that is or would be materially adverse to the
business, assets, liabilities, financial condition or results of operations of
the Company, (ii) any material damage, destruction or loss with respect to any
property or asset of the Company, (iii) any change by the Company in its
accounting methods, principles or practices, other than changes required by
applicable law or GAAP or regulatory accounting as concurred in by the Company's
independent accountants, (iv) any entry by the Company into any contract or
commitment of more than $25,000, (v) any material liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise and whether due or to
become due), including without limiting the generality of the foregoing,
liabilities as guarantor under any guarantees or liabilities for taxes, other
than in the ordinary course of business consistent with past practice, (vi) any
mortgage, pledge, lien or lease of any assets, tangible or intangible, of the
Company with a value in excess of $25,000 in the aggregate, (vii) any
acquisition or disposition of any assets or properties having a value in excess
of $25,000, or any contract for any such acquisition or disposition entered
into, or (viii) any lease of real or personal property entered into, other than
in the ordinary course of business consistent with past practice.
3.17 NO BONUSES OR OTHER PAYMENTS TO EMPLOYEES, DIRECTORS, OFFICERS.
Since December 31, 2003, except in the ordinary course of business or as set
forth in Schedule 3.17, the Company has not (i) paid or agreed to pay any bonus
or any other increase in the compensation payable or to become payable or (ii)
granted or agreed to grant any bonus, severance or termination pay, or entered
into any contract or arrangement to grant any bonus, severance or termination
pay, to any director, officer or employee of the Company. Except as set forth in
Schedule 3.17, the Company has made no severance or similar commitment to any of
its employees. Without limiting the generality of the preceding sentences, the
Company has not paid or agreed to pay any payments that would result, either
individually or in aggregate, in the payment of an "excess parachute payment"
within the meaning of Section 208G of the Code or that would result, either
individually or in the aggregate, in payments that would be nondeductible
pursuant to Section 162(m) of the Code.
3.18 ABSENCE OF LITIGATION. Neither the Company nor the Shareholder is
a party to any, nor are there any pending, or to the knowledge of the Company or
the Shareholder, threatened legal, administrative, arbitral or other claims,
actions, proceedings or investigations of any material nature, against the
Company or any property or asset of the Company, before any Governmental
Authority and no facts or circumstances have come to the Company's or the
Shareholder's attention which have caused it to believe that a material claim,
action, proceeding or investigation against or affecting the Company could
reasonably be expected to occur. Neither the Company, nor any property or asset
of the Company, is subject to any order, writ, judgment, injunction, decree,
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determination or award which restricts its ability to conduct business in any
area in which it presently does business or has or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
3.19 EMPLOYEE BENEFITS. Attached as Exhibit 3.19 is the Company's
"Employee Manual" detailing the employee benefits established by the Company for
its employees. Except as set forth in Schedule 3.19, the Company does not
currently maintain any pension, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance pay
or other similar plans, programs or agreements, or any personnel policy, whether
reduced to writing or not, relating to any persons employed by the Company (as
defined for purposes of Section 414(b), (c) and (m) of the Code, a "PLAN") and
has no liability under ERISA or any other law or regulation relating to any
Plans. The Company has never been obligated to contribute to any "multi-employer
plan," as defined in Section 3(37) of ERISA.
3.20 WORK STOPPAGES. No work stoppage involving the Company is pending
or, to the knowledge of the Company, threatened. The Company is not involved in,
or, to the knowledge of the Company, threatened with or affected by, any
dispute, arbitration, lawsuit or administrative proceeding relating to labor or
employment matters which might reasonably be expected to interfere in any
material respect with the respective business activities of the Company. No
employees of the Company are represented by any labor union, and, to the
knowledge of the Company, no labor union is attempting to organize employees of
the Company.
3.21 INTELLECTUAL PROPERTY RIGHTS.
3.21.1 The Marks that are listed in Schedule 3.21 are the only
trademarks, service marks, trade names, trade dress and copyrights used
or proposed to be used by the Company in its business. To the Company's
knowledge, the Company is the sole and exclusive owner of such Marks,
free and clear of all Liens and the use by the Buyer of such Marks will
not infringe upon any trademark, service xxxx, trade name, trade dress
or copyright belonging to any other Person.
3.21.2 The Patents that are listed in Schedule 3.21 are the
only patents and patents applications used or proposed to be used by
the Company in its business. To the Company's knowledge, the Company is
the sole and exclusive owner of such Patents and patent applications,
free and clear of all Liens and the use by the Buyer of such Patents
will not infringe upon any patent or patent application belonging to
any other Person.
3.21.3 The Company has not misappropriated any of the
Intellectual Property from any third Person and the Company has taken
all reasonable security measures to protect and maintain the secrecy,
confidentiality and value of any Intellectual Property owned by the
Company and used in its business.
3.21.4 No other Person has any right, title or interest in any
Patent, Trade Secret or Xxxx, which has arisen out of the activities by
the Company or on behalf of the Company by any of its current or former
officers, directors, employees, consultants or agents or any holder of
securities of the Company.
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3.22 PROPRIETARY INFORMATION OF THIRD PARTIES. To the knowledge of the
Company, no third party has claimed that the Company or any person employed by
or otherwise providing services to the Company has (i) violated any of the terms
or conditions of his or her employment, non-competition, non-disclosure or
inventions agreement with such third party, (ii) disclosed or utilized any trade
secret of such third party or (iii) interfered in the employment relationship
between such third party and any of its present or former employees.
