BINDING LETTER OF INTENT
Dated as of June 19, 0000
Xxxxx
XXXXXXX DISTRIBUTORS, LTD.
And
XXXXXXXX DISTRIBUTING, LLC
AND EMS BUSINESS DEVELOPMENT, INC.
BINDING LETTER OF INTENT
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THIS Binding Letter of Intent ("Agreement"), dated as of June 19, 2006 is
by and among GATEWAY DISTRIBUTORS, LTD., a Nevada corporation (the "Purchaser"),
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and XXXXXXXX DISTRIBUTING, LLC, 0000 Xxxxxxxxx Xxx, Xxxx Xxxx Xxxx, XX 00000, a
Utah Limited Liability Company and EMS BUSINESS DEVELOPMENT, INC., a California
Corporation (collectively the "Company").
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R E C I T A L S
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A. The parties hereto wish to provide for the terms and conditions
upon which the Purchaser will acquire substantially all of the assets and assume
all receivables and payables.
C. The parties hereto wish to make certain representations, warranties,
covenants and agreements in connection with the purchase of assets and
assumption of liabilities and also to prescribe various conditions to such
transaction.
A G R E E M E N T
- - - - - - - - -
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
ARTICLE 1
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PURCHASE AND SALE
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1.1 Assets To Be Purchased. Upon satisfaction of all conditions to the
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obligations of the parties contained herein (other than such conditions as shall
have been waived in accordance with the terms hereof), the Company shall sell,
transfer, convey, assign and deliver to the Purchaser, and the Purchaser shall
purchase from the Company, at the Closing (as hereinafter defined), all of the
Company's right, title and interest in and to the assets, properties, goodwill
and rights of Xxxxxxxx Distributing, LLC, as a going concern, of every nature,
kind and description, tangible and intangible, wherever located and whether or
not carried or reflected on the books and records of the Company as well as the
specific assets of EMS Business Development, Inc. to be listed on Exhibit "A" to
be attached to the Final Purchase Agreement (as defined in Section 5.1 below)
(hereinafter sometimes collectively called the "Assets"), including without
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limitation all items reflected on the Company's latest balance sheet (the
"Latest Balance Sheet") a copy of which is to be attached to the Final Purchase
Agreement as Exhibit "B", with only such dispositions of such items reflected on
the Latest Balance Sheet as shall have occurred in the ordinary course of the
Company's business between the date thereof and the Closing and which are
permitted by the terms hereof. Except as otherwise provided in this Agreement,
the Assets shall be conveyed free and clear of any mortgage, pledge, lien,
security interest, encumbrance, claim, easement, restriction or charge of any
kind or nature (whether or not of record). The Assets shall also include the
real property and improvements commonly known as 0000 Xxxx 0000
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Xxxxx, Xxxx Xxxx Xxxx, Xxxx APN: 15-09-301-005-0000 (the "Real Property"). The
Real Property is currently owned by Xxxxx Xxxxxxx and leased to the Company. At
Closing, title to the Real Property shall be conveyed to and shall vest in the
Purchaser (or Purchaser's nominee). Purchaser shall execute an all inclusive
installment note (the "Note") in the principal sum of $770,000 payable to Xxxxx
Xxxxxxx. The Note shall be secured by an all inclusive deed of trust on the
Property (the "Deed of Trust") which shall be inclusive of and junior to the
existing note and deed of trust executed by Xxxxx Xxxxxxx and secured by the
Real Property. The Note shall accrue interest at the same rate as the
underlying note; interest only payable monthly commencing one month following
the Closing. The principal and any unpaid interest shall be all due and payable
as part of the Purchase Price as provided in Section 1.3.2(a) below. The lease
between the Company and Xxxxx Xxxxxxx will be terminated at the Closing.
1.2 Assumptions of Liabilities. Upon satisfaction of all Closing conditions of
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the parties contained herein (other than such conditions as shall have been
waived in accordance with the terms hereof), the Purchaser, pursuant to a
liabilities undertaking in the form to be attached to the Final Purchase
Agreement as Exhibit "C" ("Liabilities Undertaking"), shall assume liabilities
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and obligations of the Company listed, on Exhibit "C-1" attached thereto but
excluding those listed on Exhibit "C-2" attached thereto.
1.3 Purchase Price. The purchase price that the Purchaser shall pay for the
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Company's Assets shall be $6,000,000 (the "Purchase Price").
