EHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of June 17, 2003
by and among
GATEWAY INTERNATIONAL HOLDINGS, INC.
and
XXXX X. XXXXXXXXXX
and
XXXXX XXXXXXXXXX
TABLE OF CONTENTS
Page
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
SECTION 1.1 Transfer of Shares . . . . . . . . . . . . . . . . 2
SECTION 1.2 Purchase Price
SECTION 1.3 Closing
SECTION 1.4 Articles of Incorporation and By-laws
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
SECTION 2.1 Organization and Qualification . . . . . . . . . . 3
SECTION 2.2 Capitalization . . . . . . . . . . . . . . . . . . 4
SECTION 2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . 4
SECTION 2.4 Authority; Non-Contravention; Approvals . . . . . 5
SECTION 2.5 Financial Statements . . . . . . . . . . . . . . . 6
SECTION 2.6 Absence of Undisclosed Liabilities . . . . . . . . 6
SECTION 2.7 Absence of Certain Changes or Events . . . . . . . 6
SECTION 2.8 Litigation . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.9 Compliance with Laws; Permits . . . . . . . . . . 7
SECTION 2.10 Agreements; Contracts and Commitments . . . . . . 7
SECTION 2.11 Tax Matters . . . . . . . . . . . . . . . . . . . 9
SECTION 2.12 Employment . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.13 Investment Company Act . . . . . . . . . . . . . . 11
SECTION 2.14 Labor Controversies . . . . . . . . . . . . . . 12
SECTION 2.15 Environmental Matters . . . . . . . . . . . . . . 12
SECTION 2.16 Interested Party Transactions . . . . . . . . . . 12
SECTION 2.17 Insurance . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.18 Intellectual Property Rights . . . . . . . . . . . 13
SECTION 2.19 Books and Records . . . . . . . . . . . . . . . . 14
SECTION 2.20 Title To and Condition of Properties . . . . . . . 14
SECTION 2.21 Representations Complete . . . . . . . . . . . . . 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . 15
SECTION 3.1 Organization and Qualification . . . . . . . . . . 15
SECTION 3.2 Capitalization . . . . . . . . . . . . . . . . . . 16
SECTION 3.3 Authority; Non-Contravention; Approvals . . . . . 16
SECTION 3.4 Financial Statements . . . . . . . . . . . . . . . 17
SECTION 3.5 Reports . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.6 Absence of Certain Changes or Events . . . . . . . 17
SECTION 3.7 Litigation . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.8 Compliance with Laws . . . . . . . . . . . . . . . 17
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ARTICLE IV
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.1 Expenses . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.2 Public Statements . . . . . . . . . . . . . . . . 19
SECTION 4.3 Shareholder Indemnification . . . . . . . . . . . 19
ARTICLE V
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 5.1 Conditions to Each Party's Obligation
to Effect the Transaction . . . . . . . . . . . . 21
SECTION 5.2 Conditions to Obligation of the Shareholder
to Effect the Transaction . . . . . . . . . . . . 21
SECTION 5.3 Conditions to Obligation of the Buyer
to Effect the Transaction . . . . . . . . . 22
ARTICLE VI
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.1 Survival of Representations and Warranties . . . . 24
SECTION 6.2 Brokers . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.3 Notices . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.4 Interpretation . . . . . . . . . . . . . . . . . . 25
SECTION 6.5 Miscellaneous . . . . . . . . . . . . . . . . . . 25
SECTION 6.6 Counterparts . . . . . . . . . . . . . . . . . . . 26
SECTION 6.7 Parties in Interest . . . . . . . . . . . . . . . 26
EXHIBITS
A... Promissory Note . . . . . . . . . . . . . . . . . . . A-1
B... Form of Pledge Agreement . . . . . . . . . . . . . . B-1
C... Employment agreement . . . . . . . . . . . . . . . . C-1
Xxxxx Xxxxxxxxxx
Xxxx X. Xxxxxxxxxx
SCHEDULES
Schedule 3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of June 17, 2003 (this
"Agreement") is entered into by and among Gateway International Holdings, Inc.,
a Nevada corporation (the "Buyer"), and Xxxx X. Xxxxxxxxxx and Xxxxx Xxxxxxxxxx
(each a "Shareholder" and collectively, the "Shareholders").
R E C I T A L S
WHEREAS, the Buyer and the Shareholders are parties to a letter of
intent dated December 16, 2002 (the "Letter of Intent"), which contemplates,
among other things, the purchase by the Buyer from the Shareholders of all of
the issued and outstanding capital stock of Eran Engineering, Inc., a California
corporation (the "Company")(the "Transaction"), for an aggregate purchase price
of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) (the "Purchase
Price");
WHEREAS, the Board of Directors of Buyer has approved the Transaction
pursuant to this Agreement and any other transactions contemplated hereby upon
the terms and subject to the conditions set forth herein;
WHEREAS, the Shareholders currently own One Hundred Percent (100%) of
the issued and outstanding shares of capital stock of the Company (the
"Shares"); and
NOW, THEREFORE, in consideration of the promises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
SECTION 1.1 TRANSFER OF SHARES. Subject to the terms and conditions of this
Agreement, the Shareholders agrees to sell and deliver to the Buyer, and the
Buyer agrees to purchase from the Shareholders, good and marketable title to the
Shares, free and clear of all claims, liens, pledges, security interests and
similar encumbrances or restrictions on transfer. At the Closing, as defined in
Section 1.3 below, each of the Shareholders shall deliver to the Buyer one or
more stock certificates representing the Shares, duly endorsed for transfer or
accompanied by duly executed stock powers in proper form for transfer. The
Company shall continue as a wholly-owned subsidiary of the Buyer.
SECTION 1.2 PURCHASE PRICE. As full and complete consideration for the Shares,
the Buyer shall deliver to the Shareholders at the Closing (as defined in
Section 1.3 below) the Purchase Price as follows: (i) cash, by wire transfer of
immediately available funds or by certified or cashier's check, in the amount of
$650,000, and (ii) a Promissory Note in the principal amount of $600,000, in the
form of the attached Exhibit A. The Promissory Note shall be payable in three
(3) equal annual installments of $200,000 together with accrued interest thereon
at the rate of six percent (6%) simple interest per year. The Promissory Note
shall be secured by the Buyer's obligation to issue to the Shareholders upon
written notice of a default under the Promissory Note a number of shares of the
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Buyer's common stock, $.001 par value per share, with a fair market value equal
to the amount of the defaulted payment, or the then current outstanding balance
(the "Default Shares"), at the Shareholders' option. The Company's obligation to
issue the Default Shares shall be secured by pledges executed by Mr. Consolvi,
in the form of the attached Exhibit B.
SECTION 1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on June 30, 2003, at 10:00 a.m. at
the offices of Ticor Title at 00000 Xxxxxxxxxx Xx., Xxxxx 000, Xxxxxx Xxxxx,
Xxxxxxxxxx 00000, or at such other time and place as the Buyer and the
Shareholders shall agree in writing (the date of the Closing is hereinafter
referred to as the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to the
Buyer as of the Closing Date as follows:
SECTION 2.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being
conducted. The Company is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's Articles of Incorporation and
By-laws, including all amendments thereto, have heretofore been delivered to the
Buyer.
SECTION 2.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 500,000
shares of common stock of the Company, no par value (the "the Company Common
Stock"). As of the date hereof, there were 50,000 shares of the Company Common
Stock issued and outstanding. All of the issued and outstanding shares of the
Company Common Stock are duly authorized, validly issued, fully paid,
non-assessable, free of preemptive rights and were issued in compliance with
federal and applicable state securities laws. All of the issued and outstanding
shares of the Company Common Stock held by the Shareholders in the amounts set
forth on Schedule 2.2, are owned free and clear of all liens, claims, security
interests, pledges and other encumbrances or restrictions on transfer.
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(b) As of the date hereof and except as set forth on Schedule 2.2
attached hereto, there are no outstanding subscriptions, options, calls,
contracts, agreements, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating the Company or
any subsidiary of the Company to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, shares of the capital stock of the Company or obligating the Company
or any subsidiary of the Company to grant, the Buyer or enter into any such
agreement or commitment, except for this Agreement. There are no outstanding or
authorized stock appreciation, phantom stock, stock participation, or other
similar rights with respect to the Company. There are no voting trusts, proxies,
other agreements or understandings to which the Company, any subsidiary of the
Company or the Shareholder is a party or is bound with respect to the voting of
any shares of capital stock of the Company.
SECTION 2.3 SUBSIDIARIES. The Company has no subsidiaries except those as set
forth on Schedule 2.3 attached hereto.
SECTION 2.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Shareholders have the power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, and the consummation by
the Shareholders of the transactions contemplated hereby, have been duly
authorized and approved by the Shareholders and no other legal proceedings are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Shareholders of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each of the
Shareholders and, assuming the due authorization, execution and delivery hereof
by the Buyer, constitutes a valid and binding agreement of each of the
Shareholders, enforceable against each such Shareholder, in accordance with its
terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (b) general equitable
principles.
(b) The execution and delivery of this Agreement by the Shareholders
does not, and the consummation by the Shareholders of the transactions
contemplated hereby will not, violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company or either Shareholder under any of the terms, conditions or
provisions of (i) the Articles of Incorporation or by-laws of the Company, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Company or either Shareholder or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or either
Shareholder is now a party or by which the Company or either Shareholder or any
of their respective properties or assets may be bound or affected.
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(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority, including the probate court, is necessary for the execution, delivery
or performance of this Agreement by the Shareholders or the consummation by the
Shareholders of the transactions contemplated hereby. No consent of any party to
any contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company or either Shareholder is a party, or to which
any of them or any of their properties or assets are subject, is required for
the execution, delivery or performance of this Agreement.
SECTION 2.5 FINANCIAL STATEMENTS. The Company shall deliver to the Buyer copies
of its financial statements for the fiscal years ending December 31, 2002, 2001
and 2000 (the "Company Financial Statements"). The Company Financial Statements
have been prepared on a consistent basis and fairly and accurately present the
financial position of the Company as of the dates thereof and the results of
operations and changes in financial position for the periods then ended.
SECTION 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as expressly disclosed
and described in the Company Financial Statements, neither the Company nor any
of its subsidiaries had at December 31, 2002, or has incurred since that date,
any liability, indebtedness, expense, claim, deficiency, guarantee or obligation
of any type (whether absolute, accrued, contingent, matured, un-matured or
otherwise) or of any nature, except (i) liabilities, obligations or
contingencies which are accrued or reserved against in the Company Financial
Statements or reflected in the notes thereto, and (ii) liabilities or
obligations incurred in the ordinary course of business which, in the aggregate,
do not exceed $10,000.
SECTION 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. From December 31, 2002
through the date hereof, there has not been any material adverse change in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the Company, taken as a whole.
SECTION 2.8 LITIGATION. There are no claims, suits, actions, proceedings or
investigations pending or, to the knowledge of the Shareholders, threatened
against, relating to or affecting the Company, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator,
and there is no basis known to either Shareholder for any of the foregoing,
except as disclosed on Schedule 2.8 attached hereto. Neither the Company nor
either Shareholder is subject to any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the consummation of the
transactions contemplated hereby or would have any material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company.