3.23 ENVIRONMENTAL LIABILITY. Except as disclosed in Schedule 3.23, the
Company is in full compliance with all Environmental Laws (as defined below).
There is no litigation or other proceeding seeking to impose, or that could
reasonably result in the imposition on the Company of any liability arising
under any of the Environmental Laws, pending or, to the knowledge of the
Company, threatened or unasserted but considered probable of assertion and which
if asserted would have at least a reasonable probability of an unfavorable
outcome against the Company; the Company does not have any knowledge of any
reason for any such potential litigation that would impose any such liability;
and the Company is not subject to any agreement, order, judgment, decree, or
memorandum by or with any Governmental Authority or third party imposing any
such liability. For the purposes of this Agreement, the term "Environmental
Laws" shall mean any Federal, state or local law or ordinance or regulation
pertaining to the protection of human health or the environment, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Sections 9601, et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.
3.24 COMPETING INTERESTS. Except as set forth in Schedule 3.24, neither
the Company, nor any director or officer of the Company, or any immediate family
member of any of the foregoing (i) owns, directly or indirectly, an interest in
any entity that is a competitor, customer or supplier of the Company or that
otherwise has material business dealings with the Company or (ii) is a party to,
or otherwise has any direct or indirect interest opposed to the Company under,
any agreement or other business relationship or arrangement material to the
Company, provided that the foregoing will not apply to any investment in
publicly traded securities constituting less than Three Percent (3%) of the
outstanding securities in such class
3.25 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED. Except as set forth
in Schedule 3.7, no authorization, consent, approval or other order of,
declaration to, or filing with, any Governmental Authority or body is required
for or in connection with the valid and lawful authorization, execution,
delivery and performance by the Company of this Agreement.
3.26 INVESTMENT BANKER. Except for Xxxxxxxxxxx & Co., Inc., no
broker, finder or investment banker, is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
3.27 COMPETING INTERESTS. Neither the Shareholder, nor or any immediate
family member of any of the foregoing (i) owns, directly or indirectly, an
interest in any entity that is a competitor, customer or supplier of the Company
or that otherwise has material business dealings with the Company or (ii) is a
party to, or otherwise has any direct or indirect interest opposed to the
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Company under, any agreement or other business relationship or arrangement
material to the Company, provided that the foregoing will not apply to any
investment in publicly traded securities constituting less than three percent
(3%) of the outstanding securities in such class.
3.28 DISCLOSURE. No representation or warranty of the Company or the
Shareholder contained in this Agreement, and no statement contained in any
Schedule, certificate, list or other writing furnished to the Buyer pursuant to
the provisions hereof, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances in which
they are made, not misleading. No information believed by the Company or the
Shareholder to be material to the Purchase/Sale and which is necessary to make
the representations and warranties herein contained, taken as a whole, not
misleading, to the knowledge of the Company or the Shareholder, has been
withheld from, or has not been delivered in writing to, the Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company and the Shareholder
that, except as set forth in the appropriately numbered Disclosure Schedules
delivered by the Buyer to the Company and the Shareholder:
4.1 ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as presently conducted and as proposed to be conducted and
to carry out the transactions contemplated hereby.
4.2 AUTHORITY. The Buyer has full corporate power and authority (i) to
execute and deliver all documents to be executed by the Buyer in connection with
or pursuant to this Agreement; (ii) to perform its obligations under this
Agreement and (iii) to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Buyer and no other corporate proceedings on the part
of the Buyer are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Buyer and constitute valid and binding obligations
of the Buyer, enforceable against the Buyer in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
4.3 NO CONFLICT. Neither the execution, delivery and performance of
this Agreement by the Buyer, nor the consummation by the Buyer of the
transactions contemplated hereby, nor compliance by the Buyer with any of the
terms or provisions hereof, will (i) conflict with, violate or result in a
breach of any provision of the Organizational Documents of the Buyer, (ii)
conflict with, violate or result in a breach of any statute, code, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to the
Buyer, or by which any property or asset of the Buyer is bound or affected, or
(iii) conflict with, violate or result in a breach of any provisions of or the
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loss of any benefit under, constitute a default (or an event, which, with notice
or lapse of time, or both, would constitute a default) under, or give to others
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a Lien, pledge, security interest, charge or other
encumbrance on any property or asset of the Buyer pursuant to any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Buyer is a party, or by which the Buyer is bound or
affected.
4.4 CONSENTS AND APPROVALS. The execution, delivery and performance of
this Agreement by the Buyer does not require any consent, approval,
authorization or permit of, or filing with or notification to any Governmental
Authority or with any third party, except for filings with the Securities and
Exchange Commission and the Nasdaq Stock Market. The Buyer is not aware of any
reason why the approvals, consents and waivers of Governmental Authorities
referred to herein should not be obtained.
4.5 DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to the Company or the Shareholder pursuant to the
provisions hereof, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances in which they
are made, not misleading. No information believed by the Buyer to be material to
the Purchase/Sale and which is necessary to make the representations and
warranties herein contained, taken as a whole, not misleading, to the knowledge
of the Buyer, has been withheld from, or has not been delivered in writing to,
the Company.