1.3.1 Payment of Debts. A portion of the Purchase Price (approximately
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$3,786,062) will be used to pay the balance owing on the following obligations
to Xxxxxxxx Xxxxxxx and/or Xxxx Xxxxxxx (the "Xxxxxxxx"): ($1,025,000 Bank of
Stockton #1, $437,450 Bank of Stockton #2, $748,612 Farmers & Merchants #1,
$75,000 Xxxxx Fargo, $225,000 Xxxxx Xxxxxxx Personal Note #1, $525,000 Xxxxxxx
Personal Note #2, $750,000 Farmers & Merchants #2 to be drawn upon through
transition) (hereafter collectively the "Xxxxxxx Debts"). A portion of the
Purchase Price (approximately $770,000) will be paid to Xxxxx Xxxxxxx for the
Real Property as provided in Section 1.1 above..
Notwithstanding the provisions of Section 1.2 and/or Exhibit "C" it is
understood and agreed that the Janssens' Debt will continue to be serviced by
Purchaser throughout the Holding Period. Any accrued and unpaid interest at the
end of the Holding Period will be added to the Purchase Price and disbursed and
paid from the escrow account as a component of the Purchase Price.
1.3.2 Security Escrow Account and Payment. The Purchase Price will be
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fully secured by: (a) the Assets (together with the assets of Purchasers or its
affiliated company which acquire Assets and/or succeed to the business
operations of Xxxxxxxx Distributing, LLC ; and (b) 12 million shares of Cal-Bay
International, Inc. preferred B stock (the "CBAY Shares") owned by Purchaser.
Purchaser will deposit into an escrow account (to be agreed upon by the parties)
the 12 million CBAY Shares which shall be restricted for one year and which
shall be retained in escrow as part of the security for the full and timely
payment of the Purchase Price. At the Closing Purchase shall
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provide the escrow holder with irrevocable instructions to pay the Purchase
Price in full on or before the fourteenth (14th) month after the Closing (the
"Holding Period"). At the end of the Holding Period the CBAY Shares shall (to
the extent necessary) be sold by the escrow holder and the proceeds disbursed as
follows:
a. First, to the Company (for the benefit of the Janssens and Xxxxx
Xxxxxxx) in the following amounts: (i) the unpaid balance of the Xxxxxxx Debts
to the Janssens; and (ii) unpaid balance on the Note and Deed of Trust
(approximately $770,000) in favor of Xxxxx Xxxxxxx.
b. Second, One Million Dollars to the Janssens.
c. Third, the remainder of the Purchase Price will be disbursed to the
Company.
1.3.3 Assurances. Subject to payment of the Purchase Price, the Company
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shall, immediately after payment of the Purchase Price satisfy the outstanding
Xxxxxxx Debt and the balance owing on the existing underlying note and deed of
trust encumbering the Real Property.
1.4 Closing. A closing (the "Closing") will be held on or before June 30, 2006
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("Closing Date"), provided, however, that if any of the conditions not satisfied
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or waived by such date, then the party to this Agreement which is unable to
satisfy such condition or conditions, despite the best efforts of such party,
shall be entitled to postpone the Closing by notice to the other parties until
such condition or conditions shall have been satisfied (which such notifying
party will seek to cause to happen at the earliest practicable date) or waived,
but in no event shall the Closing occur later than the "Termination Date" which
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shall be July 30, 2006. The Closing shall be held at the Company's office
unless the parties otherwise agree.
1.5 Purchaser's Default. If within fourteen (14) months following the Closing,
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the Purchase Price has not been paid in full the Company shall have the right,
in its sole and absolute discretion to terminate the Final Purchase Agreement by
providing Purchaser and the escrow holder of its election to terminate. In the
event the Company elects to terminate the Final Purchase Agreement as provided
in this Section 1.5: (a) the Final Purchase Agreement will terminate; (b)
escrow holder shall liquidate sufficient CBAY Shares held in the escrow account
and shall pay to the Company (on behalf of Purchaser) the sum of $200,000.00 in
consideration for the Company having entered into the Final Purchase Agreement
and having removed the business from the market place; (c) all Assets as well as
any assets of the Purchaser or affiliated company that acquires the Assets or
succeeds to the Business Operations of the Company (as defined below) shall
thereupon be deemed assigned to the Company; and (d) possession and title to the
Real Property shall be reconveyed to Xxxxx Xxxxxxx. Title shall be free and
clear of all matters of record, save and except those matters of record at the
Closing. If termination occurs pursuant to this Section 1.5, the parties will
cooperate to return the Assets, Real Property and the then current Business
Operations to The Company. Purchaser will be responsible for all business
expenses and will be
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entitled to collect, all revenues attributable to the Business Operations for
the time period from the Closing to the date of termination. The Company will
pay all business expenses and retain all revenues attributable to the Business
Operations for the time period after the termination date. The parties will
reconcile their respective expenses and revenues within ninety (90) days after
the termination date.