SECTION 2.9 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of,
nor has it been given notice of or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance, or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority. As of the date of this Agreement,
no investigation or review by any governmental or regulatory body or authority
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is pending or, to the knowledge of the Shareholders, threatened, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same. The Company holds all permits, licenses, certificates and other
authorizations of foreign, federal, state and local governmental agencies
required for the conduct of its business.
SECTION 2.10 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except for the agreements listed on Schedule 2.10 attached hereto
(true and correct copies of which have been delivered to the Buyer), the Company
is not a party to nor is it bound by:
(i) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or
other organization;
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property with fixed annual rental
payments in excess of $10,000;
(v) any agreement, contract, commitment or grant containing
any covenant limiting the freedom of the Company to engage in any line
of business or to compete with any person;
(vi) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000
either individually or in the aggregate;
(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(viii) any mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument relating to the
borrowing of money, the extension of credit or placing of liens on any
assets of the Company;
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(ix) any guaranty of any obligation for borrowed money or
otherwise;
(x) any purchase order or contract for the purchase of
materials involving in excess of $10,000 either individually or in the
aggregate;
(xi) any dealer, distribution, joint marketing or
development agreement;
(xii) any sales representative, original equipment
manufacturer, value added, remarketing or other agreement for
distribution of the Company's products or services;
(xiii) any collective bargaining agreement or contract with
any labor union;
(xiv) any bonus, pension, profit sharing, retirement or other
form of deferred compensation plan;
(xv) any medical insurance or similar plan; or
(xvi) any other agreement, contract, commitment or grant
pursuant to which the obligations of any party thereto is in excess of
$10,000.
(b) The Company is in compliance with and has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract,
grant, covenant, instrument, lease, license or commitment to which the Company
is a party or by which its assets are bound (collectively, a "Contract"), nor is
either Shareholder aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both. Each
Contract is in full force and effect and is not subject to any default
thereunder by any party obligated to the Company pursuant thereto. The Company
has obtained, or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required thereunder for
such Contracts to remain in effect without modification or termination after the
Closing. Following the Closing Date, the Company will be permitted to exercise
all of its rights under the Contracts without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company would otherwise be required to pay had the transactions contemplated
by this Agreement not occurred.
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SECTION 2.11 TAX MATTERS.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
-------------------
collectively, "Taxes" means (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) The Company has prepared and timely filed (or have
properly filed the extensions for) all required federal, state, local
and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to
the Company, its subsidiaries or operations thereof and such Returns
are true and correct and have been completed in accordance with
applicable law.
(ii) The Company (A) has paid all Taxes it is required to pay
and has withheld with respect to its employees all federal and state
income taxes, Federal Insurance Contribution Act ("FICA"), Federal
Unemployment Tax Act ("FUTA") and other Taxes required to be withheld,
and (B) has accrued on the Company Financial Statements all Taxes
attributable to the periods covered by the Company Financial Statements
and has not incurred any liability for Taxes for the period prior to
the Closing Date other than in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or
proposed against the Company by the Internal Revenue Service (the
"IRS") or any other governmental taxing authority, nor has the Company
executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company or any of its subsidiaries is presently in progress, nor has
the Company been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by the Company
has been proposed formally or informally by any Tax authority to the
Company or any representative thereof.
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(vi) The Company has made available to the Buyer or its legal
counsel, copies of all federal and state income and all state sales and
use Returns for the Company filed for the past five (5) years.
(vii) There are (and immediately following the Closing Date
there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any
sort (collectively, "Liens") on the assets of the Company relating to
or attributable to Taxes other than Liens for Taxes not yet due and
payable.
(viii) Neither Shareholder has any knowledge of any basis for
the assertion of any claim relating or attributable to Taxes, which if
adversely determined, would result in any Lien on the assets of the
Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Internal
Revenue Code of 1986, as amended (the "Code").
(x) There is no any contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would
not be deductible by the Company or its subsidiaries as an expense
under applicable law.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the
Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company or its
subsidiaries.
(xii) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any
amount under any such agreement.
SECTION 2.12 EMPLOYMENT.
(a) Except as set forth in Schedule 2.12(a) attached hereto, at the
date hereof, the Company does not maintain, contribute to or have any liability
under any employee benefit plans, programs, arrangements or practices, including
employee benefit plans within the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any
deferred compensation or retirement plans or arrangements, or other similar
material arrangements for the provision of benefits (excluding any
"Multi-employer Plan" within the meaning of Section 3(37) of ERISA or a
"Multiple Employer Plan" within the meaning of Section 413(c) of the Code). The
Company does not have any obligation to create any such plan.
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(b) With respect to each plan listed in Schedule 2.12 (a): (i) the
Company has performed in all material respects all obligations required to be
performed by it under each such plan and each such plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, rules and regulations, including
but not limited to the Code and ERISA; (ii) there are no actions, suits or
claims pending or, to the knowledge of either Shareholder, threatened (other
than routine claims for benefits) against any such plan; (iii) each such plan
can be amended or terminated after the Closing Date in accordance with its
terms, without liability to the Company; and (iv) there are no inquiries or
proceedings pending or, to the knowledge of either Shareholder, threatened by
the IRS or the Department of Labor with respect to any such plan.
(c) Schedule 2.12 (c) attached hereto contains a complete and accurate
list of the employees for the Company, including job title, current
compensation, vacation accrued and service credited for purposes of vesting and
eligibility to participate under any pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership, severance pay, insurance, medical, welfare or vacation
plan. No employee of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, non-competition, or
proprietary rights agreement, between such employee and any other person or
entity that in any way adversely affects or will affect (i) the performance of
his or her duties as an employee of the Company, or (ii) the ability of the
Company to conduct its business. Neither the Company nor the Shareholders have
received verbal or written notice that any of the employees listed in Schedule
2.12(c) will not continue their employment relationship with the Company after
the Closing Date. All employees of the Company are terminable at will by the
Company.
SECTION 2.13 LABOR CONTROVERSIES. There are no significant controversies pending
or, to the knowledge of either Shareholder, threatened between the Company and
its employees. There are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company. The Company
has complied in all material respects with all laws relating to the employment
of labor, including, without limitation, any provisions thereof relating to
wages, hours, and the payment of social security and similar taxes, and no
person has asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
SECTION 2.14 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.14
attached hereto, the Company (i) has obtained all applicable permits, licenses
and other authorizations which are required under federal, state or local laws
relating to pollution or protection of the environment ("Environmental Laws"),
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company (or its agents); (ii) is in full compliance
with, and not in violation of, any terms and conditions of any required permits,
licenses and authorizations, and any other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in Environmental Laws or in any regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) is not aware of nor has it received notice of any
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event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with or which would give rise to any Environmental Law or statutory liability,
or otherwise form the basis of any claim, action, suit or proceeding, based on
or resulting from the Company's (or any agent's) manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste; (iv) has taken all actions
necessary under applicable requirements of Environmental Laws, rules or
regulations to register any products or materials required to be registered by
the Company (or its agents) thereunder; and (v) has not transported, stored,
used, manufactured, released, disposed of or handled any hazardous substance or
any product containing a hazardous substance in violation of any Environmental
Law.
SECTION 2.15 INTERESTED PARTY TRANSACTIONS. The Company is not a party to any
oral or written (a) consulting or similar agreement with any present or former
director, officer or employee or any entity controlled by any such person, (b)
agreement with any executive officer or other key employee of the Company the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company or any of its
subsidiaries of the nature contemplated by this Agreement or (c) agreement with
respect to any executive officer or other key employee of the Company providing
any term of employment or compensation guarantee. The Company is not a party to
any agreement, contract, lease, license, arrangement, or other understanding
with either Shareholder or any employee of the Company (except employment
agreements disclosed on Schedule 2.12(c)), any relative or affiliate of either
Shareholder or any employee of the Company, or any other partnership or
enterprise in which either such Shareholder or any employee of the Company, or
any such relative or affiliate thereof, had or now has a 5% or greater ownership
interest, or other substantial interest, other than contracts or agreements
listed and so specified in Schedule 2.15.
SECTION 2.16 INSURANCE. Schedule 2.16 attached hereto lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. All
insurance policies listed are in full force and effect. There is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and there is no retroactive premium adjustment obligation of any kind, and
is otherwise in compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage). Neither
Shareholder has any knowledge of any threatened termination of, or premium
increase with respect to, any of such policies.
SECTION 2.17 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 2.17 attached hereto lists all of the Company's federal,
state and foreign patents, inventions and discoveries that may be patentable,
10
copyrights, trade names, trademarks, service marks and all pending applications
for any patents or other intellectual property rights or in which the Company
has any interest whatsoever and all other trade secrets, know-how, confidential
information, customer lists, software, technical information, data, plans,
drawings and blueprints and intellectual property rights, whether or not
registered, created or used by or on behalf of the Company, in each case
relating to its business (collectively, "the Company Intellectual Property
Rights").
(b) No person has a right to receive a royalty or similar payment in
respect of any the Company Intellectual Property Rights. The Company does not
have any licenses granted, sold or otherwise transferred by or to it or other
agreements to which it is a party, relating in whole or in part to any of the
Company Intellectual Property Rights, except as set forth in Schedule 2.17.
(c) The Company Intellectual Property Rights are all those necessary
for the operation of the business of the Company as it is currently conducted.
The Company is the owner of all right, title, and interest in and to the Company
Intellectual Property Rights, free and clear of all liens, security interests,
charges, encumbrances and other adverse claims, and has the right to use without
payment to a third party all of the Company Intellectual Property Rights. All
employees of the Company that work with or have access to the Company
Intellectual Property Rights have signed nondisclosure agreements and
intellectual property agreements.
(d) None of the Company Intellectual Property Rights is involved in any
pending or threatened litigation, nor has been the subject of any interference,
opposition or cancellation proceedings. The Company has not received any notice
of invalidity or infringement of any rights of others with respect to the
Company Intellectual Property Rights. The Company has taken all reasonable and
prudent steps to protect the Company Intellectual Property Rights from
infringement by any other firm, corporation, entity or person. The use of the
Company Intellectual Property Rights by the Company is not infringing upon or
otherwise violating the rights of any third party in or to such the Company
Intellectual Property Rights, nor has any such infringement been alleged by any
third party. All of the Company Intellectual Property Rights are valid and
enforceable rights of the Company or a subsidiary and will not cease to be valid
and in full force and effect by reason of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement. To the knowledge of either Shareholder, there is
no infringement by any third party of the Company Intellectual Property Rights.
SECTION 2.18 BOOKS AND RECORDS. The books of account, minute books, stock record
ledgers and other records of the Company, all of which have been made available
to the Buyer, are complete and correct and have been maintained in accordance
with sound business practices, including the maintenance of an adequate system
of internal controls. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
Shareholders, the Board of Directors and committees of the Board of Directors of
the Company and no meeting of the Shareholders, Board of Directors, or committee
has been held for which minutes have not been prepared and are not contained in
such minute books.
11
SECTION 2.19 TITLE TO AND CONDITION OF PROPERTIES.
(a) The Company owns good and marketable title to the properties and
assets reflected on the Company Financial Statements or acquired since the date
thereof, free and clear of all liens and encumbrances, except for (i) liens for
current taxes not yet due and payable, and (ii) assets disposed of since
December 31, 2002, in the ordinary course of business.
(b) (i) the Company does not own any real estate; (ii) the properties
subject to the real property leases described in Schedule 2.19 attached hereto
constitute all of the real estate used or occupied by the Company (the "the
Company Real Estate"), and (iii) the Company Real Estate has access, sufficient
for the conduct of the Company's business, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural gas and
other utilities, used in the operations of the Company.
