STOCK
PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT is made effective as of June 1, 2006 (the “Agreement”),
among WPCS International Incorporated, a corporation existing under the laws
of
Delaware (the “Purchaser”), New England Communications Systems, Inc., a
Connecticut corporation (the “Company”), and the shareholders of the Company
listed on the signature pages hereof (collectively the “Sellers”).
W
I T
N E S S E T H:
WHEREAS,
the Sellers own an aggregate of 3,000 shares of common stock, $1.00 par value
(the “Shares”), of the Company, which Shares constitute all of the issued and
outstanding shares of capital stock of the Company; and
WHEREAS,
the Sellers desire to sell to Purchaser, and the Purchaser desires to purchase
from the Sellers, the Shares for the purchase price and upon the terms and
conditions hereinafter set forth;
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as
follows:
ARTICLE
I
SALE
AND
PURCHASE OF SHARES
1.1 Sale
and
Purchase of Shares.
Upon
the
terms and subject to the conditions contained herein, on the Closing Date
each
Seller shall sell, assign, transfer, convey and deliver to the Purchaser,
and
the Purchaser shall purchase from each Seller, all Shares of the Company
owned
by such Seller set forth opposite such Seller's name on Schedule
1.1
attached
hereto.
ARTICLE
II
PURCHASE
PRICE AND PAYMENT
2.1 Amount
of Purchase Price. The
purchase price for the Shares shall be an amount equal to (i)
$3,216,540.85(Three Million Two Hundred Sixteen Thousand Five Hundred Forty
dollars and Eighty Five cents) payable to the Sellers (the “Seller Purchase
Price”), and (ii) $1,437,445.75 (One Million Four Hundred Thirty Seven Four
Hundred Forty Five dollars and Seventy Five cents) (the “Bank Debt”), payable to
the Company’s lender, TD Banknorth, N.A. (the “Bank”)(the Bank Debt and the
Seller Purchase Price, the “Purchase Price”),
subject to adjustment as set forth herein.
2.2 Payment
of Purchase Price On
the
Closing Date, the Purchaser shall pay the Seller Purchase Price to the Sellers
and the Bank Debt to the Bank, which shall be paid by wire
transfer of immediately available funds into accounts designated by the Sellers
and the Bank and the Seller Purchase Price shall be allocated among the Sellers
in accordance with their pro rata ownership of the Shares as set forth on
Schedule 1.1.
Notwithstanding the foregoing, up to $50,000 of the Seller Purchase Price
shall
be paid by the Purchaser for the settlement of vehicle leases currently charged
to the Company, pursuant to the directions of the Sellers.
2.3 Net
Working Capital Adjustment.
(a) Within
15
business days after the effective date of the Closing (the “Effective Date”),
Sellers shall cause to be prepared and delivered to Purchaser a draft final
balance sheet of the Company as of the Effective Date, which shall include
a
final calculation of the Net Working Capital of the Company (“Final Net Working
Capital”), as of the Effective Date, determined in accordance with GAAP
consistent with the Company’s historical procedures. “Net Working Capital” shall
mean the total of the Company’s Current Assets less its Current Liabilities.
“Current Assets” shall mean (i) cash and cash equivalents, (ii) accounts
receivable, (iii) inventory, (iv) prepaid expenses, (v) unbilled revenues,
and
(vi) the aggregate dollar value of rental radios included in inventory (“Radio
Inventory”). “Current Liabilities” shall mean (a) accounts payable, (b) advances
and accrued expenses (including, without limitation, compensation expenses
including, without limitation, salary, hourly wages, bonuses, sales commissions,
benefits and vacation/sick days accruals), (c) accrued Taxes, as hereinafter
defined, and (d) unearned revenues. Unless within thirty-five (35) business
days
of delivery of such draft final balance sheet by Sellers to Purchaser, Sellers
have received a written objection from Purchaser to such draft final balance
then such draft final balance sheet shall be considered the final balance
sheet
of the Company as of the Effective Date (the “Final Closing Balance Sheet”). If
within thirty-five (35) business days of delivery of the draft final balance
sheet by Sellers to Purchaser, Seller receives a written objection from
Purchaser to such draft final balance sheet, then the Sellers and Purchaser
shall attempt to reconcile their differences diligently and in good faith
and
any resolution by them shall be final, binding and conclusive. If the Sellers
and the Purchaser are unable to reach a resolution with such effect within
ten
(10) business days of the Sellers’ receipt of the Purchaser’s written notice,
the Sellers and the Purchaser shall submit such dispute for resolution to
an
independent accounting firm mutually appointed by the Sellers and the Purchaser
(the “Independent Accounting Firm”), which shall determine and report to the
parties and such report shall be final, binding and conclusive on the parties
hereto. The fees and disbursements of the Independent Accounting Firm shall
be
shared equally by the Sellers and the Purchaser.
(b) If
the
Final Net Working Capital of the Company as of the Effective Date is greater
than $972,000 (the “Target Net Working Capital”), then Purchaser shall pay to
Sellers the amount by which the Final Net Working Capital, less the Radio
Inventory, is greater than the Target Net Working Capital. If the Final Net
Working Capital of the Company as of the Effective Date is less than the
Target
Net Working Capital, then Sellers shall pay to Purchaser the difference between
the Final Net Working Capital and the Target Net Working Capital. To the
extent
any payment is required pursuant to this section 2.3(b), such payment shall
be
made by wire transfer of immediately available funds within thirty (30) days
of
the date on which the determination of the Final Closing Balance Sheet becomes
final and shall be deemed to be an adjustment to the Seller Purchase Price.
(c)
In
order to satisfy any amounts which the Sellers may be required to deliver
to the
Purchaser as a result of a deficiency in the Target Net Working Capital,
$320,000 shall be deposited into an escrow account until the Final Working
Capital shall be determined and accepted by all parties and any deficiency
in
the Target Net Working Capital shall have been paid from the escrow account
to
the Purchaser (the “Escrowed Funds”). The Escrowed Funds shall be held for the
benefit of the Sellers in accordance with their pro rata ownership of the
Shares
as set forth on Schedule 1.1. The Escrowed Funds shall be held in accordance
with the terms and conditions set forth in the escrow agreement attached
hereto
as Exhibit 2.3 (the “Escrow Agreement”).