ARTICLE 2
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REPRESENTATIONS AND WARRANTIES OF COMPANY
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The Company hereby represents and warrants to the Purchaser as of the date
hereof as follows:
2.1 Corporate Organization. Xxxxxxxx Distributing, LLC, is a limited liability
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company duly organized, validly existing and in good standing under the laws of
the state of Utah, has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate its
properties and assets. EMS Business Development, Inc., is a California
corporation, validly existing and in good standing under the laws of the State
of California and is qualified and licensed to do business as it is now being
conducted. The Company is duly qualified or licensed to do business as a foreign
limited liability company in good standing in every other jurisdiction in which
the character or location of the properties and assets owned, leased or operated
by it or the conduct of its business requires such qualification or licensing,
except in such jurisdictions in which the failure to be so qualified or licensed
and in good standing would not, individually or in the aggregate, have a
material adverse effect on the Company. The Company has heretofore delivered to
the Purchaser complete and correct copies of its articles or certificate of
organization and bylaws, as presently in effect. The Company has no
subsidiaries.
2.2 Machinery, Equipment, Vehicles and Personal Property. Exhibit "B" to be
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attached to the Final Purchase Agreement lists all machinery, equipment,
vehicles, furniture, fixtures and other personal property owned or leased by the
Company (the "Inventory").
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2.3 Receivables and Payables.
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(a) Receivables and Payables will be accepted by the Purchaser based on
the Latest Balance Sheet to be attached to the Final Purchase Agreement as
Exhibit "B" and initialed by both parties.
2.4 Intellectual Property Rights. The Company owns the industrial and
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intellectual property rights, including without limitation the patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service xxxx applications, copyrights, computer programs and
other computer software, inventions, know-how, trade secrets, technology,
proprietary processes and formulae (collectively, "Intellectual Property
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Rights"), if any described on Exhibit "B" to be attached to the Final Purchase
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Agreement.
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2.5 Litigation. To the knowledge of the Company, there is no legal,
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administrative, arbitration, or other proceeding, suit, claim or action of any
nature or investigation, review or audit of any kind (including without
limitation a proceeding, suit, claim or action, or an investigation, review or
audit, involving any environmental Law or matter), judgment, decree, decision,
injunction, writ or order pending, noticed, scheduled or threatened or
contemplated by or against or involving the Company, its assets, properties or
businesses or its members, officers, agents or employees (but only in their
capacity as such), whether at law or in equity, before or by any person or
entity or authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
2.6 Tax Matters.
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(a) Tax Returns. The Company has duly and timely filed all tax and
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information reports, returns and related documents required to be filed by
it with respect to the income-type, sales/use-type and employment-related
taxes of the United States and the states and other jurisdictions.
(b) Cooperation on Tax Matters. The Purchaser, the Company and the
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members shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns and any
audit, litigation or other proceeding with respect to taxes. 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 on any material provided hereunder.
(c) No Pending Claims. There are no pending or, to the Company's
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knowledge, threatened audits, investigations, claims, suits, grievances or
other proceedings, and there are no facts that could give rise thereto,
involving, directly or indirectly, any Pension Plan, Welfare Plan, or
Compensation Plan, or any rights or benefits hereunder, other than the
ordinary and usual claims for benefits by participants, dependents or
beneficiaries.
ARTICLE 3
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REPRESENTATIONS AND WARRANTIES OF PURCHASER
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The Purchaser, jointly and severally, represents and warrants to the
Company as of the date hereof as follows:
3.1. Corporate Organization. The Purchaser is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Nevada.
The Purchaser is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of the activities conducted by
it or the character of the
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property owned, leased or operated by it make such qualification necessary or
appropriate, except for those jurisdictions where the failure to be so qualified
has not and could not reasonably be expected to have a material adverse effect
on the ability of the Purchaser to fulfill its obligations under this Agreement.