ARTICLE V
COVENANTS OF THE PARTIES
5.1 LEGAL CONDITIONS TO PURCHASE/SALE. Each of the Buyer, the
Shareholder and the Company shall use his or its commercially reasonable best
efforts (i) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party with respect to the Purchase/Sale and, subject to the conditions set
forth in Article V, to consummate the transactions contemplated by this
Agreement and the Escrow Agreement and (ii) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any Governmental Authority and any other third party which is
required to be obtained in connection with the Purchase/Sale and the other
transactions contemplated by this Agreement.
5.2 ADDITIONAL AGREEMENTS. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, or to vest the Buyer with full title to the Company Common Stock,
each party to this Agreement shall take all such necessary action as may be
reasonably requested by the Buyer.
5.3 ORDINARY COURSE OPERATIONS. From the date of this Agreement until
the Closing, the Shareholder shall cause the Company to conduct its business
only in the ordinary course and in a manner consistent with prior practices.
Without limiting the generality of the foregoing, from the date of this
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Agreement until the Closing, the Shareholder shall not and shall not permit the
Company to directly or indirectly: (i) issue any new shares of Company Common
Stock, cause or permit any sale, assignment, transfer or conveyance of any
outstanding Company Common Stock, or sell, assign, transfer or convey any of the
Company's assets (other than sales of its products in the ordinary course of
business); (ii) solicit any offers for, respond to any unsolicited offers for,
or enter into or conduct any negotiations in respect of any of the foregoing; or
(iii) in any way assist or encourage any person in connection with any proposed
acquisition of any Company Common Stock or any assets of the Company (other than
sales of its products in the ordinary course of business). The Buyer
acknowledges that the Company, prior to the Closing, will authorize and pay
salaries to the Shareholder in the ordinary course and will authorize and pay
distributions to the Shareholder of an amount reasonably estimated to fund the
Subchapter S Tax Liabilities of the Shareholder for the income of the Company
for 2003 and 2004, on the dates, in the amounts and in respect of the periods
set forth in Schedule 5.3 hereto. The Shareholder agrees that from the date of
this Agreement to the Closing, the Shareholder shall not cause or permit the
Company to make any payments to the Shareholder other than salaries in the
ordinary course, distributions to fund the liabilities of the Shareholder for
taxes with respect to the Company's taxable income and expense and similar
reimbursements in the ordinary course.
5.4 POST-CLOSING TAX MATTERS. The following provisions shall govern the
allocation of responsibility as between the Buyer and the Shareholder for
certain tax matters following the Closing Date:
5.4.1 The Shareholder shall prepare or cause to be prepared
and file or cause to be filed all Tax Returns for the Company for the
years ended December 31, 2003 and 2004 and all periods ending on or
prior to such dates that are filed after the Closing Date. The Buyer
shall provide the Shareholder with all access reasonably required to
the financial records of the Company to prepare such Tax Returns. The
Shareholder shall permit the Buyer to review and approve of each such
Tax Return described in the preceding sentence prior to filing, which
approval shall not be unreasonably withheld or delayed. The Shareholder
confirms that the amounts specified in Schedule 5.3 have prior to the
date of this Agreement been distributed by the Company to the
Shareholder to fund the Shareholder's Subchapter S Tax Liabilities with
respect to the income realized by the Company in 2003 and 2004. The
Shareholder agrees that any further distributions that are made to him
by the Company from the date of this Agreement to the Closing will be
limited to the amounts that the Shareholder estimates will be
necessary, when added to the amounts described in Schedule 5.3, to
fully fund the Shareholder's Subchapter S Tax Liabilities for all of
the taxable income realized by the Company for the full year ended
December 31, 2003 and for the period from January 1, 2004 through and
including the Closing Date. If, based upon the Tax Returns prepared for
the Company by the Shareholder and approved by the Buyer for the years
2003 and 2004, the amounts payable by the Shareholder as Subchapter S
Tax Liabilities for the years 2003 and 2004 are more or less than the
sum of all distributions made by the Company to the Shareholder to fund
such Subchapter S Liabilities, then (i) if the amounts distributed
exceed such Subchapter S Liabilities, then the Shareholder shall
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immediately refund such excess to the Company and (ii) if the amounts
distributed are less than such Subchapter S Liabilities, then the
Company shall immediately make a distribution of such deficiency to the
Shareholder. In either instance, the amount paid by or to the
Shareholder shall be recorded as a correcting adjustment to the amounts
distributed by the Company to the Shareholder, while he continued to be
the holder of the Company Common Stock. Any dispute regarding the
computation of the Subchapter S Tax Liabilities of the Shareholder
shall be resolved in the manner described in Section 11.1. The amount
payable under this Section shall be in addition to all other amounts
payable by the Buyer under this Agreement. Except as expressly provided
in this Section, the Shareholder shall be solely responsible for the
payment of Taxes due under such Tax Returns (whether or not shown in
those Tax Returns) and shall indemnify and hold the Company and the
Buyer harmless from any liability for any income Taxes payable with
respect to the income realized by the Company prior to the Closing
Date. The Shareholder shall be responsible for the payment of 2004
Taxes only on the Company income earned and computed up to the Closing
Date.
5.4.2 The Buyer shall cause the Company to prepare or cause to
be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending after the Closing Date.