2.4 Additional
Consideration.
Within
105 days after December 31, 2006, Purchaser, at Purchaser’s sole cost and
expense, shall cause to be prepared and delivered to Sellers financial
statements of the Company for the fiscal year ended December 31, 2006 (the
“2006
Fiscal Year”), in accordance with GAAP consistent with the Company’s historical
procedures. For each $2.00 of the Company’s earnings before interest and taxes
for the 2006 Fiscal Year, the Sellers shall be paid an aggregate additional
amount of $1.00, up to a maximum payment of $468,000 (the “Earn-out Payment”).
Sellers shall have thirty (30) days after receipt of said financial statements
to review same. If within thirty-five (35) business days of delivery of the
financial statements by Purchaser to Sellers, Purchaser receives a written
objection from Sellers, then Purchaser and Sellers shall attempt to reconcile
their differences diligently and in good faith and any resolution by them
shall
be finding and conclusive. If the Sellers and the Purchaser are unable to
reach
a resolution within ten (10) business days of the Purchaser’s receipt of the
Sellers’ written notice, the Sellers and the Purchaser shall submit such dispute
for resolution to the Independent Accounting Firm which shall determine and
report to the parties, and such report shall be final, binding and conclusive
on
the parties hereto. The final 2006 Fiscal Year Company financial statements,
as
accepted by Sellers and the Purchaser shall be referred to as the “Final 2006
Financials.” At the option of the Purchaser, any amounts due to be paid for the
Earn-out Payment may be paid in cash or shares of the Purchaser’s common stock
(valued at the last sale price of the common stock on the date two days prior
to
the payment is due). The Earn-out Payment shall be paid within ten days after
receipt by the Sellers and the Purchaser of the Final 2006 Financials. Any
amounts payable to the Sellers, if in cash, shall be paid to the order of
each
Seller or, at the Sellers' option, by wire transfer of immediately available
funds into accounts designated by the Sellers and allocated among the Sellers
in
accordance with their pro rata ownership of the Shares as set forth on Schedule
1.1. Any amounts payable to the Sellers, if in shares of the Purchaser’s common
stock, shall be made by shares of the Purchaser’s common stock issued and
registered in the name of each Seller and allocated among the Sellers in
accordance with their pro rata ownership of the Shares as set forth on Schedule
1.1.
ARTICLE
III
CLOSING
AND TERMINATION
3.1 Closing
Date.
Subject
to the
satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof (or
the
waiver thereof by the party entitled to waive that condition), the closing
of
the sale and purchase of the Shares provided for in Section 1.1 hereof (the
"Closing") shall take place at the offices of Byrne & Storm, P.C., 330 Main
Street, Hartford, Connecticut 06106 (or at such other place as the parties
may
designate in writing) on June 7, 2006 and effective as of June 1, 2006 or
on
such other date as the Sellers and the Purchaser may designate in writing.
The
date on which the Closing shall be held is referred to in this Agreement
as the
"Closing Date".
3.2 Termination
of Agreement.
This
Agreement
may be terminated prior to the Closing as follows:
(a) At
the
election of the Sellers or the Purchaser on or after June 30, 2006, if the
Closing shall not have occurred by the close of business on such date, provided
that the terminating party is not in default of any of its obligations
hereunder;
(b) by
mutual
written consent of the Sellers' and the Purchaser; or
(c) by
the
Sellers or the Purchaser if there shall be in effect a final nonappealable
order
of a governmental body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated hereby;
it being agreed that the parties hereto shall promptly appeal any adverse
determination which is not nonappealable (and pursue such appeal with reasonable
diligence).
3.3 Procedure
Upon Termination.
In
the event of
termination and abandonment by the Purchaser or the Sellers, or both, pursuant
to Section 3.2 hereof, written notice thereof shall forthwith be given to
the
other party or parties, and this Agreement shall terminate, and the purchase
of
the Shares hereunder shall be abandoned, without further action by the Purchaser
or the Sellers. If this Agreement is terminated as provided herein, each
party
shall redeliver all documents, work papers and other material of any other
party
relating to the transactions contemplated hereby, whether so obtained before
or
after the execution hereof, to the party furnishing the same.
3.4 Effect
of Termination.
In
the event that
this Agreement is validly terminated as provided herein, then each of the
parties shall be relieved of their duties and obligations arising under this
Agreement after the date of such termination and such termination shall be
without liability to the Purchaser, the Company or any Seller; provided,
further, however, that nothing in this Section 3.4 shall relieve the Purchaser
or any Seller of any liability for a breach of this Agreement.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE SELLERS
The
Sellers hereby
jointly and severally represent and warrant to the Purchaser that:
4.1. Organization
and Good Standing of the Company.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation as set forth above.
Except as otherwise provided herein, the Company is not required to be qualified
to transact business in any other jurisdiction where the failure to so qualify
would have an adverse effect on the business of the Company. In this regard,
the
Company is qualified to transact business in the States of Connecticut and
Massachusetts.
4.2. Authority.
(a) The
Company has full power and authority (corporate and otherwise) to carry on
its
business and has all permits and licenses that are necessary to the conduct
of
its business or to the ownership, lease or operation of its properties and
assets, except where the failure to have such permits and licenses would
not
have a material adverse effect on the Company’s business or operations
(“Material Adverse Effect”).
(b) The
execution of this Agreement and the delivery hereof to the Purchaser and
the
sale contemplated herein have been, or will be prior to Closing, duly authorized
by the Company’s Board of Directors and by the Company’s stockholders having
full power and authority to authorize such actions.
(c) Subject
to any consents required under Section 4.7 below, the Sellers and the Company
have the full legal right, power and authority to execute, deliver and carry
out
the terms and provisions of this Agreement; and this Agreement has been duly
and
validly executed and delivered on behalf of Sellers and the Company and
constitutes a valid and binding obligation of each Seller and the Company
enforceable in accordance with its terms.