(c) The real property leases described in Schedule 2.19 are in full
force and effect, and the Company has a valid and existing leasehold interest
under each such lease for the term set forth therein. The Company has delivered
to the Buyer complete and accurate copies of each of the leases and none of such
leases has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to the Buyer. The Company is
not in default, and no circumstances exist which could result in such default,
under any of such leases, nor, to the knowledge of either Shareholder, is any
other party to any of such leases in default.
(d) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of the Company's business are in good condition
and repair, ordinary wear and tear excepted, and are usable in the ordinary
course of business. A complete list of all items of machinery and equipment used
in the business of the Company is included in Schedule 2.19. The Company owns or
leases under valid leases, all buildings, machinery, equipment and other
tangible assets necessary for the conduct of its business. The Company has
delivered to the Buyer complete and accurate copies of all equipment leases and
such leases are listed in Schedule 2.19. None of such equipment leases has been
modified in any respect, except to the extent that the copies disclose such
modifications delivered to the Buyer. The Company is not in default, and no
circumstances exist which could result in such default, under any of such
equipment leases, nor, to the knowledge of the Shareholder, is any other party
to any of such equipment leases in default.
(e) The Company is not in any material respect in violation of any
applicable zoning ordinance or other law, regulation or requirement relating to
the operation of any properties used in the operation of its business, and the
Company has not received any notice of any such violation, or of the existence
of any condemnation proceeding with respect to any properties owned or leased by
the Company.
SECTION 2.20 REPRESENTATIONS COMPLETE. None of the representations or warranties
nor any statement made by either Shareholder in this Agreement or any Schedule
or certificate furnished by the Shareholders pursuant to this Agreement,
12
contains any untrue statement of a material fact, or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Shareholders as of the
Closing Date as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the requisite power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being conducted.
The Buyer is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Buyer's Articles of Incorporation and
By-laws, in each case as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to the Company.
SECTION 3.2 CAPITALIZATION. The authorized capital stock of the Buyer consists
of 100,000,000 shares of the Buyer Common Stock and 10,000,000 shares of
preferred stock, $0.01 par value per share ("The Buyer Preferred Stock"). As of
June 4, 2003, there were 19,451,000 shares of the Buyer Common Stock issued and
outstanding and no shares of the Buyer Preferred Stock outstanding, as set forth
on Schedule 3.2(a) hereto. All of the issued and outstanding shares of the Buyer
Common Stock are duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights.
SECTION 3.3 AUTHORITY, NON-CONTRAVENTION, APPROVALS.
(a) The Buyer has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement, and the consummation by the Buyer of the
transactions contemplated hereby, have been duly authorized by the Buyer's Board
of Directors and no other corporate proceedings on the part of the Buyer are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Buyer of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Buyer and,
assuming the due authorization, execution and delivery hereof by the
Shareholders, constitutes a valid and binding agreement of the Buyer,
enforceable against the Buyer in accordance with its terms, except that such
enforcement may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (b) general equitable principles.
(b) The execution and delivery of this Agreement by the Buyer does not,
and the consummation by the Buyer of the transactions contemplated hereby will
not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Buyer under
13
any of the terms, conditions or provisions of (i) the charter or by-laws of the
Buyer, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Buyer or any of its properties or assets, or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Buyer is now a party or by which the Buyer or any of its
properties or assets may be bound or affected.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by the
Buyer or the consummation by the Buyer of the transactions contemplated hereby.
SECTION 3.4 FINANCIAL STATEMENTS. The Buyer has previously delivered to the
Company copies of its Form 10-KSB for the fiscal year ending September 30, 2002
and Form 10-QSB for the quarter ended December 31, 2002 (the "The Buyer
Financial Statements"). The Buyer Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly and accurately present the
consolidated financial position of the Buyer and its subsidiaries as of the
dates thereof and the consolidated results of operations and changes in
financial position for the periods then ended.
SECTION 3.5 REPORTS. Except for its Form 10-QSB for the quarter ended March 31,
2003, since December 31, 2002, the Buyer has filed all forms, reports and
documents with the Securities and Exchange Commission (the "Commission")
required to be filed by it pursuant to the federal securities laws and
Commission rules and regulations promulgated thereunder, and all such forms,
reports and documents, as amended, filed with the Commission have complied in
all material respects with all applicable provisions of the federal securities
laws and the Commission rules and regulations promulgated thereunder.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. From December 31, 2002
through the date hereof, there has not been any material adverse change in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the Buyer and its subsidiaries,
taken as a whole.
SECTION 3.7 LITIGATION. There are no claims, suits, actions, proceedings or
investigations pending or, to the knowledge of the Buyer, threatened against,
relating to or affecting the Buyer or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator, except as disclosed on Schedule 3.7 attached hereto. Neither the
Buyer nor any of its subsidiaries is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or would have
14
any material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the Buyer
and its subsidiaries.
SECTION 3.8 COMPLIANCE WITH LAWS. Neither the Buyer nor any of its subsidiaries
is in violation of, or has been given notice or been charged with any violation
of, any law, statute, order, rule, regulation, ordinance, or judgment
(including, without limitation, any applicable environmental law, ordinance or
regulation) of any governmental or regulatory body or authority, except for
violations which, in the aggregate, do not have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Buyer and its subsidiaries, taken as a
whole. As of the date of this Agreement, to the knowledge of the Buyer, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 EXPENSES. Except as set forth in Section 4.3, all costs and
expenses incurred in connection with this Agreement and the party incurring such
expenses shall pay the transactions contemplated hereby, whether or not such
transactions are consummated.
SECTION 4.2 PUBLIC STATEMENTS. The parties shall consult with each other prior
to issuing any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby and shall not issue any
such press release or written public statement prior to such consultation.
SECTION 4.3 SHAREHOLDER INDEMNIFICATION. Following the Closing, the
Shareholders agree to jointly and severally protect, defend, indemnify and hold
the Buyer and the Company harmless with respect to any and all claims, demands,
suits, actions, administrative proceedings, losses, damages, obligations,
liabilities, costs and expenses, including without limitation reasonable legal
and other costs and expenses of investigating and defending any actions or
threatened actions, which arise as a result of or are related to (i) any active
or passive act, omission, occurrence, event or condition that occurred prior to
the Closing in connection with (a) the ownership of the Company's capital stock;
(b) the Company's compliance with federal, state or local laws, regulations or
orders; (c) any environmental or hazardous material claim, personnel claim or
product liability claim relating to the Company; (d) any dispute or controversy
between the Company's customers and other parties, or (ii) any material
misrepresentation or breach of any of the representations, covenants or
warranties of the Shareholder contained herein; or any material misstatements or
failure to state a material fact required to be stated with respect to the
information provided by the Shareholders for inclusion in any filing to be made
with the Commission, provided that the Buyer complies with the following
indemnification procedure:
15
(i) The Buyer shall, as soon as practicable (but in any event
within sixty (60) days) after it learns of a claim for indemnification
under this Section 4.3, give written notice to the Shareholders of its
claim for indemnification, which notice shall set forth the amount
involved in the claim for indemnification and contain a reasonably
thorough description of the facts constituting the basis of such claim;
(ii) The Shareholders shall have a period of thirty (30) days
from the receipt of the notice referred to above to respond to the
indemnity claim to the satisfaction of the Buyer. During such 30-day
period, the Buyer, on the one hand, and the Shareholders, on the other
hand, shall use their respective best efforts to attempt in good faith
to agree upon a mutually acceptable resolution as to their respective
rights with respect to any such claim for indemnification, in which
case the parties shall promptly prepare and sign a memorandum setting
forth such agreement;
(iii) In the event that no agreement is reached during the
30-day period specified in subsection 4.3(a)(ii) above, then the
Shareholders shall be jointly and severally obligated to pay such
claim. The Buyer may elect to pay such claim and the Shareholders shall
be jointly and severally obligated to reimburse the Buyer the amount
thereof.
(iv) The Buyer shall not settle or compromise any such claim
without the prior written consent of the Shareholders unless suit shall
have been instituted against the Buyer and the Shareholders shall have
failed, after reasonable notice of institution of the suit, to take
control of such suit on behalf of the Buyer. If the Shareholders admit
in writing that they will be liable to the Buyer with respect to the
full amount and as to all material elements of a third party claim
alleging damages should the third party prevail in such suit, then the
Shareholders shall have the right to assume full control of the defense
of such claim, and the Buyer shall be entitled to participate in the
defense of such claim only with the consent of the Shareholders.
(v) The Buyer shall be entitled to recover all costs, fees
(including attorneys' fees), expenses and other damages to enforce
against the Shareholders its indemnification rights under this Section
4.3.
SECTION 4.4 DELIVERY OF FINANCIAL STATEMENTS. Within fifteen (15) days
following the Closing Date, the Shareholders shall cause the Company to deliver
to the Buyer (i) a balance sheet dated as of June 30, 2003 (the "Current Balance
Sheet") and (ii) an income statement for the period from January 1, 2003 to the
date of the Current Balance Sheet.
16
ARTICLE V
CONDITIONS
SECTION 5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE TRANSACTION.
The respective obligations of each party to effect the Transaction shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the Board of Directors of the Buyer;
(b) No preliminary or permanent injunction or other order or decree by
any federal or state court or other legal restraint or prohibition which
prevents the consummation of the Transaction shall have been issued and remain
in effect (each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(c) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the
Transaction; and
(d) All governmental consents, orders and approvals legally required
for the consummation of the Transaction and any other transaction contemplated
hereby shall have been obtained and be in effect at the Closing Date, and all
other third party consents, orders and approvals legally required for the
consummation of the Transaction and any other transaction contemplated hereby
shall have been obtained or become final orders.
SECTION 5.2 CONDITIONS TO OBLIGATION OF THE SHAREHOLDERS TO EFFECT THE
TRANSACTION. Unless waived by the Shareholders in writing, the obligation of the
Shareholders to effect the Transaction shall be subject to the fulfillment at or
prior to the Closing Date of the following additional conditions:
(a) The Shareholders shall have received a certificate from the Nevada
Secretary of State as to the good standing of the Buyer, as of a date within
five (5) days of the Closing Date;
(b) The Shareholders shall have received certified copies of the
resolutions or consents of the Board of Directors of the Buyer approving the
Transaction, this Agreement, and the other documents and transactions
contemplated hereby all in form and substance reasonably satisfactory to the
Shareholders;
(c) The Shareholders shall have received a certificate of the corporate
secretary of the Buyer certifying the name, title and true signature of each
officer of the Buyer executing this Agreement and any of the other documents and
certificates to be delivered pursuant to or in connection with this Agreement;
17
(d) The Buyer shall have performed in all material respects its
obligations and agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of the
Buyer contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, and the Shareholders shall have received
a certificate of the Chief Executive Officer of the Buyer, to that effect; and
(e) The Buyer shall have obtained all consents and approvals from third
parties as are required for it to consummate the Transaction and execute this
Agreement and the documents and transactions contemplated hereby.
SECTION 5.3 CONDITIONS TO OBLIGATION OF THE BUYER TO EFFECT THE TRANSACTION.