5.4.3 If requested by the Buyer by written notice delivered
within 180 days following the Closing Date, the Buyer, the Company and,
if required, the Shareholder shall sign and file Form 8023 providing
for an election under Section 338(h)(10) of the Code with respect to
the transactions contemplated by this Agreement and the Shareholder
shall cooperate in good faith with Buyer in making that election. As a
condition to the agreement and cooperation of the Shareholder in making
the election under Section 338(h)(10), Buyer agrees to promptly
reimburse Shareholder for all additional federal and state income tax
incurred by Shareholder (or the Company prior to the Closing Date) as a
result of making that election. The Shareholder shall cause the
Shareholder's Accountant, as soon as reasonably possible after the
Shareholder receives the written request from the Buyer regarding an
election under 338(h)(10), to prepare and to provide to the Buyer a
written determination of all such additional taxes and such amount
shall be payable by the Buyer to the Shareholder not later than twenty
(20) days before such taxes will be payable by the Shareholder. Any
dispute regarding the computation of the taxes payable by the
Shareholder as a result of the election under Section 338(h)(10) shall
resolved in the manner described in Section 10.1. The amount payable
under this Section shall be in addition to all other amounts payable by
the Buyer under this Agreement.
5.4.4 Buyer, the Company and the Shareholder shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes, with
the Shareholder having the right and responsibility to conduct and
resolve (and to indemnify the Buyer and the Company from any liability
with respect to) the audit of any returns filed pursuant to Section
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5.4.1 and with the Buyer having the right and responsibility to conduct
and resolve (and to indemnify the Shareholder from any liability with
respect to) the audit of any returns filed pursuant to Section 5.4.2.
Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Company and the Shareholder agree (i) to retain all
books and records with respect to tax matters pertinent to the Company
relating to any tax period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified
by Buyer, any extensions thereof) of the respective tax periods, and to
abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company and the
Shareholder, as the case may be, shall allow the other party to take
possession of such books and records.
5.4.5 All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid when
due by the Person to whom or which such Taxes are assessed under
applicable law and each Person will, at such Person's own expense, file
all necessary Tax Returns and other documentation with respect to all
such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees, and, if required by applicable law, all other Persons
will, and will cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
5.5 POST-CLOSING INSURANCE COVERAGE. The Shareholder, Buyer and the
Company agree that at all times after the Closing Date, and until the
Shareholder is paid all amounts due under this Agreement (and/or until any and
all disputes are fully and finally resolved between the parties as to the
amounts to be paid to Shareholder), the Company shall maintain insurance
coverages in the same types and amounts as are presently being maintained by the
Company, as of the date of this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. The respective
obligations of each party under this Agreement shall be subject to the
fulfillment at or prior to the Closing of the following conditions, none of
which may be waived:
6.1.1 No order, injunction or decree (whether temporary,
preliminary or permanent) issued by federal or state governmental
authority or other agency or commission or federal or state court of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Purchase/Sale or any of the other
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transactions contemplated by this Agreement shall be in effect and no
proceeding initiated by any governmental entity seeking an such
injunction, decree, restraint or prohibition shall be pending. No
statute, rule, regulation, order, injunction or decree (whether
temporary, preliminary or permanent) shall have been enacted, entered,
promulgated or enforced by any federal or state governmental authority
or other agency or commission or federal or state court of competent
jurisdiction, which prohibits, restricts or makes illegal the
consummation of the Purchase/Sale or any of the other transactions
contemplated by this Agreement.
6.1.2 Any filings with and notifications to, and all approvals
and authorizations of, third parties (including, without limitation,
governmental entities and authorities) required for the consummation of
the transactions contemplated by this Agreement shall have been made or
obtained and all such approvals and authorizations (the "REQUISITE
REGULATORY APPROVALS") obtained shall be effective and shall not have
been suspended, revoked or stayed by action of any governmental entity
or authority.
6.2 CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligations of the
Buyer under this Agreement are, at the option of the Buyer, subject to the
fulfillment of all of the following conditions on the dates specified below:
6.2.1 The Company and the Shareholder shall have demonstrated
to the Buyer's satisfaction that (i) during the nine-month period
ending March 31, 2004, the Company shall have had EBIT of not less than
$4,500,000; (ii) during the nine-month period ending June 30, 2004, the
Company shall have had EBIT of not less than $6,000,000; (iii) as of
March 31, 2004, the Company's net worth shall not be less than
$6,000,000, except that it is understood that the net worth reflected
as in the financial statements shall be reduced by (a) approximately
$1.3 million for valuation of molds, and (b) sums paid between January
1, 2004 and March 31, 2004 in respect of Subchapter S tax
distributions, and (iv) since March 31, 2004 through March 31, 2004,
the Company has been operated in the ordinary course consistent with
past practice.
6.2.2 Since January 1, 2004, there shall not have occurred any
distributions to the shareholders of the Company other than the
distributions set forth in Schedule 5.4.1 hereto.
6.2.3 As of the Closing, the Company shall not, in the Buyer's
sole judgment, have suffered any Material Adverse Change.
6.2.4 As of the Closing, the Shareholder shall have delivered
to the Buyer a written notice confirming that each of the conditions to
the Shareholder's obligations under this Agreement that are specified
in Section 6.3 have been satisfied or waived by the Shareholder.
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6.2.5 As of the Closing, each of the representations and
warranties of the Shareholder and the Company in this Agreement shall
be true and correct in all material respects, in each case as of the
date of this Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing.
6.2.6 On or prior to the Closing, the Shareholder and the
Company shall have performed in all material respects all obligations
and complied in all material respects with all agreements or covenants
of the Shareholder and the Company to be performed or complied with by
the Shareholder or the Company at or prior to the Closing under this
Agreement.