(d) Except
as
set forth in Section 4.2, neither the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated, nor compliance
with
the terms of this Agreement will violate, conflict with, result in a breach
of,
or constitute a default under any statute, regulation, indenture, mortgage,
loan
agreement, or other agreement or instrument to which the Company or any Seller
is a party or by which it or any of them is bound, any charter, regulation,
or
bylaw provision of the Company, or any decree, order, or rule of any court
or
governmental authority or arbitrator that is binding on the Company or any
Seller in any way, except where such would not have a Material Adverse
Effect.
4.3. Shares.
(a) The
Company’s authorized capital stock consists of 10,000 shares of Common Stock,
par value $1.00 per share, of which 3,000 shares have been issued to Sellers
and
constitute the Shares as defined above. All of the Shares are duly authorized,
validly issued, fully paid and non-assessable.
(b) The
Sellers are the lawful record and beneficial owners of all the Shares, free
and
clear of any liens, pledges, encumbrances, charges, claims or restrictions
of
any kind, except as set forth in Section 4.3, and have, or will have on the
Closing Date, the absolute, unilateral right, power, authority and capacity
to
enter into and perform this Agreement without any other or further
authorization, action or proceeding, except as specified herein.
(c) There
are
no authorized or outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, convertible securities or other agreements or arrangements
of any character or nature whatever under which any Seller or the Company
are or
may become obligated to issue, assign or transfer any shares of capital stock
of
the Company except as set forth in Section 4.3. Upon the delivery to Purchaser
on the Closing Date of the certificate(s) representing the Shares, Purchaser
will have good, legal, valid, marketable and indefeasible title to all the
then
issued and outstanding shares of capital stock of the Company, free and clear
of
any liens, pledges, encumbrances, charges, agreements, options, claims or
other
arrangements or restrictions of any kind.
4.4. Basic
Corporate Records.
The
copies of the Articles of Incorporation of the Company, (certified by the
Secretary of State or other authorized official of the jurisdiction of
incorporation), and the Bylaws of the Company, as the case may be (certified
as
of the date of this Agreement as true, correct and complete by the Company’s
secretary or assistant secretary), all of which have been delivered to the
Purchaser, are true, correct and complete as of the date of this
Agreement.
4.5. Minute
Books.
The
minute books of the Company, which shall be exhibited to the Purchaser between
the date hereof and the Closing Date, each contain true, correct and complete
minutes and records of all meetings, proceedings and other actions of the
shareholders, Boards of Directors and committees of such Boards of Directors
of
the Company, if any, except where such would not have a Material Adverse
Effect
and, on the Closing Date, will, to the best of Sellers’ knowledge, contain true,
correct and complete minutes and records of any meetings, proceedings and
other
actions of the shareholders, respective Boards of Directors and committees
of
such Boards of Directors of each such corporation.
4.6. Subsidiaries
and Affiliates.
The
Company does not have any ownership, voting or profit and loss sharing
percentage interest in any other corporations, partnerships, businesses,
entities, enterprises or organizations.
4.7. Consents.
Except
as set forth in Schedule 4.7, no consents or approvals of any public body
or
authority and no consents or waivers from other parties to leases, licenses,
franchises, permits, indentures, agreements or other instruments are
(i) required for the lawful consummation of the transactions contemplated
hereby, or (ii) necessary in order that the business currently conducted
bythe Company can be conducted by the Purchaser in the same manner after
the
Closing as heretofore conducted by the Company, nor will the consummation
of the
transactions contemplated hereby result in creating, accelerating or increasing
any liability of the Company, except where the failure of any of the foregoing
would not have a Material Adverse Effect.
4.8. Financial
Statements.
The
Sellers have delivered, or will deliver prior to Closing, to the Purchaser
copies of the following financial statements (which include all notes and
schedules attached thereto), all of which are true, complete and correct,
have
been prepared from the books and records of the Company in accordance with
generally accepted accounting principles (“GAAP”) consistently applied with past
practice and fairly present the financial condition, assets, liabilities
and
results of operations of the Company as of the dates thereof and for the
periods
covered thereby:
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the
unaudited reviewed balance sheet of the Company as at December
31, 2004
and 2005, and the related reviewed statements of operations, and
of cash
flows of the Company for the period then ended and (ii) the unaudited
compiled balance sheet of the Company as of March 31, 2006 and
the related
compiled statement of operations of the Company for the three month
period
then ended (such statements, including the related notes and schedules
thereto, are referred to herein as the “Financial Statements.”
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In
such
Financial Statements, the statements of operations do not contain any items
of
special or nonrecurring income or any other income not earned in the ordinary
course of business except as set forth in Schedule 4.8, and the financial
statements for the interim periods indicated include all adjustments, which
consist of only normal recurring accruals, necessary for such fair presentation.
There are no facts, to the best of Sellers’ knowledge, that under generally
accepted accounting principles consistently applied, would alter the information
contained in the foregoing Financial Statements in any material
way.
The
Final
Closing Balance Sheet will be complete and correct in all material respects
determined in accordance with GAAP.
For
the
purposes hereof, the balance sheet of the Company as of March 31, 2006 is
referred to as the “Balance Sheet” and March 31, 2006 is referred to as the
“Balance Sheet Date”.
4.9. Records
and Books of Account.
The
records and books of account of the Company reflect all material items of
income
and expense and all material assets, liabilities and accruals, have been,
and to
the Closing Date will be, regularly kept and maintained in conformity with
GAAP
applied on a consistent basis with preceding years.
4.10. Absence
of Undisclosed Liabilities.
Except
as and to the extent reflected or reserved against in the Company’s Financial
Statements or disclosed in Schedule 4.10, there are no liabilities or
obligations of the Company of any kind whatsoever, whether accrued, fixed,
absolute, contingent, determined or determinable, and including without
limitation (i) liabilities to former, retired or active employees of the
Company under any pension, health and welfare benefit plan, vacation plan
or
other plan of the Company, (ii) tax liabilities incurred in respect of or
measured by income for any period prior to the close of business on the Balance
Sheet Date, or arising out of transactions entered into, or any state of
facts
existing, on or prior to said date, and (iii) contingent liabilities in the
nature of an endorsement, guarantee, indemnity or warranty, and there is
no
condition, situation or circumstance existing or which has existed that could
reasonably be expected to result in any liability of the Company, other than
liabilities and contingent liabilities incurred in the ordinary course of
business since the Balance Sheet Date consistent with the Company’s recent
customary business practice, none of which is materially adverse to the
Company.