Unless waived by the Buyer in writing, the obligation of the Buyer to effect the
Transaction shall be subject to the fulfillment at or prior to the Closing Date
of the additional following conditions:
(a) The Buyer shall have received a certificate from the California
Secretary of State as to the good standing of the Company, as of a date within
five (5) days of the Closing Date;
(b) The Buyer shall have received a certificate of the corporate
secretary of the Company certifying the Articles of Incorporation and By-laws of
the Company;
(c) The Company shall have obtained all consents and approvals from
third parties as are required for it to consummate the Transaction and execute
this Agreement and the documents and transactions contemplated hereby;
(d) Xxxxx Xxxxxxxxxx and Xxxx Xxxxxxxxxx shall have entered into an
employment and non-competition agreement, in each case with the Buyer
substantially in the forms attached hereto as Exhibits "C";
(e) The Shareholders shall have performed in all material respects its
obligations and agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of the
Shareholders contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date, and the Buyer shall have
received a certificate from the Shareholders to that effect; and
18
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Shareholder shall terminate at the end of one year after the
Closing Date with the exception of those representations and warranties
contained in Sections 2.2 and 2.11, which will terminate at the end of three
years after the Closing Date.
SECTION 6.2 BROKERS.
(a) Except as set forth in Schedule 6.2(a) attached hereto, the
Shareholders represents and warrants that no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Transaction or any other transaction contemplated by this Agreement
based upon arrangements made by or on behalf of the Shareholders.
(b) Except as set forth in Schedule 6.2(b) attached hereto, the Buyer
represents and warrants that no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transaction or any other transaction contemplated by this Agreement based upon
arrangements made by or on behalf of the Buyer.
SECTION 6.3 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, mailed by registered
or certified mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to the Buyer: Gateway International Holdings, Inc.
0000 X. Xxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Consolvi
with a copy to: Xxxx X. Xxxxxxx, Esq.
Xxxx, Xxxxx & Xxxxxxx, LLP
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000
(b) If to the Shareholders: Xxxx X. Xxxxxxxxxx
00000 Xxxxx Xxxxxxxx
Xxx Xxxx Xxxxxxxxxx, XX 00000
Xxxxx Xxxxxxxxxx
00000 Xxxxxx Xxx
Xxxxxx, XX 00000
19
with a copy to: Xxxxxx X Xxxxxxxx
Xxxxxx Xxxxxxxxxx
000 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx, Xxxxxxxxxx 00000
SECTION 6.4 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 6.5 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) shall not be assigned by operation of law or otherwise; and (c) shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of California (without giving effect to the provisions thereof
relating to conflicts of law.
SECTION 6.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 6.7 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
SECTION 6.6 OPPORTUNITY TO CONSULT ADVISORS. ALL OF THE PARTIES HERETO
ACKNOWLEDGE AND AGREE THAT THEY HAVE BEEN ADVISED TO SEEK, AND HAVE BEEN
AFFORDED SUFFICIENT OPPORTUNITY TO SEEK, LEGAL, TAX AND ACCOUNTING ADVICE WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE SHAREHOLDERS
ACKNOWLEDGE AND AGREE THAT THEY ARE RELYING ON THEIR OWN INDEPENDENT
INVESTIGATION, AND NOT THE ADVICE OF BUYER, NOR ANY OF ITS AGENTS OR
REPRESENTATIVES, IN DETERMINING WHETHER TO ENTER INTO THIS AGREEMENT.
20
IN WITNESS WHEREOF, the Buyer and the Shareholders have caused this
Stock Purchase Agreement to be signed by their respective duly authorized
representatives as of the date first written above.
GATEWAY INTERNATIONAL HOLDINGS, INC.
By: /s/ Xxxxxxxx Xxxxxxxx
--------------------------------------------
Name: Xxxxxxxx Xxxxxxxx
Title: Chief Executive Officer
SHAREHOLDERS
/s/ Xxxx X. Xxxxxxxxxx
-----------------------------------------------------
Xxxx X. Xxxxxxxxxx/
/s/ Xxxxx Xxxxxxxxxx
-----------------------------------------------------
Xxxxx Xxxxxxxxxx
21
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$600,000
Santa Ana, California June 30, 2003
FOR VALUE RECEIVED, the undersigned, Gateway International Holdings,
Inc. ("Maker") unconditionally promises to pay to Xxxx X. Xxxxxxxxxx and Xxxxx
Xxxxxxxxxx ("Holder"), at addresses reflected in Section 6.3, the sum of Six
Hundred Thousand Dollars ($600,000.00), with interest at the annual rate of six
percent (6%). All accrued interest and principal shall be due and payable in
three (3) annual payments of Two Hundred Thousand Dollars ($200,000.00) each,
together with interest accrued on the unpaid principal balance thereof in
accordance with this note, due on or before June 30, 2004, June 30, 2005, and
June 30, 2006 (each, a "Due Date"), respectively, upon any sale or other
transfer of the real property securing the performance of Maker's obligations
under this note to any entity or person not affiliated with the Maker, or upon
any default by Maker of any obligations the performance of which are secured in
whole or part by such real property.
In the event that Maker shall fail to make any payment required
hereunder within ten (10) days following its applicable Due Date, then, an event
of default shall have occurred under this Note. The Holder, upon deliver to
Maker of written notice of such event of default may demand Maker to issue a
number of shares of its common stock, $.001 par value per share ("Common
Stock"), with a fair market value equal to the amount of the defaulted payment,
or may declare the entire Note due and payable and demand Maker to issue a
number of shares of Common Stock equal to the then current outstanding balance
of the Note plus accrued interest. Fair market value of the Common Stock shall
be based upon the closing price of the Marker's Common Stock on the date the
notice of default is delivered to the Maker.
Maker hereby waives presentment, diligence, protest and demand, notice
of protest, dishonor and notice of non-payment and all other notices of a
similar nature. This note: (a) is binding on Maker and Maker's representatives,
successors and assigns; (b) may not be changed orally, but only by an agreement
in writing signed by Maker and Holder; and (c) shall be governed by and
interpreted in accordance with California law. If action is taken to enforce
this note or if an attorney is employed or expenses are incurred to compel
payment of any portion of the indebtedness evidenced by this note, including,
without limitation, appellate, bankruptcy, or collection actions, the prevailing
party shall be entitled to recover its attorneys' fees, costs and expenses
incurred as a result thereof.
EXHIBIT "A"
-----------
A-1
The performance of Maker's obligation to issue the Default Shares is
secured by Mr. Xxxxx Consolvi's pledge of shares of Maker Common Stock pursuant
to that a Pledge Agreement of even date herewith.
"MAKER"
-----
Gateway International Holdings, Inc.
By: /s/ Xxxxxxxx Xxxxxxxx
---------------------------------
Xxxxxxxx Xxxxxxxx, C.E.O.
EXHIBIT "A"
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A-2
EXHIBIT B
PLEDGE AND SECURITY AGREEMENT
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THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is entered into
on the 30th day of June, 2003 by and between Xxxxxxxx X. Xxxxxxxx ("Pledgor")
and Xxxx X. Xxxxxxxxxx and Xxxxx Xxxxxxxxxx (collectively the "Pledgees").
R E C I T A L S:
- - - - - - - -
A. The Pledgees and Gateway International Holdings, Inc., a Nevada
corporation ("Gateway") are parties to that certain Stock Purchase Agreement of
even date herewith, pursuant to which Gateway had delivered to the Pledgees a
Promissory Note in the principal amount of $600,000 (the "Note").
B. Pursuant to the terms of the Note, in the event of a default in the
payment of the Note, the Pledgees have the right to require Gateway to issue to
them up to a number of shares of Gateway common stock (the "Common Stock") equal
to the then outstanding balance under the Note (the "Stock Obligation").
C. Pledgor is a controlling shareholder of Gateway, and its Chief
Executive Officer and a director.
D. To induce Pledgees to accept the Note, Pledgor has agreed to grant
to the Pledgee a security interest in 4,285,716 shares (the "Shares") of Gateway
Common Stock to secure Gateway's Stock Obligation under the Note.
NOW, THEREFORE, the parties agree as follows:
1. Creation of Security Interest. Pledgor hereby pledges and grants
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to Pledgee a first priority security interest in the Shares, any securities
issued under the circumstances set forth in Section 9 of this Agreement, and any
proceeds of the foregoing (collectively referred to as the "Collateral").
2. Pledgor Representations and Warranties. Pledgor hereby represents
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and warrants to Pledgees that (a) Pledgor owns the Shares free and clear of all
liens, charges, options, encumbrances, rights or interests of others of any kind
except those created by this Agreement, (b) that Pledgor has the absolute and
unrestricted right, power, authority and capacity, without the consent of any
other person, to pledge the Shares in accordance with the terms of this
Agreement, (c) that the Pledgor will not assign, sell, transfer, pledge or
hypothecate, or otherwise dispose of, or encumber or permit any lien on the
Shares, without prior written notice to and consent of the Pledgees, and (d)
that there are no restrictions on the voting of the Shares or transfer of the
Shares, except as may be imposed by federal or state securities laws.
3. Purpose. The security interest created by this Agreement secures
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only Gateway's performance of the Stock Obligation.
EXHIBIT "B"
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B-1
4. Term of Pledge. This Agreement shall continue, and Pledgees shall
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retain possession of and its security interest in the Collateral, until (a)
Pledgor's payment in full of all amounts due under or by virtue of the Note.
Upon termination of the security interest granted herein, the Pledgees shall
promptly deliver the Collateral to the Pledgor and execute and deliver any
documents reasonably requested by the Pledgor in order to adequately evidence
the termination of such security interest. During the term of this Agreement,
the Pledgees shall safeguard the Collateral from theft or physical destruction.
5. Delivery of Certificates. Concurrently with the execution of this
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Agreement, Pledgor shall deliver or cause to be delivered to Pledgees the
certificate or certificates representing the Shares, duly endorsed in blank or
accompanied by a stock assignment executed in blank, in form sufficient to
permit Pledgee to vest good and marketable title in itself or in any third
party. Upon the issuance of any securities under the circumstances specified in
Section 9 of this Agreement, Pledgor shall deliver the certificates or other
instruments evidencing such securities to Pledgee in the same manner as the
Shares.
6. Default. The occurrence of the following event shall constitute a
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default under this Agreement:
(a) failure of Gateway to issue to the Pledgees shares of
Gateway's common stock within five (5) days after receipt of written demand for
such issuance delivered following Gateway's default under the Note, which
default was not cured within the time required.
7. Pledgee's Remedies. Upon default as specified in Sectio n 6,
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Pledgees may, at their option, exercise any one or more of the following rights:
(a) cause the Collateral to be transferred on the books of
the issuer thereof to the name of Pledgees or any other person, persons, entity
or entities designated by Pledgee;
(b) vote the Collateral in accordance with Section 12;
(c) exercise its rights and remedies under the California
Commercial Code as a secured creditor having a security interest in the
Collateral, and in particular, sell all or any part of the Collateral at one or
more public or private sales to be conducted in Orange County, California, on at
least thirty (30) days' prior notice and otherwise in a commercially reasonable
manner and upon reasonable terms and conditions, taking into account all the
circumstances including any restrictions on subsequent transfers of the
Collateral that may be necessary to ensure compliance with state or federal
securities laws; and
(d) exercise any and all further rights or remedies of
Pledgees under the California Commercial Code or other applicable law.