3.2. Authorization. The Purchaser has full corporate power and authority to
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enter into this Agreement and to carry out the transactions contemplated herein
and therein. The Boards of Directors of the Purchaser have taken all action
required by law, their respective articles of incorporation and bylaws or
otherwise to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein. This Agreement is
the valid and binding legal obligation of the Purchaser enforceable against it
in accordance with its terms.
3.3 CBAY Shares. Purchaser is the sole owner of the CBAY Shares, free and
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clear of any liens or encumbrances, save and except the restrictions imposed on
all preferred B shares issued by CBAY.
3.4 Solvency. Purchaser and any entity or person that owns or controls
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Purchaser are not bankrupt or insolvent under any applicable Federal state
standard, have not filed for protection or relief under any applicable
bankruptcy or creditor protection statute and have not been threatened by
creditors with an involuntary application of any applicable bankruptcy or
creditor protection statute.
3.5 Material Facts. Neither this Agreement, nor any of the Exhibits hereto,
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nor any document, certificate, or statement referred to herein or furnished to
the Company by Purchaser in connection with the transaction contemplated herein
(whether delivered prior to, simultaneously with, or subsequent to the execution
of this Agreement) contains any untrue statement of material fact, or omits to
state a material fact in any way concerning the Purchaser or the transaction
contemplated hereby.
3.6 Operations During Holding Period. Purchaser covenants and agrees that
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during the period from the Closing and continuing through the end of the Holding
Period:
a. Purchaser (or an affiliate of Purchaser) shall continue to manage
and operate the Company's business operations (the "Business Operations") in
accordance with Company's current practices. Purchaser shall make no change in
Company's current management, practices and policies regarding the Business
Operations unless it receives the Company's prior written consent thereto.
b. Purchaser shall pay its employees all wages, salaries and benefits
of any kind, including without limitation, vacation accruing to such employees
in a timely manner and the Company shall have no duty or obligation to pay any
salary, benefits, or other compensation to Purchaser's employees for the time
period following the Closing.
c. Purchaser shall not sell, mortgage, pledge, hypothecate or otherwise
transfer or dispose of all or any part of the Assets, the assets acquired as a
result of the Business Operations following the Closing or any interest therein
except: (i) for
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inventory in the ordinary course of the Business Operations: or (ii) if the
Company consents thereto in writing.
d. Purchaser shall not terminate, modify, extend, amend or assign any
lease or contract or enter into any new lease or contract without the prior
written consent of the Company except that the consent of Company shall not be
necessary for new contracts which are entered into in the ordinary course of
business.
e. Purchaser shall maintain in full force and effect, the same
insurance coverages currently maintained by Company in conjunction with its
business operations.
f. Upon prior notice and at reasonable times Company shall have access
to the Real Property and the Assets to inspect same to assure that Purchaser is
complying with the requirements of this Agreement. A monthly review of the
Assets, Real Property and Business Operations by the Company is contemplated and
is here by agreed to be reasonable.
3.7 Purchaser's Default. Purchaser acknowledges that each of Purchaser's
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covenants set forth in Section 3.6 are material to the Company entering into
this Agreement as well as the Final Purchase Agreement. Purchaser and the
Company expressly agree that the Company shall have the absolute right to
terminate this Agreement and/or the Final Purchase Agreement at any time should
the Company, in the Company's sole and absolute discretion, determine that the
Purchaser or its affiliated company conducting the Business Operations is in
default of has breached any of the covenants set forth in Section 3.6 above. In
the event the Company elects to terminate the Final Purchase Agreement as
provided in this Section 3.7: (a) the Final Purchase Agreement will terminate;
(b) escrow holder shall liquidate sufficient CBAY Shares held in the escrow
account and shall pay to the Company (on behalf of Purchaser) the sum of
$200,000.00 in consideration for the Company having entered into the Final
Purchase Agreement and having removed the business from the market place; (c)
all Assets as well as any assets of the Purchaser or affiliated company that
acquires the Assets or succeeds to the Business Operations of the Company shall
thereupon be deemed assigned to the Company; and (d) possession and title to the
Real Property shall be reconveyed to Xxxxx Xxxxxxx. Title shall be free and
clear of all matters of record, save and except those matters of record at the
Closing. If termination occurs pursuant to this Section 3.7, the parties will
cooperate to return the Assets, Real Property and the then current Business
Operations to the Company.