4.11 Taxes.
(a) For
purposes of this Agreement, “Tax” or “Taxes” refers to: (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities relating to taxes, including taxes based
upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes and escheatment payments,
together with all interest, penalties and additions imposed with respect
to such
amounts and 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; (ii) any liability for the payment of any amounts of
the
type described in clause (i) as a result of being or ceasing to be a member
of
an affiliated, consolidated, combined or unitary group for any period
(including, without limitation, any liability under Treas. Reg.
Section 1.1502-6 or any comparable provision of foreign, state or local
law); 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) (i) The
Company has timely filed all federal, state, local and foreign returns,
estimates, information statements and reports (“Returns”) relating to Taxes
required to be filed by the Company with any Tax authority effective through
the
Closing Date. All such Returns are true, correct and complete in all respects,
except for immaterial amounts where such would not have a Material Adverse
Effect. The Company has paid all Taxes shown to be due on such Returns. Except
as listed on Schedule 4.11 hereto, the Company is not currently the beneficiary
of any extensions of time within which to file any Returns. The Sellers and
the
Company have furnished and made available to the Purchaser complete and accurate
copies of all income and other Tax Returns and any amendments thereto filed
by
the Company in the last three (3) years.
(ii) The
Company, as of the Closing Date, will have withheld and accrued or paid to
the
proper authority all Taxes required to have been withheld and accrued or
paid,
except for immaterial amounts where such would not have a Material Adverse
Effect.
(iii) The
Company has not been delinquent in the payment of any Tax nor is there any
Tax
deficiency outstanding or assessed against the Company. The Company has not
executed any unexpired waiver of any statute of limitations on or extending
the
period for the assessment or collection of any Tax.
(iv) There
is
no dispute, claim, or proposed adjustment concerning any Tax liability of
the
Company either (A) claimed or raised by any Tax authority in writing or
(B) based upon personal contact with any agent of such Tax authority, and
there is no claim for assessment, deficiency, or collection of Taxes, or
proposed assessment, deficiency or collection from the Internal Revenue Service
or any other governmental authority against the Company which has not been
satisfied. The Company is not a party to nor has it been notified in writing
that it is the subject of any pending, proposed, or threatened action,
investigation, proceeding, audit, claim or assessment by or before the Internal
Revenue Service or any other governmental authority, nor does the Company
have
any reason to believe that any such notice will be received in the future.
Except as set forth on Schedule 4.11, neither the Internal Revenue Service
nor
any state or local taxation authority has ever audited any income tax return
of
the Company. The Company has not filed any requests for rulings with the
Internal Revenue Service. Except as provided to the Company’s accountants, no
power of attorney has been granted by the Company or its Affiliates with
respect
to any matter relating to Taxes of the Company. There are no Tax liens of
any
kind upon any property or assets of the Company, except for inchoate liens
for
Taxes not yet due and payable.
(v) Except
for immaterial amounts which would not have a Material Adverse Effect, the
Company has no liability for any unpaid Taxes which has not been paid or
accrued
for or reserved on the Financial Statements in accordance with GAAP, whether
asserted or unasserted, contingent or otherwise.
(vi) There
is
no contract, agreement, plan or arrangement to which the Company is a party
as
of the date of this Agreement, including but not limited to the provisions
of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, would reasonably be expected to give rise to
the
payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”).
There
is no contract, agreement, plan or arrangement to which the Company is a
party
or by which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(vii) The
Company has not filed any consent agreement under Section 341(f) of the
Code or agreed to have Section 341(f)(2) 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.
(viii) The
Company is not a party to, nor has any obligation under any tax-sharing,
tax
indemnity or tax allocation agreement or arrangement.
(ix) None
of
the Company’s assets are tax exempt use property within the meaning of
Section 168(h) of the Code.
(x) The
Company made a valid election under Section 1362 of the Code to be treated
as an
S corporation as defined in Code Section 1361, which election was acknowledged
by the IRS and became effective on November 8, 1995. The election has remained
in effect since that date without revocation, cessation or termination, and
the
Company has qualified to be taxed under the provisions of Subchapter S of
the
Code and under applicable similar provisions of state income tax law for
all
periods beginning on or after November 8, 1995.
4.12. Accounts
Receivable.
The
accounts receivable of the Company shown on the Balance Sheet Date, and those
to
be shown in the Financial Statements, are, and will be, actual bona fide
receivables from transactions in the ordinary course of business representing
valid and binding obligations of others for the total dollar amount shown
thereon, and as of the Balance Sheet Date were not (and presently are not)
subject to any recoupments, set-offs, or counterclaims. All such accounts
receivable are, and will be collectible in amounts not less than the amounts
(net of reserves) carried on the books of the Company, including the Financial
Statements, and will be paid in accordance with their terms. Except as listed
on
Schedule 4.12 hereto, all such accounts receivable are and will be actual
bona
fide receivables from transactions in the ordinary course of
business.
4.13. Inventory.
The
inventories of the Company are located at the locations listed on Schedule
4.13
attached hereto. The
inventories of the Company shown on its Balance Sheet (net of reserves) are
carried at values which reflect the normal inventory valuation policy of
the
Company of stating the items of inventory at average cost in accordance with
generally accepted accounting principles consistently applied. Inventory
acquired since the Balance Sheet Date has been acquired in the ordinary course
of business and valued as set forth above. The Company will maintain the
inventory in the normal and ordinary course of business from the date hereof
through the Closing Date. Notwithstanding the foregoing, the Company is using
commercially reasonable best efforts to sell slow moving inventory prior
to the
Closing Date.
4.14. Machinery
and Equipment.