EXHIBIT "B"
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B-2
Pledgees shall not be required to make any demand upon or pursue or
exhaust any of their rights or remedies against the Pledgor, or to pursue or
exhaust any of its rights or remedies against any guarantor. Pledgees shall not
be required to xxxxxxxx the Collateral, and Pledgor hereby waives, to the extent
permitted by applicable law, any right to prior notice or judicial hearing in
connection with Pledgees' possession or disposition of the Collateral and any
right to prior notice of and hearing for any pre-judgment remedy. To the extent
permitted by law, Pledgor hereby waives all requirements for the exercise of any
of Pledgees' remedies other than those provided in this Agreement. Pledgees
shall be entitled to enforce any of the remedies in this section successively or
concurrently. The enforcement of any remedy provided in this section shall not
prejudice the right of Pledgees to pursue any other or further remedy that they
may have.
Pledgor recognizes that Pledgees may desire to effect one or more
private sales to avoid the delays and uncertainty surrounding the registration
process. Pledgor therefore agrees that if, at any time when Pledgees shall
determine to exercise their right to sell all or part of the Collateral pursuant
to this Section 7, (i) the Collateral shall not be effectively registered under
the Securities Act of 1933 as then in effect, and (ii) a public sale thereof
shall not be exempt from such registration in the opinion of Pledgees' counsel,
then Pledgees may, in their sole and absolute discretion, sell the Collateral by
private sale in such manner and in such circumstances as they may deem
reasonably necessary or advisable to effect such sale without such registration,
and that such private sale shall be commercially reasonable. Without limiting
the generality of the foregoing, in the event of any such private sale Pledgees
may, in their sole and absolute discretion, (i) approach and negotiate with a
single possible purchaser to effect such sale, and (ii) restrict such sale to a
purchaser who will represent and agree that such purchaser is purchasing for its
own account, for investment, and not with a view to a distribution or sale of
such securities. In the event of any such private sale, the Pledgor hereby
agrees that Pledgees shall incur no responsibility for selling all or part of
the Collateral at a private sale, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.
8. Disposition of Proceeds of Sale of Collateral. Pledgees may retain
---------------------------------------------
from the proceeds of any sale of the Collateral provided for in Section 7 an
amount sufficient to pay any and all amounts due Pledgees under the Note or this
Agreement, together with all costs and expenses of preparing for, promoting,
conducting and closing the sale, including reasonable attorneys' fees. Pledgees
shall then pay any balance of the proceeds to Pledgor, except as otherwise
provided by law, subject to the rights of the holder of any then existing lien
of which Pledgees has notice.
9. Reorganization; Changes in or Additions to Collateral; Stock
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Options. During the term of this Agreement any stock dividend, reclassification,
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readjustment, reorganization, merger, consolidation or other change in capital
or corporate structure (including any distribution of securities) declared or
made in or by the issuer of the Shares, and any substituted or additional
securities issued with respect to the Collateral shall immediately be endorsed
in blank by Pledgor and delivered to Pledgees or their designee to be held under
the terms of this Agreement in the same manner as the Shares. If during the term
of this Agreement (a) any warrants, options or other rights are issued with
respect to the Collateral, or (b) any warrants, options or other rights to
acquire common stock of the issuer are issued to Pledgor, then any securities
acquired by Pledgor upon his exercise of such rights shall immediately be
endorsed in blank and delivered to Pledgees or their designee to be held under
the terms of this Agreement in the same manner as the Shares.
EXHIBIT "B"
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B-3
10. Estoppel or Waiver. In addition to the specific provisions of
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Section 7, Pledgees shall have the right to exercise or to refrain from
exercising any rights, powers or remedies under the Note or this Agreement
successively or concurrently, and this shall not operate to estop or prevent
Pledgees from exercising any further or additional right, power or remedy they
may have. No act or failure to act on the part of Pledgees under this Agreement
shall be deemed or construed to be a waiver of or an election with respect to
any right, power or remedy Pledgees have under this Agreement or the Note, or
that may otherwise be available to Pledgees.
11. Further Cooperation. Pledgor agrees that upon reasonable request by
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Pledgees, Pledgor will promptly execute and deliver any documents, including any
stock assignments, and take all additional actions reasonably deemed necessary
or desirable by Pledgee to effect the purposes of this Agreement.
12. Voting Rights. So long as the Pledgors shall not be in default
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under this Agreement, Pledgor shall retain the right to vote the Shares on all
matters throughout the term of this Agreement, provided that Pledgor shall not
vote in favor of any "reorganization" without Pledgees' prior written consent.
Upon the occurrence of any default under this Agreement, Pledgees shall be
entitled to vote the Collateral or to direct the manner in which it is voted,
whether or not the Collateral has been transferred on the books of the issuer to
Pledgees or their nominee.
13. Security Interest Absolute. All rights of Pledgees and security
---------------------------
interests hereunder, and all obligations of the Pledgor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Note or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any term of, all or any of the Stock Obligation or any other amendment or
waiver of or any consent to any departure from the Note or any related
agreement;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for any and all of the Stock Obligation; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the Stock
Obligation or this Agreement.
14. Dividend Rights. Upon the occurrence of an event of default,
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Pledgees shall be entitled to receive all dividends in cash or property declared
on the Shares.
15. Severability. If any provision of this Agreement is determined to
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be invalid or unenforceable, all of its other provisions shall nevertheless
remain in full force and effect.
EXHIBIT "B"
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B-4
16. Attorneys' Fees. In the event that any party shall bring an action
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or arbitration in connection with the performance, breach or interpretation
hereof, then the prevailing party in such action, as determined by the court or
other body having jurisdiction, shall be entitled to recover from the losing
party in such action, as determined by the court or other body having
jurisdiction, all reasonable costs and expenses of litigation or arbitration,
including reasonable attorneys' fees, court costs, costs of investigation and
other costs reasonably related to such proceeding, in such amounts as may be
determined in the discretion of the court or other body having jurisdiction.
17. Notices. All notices, requests and other communications required
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or permitted under this Agreement shall be in writing and may be delivered
personally, sent by first class mail, postage prepaid or by facsimile and
addressed as follows:
To Pledgor: Xxxxxxxx X. Xxxxxxxx
0000 X. Xxxxx Xxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
To Pledgees: Xxxx X. Xxxxxxxxxx and Xxxxx Xxxxxxxxxx
c/o Xxxxxx X. Xxxxxxxx
Xxxxxx Xxxxxxxxxx
000 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx, Xxxxxxxxxx 00000
Facsimile:
--------------------
Any notice, request or other communication under this Agreement shall be
effective when received by the addressee, but if sent by registered or certified
mail postage prepaid and addressed as provided above, it shall be effective
exactly three (3) business days after deposit in the United States mail. The
parties may change their addresses as listed above by giving notice of the new
address to the other party in conformity with this section.
18. Binding Upon Successors. This Agreement shall inure to the benefit
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of and be binding upon the successors and assigns of the parties.
19. Entire Agreement. T his Agreement constitutes the parties entire
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understanding with respect to the subject matter hereof, and supersedes all
prior and contemporaneous written and oral understandings and agreements.
20. Captions. The captions accompanying each section of this Agreement
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are for convenience only and shall not be deemed part of the context of this
Agreement.
21. Governing Law. This Agreement shall be governed by and construed
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in accordance with the laws of the State of California.
EXHIBIT "B"
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B-5
22. Counterparts. This Agreement may be executed in two or more fully
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or partially executed counterparts, including electronically transmitted
counterparts, each of which shall be deemed an original, but all counterparts
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
"PLEDGOR" "PLEDGEES"
/s/ Xxxxxxxx X. Xxxxxxxx /s/ Xxxx X. Xxxxxxxxxx
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Xxxxxxxx X. Xxxxxxxx Xxxx X. Xxxxxxxxxx
/s/ Xxxxx Xxxxxxxxxx
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Xxxxx Xxxxxxxxxx
EXHIBIT "B"
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B-6
EXHIBIT C
EMPLOYMENT AGREEMENTS
Xxxxx Xxxxxxxxxx
Xxxx X. Xxxxxxxxxx
EXHIBIT "C"
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C-1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July
1, 2003 (the "Effective Date") by and between Eran Engineering, Inc., a
California corporation (the "Company") a wholly-owned subsidiary of Gateway
International Holdings, Inc., a Nevada corporation and XXXXX XXXXXXXXXX (the
"Executive"), under the following terms and conditions:
RECITALS:
WHEREAS, the Company and Executive desire to set forth the terms and
conditions on which (i) the Company shall employ Executive, (ii) Executive shall
render services to the Company, and (iii) the Company shall compensate Executive
for such services;
WHEREAS, in connection with the employment of Executive by the Company,
the Company desires to restrict Executive's right to compete with the business
of the Company; and
WHEREAS, the Company desires to employ the Executive as President and
Chief Executive Officer and the Executive desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts
employment with the Company upon the terms and conditions hereinafter set forth.
2. TERM.
2.1 The term of this Agreement (the "Term") shall be for a period
commencing on the Effective Date of this Agreement and shall continue for a
period of three (3) years from the date thereof, unless sooner terminated as
provided in Section 6. This three (3) year period, as the same may be extended
or terminated pursuant hereto, is hereinafter referred to as the "Term."
2.2 For purposes of extending the term of the relationship between the
Company and Executive, the parties agree to enter into good faith negotiations
within sixty (60) days prior to the end of the Term. In the event that the
parties are unable to reach an agreement by the end of the Term, this Agreement
shall be automatically terminated one year from the Effective Date.
3. COMPENSATION.
3.1 For all services rendered by Executive under this Agreement, the
Company shall pay Executive a base salary of One Hundred Five Thousand Six
Hundred Dollars ($105,600) per annum in equal installments (the "Base Salary")
through the Company's normal payroll processing. The amount of the Base Salary
1
may be increased at any time and from time to time by the approval of the Board.
No such change shall in any way abrogate, alter, terminate or otherwise affect
the other terms of this Agreement.
3.2 In addition to the Base Salary, Executive shall be eligible for an
incentive bonus ("Incentive Bonus"). The Incentive Bonus shall be based upon the
criteria agreed upon between the Board or a Committee of the Board and the
Executive, within 30 days of the Effective Date. The Incentive Bonus shall be
paid, if earned, within 90 days after the Company's year-end operating results
have been determined by the Company's accountants.
3.3 The Company agrees that it shall grant to Executive an option to
purchase shares of the Company's common stock at an exercise price equal to the
closing price of the Company's common stock on the date of grant (the "Options")
when a Stock Purchase Plan is authorized and put in place for the Company. The
Options shall vest over a stated period of months, and shall be subject to the
terms and conditions of a Stock Option Agreement to be entered into by Executive
and the Company. The Options shall be qualified to the extent permissible under
the Internal Revenue Code, and unqualified as to the balance.
3.4 In addition to the Base Salary, Executive shall be entitled to all
other benefits of employment provided to the other employees of the Company
holding comparable positions within the Company, including but not limited to
paid vacation, paid health insurance for the Executive, paid life insurance to a
maximum of base salary, paid cellular telephone expense for business use, and
participation in retirement and investment programs as instituted by the
Company.