6.2.7 On or prior to the Closing, the Company shall have
entered into employment agreements in the forms of Exhibits 6.2.7(a)
and 6.2.7(b) with the following Persons to continue to perform services
for the Company following the Closing Date: (i) Xxxxxx X. Xxxxxxxxx as
a part-time employee for a term of two years; and (ii) Xxxx X. Xxxxxxx
as a full-time employee for a term of five years.
6.2.8 On or prior to the Closing, the Buyer shall have
received the opinion of M. Xxxx Xxxxxxxx, Esq., dated as of the Closing
Date, with respect to the matters set forth in Exhibit 6.2.8.
6.2.9 As of the Closing, none of the Requisite Regulatory
Approvals shall impose any term, condition or restriction upon the
Buyer or any of its subsidiaries that the Buyer reasonably determines
would materially impair the value of the Company to the Buyer or be
materially burdensome (a "BURDENSOME CONDITION").
6.2.10 As of the Closing, neither the Company nor any
Shareholder shall have taken any action or made any payments that would
result, either individually or in the aggregate, in the payment of an
"excess parachute payment" within the meaning of Section 280G of the
Code or that would result, either individually or in the aggregate, in
payments that would be nondeductible pursuant to Section 162(m) of the
Code.
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDER. The
obligations of the Company and the Shareholder under this Agreement are, at the
option of the Company and the Shareholder, subject to the fulfillment or written
waiver by the Shareholder of all of the following conditions on or before the
dates specified below:
6.3.1 As of the Closing, the Buyer shall have delivered to the
Shareholder a written notice confirming that each of the conditions to
the Buyer's obligations under this Agreement that are specified in
Section 6.2 have been satisfied or waived by the Buyer.
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6.3.2 As of the Closing, each of the representations and
warranties of the Buyer in this Agreement shall be true and correct in
all material respects as of the date of this Agreement, as applicable,
and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing.
6.3.3 On or prior to the Closing, the Buyer shall have
performed in all material respects all obligations and complied in all
material respects with all of the respective agreements or covenants to
be performed or complied with by the Buyer at or prior to the Closing
under this Agreement.
6.3.4 On or prior to the Closing, the Shareholder shall have
received the opinion of Xxxxxx Har-Oz, Esq., dated as of the Closing
Date, with respect to the matters set forth in Exhibit 6.3.4.
6.3.5 On or prior to the Closing, the Buyer shall have entered
into employment agreements with the Persons listed in Section 6.2.7
upon terms and conditions acceptable to such Persons and such
agreements shall be in full force and effect.
6.3.6. As of the Closing, none of the Requisite Regulatory
Approvals shall impose any Burdensome Condition upon the Shareholder.
ARTICLE VII
THE CLOSING
7.1 CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Purchase/Sale (the "CLOSING") will take place at 9:00 a.m. on
July 30, 2004, or at such other date as is mutually approved by the Company and
the Buyer (the "CLOSING DATE"), at the offices of the Buyer in New York, New
York, or at such other time and place as the Buyer and the Shareholder may
otherwise agree in writing. The Buyer's refusal to close on or prior to July 30
shall not constitute a breach of this Agreement, provided that for each week
past July 30 that the Buyer does not close, the Buyer shall deposit an
additional $125,000 with the Escrow Agent, with such sums (the "Additional Down
Payment") to be added to the Escrow Consideration and deducted from the Closing
Cash Consideration. Refusal by or failure of Buyer to close by August 16, 2004
shall constitute a breach of this Agreement and shall entitle the Shareholder to
receive the Down Payment and the Additional Down Payment in accordance with the
terms of the Escrow Agreement.
7.2 DELIVERIES AT CLOSING. Subject to satisfaction of the conditions
precedent set forth in this Agreement, at the Closing the parties will deliver
the following:
7.2.1 The Buyer shall pay to the Shareholder by wire transfer
of funds, to an account to be specified by the Shareholder in writing
and transmitted to the Buyer as set forth in Section 11.3 hereof at
least two (2) business days prior to the Closing Date, the Closing Cash
Consideration specified in Section 2.3.2.
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7.2.2 The Buyer shall pay to the Escrow Agent by wire transfer
of funds, to an account to be specified by the Escrow Agent in writing
and transmitted to the Buyer as set forth in Section 11.3 hereof at
least two (2) business days prior to the Closing Date, the Escrow
Consideration specified in Section 2.3.3.
7.2.3 The parties shall exchange all other documents that the
Company or the Buyer may reasonably request be delivered at the Closing
so as effectively to consummate the transactions contemplated hereby.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF THE BUYER. Subject to the limitations in other
Sections of this Article VIII, the Shareholder will indemnify and hold Buyer
harmless from any and all Liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all court costs and reasonable attorney
fees (collectively, "LOSSES"), that Buyer suffers or incurs as a result of or
relating to:
8.1.1 The breach of any material representation or warranty
made by the Company or the Shareholder in this Agreement or pursuant
hereto; or
8.1.2 The breach of any material covenant or agreement of the
Company or the Shareholder under this Agreement.
The sole and exclusive recourse of the Buyer for any Losses within the scope of
this Section 8.1 shall be to seek and secure indemnification from the
Shareholder in accordance with the terms of this Article VIII.