Except
for items disposed of in the ordinary course of business, all machinery,
tools,
furniture, fixtures, equipment, vehicles, leasehold improvements and all
other
tangible personal property (hereinafter “Fixed Assets”) of the Company currently
being used in the conduct of its business, or included in determining the
net
book value of the Company on the Balance Sheet Date, together with any machinery
or equipment that is leased or operated by the Company, are in fully serviceable
working condition and repair. Said Fixed Assets shall be maintained in such
condition from the date hereof through the Closing Date. Except as described
on
Schedule 4.14 hereto, all Fixed Assets owned, used or held by the Company
are
situated at its business premises and are currently used in its business.
Schedule 4.14 describes all Fixed Assets owned by or an interest in which
is
claimed by any other person (whether a customer, supplier or other person)
for
which the Company is responsible (copies of all agreements relating thereto
being attached to said Schedule 4.14), and all such property is in the Company’s
actual possession and is in such condition that upon the return of such property
in its present condition to its owner, the Company will not be liable in
any
amount to such owner. There are no outstanding requirements or recommendations
by any insurance company that has issued a policy covering either (i) such
Fixed Assets or (ii) any liabilities of the Company relating to operation
of the Business, or by any board of fire underwriters or other body exercising
similar functions, requiring or recommending any repairs or work to be done
on
any Fixed Assets or any changes in the operations of the Business, any equipment
or machinery used therein, or any procedures relating to such operations,
equipment or machinery. All Fixed Assets of the Company are set forth on
Schedule 4.14 hereto.
4.15. Real
Property Matters.
The
Company does not own any real property as of the date hereof and has not
owned
any real property during the three years preceding the date hereof.
4.16. Leases.
All
leases of real and personal property of the Company are described in Schedule
4.16, are in full force and effect and constitute legal, valid and binding
obligations of the respective parties thereto enforceable in accordance with
their terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting generally the enforcement
of
creditor’s rights, and have not been assigned or encumbered. The Company has
performed in all material respects the obligations required to be performed
by
it under all such leases to date and it is not in default in any material
respect under any of said leases, except as set forth in Schedule 4.16, nor
has
it made any leasehold improvements required to be removed at the termination
of
any lease, except signs. No other party to any such lease is in material
default
thereunder. Except as noted on Schedule 4.16, none of the leases listed thereon
require the consent of a third party in connection with the transfer of the
Shares.
4.17. Patents,
Software, Trademarks, Etc.
The
Company owns, or possesses adequate licenses or other rights to use, all
patents, software, trademarks, service marks, trade names and copyrights
and
trade secrets, if any, necessary to conduct its business as now operated
by it.
The patents, software, trademarks, service marks, copyrights, trade names
and
trade secrets, if any, registered in the name of or owned or used by or licensed
to the Company and applications for any thereof (hereinafter the “Intangibles”)
are described or referenced in Schedule 4.17. Sellers hereby specifically
acknowledge that all right, title and interest in and to all patents and
software listed on Schedule 4.17 as patents owned by the Company are owned
by
the Company or the Company has a right to use same and that the ownership
of
such patents and software will be transferred as part of the Company to
Purchaser as part of the transaction contemplated hereby. No officer, director,
shareholder or employee of the Company or any relative or spouse of any such
person owns any patents or patent applications or any inventions, software,
secret formulae or processes, trade secrets or other similar rights, nor
is any
of them a party to any license agreement, used by or useful to the Company
or
related to its business except as listed in Schedule 4.17. All of said
Intangibles are valid and in good standing to the best of Sellers’ knowledge,
and are free and clear of all liens, security interests, charges, restrictions
and encumbrances of any kind whatsoever, and have not been licensed to any
third
party except as described in Schedule 4.17. The Company has not been charged
with, nor has it infringed, nor to the Sellers’ knowledge is it threatened to be
charged with infringement of, any patent, proprietary rights or trade secrets
of
others in the conduct of its business, and, to the date hereof, neither the
Sellers nor the Company has received any notice of conflict with or violation
of
the asserted rights in intangibles or trade secrets of others. The Company
is
not now manufacturing any goods under a present permit, franchise or license,
except as set forth in said Schedule 4.17. The consummation of the transactions
contemplated hereby will not alter or impair any rights of the Company in
any
such Intangibles or in any such permit, franchise or license, except as
described in Schedule 4.17. The Intangibles and the Company’s tooling,
manufacturing and engineering drawings, process sheets, specifications, bills
of
material and other like information and data are in such form and of such
quality and will be maintained in such a manner that the Company can, following
the Closing, design, produce, manufacture, assemble and sell the products
and
provide the services heretofore provided by it so that such products and
services meet applicable specifications and conform with the standards of
quality and cost of production standards heretofore met by it. The Company
has
the sole and exclusive right to use its corporate and trade names in the
jurisdictions where it transacts business.
4.18. Insurance
Policies.
There
is set forth in Schedule 4.18 a list and brief description of all insurance
policies on the date hereof held by the Company or on which it pays premiums,
including, without limitation, life insurance and title insurance policies,
which description includes the premiums payable by it thereunder. Schedule
4.18
also sets forth, in the case of any life insurance policy held by the Company,
the name of the insured under such policy, the cash surrender value thereof
and
any loans thereunder. All such insurance premiums in respect of such coverage
have been, and to the Closing Date will be, paid in full, if due and owing
. All
claims, if any, made against the Company which are covered by such policies
have
been, or are being, settled or defended by the insurance companies that have
issued such policies. Up to the Closing Date, such insurance coverage will
be
maintained in full force and effect and will not be cancelled, modified or
changed without the express written consent of the Purchaser, except to the
extent the maturity dates of any such insurance policies expiring prior to
the
Closing Date. No such policy has been, or to the Closing Date will be, cancelled
by the issuer thereof, and, to the knowledge of the Sellers and the Company,
between the date hereof and the Closing Date, there shall be no increase
in the
premiums with respect to any such insurance policy caused by any action or
omission of the Sellers or of the Company.
4.19. Banking
and Personnel Lists.