3.5 Executive shall be reimbursed for all reasonable "out-of-pocket"
business expenses for business travel and business entertainment incurred in
connection with the performance of his duties under this Agreement (i) so long
as such expenses constitute business deductions from taxable income for the
Company and are excludable from taxable income to the Executive under the
governing laws and regulations of the Internal Revenue Code and (ii) to the
extent such expenses do not exceed the amounts allocable for such expenses in
budgets that are approved from time to time by the Company. The reimbursement of
Executive's business expenses shall be upon monthly presentation to and approval
by the Company of valid receipts and other appropriate documentation for such
expenses.
3.6 All compensation shall be subject to customary withholding tax and
other employment taxes as are required with respect to compensation paid by a
corporation to an employee.
4. DUTIES AND RESPONSIBILITIES.
4.1 Executive shall, during the Term of this Agreement, devote his full
attention and expend his best efforts, energies, and skills, on a full-time
basis, to the business of the Company and any corporation controlled by the
Company. For purposes of this Agreement, the term the "Company" shall mean the
Eran Engineering, Inc.
2
4.2 During the Term of this Agreement, Executive shall serve as
President and in such other capacity as determined by the Board. Executive shall
have such duties as the Board shall from time to time prescribe hereunder. In
the performance of all of his responsibilities Executive shall be subject to all
of the Company's policies, rules, and regulations applicable to its employees of
comparable status and shall report directly to, and shall be subject to, the
direction and control of the Board and shall perform such duties as shall be
assigned to him by the Board. In performing such duties, Executive will be
subject to and abide by, and will use his best efforts to cause other employees
of the Company to be subject to and abide by, all policies and procedures
developed by the Board.
4.3 To induce the Company to enter into this Agreement, Executive
represents and warrants to the Company that except as set forth on Schedule 4.3
and excluding affiliates of the Company, (a) Executive is not a party or subject
to any employment agreement or arrangement with any other person, firm, company,
corporation or other business entity, (b) Executive is subject to no restraint,
limitation or restriction by virtue of any agreement or arrangement, or by
virtue of any law or rule of law or otherwise which would impair Executive's
right or ability (i) to enter the employ of the Company, or (ii) to perform
fully his duties and obligations pursuant to this Agreement, and (c) to the best
of Executive's knowledge no material litigation is pending or threatened against
any business or business entity owned or controlled or formerly owned or
controlled by Executive.
5. RESTRICTIVE COVENANTS.
5.1 Executive acknowledges that (i) he has a major responsibility for
the operation, administration, development and growth of the Company's business,
(ii) his work for the Company has brought him and will continue to bring him
into close contact with confidential information of the Company and its
customers, and (iii) the agreements and covenants contained in this Section 5
are essential to protect the business interests of the Company and that the
Company will not enter into this Agreement, but for such agreements and
covenants. Accordingly, Executive covenants and agrees as follows:
(a) Except as otherwise provided for in this Agreement, during
the term of this Agreement, Executive shall not, directly or indirectly, compete
with respect to any services or products of the Company which are either offered
or are being developed by the Company; or, without limiting the generality of
the foregoing, be or become, or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder, owner,
officer, director, executive, principal, agent, creditor, trustee, consultant,
co-venturer or otherwise) with any individual, corporation, firm, association,
partnership, joint venture or other business entity, which competes with respect
to any services or products of the Company which are either offered or are being
developed by the Company; provided, however, that Executive may own, solely as
an investment, not more than one percent (1%) of any class of securities of any
publicly held corporation in competition with the Company whose securities are
traded on any national securities exchange in the United States of America.
(b) During the term of this Agreement and for a period of two
(2) years after the termination of this Agreement (the "Termination Period"),
Executive shall not, directly or indirectly, (i) induce or attempt to influence
any employee of the Company to leave its employ, (ii) aid or agree to aid any
competitor, customer or supplier of the Company in any attempt to hire any
3
person who shall have been employed by the Company within the twelve (12) month
period preceding such requested aid, or (iii) induce or attempt to influence any
person or business entity who was a customer or supplier of the Company during
any portion of said period to transact business with a competitor of the Company
in the Company's business.
(c) During the term of this Agreement, the Termination Period,
if applicable, and thereafter, Executive shall not other than in the performance
of his duties disclose to anyone any information about the affairs of the
Company, including, without limitation, trade secrets, trade "know-how",
inventions, customer lists, business plans, operational methods, pricing
policies, marketing plans, sales plans, identity of suppliers or customers,
sales, profits or other financial information, which is confidential to the
Company or is not generally known in the relevant trade, nor shall Executive
make use of any such information for his own benefit. Any technique, method,
process or technology used by the Company shall be considered a "trade secret"
for the purposes of this Agreement.
(d) Executive hereby agrees that all know-how, documents,
reports, plans, proposals, marketing and sales plans, client lists, client files
and materials made by him or by the Company are the property of the Company and
shall not be used by him in any way adverse to the Company's interests.
Executive shall not deliver, reproduce or in any way allow such documents or
things to be delivered or used by any third party without specific direction or
consent of the Board. Executive hereby assigns to the Company any rights that he
may have in any such trade secret or proprietary information.
5.2 If Executive breaches, or threatens to commit a breach of Section
5.1 (the "Restrictive Covenants"), the Company shall have the following rights
and remedies, each of which shall be enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company at law or in equity.
(a) Executive shall account for and pay over to the Company
all compensation, profits, and other benefits, after taxes, which inure to
Executive's benefit which are derived or received by Executive or any person or
business entity controlled by Executive resulting from any action or
transactions constituting a breach of any of the Restrictive Covenants.
(b) Notwithstanding the provisions of Subsection 5.2 (a)
above, Executive acknowledges and agrees that in the event of a violation or
threatened violation of any of the provisions of Section 5, the Company shall
have no adequate remedy at law and shall therefore be entitled to enforce each
such provision by temporary or permanent injunctive or mandatory relief obtained
in any court of competent jurisdiction without the necessity of proving damages,
posting any bond or other security, and without prejudice to any other rights
and remedies which may be available at law or in equity.
5.3 If any of the Restrictive Covenants, or any part thereof, is held
to be invalid or unenforceable, the same shall not affect the remainder of the
4
covenant or covenants, which shall be given full effect, without regard to the
invalid or unenforceable portions. Without limiting the generality of the
foregoing, if any of the Restrictive Covenants, or any part thereof, is held to
be unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree that the court making such determination shall
have the power to reduce the duration and/or area of such provision and, in its
reduced form, such provision shall then be enforceable.
5.4 The parties hereto intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. In the event that the courts
of any one or more of such jurisdictions shall hold such Restrictive Covenants
wholly unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of any
other jurisdictions within the geographical scope of such Restrictive Covenants,
as to breaches of such covenants in such other respective jurisdictions, the
above covenants as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants. The prevailing party under an
action or proceeding brought under this Section 5 shall be entitled to recover
attorneys' fees and costs related to such action or proceeding.
6. TERMINATION.
6.1 The Company may terminate Executive's employment under this
Agreement at any time for Cause. "Cause" shall exist for such termination if
Executive (i) commits any act of fraud or embezzlement, (ii) commits any
material breach of the Restrictive Covenants or any other term of this
Agreement, (iii) is convicted of any felony involving an act of dishonesty,
moral turpitude, deceit or fraud, (iv) commits any act of dishonesty or
misconduct, whether in connection with Executive's responsibilities as an
employee of the Company or otherwise, that either materially impairs the
Company's business, goodwill or reputation or materially compromises Executive's
ability to represent the Company with the public, and which conduct Executive
has not cured or altered to the satisfaction of the Board within ten (10) days
following written notice by the Board to Executive regarding such conduct, (v)
materially fails to perform his duties to the Company after receiving written
notice from the Board describing such failure in reasonable detail, (vi)
failures to follow directives of the Board.
6.2 If the Company terminates Executive's employment under this
Agreement pursuant to the provisions of Section 6.1 hereof, Executive shall not
be entitled to receive any compensation following the date of such termination.
6.3 This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Board based upon a certification of such incapacity
by, in the discretion of the Board, either Executive's regularly attending
physician or a duly licensed physician selected by the Board, rendering
Executive unable to perform substantially all of his duties hereunder and which
appears reasonably certain to continue for at least six (6) consecutive months
without substantial improvement. Executive shall be deemed to have "become
5
permanently incapacitated" on the date the Board has determined that Executive
is permanently incapacitated and so notifies Executive.
6.4 If Executive's employment is terminated for any reason (whether by
Executive or the Company) within ninety (90) days following a "Change in Control
of the Company" (as defined below), Executive shall be entitled to the benefits
provided in Section 6.5 below. For purposes of this Agreement, a "Change in
Control of the Company" shall mean:
(a) a merger, consolidation, share exchange or reorganization
involving the Company, unless
(i) the stockholders of the Company immediately
before such merger, consolidation, share exchange or reorganization, own,
directly or indirectly immediately following such merger, consolidation, share
exchange or reorganization, at least fifty-one percent (51%) of the combined
voting power of the outstanding voting securities of the entity that is the
successor in such merger, consolidation, share exchange or reorganization (the
"Surviving Company") in substantially the same proportion as their ownership of
the voting securities immediately before such merger, consolidation, share
exchange or reorganization; or
(ii) the individuals who were members of the
Board immediately prior to the execution of the agreement providing for such
merger, consolidation, share exchange or reorganization constitute at least
two-thirds (2/3rd) of the members of the board of directors of the Surviving
Company unless such members retire or resign from the Board.
(b) a complete liquidation or dissolution of the Company; or
(c) an agreement for the sale or other disposition of all
or substantially all of the assets of the Company.
6.5 Executive's employment may be terminated by the Company "without
cause" (for any reason or no reason at all) at any time by giving Executive
sixty (60) days prior written notice of termination, which termination shall be
effective on the 60th day following such notice. If Executive's employment under
this Agreement is so terminated, the Company shall make a lump sum cash payment
to Executive on the date of termination of an amount equal to (i) 6 months pay
at base rate, if such termination occurs within the first six (6) months
following the Effective Date, plus an additional 2 months pay for every month
following such six (6) months following the Effective Date up to a maximum of 12
months pay and (ii) any unreimbursed expenses accruing to the date of
termination. The Company shall also continue Executive's benefits through the
remainder of the Term and all vested options will have their exercise period
extended to 2 years.
6.6 Executive may terminate his employment hereunder by giving the
Company sixty (60) days prior written notice, which termination shall be
effective on the 60th day following such notice. Voluntary termination shall not
entitle the Executive to receive any compensation following the date of
termination.
6
6.7 At the Company's option, Executive shall immediately leave the
Company's premises on the date notice of termination is given by either
Executive or the Company. If the Company requests Executive to leave the Company
following notice under Section 6.6, it shall fully compensate Executive (salary
and benefits) through the 60th day following the date of Executive's notice.
7. MISCELLANEOUS.
7.1 The Company may, from time to time, apply for and take out, in its
own name and at its own expense, life, health, accident, disability or other
insurance upon Executive in any sum or sums that it may deem necessary to
protect its interests, and Executive agrees to aid and cooperate in all
reasonable respects with the Company in procuring any and all such insurance,
including without limitation, submitting to the usual and customary medical
examinations, and by filling out, executing and delivering such applications and
other instruments in writing as may be reasonably required by an insurance
company or companies to which an application or applications for such insurance
may be made by or for the Company. In order to induce the Company to enter this
Agreement, Executive represents and warrants to the Company that to the best of
his knowledge Executive is insurable at standard (non-rated) premiums.