8.2 INDEMNIFICATION OF THE SHAREHOLDER. Subject to the limitations in
other Sections of this Article VIII, the Buyer will indemnify and hold the
Shareholder harmless from any and all Losses (as defined above), that any
Shareholder suffers or incurs as a result of or relating to:
8.2.1 The breach of any representation or warranty made by the
Buyer in this Agreement or pursuant hereto; or
8.2.2 The breach of any covenant or agreement of the Buyer
under this Agreement.
The sole and exclusive recourse of the Shareholder for any Losses within the
scope of this Section 8.2 shall be to seek and secure indemnification from the
Buyer in accordance with the terms of this Article VIII.
8.3 SURVIVAL OF INDEMNIFICATION PROVISIONS. The rights of the Buyer and
the Shareholder to indemnification under this Article VIII (each, as such, and
"INDEMNIFIED PARTY") will survive the execution and delivery of this Agreement
and the consummation of the transactions contemplated, subject to the limitation
that the right of any Indemnified Party to indemnity for any Claim under this
Article VIII shall terminate twenty-four (24) months after the Closing Date
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unless, on or before such date, the Indemnified Party has delivered to the
Indemnifying Party an Indemnity Notice with respect to that Claim in the time
and manner specified in Section 8.4.
8.4 NOTICE OF CLAIM. The Indemnified Parties entitled to receive
indemnification under this Article VIII agree to give prompt written notice (an
"INDEMNITY NOTICE") to the party or parties from whom or which indemnification
is sought (the "INDEMNIFYING PARTIES") upon the occurrence of any indemnifiable
Loss or the assertion of any claim or the commencement of any action or
proceeding in respect of which such a Loss may reasonably be expected to occur
(a "CLAIM"). Such Indemnity Notice will include a reference to the event or
events forming the basis of such Loss or Claim and the amount involved, unless
such amount is uncertain or contingent, in which event the Indemnified Parties
will give a later written notice when the amount becomes fixed.
8.5 THIRD PARTY CLAIMS. If a claim or demand by a third party is made
against an Indemnified Party, and if such Indemnified Party intends to seek
indemnity with respect thereto under this Article VIII or under any other
provisions of this Agreement providing for indemnification, such Indemnified
Party shall promptly deliver an Indemnity Notice to the Indemnifying Party
setting forth such claims in reasonable detail. The Indemnifying Party shall
have thirty (30) days after delivery of such Indemnity Notice to undertake,
conduct and control, through counsel of its own choosing and at its own expense,
the settlement or defense thereof, and the Indemnified Party shall cooperate
with it in connection therewith; provided that the Indemnifying Party may not
undertake, conduct and control such settlement or defense without the
Indemnified Party's consent unless:
8.5.1 The Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party for any Losses relating
thereto;
8.5.2 The Indemnifying Party provides reasonable evidence to
the Indemnified Party of its financial ability to satisfy its
indemnification obligations;
8.5.3 The suit, action, claim, liability or obligation does
not seek to impose any liability or obligation upon the Indemnified
Party other than for money damages;
8.5.4 The suit, action, claim, liability or obligation does
not relate to the Indemnified Party's customer, supplier, employee, or
sales representative relationships or otherwise implicate the ongoing
operation of the Indemnified Party's business;
8.5.5 If the Indemnifying Party has assumed the defense, the
Indemnified Party may participate in any such settlement or defense
through counsel chosen by such Indemnified Party, and the fees and
expenses of such counsel shall be borne by such Indemnified Party
unless (i) the employment thereof has been specifically authorized by
the Indemnifying Party in writing, (ii) there exists a conflict of
interest between the interests of the Indemnified Party and the
Indemnifying Party or (iii) the Indemnifying Party has after a
reasonable time failed to assume such defense and employ counsel;
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8.5.6 If the Indemnifying Party has assumed the defense, then
so long as the Indemnifying Party is reasonably contesting any such
claim in good faith, the Indemnified Party shall not pay or settle any
such claim without the written consent of the Indemnifying Party.
Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any such claim without the consent of the
Indemnifying Party; provided, that in such event it shall waive any
right to indemnity therefor by the Indemnifying Party.
8.5.7 If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after the date of delivery of
the Indemnity Notice that it elects to undertake the defense of the
claim or is otherwise not permitted to assume such defense under the
terms hereof, the Indemnified Party shall have the right to contest,
settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. The Indemnifying Party
shall not, except with the consent of the Indemnified Party, enter into
any settlement that does not include as an unconditional term thereof
the giving by the person or persons asserting such claim to all
indemnified parties an unconditional release from all liability with
respect to such claim or consent to entry of any judgment.
8.6. LIMITATION OF LIABILITY OF SHAREHOLDER. The liability of the
Shareholder with respect to any Loss shall be limited as follows:
8.6.1 The Shareholder shall be required to indemnify and hold
harmless the Buyer with respect to Losses only if and after the
aggregate amount of all such Losses of Buyer exceed $250,000, at which
point Shareholder will be liable for all Losses in excess of $50,000.
8.6.2 Except for Losses resulting from the breach by the
Shareholder of any of the post-closing covenants in Sections 5.2 and
5.4, the liability of the Shareholder for Losses shall be limited to
(i) twenty percent (20%) of the Closing Cash Consideration that has
been paid by the Buyer to the Shareholder for the Company Common Stock
for Losses resulting from claims that were first asserted during the
period from the Closing to June 30, 2005, and (ii) ten percent (10%) of
the Closing Cash Consideration that has been paid by the Buyer to the
Shareholder for the Company Common Stock for Losses resulting from
claims that were first asserted during the period from July 1, 2005 to
June 30, 2006. There shall be no limit on the liability of the
Shareholder for Losses resulting from the breach by the Shareholder of
any of the post-closing covenants in Sections 5.2 and 5.4.