ARTICLE 4
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4.1 Confidentiality. Each of the parties hereto agrees that it will not use,
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or permit the use of, any of the information relating to any other party hereto
furnished to it in connection with the transactions contemplated herein
("Information") in a manner or for a purpose detrimental to such other party or
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otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible, or permit the Disclosure of
(collectively, "Disclose" or "Disclosure" as the case may be),
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any of the Information to any person or entity, other than their responsible
directors, officers, employees, investment advisors, accountants, counsel and
other authorized representatives and agents, except as may be required by
judicial or administrative process or, in the opinion of such party's regular
counsel, by other requirements of Law; provided, however, that prior to any
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Disclosure of any Information permitted hereunder, the disclosing party shall
first obtain the recipients' undertaking to comply with the provisions of this
subsection with respect to such information. The term "Information" as used
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herein shall not include any information relating to a party which the party
disclosing such information can show: (i) to have been in its possession prior
to its receipt from another party hereto; (ii) to be now or to later become
generally available to the public through no fault of the disclosing party;
(iii) to have been available to the public at the time of its receipt by the
disclosing party; (iv) to have been received separately by the disclosing party
in an unrestricted manner from a person entitled to disclose such information;
or (v) to have been developed independently by the disclosing party without
regard to any information received in connection with this transaction. Each
party hereto also agrees to promptly return to the party from who originally
received all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto shall be deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to its own
similar information. The Confidentiality section of this agreement shall be in
force throughout the duration of the pre-closing term and shall be in effect
until closing.
4.2 Public Announcements. None of the parties hereto shall make any public
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announcement with respect to the transactions contemplated herein without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed; provided, however, that any of the parties
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hereto may at any time make any announcements which are deemed by its counsel to
be required by applicable Law so long as the party so required to make an
announcement promptly upon learning of such requirement notifies the other
parties of such requirement and discusses with the other parties in good faith
the exact proposed wording of any such announcement.
ARTICLE 5
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TERMINATIONOF LETTER OF INTENT
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5.1 Termination. This Letter of Intent contains the essential terms and
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conditions of the proposed purchase and sale between the Company and Purchaser
but is not intended to be representative of all the terms and conditions that
will be included in the final purchase agreement.
If a copy of this letter executed by both the Company and the Purchaser is
not received by the Company on or before June 23, 2006, the foregoing proposal
and this agreement shall terminate and be of no further force or effect. If
this Letter of Intent is executed by the Company and Purchaser on or before June
23, 2006, the Purchaser shall proceed with an initial draft of the proposed
final purchase agreement (the "Final
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Purchase Agreement") which shall be presented to the Company within ten (10)
days from the last signature to this letter.
The Company and Purchaser each agree to use good faith efforts to negotiate
and execute a Final Purchase Agreement within forty-five (45) days from the date
of the last signature to this letter. While such negotiations are ongoing, the
parties' only binding obligations are to (i) negotiate with each other in good
faith; and (ii) maintain the terms and conditions of this letter in strict
confidence. In the event a Final Purchase Agreement has not been executed by
both the Company and the Purchaser within forty-five (45) days from the date of
the last signature hereto, this Agreement shall thereupon automatically cease,
terminate and be of no further force and effect.
5.2 Governing Law. This Agreement and the legal relations among the parties
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hereto shall be governed by and construed in accordance with the internal
substantive laws of the State of Nevada (without regard to the laws of conflict
that might otherwise apply) as to all matters, including without limitation
matters of validity, construction, effect, performance and remedies.
5.3 Arbitration. With the sole exception of the injunctive relief contemplated
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by Section 9.11, any controversy or claim arising out of or relating to this
Agreement, or the making, performance or interpretation thereof, including
without limitation alleged fraudulent inducement thereof, shall be settled by
binding arbitration in Las Vegas, Nevada, by a panel of three arbitrators in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon any arbitration award may be entered in any court
having jurisdiction thereof and the parties consent to the jurisdiction of the
courts located in the State of Nevada for this purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
"PURCHASER"
GATEWAY DISTRIBUTORS, LTD.
By: Date:
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Xxxxxxx X. Xxxxxx,
President / CEO
"COMPANY"
Xxxxxxxx Distributing, LLC
By: Date:
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By: Date:
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EMS Business Development, Inc.
By: Date:
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