7.2 This Agreement is a personal contract, and the rights and interests
of Executive hereunder may not be sold, transferred, assigned, pledged or
hypothecated except as otherwise expressly permitted by the provisions of this
Agreement. Executive shall not under any circumstances have any option or right
to require payment hereunder otherwise than in accordance with the terms hereof.
Except as otherwise expressly provided herein, Executive shall not have any
power of anticipation, alienation or assignment of payments contemplated
hereunder, and all rights and benefits of Executive shall be for the sole
personal benefit of Executive, and no other person shall acquire any right,
title or interest hereunder by reason of any sale, assignment, transfer, claim
or judgment or bankruptcy proceedings against Executive; provided, however, that
in the event of the Executive's death, Executive's estate, legal representative
or beneficiaries (as the case may be) shall have the right to receive all of the
benefit that accrued to Executive pursuant to, and in accordance with, the terms
of this Agreement.
8. NOTICES.
All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and (unless otherwise specifically provided
herein) shall be deemed to have been given at the time when mailed in any
general or branch United States Post Office, enclosed in a registered or
certified postpaid envelope, addressed to the parties stated below or to such
changed address as such party may have fixed by notice:
To the Company:
Gateway International Holdings, Inc.
0000 X. Xxxxx Xxxxx
Xxxxxxx, XX 00000
7
To the Executive:
Xx. Xxxxx Xxxxxxxxxx
00000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
9. ENTIRE AGREEMENT.
This Agreement supersedes any and all Agreements, whether oral or
written, between the parties hereto, with respect to the employment of Executive
by the Company and contains all of the covenants and Agreements between the
parties with respect to the rendering of such services in any manner whatsoever.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that no
other agreement, statement or promise with respect to such employment not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the parties
hereto.
10. PARTIAL INVALIDITY.
If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force and effect without being impaired or
invalidated in any way.
11. ATTORNEYS' FEES.
Should any litigation or arbitration be commenced between the parties
hereto or their personal representatives concerning any provision of this
Agreement or the rights and duties of any person in relation thereto, the party
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for its or their
attorneys' fees in such litigation or arbitration which shall be determined by
the court or arbitration board.
12. ARBITRATION.
The parties agree that any disputes arising under this Agreement may be
resolved at Executive's option in as expeditious a manner as possible through
binding arbitration administered by the American Arbitration Association in the
County of Orange, California, or such other place which is mutually agreed upon
by the parties. Further, the parties hereby waive any objection based on
personal jurisdiction, venue or forum non conveniens in any arbitration or
action brought under this paragraph. The decision and award rendered by the
arbitrators shall be final and binding. Judgment upon the award may be entered
in any court having jurisdiction thereof.
Notwithstanding the first paragraph of this Section, any dispute
involving an amount that is less than or equal to the maximum jurisdictional
amount for small claims court, as may be amended, shall be brought in the small
8
claims court for the County of Orange, State of California, or such other place
which is mutually agreed upon by the parties.
13. GOVERNING LAW.
This Agreement will be governed by and construed in accordance with the
laws of the State of California.
14. BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective representatives, heirs, successors and
assigns.
15. WAIVER.
No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
16. CORPORATE APPROVALS.
The Company represents and warrants that the execution of this
Agreement by its corporate officer named below has been duly authorized by the
Board, is not in conflict with any Bylaw or other agreement and will be a
binding obligation of the Company, enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above written.
GATEWAY
INTERNATIONAL HOLDINGS, INC.
By: /s/ Xxxxxxxx X. Xxxxxxxx
-----------------------------------------
Name: Xxxxxxxx X. Xxxxxxxx
Its: Chief Executive Officer
XXXXX XXXXXXXXXX
----------------------------------------
9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July
1, 2003 (the "Effective Date") by and between Eran Engineering, Inc., a
California corporation (the "Company") a wholly-owned subsidiary of Gateway
International Holdings, Inc., a Nevada corporation and Xxxx Xxxxxxxxxx (the
"Executive"), under the following terms and conditions:
RECITALS:
WHEREAS, the Company and Executive desire to set forth the terms and
conditions on which (i) the Company shall employ Executive, (ii) Executive shall
render services to the Company, and (iii) the Company shall compensate Executive
for such services;
WHEREAS, in connection with the employment of Executive by the Company,
the Company desires to restrict Executive's right to compete with the business
of the Company; and
WHEREAS, the Company desires to employ the Executive as Operating
Manager and Chief Executive Officer and the Executive desires to accept such
employment.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts
employment with the Company upon the terms and conditions hereinafter set forth.
2. TERM.
2.1 The term of this Agreement (the "Term") shall be for a period
commencing on the Effective Date of this Agreement and shall continue for a
period of one (1) years from the date thereof, unless sooner terminated as
provided in Section 6. This one (1) year period, as the same may be extended or
terminated pursuant hereto, is hereinafter referred to as the "Term."
2.2 For purposes of extending the term of the relationship between the
Company and Executive, the parties agree to enter into good faith negotiations
within sixty (60) days prior to the end of the Term. In the event that the
parties are unable to reach an agreement by the end of the Term, this Agreement
shall be automatically terminated one year from the Effective Date.
3. COMPENSATION.
3.1 For all services rendered by Executive under this Agreement, the
Company shall pay Executive a base salary of Ninety Thousand Dollars ($90,000)
per annum in equal installments (the "Base Salary") through the Company's normal
payroll processing. The amount of the Base Salary may be increased at any time
1
and from time to time by the approval of the Board. No such change shall in any
way abrogate, alter, terminate or otherwise affect the other terms of this
Agreement.
3.2 In addition to the Base Salary, Executive shall be entitled to all
other benefits of employment provided to the other employees of the Company
holding comparable positions within the Company, including but not limited to
paid vacation, paid health insurance for the Executive, paid life insurance to a
maximum of base salary, paid cellular telephone expense for business use, and
participation in retirement and investment programs as instituted by the
Company.
3.3 Executive shall be reimbursed for all reasonable "out-of-pocket"
business expenses for business travel and business entertainment incurred in
connection with the performance of his duties under this Agreement (i) so long
as such expenses constitute business deductions from taxable income for the
Company and are excludable from taxable income to the Executive under the
governing laws and regulations of the Internal Revenue Code and (ii) to the
extent such expenses do not exceed the amounts allocable for such expenses in
budgets that are approved from time to time by the Company. The reimbursement of
Executive's business expenses shall be upon monthly presentation to and approval
by the Company of valid receipts and other appropriate documentation for such
expenses.
3.4 All compensation shall be subject to customary withholding tax and
other employment taxes as are required with respect to compensation paid by a
corporation to an employee.
4. DUTIES AND RESPONSIBILITIES.
4.1 Executive shall, during the Term of this Agreement, devote his full
attention and expend his best efforts, energies, and skills, on a full-time
basis, to the business of the Company and any corporation controlled by the
Company. For purposes of this Agreement, the term the "Company" shall mean the
Eran Engineering, Inc.
4.2 During the Term of this Agreement, Executive shall serve as
Operations Manager. Executive shall have such duties, as management shall from
time to time prescribe hereunder. In the performance of all of his
responsibilities Executive shall be subject to all of the Company's policies,
rules, and regulations applicable to its employees of comparable status and
shall report directly to, and shall be subject to, the direction and control of
the Board and shall perform such duties as shall be assigned to him by the
Board. In performing such duties, Executive will be subject to and abide by, and
will use his best efforts to cause other employees of the Company to be subject
to and abide by, all policies and procedures developed by the Board.
4.3 To induce the Company to enter into this Agreement, Executive
represents and warrants to the Company that except as set forth on Schedule 4.3
and excluding affiliates of the Company, (a) Executive is not a party or subject
to any employment agreement or arrangement with any other person, firm, company,
corporation or other business entity, (b) Executive is subject to no restraint,
limitation or restriction by virtue of any agreement or arrangement, or by
virtue of any law or rule of law or otherwise which would impair Executive's
2
right or ability (i) to enter the employ of the Company, or (ii) to perform
fully his duties and obligations pursuant to this Agreement, and (c) to the best
of Executive's knowledge no material litigation is pending or threatened against
any business or business entity owned or controlled or formerly owned or
controlled by Executive.
5. RESTRICTIVE COVENANTS.
5.1 Executive acknowledges that (i) he has a major responsibility for
the operation, administration, development and growth of the Company's business,
(ii) his work for the Company has brought him and will continue to bring him
into close contact with confidential information of the Company and its
customers, and (iii) the agreements and covenants contained in this Section 5
are essential to protect the business interests of the Company and that the
Company will not enter into this Agreement, but for such agreements and
covenants. Accordingly, Executive covenants and agrees as follows:
(a) Except as otherwise provided for in this Agreement, during
the term of this Agreement, Executive shall not, directly or indirectly, compete
with respect to any services or products of the Company which are either offered
or are being developed by the Company; or, without limiting the generality of
the foregoing, be or become, or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder, owner,
officer, director, executive, principal, agent, creditor, trustee, consultant,
co-venturer or otherwise) with any individual, corporation, firm, association,
partnership, joint venture or other business entity, which competes with respect
to any services or products of the Company which are either offered or are being
developed by the Company; provided, however, that Executive may own, solely as
an investment, not more than one percent (1%) of any class of securities of any
publicly held corporation in competition with the Company whose securities are
traded on any national securities exchange in the United States of America.
(b) During the term of this Agreement and for a period of two
(2) years after the termination of this Agreement (the "Termination Period"),
Executive shall not, directly or indirectly, (i) induce or attempt to influence
any employee of the Company to leave its employ, (ii) aid or agree to aid any
competitor, customer or supplier of the Company in any attempt to hire any
person who shall have been employed by the Company within the twelve (12) month
period preceding such requested aid, or (iii) induce or attempt to influence any
person or business entity who was a customer or supplier of the Company during
any portion of said period to transact business with a competitor of the Company
in the Company's business.
(c) During the term of this Agreement, the Termination Period,
if applicable, and thereafter, Executive shall not other than in the performance
of his duties disclose to anyone any information about the affairs of the
Company, including, without limitation, trade secrets, trade "know-how",
inventions, customer lists, business plans, operational methods, pricing
policies, marketing plans, sales plans, identity of suppliers or customers,
sales, profits or other financial information, which is confidential to the
Company or is not generally known in the relevant trade, nor shall Executive
make use of any such information for his own benefit. Any technique, method,
3
process or technology used by the Company shall be considered a "trade secret"
for the purposes of this Agreement.
(d) Executive hereby agrees that all know-how, documents,
reports, plans, proposals, marketing and sales plans, client lists, client files
and materials made by him or by the Company are the property of the Company and
shall not be used by him in any way adverse to the Company's interests.
Executive shall not deliver, reproduce or in any way allow such documents or
things to be delivered or used by any third party without specific direction or
consent of the Board. Executive hereby assigns to the Company any rights that he
may have in any such trade secret or proprietary information.
5.2 If Executive breaches, or threatens to commit a breach of Section
5.1 (the "Restrictive Covenants"), the Company shall have the following rights
and remedies, each of which shall be enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company at law or in equity.
(a) Executive shall account for and pay over to the Company
all compensation, profits, and other benefits, after taxes, which inure to
Executive's benefit which are derived or received by Executive or any person or
business entity controlled by Executive resulting from any action or
transactions constituting a breach of any of the Restrictive Covenants.