8.6.3 Any insurance payments or proceeds obtained by or for
the benefit of the Company for the Losses described in Paragraphs 8.6.1
and 8.6.2, above, shall be credited against any liability of the
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Shareholder with respect to any Loss(es), and the Shareholder's
liability, if any, under this Paragraph 8.6 shall be reduced by the
amount of any such insurance proceeds.
8.7 LIMITATION OF LIABILITIES OF THE BUYER. The liability of
the Buyer with respect to any Losses shall be limited as follows:
8.7.1 The Buyer shall be required to indemnify and hold
harmless the Shareholders with respect to Losses (other than Losses
resulting from a breach by the Buyer of its commitment to pay the
Purchase Price as required pursuant to Section 2.3) only if and after
the aggregate amount of all such Losses of the Shareholders exceed
$250,000, at which point Buyer will be liable for all Losses in excess
of $50,000.
8.7.2 Except for Losses resulting from the breach by the Buyer
of any of the post-closing covenants in Sections 2.3, 2.5, 5.1,5.2 and
5.4, the cumulative aggregate liability of the Buyer shall be limited
to $1,000,000.
ARTICLE IX
TERMINATION AND EXPENSES
9.1 TERMINATION. This Agreement may be terminated and the Purchase/Sale
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Closing, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated in this Agreement
by the Board of Directors of the Buyer and the Board of Directors and
Shareholder of the Company:
9.1.1 By mutual written consent duly authorized by the Boards
of Directors of the Buyer and the Company;
9.1.2 By either the Buyer or the Shareholder if the Closing
shall not have occurred on or before July 30, 2004 or such later date
as may be provided in Section 7.1 or as the parties may have agreed
upon in writing; provided, however, that the right to terminate this
Agreement under this Section 9.1.2 shall not be available to any party
whose failure to fulfill any material obligation under this Agreement
has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date; or
9.1.3 By either the Buyer or the Shareholder (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein)
if there shall have been a material breach of any of the
representations or warranties set forth in this Agreement on the part
of the other party, which breach by its nature cannot be cured prior to
the earlier of the Closing or within thirty (30) days following receipt
by the breaching party of written notice of such breach from the other
party hereto.
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9.2 EFFECT OF TERMINATION; EXPENSES.
9.2.1 In the event of the termination of this Agreement
pursuant to Section 9.1, this Agreement shall forthwith terminate, and
there shall be no liability on the part of any party hereto, except as
otherwise provided below.
9.2.2 If this Agreement is terminated as a result of any
uncured breach of any material provision of this Agreement, then, the
non-breaching party shall have the right to seek and secure recovery
from the breaching party for (i) all damages permitted or required
under applicable law as a result of such breach and (ii) all
out-of-pocket costs and expenses (but in no event in an amount in
excess of $50,000), including, without limitation, the reasonable fees
and expenses of lawyers, accountants and investment bankers, incurred
by such other party in connection with the entering into of this
Agreement and the carrying out of any and all acts contemplated
hereunder.
9.2.3 In addition to and not instead of the amounts referred
to in Section 9.2.2 above, and except as otherwise provided in Section
9.2.4 below, if the Buyer fails to proceed to a Closing for any reason
or for no reason, including without limitation for the reasons set
forth in Sections 6.1 or 6.2 hereto, the Down Payment and any
Additional Down Payment will be forfeited to the Shareholder, and the
Escrow Agent will promptly transfer the Down Payment and any Additional
Down Payment to the Shareholder.
9.2.4 In addition to and not instead of the amounts referred
to in Section 9.2.2 above, if the Shareholder or the Company fail to
proceed to a Closing for any reason or for no reason, including without
limitation for the reasons set forth in Sections 6.1 or 6.3 hereto, or
if the Buyer fails to proceed to a Closing for reasons of Force
Majeure, the Down Payment and any Additional Down Payment will be
returned to the Buyer, and Escrow Agent will promptly transfer the Down
Payment and any Additional Down Payment to the Buyer.
ARTICLE X
ARBITRATION
10.1 COMPUTATION OF THE PURCHASE PRICE. If either party disputes the
amount of the Escrow Consideration payable to the Shareholder pursuant to
Section 2.4, or the amount of the Earnout Consideration pursuant to Section 2.5,
then such party shall deliver to the other a written notice describing the
dispute which shall include a detailed description of the reasons and/or
computations relevant to the dispute, and a demand for a revised amount of
Escrow or Earn-Out Consideration (the "Dispute Notice"). If the party receiving
the Dispute Notice does not within fifteen (15) days after receiving the Dispute
Notice deliver to the other party a notice of objection to the Dispute Notice,
which shall include a detailed description of the reasons and/or computations
for the objection ("Objection to Dispute Notice"), then the revised amount of
Escrow or Earn-Out Consideration set forth in the Dispute Notice shall be final
and binding on both Buyer and Shareholder. If an Objection to Dispute Notice is
timely delivered to the other party, then resolution of the issues set forth in
the Dispute Notice and Objection to Dispute Notice shall be submitted to binding
arbitration, in accordance with the provisions of Paragraph 10.2, below. In
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connection with any Arbitration proceedings commenced to resolve any such
dispute, the burden of proof shall be on the party who prepared the Objection to
Dispute Notice.