The
Sellers and the Company will deliver to the Purchaser prior to the Closing
Date
the following accurate lists and summary descriptions relating to the
Company:
(i) The
name
of each bank in which the Company has an account or safe deposit box and
the
names of all persons authorized to draw thereon or have access
thereto.
(ii) The
names, current annual salary rates and total compensation for the preceding
fiscal year of all of the present directors and officers of the Company,
and any
other employees whose current base accrual salary or annualized hourly rate
equivalent is $20,000 or more, together with a summary of the bonuses,
percentage compensation and other like benefits, if any, paid or payable
to such
persons for the last full fiscal year completed, together with a schedule
of
changes since that date, if any.
(iii) A
schedule of workers’ compensation payments of the Company over the past five
full fiscal years and the fiscal year to date, a schedule of claims by employees
of the Company against the workers’ compensation fund for any reason over such
period, identification of all compensation and medical benefits paid to date
on
each such claim and the estimated amount of compensation and medical benefits
to
be paid in the future on each such claim.
(iv) The
name
of all pensioned employees of the Company whose pensions are unfunded and
are
not paid or payable pursuant to any formalized pension arrangements, their
agent
and annual unfunded pension rates.
4.20. Lists
of Contracts, Etc.
There is
included in Schedule 4.20 a list of the following items (whether written
or
oral) relating to the Company, which list identifies and fairly summarizes
each
item:
(i) All
collective bargaining and other labor union agreements (if any); all employment
agreements with any officer, director, employee or consultant; and all employee
pension, health and welfare benefit plans, group insurance, bonus, profit
sharing, severance, vacation, hospitalization, and retirement plans,
post-retirement medical benefit plans, and any other plans, arrangements
or
custom requiring payments or benefits to current or retiring
employees.
(ii) All
joint
venture contracts of the Company or affiliates relating to the
Business;
(iii) All
contracts of the Company relating to (a) obligations for borrowed money,
(b) obligations evidenced by bonds, debentures, notes or other similar
instruments, (c) obligations to pay the deferred purchase price of property
or services, except trade accounts payable arising in the ordinary course
of
business, (d) obligations under capital leases, (e) debt of others
secured by a lien on any asset of the Company, and (f) debts of others
guaranteed by the Company.
(iv) All
agreements of the Company relating to the supply of raw materials for and
the
distribution of the products of its business, including without limitation
all
sales agreements, manufacturer’s representative agreements and distribution
agreements of whatever magnitude and nature, and any commitments
therefor;
(v) All
contracts that individually provide for aggregate future payments to or from
the
Company of $25,000 or more, to the extent not included in (i) through (iv)
above;
(vi) All
contracts of the Company that have a term exceeding one year and that may
not be
cancelled without any liability, penalty or premium, to the extent not included
in (i) through (v) above;
(vii) A
complete list of all outstanding powers of attorney granted by the Company;
and
(viii) All
other
contracts of the Company material to the business, assets, liabilities,
financial condition, results of operations or prospects of the Business taken
as
a whole to the extent not included above.
Except
as
set forth in Schedule 4.20, (i) all contracts, agreements and commitments
of the Company set forth in Schedule 4.20 are valid, binding and in full
force
and effect, and (ii) neither the Company nor, to the best of Sellers’
knowledge, any other party to any such contract, agreement, or commitment
has
materially breached any provision thereof or is in default thereunder. Except
as
set forth in Schedule 4.20, the sale of the Shares by the Sellers in accordance
with this Agreement will not result in the termination of any contract,
agreement or commitment of the Company set forth in Schedule 4.20, and
immediately after the Closing, each such contract, agreement or commitment
will
continue in full force and effect without the imposition or acceleration
of any
burdensome condition or other obligation on the Company resulting from the
sale
of the Shares by the Sellers. True and complete copies of the contracts,
leases,
licenses and other documents referred to in this Schedule 4.20 will be delivered
to the Purchaser, certified by the Secretary or Assistant Secretary of the
Company as true, correct and complete copies, not later than four weeks from
the
date hereof or ten business days before the Closing Date, whichever is
sooner.
There
are
no pending disputes with customers or vendors of the Company regarding quality
or return of goods involving amounts in dispute with any one customer or
vendor,
whether for related or unrelated claims, in excess of $5,000 except as described
on Schedule 4.20 hereto, all of which will be resolved to the reasonable
satisfaction of Purchaser prior to the Closing Date. To the best knowledge
of
Sellers and the Company, there has not been any event, happening, threat
or fact
that would lead them to believe that any of said customers or vendors will
terminate or materially alter their business relationship with the Company
after
completion of the transactions contemplated by this Agreement.
4.21. Compliance
With the Law.
The
Company is not in violation of any applicable federal, state, local or foreign
law, regulation or order or any other, decree or requirement of any
governmental, regulatory or administrative agency or authority or court or
other
tribunal (including, but not limited to, any law, regulation order or
requirement relating to securities, properties, business, products,
manufacturing processes, advertising, sales or employment practices, terms
and
conditions of employment, occupational safety, health and welfare, conditions
of
occupied premises, product safety and liability, civil rights, or environmental
protection, including, but not limited to, those related to waste management,
air pollution control, waste water treatment or noise abatement), except
where
such would not have a Material Adverse Effect. Except as set forth in Schedule
4.21, the Company has not been and is not now charged with, or to the best
knowledge of the Sellers or the Company under investigation with respect
to, any
violation of any applicable law, regulation, order or requirement relating
to
any of the foregoing, nor, to the best knowledge of any Seller or the Company
after due inquiry, are there any circumstances that would or might give rise
to
any such violation. The Company has filed all reports required to be filed
with
any governmental, regulatory or administrative agency or authority.
4.22. Litigation;
Pending Labor Disputes.
Except
as specifically identified on the Balance Sheet or footnotes thereto or set
forth in Schedule 4.22:
(i) There
are
no legal, administrative, arbitration or other proceedings or governmental
investigations pending or, to the best knowledge of Sellers or the Company,
threatened, against the Sellers or the Company, relating to its business
or the
Company or its properties (including leased property), or the transactions
contemplated by this Agreement, nor is there any basis known to the Company
or
any Seller for any such action.