(b) Notwithstanding the provisions of Subsection 5.2 (a)
above, Executive acknowledges and agrees that in the event of a violation or
threatened violation of any of the provisions of Section 5, the Company shall
have no adequate remedy at law and shall therefore be entitled to enforce each
such provision by temporary or permanent injunctive or mandatory relief obtained
in any court of competent jurisdiction without the necessity of proving damages,
posting any bond or other security, and without prejudice to any other rights
and remedies which may be available at law or in equity.
5.3 If any of the Restrictive Covenants, or any part thereof, is held
to be invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid or unenforceable portions. Without limiting the generality of the
foregoing, if any of the Restrictive Covenants, or any part thereof, is held to
be unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree that the court making such determination shall
have the power to reduce the duration and/or area of such provision and, in its
reduced form, such provision shall then be enforceable.
5.4 The parties hereto intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. In the event that the courts
of any one or more of such jurisdictions shall hold such Restrictive Covenants
wholly unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of any
other jurisdictions within the geographical scope of such Restrictive Covenants,
as to breaches of such covenants in such other respective jurisdictions, the
above covenants as they relate to each jurisdiction being, for this purpose,
4
severable into diverse and independent covenants. The prevailing party under an
action or proceeding brought under this Section 5 shall be entitled to recover
attorneys' fees and costs related to such action or proceeding.
6. TERMINATION.
6.1 The Company may terminate Executive's employment under this
Agreement at any time for Cause. "Cause" shall exist for such termination if
Executive (i) commits any act of fraud or embezzlement, (ii) commits any
material breach of the Restrictive Covenants or any other term of this
Agreement, (iii) is convicted of any felony involving an act of dishonesty,
moral turpitude, deceit or fraud, (iv) commits any act of dishonesty or
misconduct, whether in connection with Executive's responsibilities as an
employee of the Company or otherwise, that either materially impairs the
Company's business, goodwill or reputation or materially compromises Executive's
ability to represent the Company with the public, and which conduct Executive
has not cured or altered to the satisfaction of the Board within ten (10) days
following written notice by the Board to Executive regarding such conduct, (v)
materially fails to perform his duties to the Company after receiving written
notice from the Board describing such failure in reasonable detail, (vi)
failures to follow directives of the Board.
6.2 If the Company terminates Executive's employment under this
Agreement pursuant to the provisions of Section 6.1 hereof, Executive shall not
be entitled to receive any compensation following the date of such termination.
6.3 This Agreement shall automatically terminate on the last day of the
month in which Executive dies or becomes permanently incapacitated. "Permanent
incapacity" as used herein shall mean mental or physical incapacity, or both,
reasonably determined by the Board based upon a certification of such incapacity
by, in the discretion of the Board, either Executive's regularly attending
physician or a duly licensed physician selected by the Board, rendering
Executive unable to perform substantially all of his duties hereunder and which
appears reasonably certain to continue for at least six (6) consecutive months
without substantial improvement. Executive shall be deemed to have "become
permanently incapacitated" on the date the Board has determined that Executive
is permanently incapacitated and so notifies Executive.
6.4 If Executive's employment is terminated for any reason (whether by
Executive or the Company) within ninety (90) days following a "Change in Control
of the Company" (as defined below), Executive shall be entitled to the benefits
provided in Section 6.5 below. For purposes of this Agreement, a "Change in
Control of the Company" shall mean:
(a) a merger, consolidation, share exchange or reorganization
involving the Company, unless
(i) the stockholders of the Company immediately before
such merger, consolidation, share exchange or reorganization, own, directly or
indirectly immediately following such merger, consolidation, share exchange or
reorganization, at least fifty-one percent (51%) of the combined voting power of
the outstanding voting securities of the entity that is the successor in such
5
merger, consolidation, share exchange or reorganization (the "Surviving
Company") in substantially the same proportion as their ownership of the voting
securities immediately before such merger, consolidation, share exchange or
reorganization; or
(ii) the individuals who were members of the Board
immediately prior to the execution of the agreement providing for such merger,
consolidation, share exchange or reorganization constitute at least two-thirds
(2/3rd) of the members of the board of directors of the Surviving Company unless
such members retire or resign from the Board.
(b) a complete liquidation or dissolution of the Company; or
(c) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
6.5 Executive's employment may be terminated by the Company "without
cause" (for any reason or no reason at all) at any time by giving Executive
sixty (60) days prior written notice of termination, which termination shall be
effective on the 60th day following such notice. If Executive's employment under
this Agreement is so terminated, the Company shall make a lump sum cash payment
to Executive on the date of termination of an amount equal to (i) 6 months pay
at base rate, if such termination occurs within the first six (6) months
following the Effective Date, plus an additional 2 months pay for every month
following such six (6) months following the Effective Date up to a maximum of 12
months pay and (ii) any unreimbursed expenses accruing to the date of
termination. The Company shall also continue Executive's benefits through the
remainder of the Term and all vested options will have their exercise period
extended to 2 years.
6.6 Executive may terminate his employment hereunder by giving the
Company sixty (60) days prior written notice, which termination shall be
effective on the 60th day following such notice. Voluntary termination shall not
entitle the Executive to receive any compensation following the date of
termination.
6.7 At the Company's option, Executive shall immediately leave the
Company's premises on the date notice of termination is given by either
Executive or the Company. If the Company requests Executive to leave the Company
following notice under Section 6.6, it shall fully compensate Executive (salary
and benefits) through the 60th day following the date of Executive's notice.
7. MISCELLANEOUS.
7.1 The Company may, from time to time, apply for and take out, in its
own name and at its own expense, life, health, accident, disability or other
insurance upon Executive in any sum or sums that it may deem necessary to
protect its interests, and Executive agrees to aid and cooperate in all
reasonable respects with the Company in procuring any and all such insurance,
including without limitation, submitting to the usual and customary medical
6
examinations, and by filling out, executing and delivering such applications and
other instruments in writing as may be reasonably required by an insurance
company or companies to which an application or applications for such insurance
may be made by or for the Company. In order to induce the Company to enter this
Agreement, Executive represents and warrants to the Company that to the best of
his knowledge Executive is insurable at standard (non-rated) premiums.
7.2 This Agreement is a personal contract, and the rights and interests
of Executive hereunder may not be sold, transferred, assigned, pledged or
hypothecated except as otherwise expressly permitted by the provisions of this
Agreement. Executive shall not under any circumstances have any option or right
to require payment hereunder otherwise than in accordance with the terms hereof.
Except as otherwise expressly provided herein, Executive shall not have any
power of anticipation, alienation or assignment of payments contemplated
hereunder, and all rights and benefits of Executive shall be for the sole
personal benefit of Executive, and no other person shall acquire any right,
title or interest hereunder by reason of any sale, assignment, transfer, claim
or judgment or bankruptcy proceedings against Executive; provided, however, that
in the event of the Executive's death, Executive's estate, legal representative
or beneficiaries (as the case may be) shall have the right to receive all of the
benefit that accrued to Executive pursuant to, and in accordance with, the terms
of this Agreement.
8. NOTICES.
All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and (unless otherwise specifically provided
herein) shall be deemed to have been given at the time when mailed in any
general or branch United States Post Office, enclosed in a registered or
certified postpaid envelope, addressed to the parties stated below or to such
changed address as such party may have fixed by notice:
To the Company:
Gateway International Holdings, Inc.
0000 X. Xxxxx Xxxxx
Xxxxxxx, XX 00000
To the Executive:
Xx. Xxxx Xxxxxxxxxx
00000 Xxxxx Xxxxxxxx
Xxx Xxxx Xxxxxxxxxx, XX 00000
9. ENTIRE AGREEMENT.
This Agreement supersedes any and all Agreements, whether oral or
written, between the parties hereto, with respect to the employment of Executive
by the Company and contains all of the covenants and Agreements between the
parties with respect to the rendering of such services in any manner whatsoever.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that no
7
other agreement, statement or promise with respect to such employment not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the parties
hereto.
10. PARTIAL INVALIDITY.
If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force and effect without being impaired or
invalidated in any way.
11. ATTORNEYS' FEES.
Should any litigation or arbitration be commenced between the parties
hereto or their personal representatives concerning any provision of this
Agreement or the rights and duties of any person in relation thereto, the party
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for its or their
attorneys' fees in such litigation or arbitration which shall be determined by
the court or arbitration board.
12. ARBITRATION.
The parties agree that any disputes arising under this Agreement may be
resolved at Executive's option in as expeditious a manner as possible through
binding arbitration administered by the American Arbitration Association in the
County of Orange, California, or such other place which is mutually agreed upon
by the parties. Further, the parties hereby waive any objection based on
personal jurisdiction, venue or forum non conveniens in any arbitration or
action brought under this paragraph. The decision and award rendered by the
arbitrators shall be final and binding. Judgment upon the award may be entered
in any court having jurisdiction thereof.
Notwithstanding the first paragraph of this Section, any dispute
involving an amount that is less than or equal to the maximum jurisdictional
amount for small claims court, as may be amended, shall be brought in the small
claims court for the County of Orange, State of California, or such other place
which is mutually agreed upon by the parties.
13. GOVERNING LAW.
This Agreement will be governed by and construed in accordance with the
laws of the State of California.
14. BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective representatives, heirs, successors and
assigns.
8
15. WAIVER.
No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
16. CORPORATE APPROVALS.
The Company represents and warrants that the execution of this
Agreement by its corporate officer named below has been duly authorized by the
Board, is not in conflict with any Bylaw or other agreement and will be a
binding obligation of the Company, enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date above written.
GATEWAY INTERNATIONAL HOLDINGS, INC.
By: /s/ Xxxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxxx X. Xxxxxxxx
Its: Chief Executive Officer
XXXX XXXXXXXXXX
--------------------------------------
9
SCHEDULE 3.7
On March 17, 2003 the Company was served a complaint filed by Xxxxxx
Xxxxxxx and Xxxxx Xxxxxxxx, the former owners and current executive officers of
Xxxxxxx Cams, Inc. ("BCI"), the Company's wholly-owned subsidiary which was
acquired in a merger transaction which became effective on November 15, 2002.
The complaint, which was filed in the Superior Court of California for the
County of Orange as Case No. 03CC04435, which seeks, among other claims, to
rescind the merger in order to return BCI to the plaintiffs, and other monetary
relief. The complaint also names as defendants the executive officers of the
Company, E.M. Tool Company, Inc. (a wholly-owned subsidiary of the Company), as
well as naming the Securities and Exchange Commission ("S.E.C.") as a defendant.
The S.E.C. has removed the action to the United States District Court for the
Central District of California, as Case No. SA CV 03-367 AHS (MLGx). The S.E.C.
has also filed a motion to dismiss the complaint as to the S.E.C., which motion
is pending hearing and ruling. The Company disputes and has denied, by filed
pleadings, the claims alleged by the BCI related parties, which allegations the
Company contends are without merit and based on misstatements and false
characterizations of fact and law. Company has engaged independent counsel and
intends to vigorously defend against the BCI claims. In addition, the Company
has filed a cross-complaint against BCI and its officers, seeking damages and
other relief. The officers of BCI have refused, despite the Company's requests,
to deliver to the Company BCI's financial information for the quarter ended
March 31, 2003, thereby preventing the Company from timely filing its Form
10-QSB for the quarter then ended. The Company intends to take appropriate and
prompt legal action to secure such records, so that the Form 10-QSB can be
filed.
SCHEDULE "D"
------------
D-1
1