10.2 ARBITRATION. Except as provided in Section 10.1 with respect to
dispute over the computation of the Purchase Price, any dispute between the
Buyer and the Shareholder with respect to this Agreement, including, without
limitation, any dispute regarding computation of the Purchase Price or any Claim
for indemnity under Article VIII, must be submitted to and resolved by
arbitration through the American Arbitration Association (the "ASSOCIATION")
within one hundred twenty (120) days of either party serving the other party
with a written demand for Arbitration. The arbitration will be conducted through
the offices of the Association in New York, New York. The arbitration will be
implemented under the rules and procedures of the Association for commercial
disputes. The decision of the arbitrator(s) will be conclusive and binding upon
the Buyer and the Shareholder and will not be subject to any challenge or
appeal. The decision of the arbitrator will be enforceable by either party
through the order of any court of competent jurisdiction. The prevailing party
in any Arbitration proceedings shall be entitled to recover its reasonable
attorneys' fees, arbitration costs and other direct expenses.
ARTICLE XI
MISCELLANEOUS
11.1 INTEREST ON LATE PAYMENTS. If any amount payable by any party is
not paid on or before its due date, including, without limitation, any amount
determined to be payable based under the procedure specified in this Agreement,
then the party obligated for that payment shall be obligated to pay such past
due amount, plus interest on such amount at the rate of 7% per annum from the
date such amount should have been paid pursuant to the applicable provision of
this Agreement to the date of payment.
11.2 ASSIGNMENT. Except as provided below, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
11.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by email,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 11.3):
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If to the Company, to:
Armour of America, Incorporated
X.X. Xxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx and Xxxx X. Xxxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
E-mail: xxx@xxxxxxxxxx.xxx/xxxxxxxx@xxxxxxxxxx.xxx
With a copy to:
Xxxxxx Har-Oz, Esq.
Vice President and General Counsel
Arotech Corporation
000 Xxxx 00xx Xxxxxx - Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0-000-0000
Fax: 000-000-0-000-0000
E-mail: xxxxxxx@xxxxxxx.xxx
If to the Shareholder:
Xxxxxx X. Xxxxxxxxx
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
E-mail: xxx@xxxxxxxxxx.xxx
With a copy to:
M. Xxxx Xxxxxxxx, Esq.
00000 Xxxxxxx Xxxxxxxxx - Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
E-mail: xxxxxxxx@xxx.xxx
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If to Buyer, to:
Arotech Corporation
000 Xxxx 00xx Xxxxxx - Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Chairman and CEO
Telephone: (000) 000-0000
Fax: (000) 000-0000
E-mail: xxxxxxx@xxxxxxx.xxx
With a copy to:
Xxxxxx Har-Oz, Esq.
Vice President and General Counsel
Arotech Corporation
000 Xxxx 00xx Xxxxxx - Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0-000-0000
Fax: 000-000-0-000-0000
E-mail: xxxxxxx@xxxxxxx.xxx
or at such other address for a party as shall be specified by like notice.
11.4 EXPENSES. Subject to the provisions of Section 9.2.2, each party
hereto shall pay its own expenses in connection with the transactions
contemplated hereby, whether or not they are completed; provided, however, that
the Shareholder shall be required to reimburse the Company for (i) any fees or
other expenses payable by the Company to Xxxxxxxxxxx & Co., Inc., for services
rendered in connection with the transactions contemplated by this Agreement and
(ii) any expenses incurred by the Company in connection with the transactions
contemplated by this Agreement. In the event of any conflict between this
provision and the indemnification or termination provisions of this Agreement,
the indemnification or termination provisions, as the case may be, shall
control.
11.5 PUBLICITY. The parties will consult with respect to the
appropriate public disclosure to be made with respect to the transactions
contemplated hereby, and will make no such disclosure without reasonable notice
to the other party prior to such disclosure. Notwithstanding the foregoing, the
Company understands that the federal securities laws and applicable stock
exchange listing agreements require Buyer to make certain disclosures of
material events. Buyer will consult with the Company before providing any
information about this Agreement or the Company in accordance with such
requirements.
11.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
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11.7 GOVERNING LAW AND DISPUTES. This Agreement shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
Delaware, without giving effect to its conflict of laws rules thereof. Disputes
under this Agreement are to be resolved through arbitration as provided in
Article X above. Any dispute with respect to the validity or applicability of
the arbitration provisions of this Agreement or any other dispute that for any
reason shall be claimed not to be subject to the arbitration provisions of this
Agreement shall be litigated exclusively in the state or federal courts sitting
in Wilmington, Delaware, and each of the parties hereby irrevocably consents to
the exclusive jurisdiction of such courts and waives and agrees not to assert
any objection to the jurisdiction or convenience thereof.
11.8 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, all of which shall be considered one (1) and the same agreement
and shall become effective when two (2) or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, whether written or oral,
among the parties, or any of them, in connection with such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written.
COMPANY: ARMOUR OF AMERICA, INCORPORATED
By:
---------------------------------
Xxxxxx X. Xxxxxxxxx, President
BUYER: AROTECH CORPORATION
By:
---------------------------------
Xxxxxx X. Xxxxxxx, Chairman and CEO
SHAREHOLDER:
---------------------------------
XXXXXX X. XXXXXXXXX (113 shares)
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