(ii) There
are
no judgments, decrees or orders of any court, or any governmental department,
commission, board, agency or instrumentality binding upon Sellers or the
Company
relating to its business or the Company the effect of which is to prohibit
any
business practice or the acquisition of any property or the conduct of any
business by the Company or which limit or control or otherwise adversely
affect
its method or manner of doing business.
(iii) No
work
stoppage has occurred and is continuing or, to the knowledge of Sellers or
the
Company, is threatened affecting its business, and to the best of Sellers’
knowledge, no question involving recognition of a collective bargaining agent
exists in respect of any employees of the Company.
(iv) There
are
no pending labor negotiations or, to the best of Sellers’ knowledge, union
organization efforts relating to employees of the Company.
(v) There
are
no charges of discrimination (relating to sex, age, race, national origin,
handicap or veteran status) or unfair labor practices pending or, to the
best
knowledge of the Sellers or the Company, threatened before any governmental
or
regulatory agency or authority or any court relating to employees of the
Company.
4.23. Absence
of Certain Changes or Events.
The
Company has not, since the Balance Sheet Date, and except in the ordinary
course
of business consistent with past practice and/or except as described on Schedule
4.23:
(i) Incurred
any material obligation or liability (absolute, accrued, contingent or
otherwise), except in the ordinary course of its business consistent with
past
practive or in connection with the performance of this Agreement, and any
such
obligation or liability incurred in the ordinary course is not materially
adverse, except for claims, if any, that are adequately covered by
insurance;
(ii) Discharged
or satisfied any lien or encumbrance, or paid or satisfied any obligations
or
liability (absolute, accrued, contingent or otherwise) other than
(a) liabilities shown or reflected on the Balance Sheet, and
(b) liabilities incurred since the Balance Sheet Date in the ordinary
course of business that were not materially adverse;
(iii) Increased
or established any reserve or accrual for taxes or other liability on its
books
or otherwise provided therefor, except (a) as disclosed on the Balance
Sheet, or (b) as may have been required under generally accepted accounting
principles due to income earned or expense accrued since the Balance Sheet
Date
and as disclosed to the Purchaser in writing;
(iv) Mortgaged,
pledged or subjected to any lien, charge or other encumbrance any of its
assets,
tangible or intangible;
(v) Sold
or
transferred any of its assets or cancelled any debts or claims or waived
any
rights, except in the ordinary course of business and which has not been
materially adverse;
(vi) Disposed
of or permitted to lapse any patents or trademarks or any patent or trademark
applications material to the operation of its business;
(vii) Incurred
any significant labor trouble or granted any general or uniform increase
in
salary or wages payable or to become payable by it to any director, officer,
employee or agent, or by means of any bonus or pension plan, contract or
other
commitment increased the compensation of any director, officer, employee
or
agent;
(viii) Authorized
any capital expenditure for real estate or leasehold improvements, machinery,
equipment or molds in excess of $5,000.00 in the aggregate;
(ix) Except
for this Agreement or as otherwise disclosed herein or in any schedule to
this
Agreement, entered into any material transaction ;
(x) Issued
any stocks, bonds, or other corporate securities, or made any declaration
or
payment of any dividend or any distribution in respect of its capital stock;
or
(xi) Experienced
damage, destruction or loss (whether or not covered by insurance) individually
or in the aggregate materially and adversely affecting any of its properties,
assets or business, or experienced any other material adverse change or changes
individually or in the aggregate affecting its financial condition, assets,
liabilities or business.
4.24. Employee
Benefit Plans.
(a) Schedule
4.24 lists
a
description of the only Employee Programs (as defined below) that have been
maintained (as such term is further defined below) by the Company at any
time
during the five (5) years prior to the date hereof.
(b) There
has
not been any failure of any party to comply with any laws applicable with
respect to any Employee Program that has been maintained by the Company,
except
where such would not have a Material Adverse Effect. With
respect to any Employee Programs now or heretofore maintained by the Company,
there has occurred no breach of any duty under the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”) or other applicable law which could
result, directly or indirectly in any taxes, penalties or other liability
to the
Purchaser, the Company or any affiliate (as defined below), except for
immaterial exceptions which would not have a Material Adverse Effect. No
litigation, arbitration, or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine
claims
for benefits) is pending or, to the best knowledge of the Company and Seller,
threatened with respect to any such Employee Program.
(c) Except
as
set forth in Schedule
4.24 attached
hereto, neither the Company nor any affiliate has ever (i) provided health
care or any other non-pension benefits to any employees after their employment
was terminated (other than as required by Part 6 of Subtitle B of
Title I of ERISA) or has ever promised to provide such post-termination
benefits or (ii) maintained an Employee Program provided to such employees
subject to Title IV of ERISA, Section 401(a) or Section 412 of Code,
including, without limitation, any Multiemployer Plan.
(d) For
purposes of this Section 4.24:
(i) “Employee
Program”
means (A) all employee benefit plans within the meaning of ERISA
Section 3(3), including, but not limited to, multiple employer welfare
arrangements (within the meaning of ERISA Section 3(40)), plans to which
more than one unaffiliated employer contributes and employee benefit plans
(such
as foreign or excess benefit plans) which are not subject to ERISA; and
(B) all stock option plans, bonus or incentive award plans, severance pay
policies or agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans, agreements,
and arrangements not described in (A) above. In the case of an Employee
Program funded through an organization described in Code Section 501(c)(9),
each
reference to such Employee Program shall include a reference to such
organization;
(ii) An
entity
“maintains” an Employee Program if such entity sponsors, contributes to, or
provides (or has promised to provide) benefits under such Employee Program,
or
has any obligation (by agreement or under applicable law) to contribute to
or
provide benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or their
spouses, dependents, or beneficiaries);
(iii) An
entity
is an “affiliate” of the Company for purposes of this Section 3.24 if it
would have ever been considered a single employer with the Company under
ERISA
Section 4001(b) or part of the same “controlled group” as the Company for
purposes of ERISA Section 302(d)(8)(C); and
(iv) “Multiemployer
Plan” means a (pension or non-pension) employee benefit plan to which more than
one employer contributes and which is maintained pursuant to one or more
collective bargaining agreements.
4.25. Product
Warranties and Product Liabilities.
The
product warranties and return policies of the Company in effect on the date
hereof and the types of products to which they apply are described on Schedule
4.25 hereto. Schedule 4.25 also sets forth all product liability claims
involving amounts in controversy in excess of $5,000 that are currently either
pending or, to the best of the Sellers’ and the Company’s knowledge, threatened
against the Company. The Company has not paid in the aggregate, or allowed
as
credits against purchases, or received claims for more than one percent (1%)
per
year of gross sales, as determined in accordance with GAAP consistently applied,
during the past three years pursuant to obligations under any warranty or
any
product liability claim with respect to goods manufactured, assembled or
furnished by the Company. The future cost of performing all such obligations
and
paying all such product liability claims with respect to goods manufactured,
assembled or furnished prior to the Closing Date will not exceed the average
annual cost thereof for said past three year period.
4.26. Assets.
The
assets of the Company are located at the locations listed on Schedule
4.26
attached
hereto. Except
as
described in Schedule 4.26, the assets of the Company are, and together with
the
additional assets to be acquired or otherwise received by the Company prior
to
the Closing, will at the Closing Date be, sufficient in all material respects
to
carry on the operations of the business as now conducted by the Company.
The
Company is the only business organization through which the Business is
conducted. Except as set forth in Schedule 4.16 or
Schedule 4.26, all assets used by the Sellers and the Company to conduct
the
Business are, and will on the Closing Date be, owned by the
Company.
4.27. Absence
of Certain Commercial Practices.
Except
as described on Schedule 4.27, neither the Company nor any Seller has made
any
payment (directly or by secret commissions, discounts, compensation or other
payments) or given any gifts to another business concern, to an agent or
employee of another business concern or of any governmental entity (domestic
or
foreign) or to a political party or candidate for political office (domestic
or
foreign), to obtain or retain business for the Company or to receive favorable
or preferential treatment, except for gifts and entertainment given to
representatives of customers or potential customers of sufficiently limited
value and in a form (other than cash) that would not be construed as a bribe
or
payoff.
4.28. Licenses,
Permits, Consents and Approvals.
The
Company has, and at the Closing Date will have, all licenses, permits or
other
authorizations of governmental, regulatory or administrative agencies or
authorities (collectively, “Licenses”) required to conduct the Business, except
for any failures of such which would not have a Material Adverse Effect.
All
Licenses of the Company are listed on Schedule 4.28 hereto.
At the Closing, the Company will have all such Licenses which are material
to
the conduct of the Business and will have renewed all Licenses which would
have
expired in the interim. Except as listed in Schedule 4.28, no registration,
filing, application, notice, transfer, consent, approval, order, qualification,
waiver or other action of any kind (collectively, a “Filing”) will be required
as a result of the sale of the Shares by Sellers in accordance with this
Agreement (a) to avoid the loss of any License or the violation, breach or
termination of, or any default under, or the creation of any lien on any
asset
of the Company pursuant to the terms of, any law, regulation, order or other
requirement or any contract binding upon the Company or to which any such
asset
may be subject, or (b) to enable Purchaser (directly or through any
designee) to continue the operation of the Company and the Business
substantially as conducted prior to the Closing Date. All such Filings will
be
duly filed, given, obtained or taken on or prior to the Closing Date and
will be
in full force and effect on the Closing Date.
4.29. Environmental
Matters.
Except
as
set forth on Schedule 4.29 hereto:
(a) The
operations of the Company, to the best knowledge of Sellers, are in compliance
with all applicable Laws promulgated by any governmental entity which prohibit,
regulate or control any hazardous material or any hazardous material activity
(“Environmental Laws”) and all permits issued pursuant to Environmental Laws or
otherwise except for where noncompliance or the absence of such permits would
not, individually or in the aggregate, have a Material Adverse
Effect;
(b)
The
Company has obtained all permits required under all applicable Environmental
Laws necessary to operate its business, except for any failures of such which
would not have a Material Adverse Effect;
(c) The
Company is not the subject of any outstanding written order or Contract with
any
governmental authority or person respecting Environmental Laws or any violation
or potential violations thereof; and,
(d) The
Company has not received any written communication alleging either or both
that
the Company may be in violation of any Environmental Law, or any permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law.
4.30 Broker.
Except
as specified in Schedule 4.30, neither the Company nor any Seller has retained
any broker in connection with any transaction contemplated by this Agreement.
Purchaser and the Company shall not be obligated to pay any fee or commission
associated with the retention or engagement by the Company or Sellers of
any
broker in connection with any transaction contemplated by this
Agreement.
4.31. Related
Party Transactions.
Except
as described in Schedule 4.31, all transactions during the past five years
between the Company and any current or former shareholder or any entity in
which
the Company or any current or former shareholder had or has a direct or indirect
interest have been fair to the Company as determined by the Board of Directors.
No portion of the sales or other on-going business relationships of the Company
is dependent upon the friendship or the personal relationships (other than
those
customary within business generally) of any Seller, except as described in
Schedule 4.31. During the past five years, the Company has not forgiven or
cancelled, without receiving full consideration, any indebtedness owing to
it by
any Seller.
4.32 Patriot
Act.
The
Company and the Sellers certify that the Company has not been designated,
and is
not owned or controlled, by a “suspected terrorist” as defined in Executive
Order 13224. The Company and the Sellers hereby acknowledge that the Purchaser
seeks to comply with all applicable laws concerning money laundering and
related
activities. In furtherance of those efforts, the Company and the Sellers
hereby
represent, warrant and agree that: (i) none of the cash or property that
the
Sellers have contributed or paid or will contribute and pay to the Company
has
been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by
the
Company to the Purchaser, to the extent that they are within the Company’s
control shall cause the Purchaser to be in violation of the United States
Bank
Secrecy Act, the United States International Money Laundering Control Act
of
1986 or the United States International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001. The Sellers shall promptly notify the
Purchaser if any of these representations ceases to be true and accurate
regarding the Sellers or the Company. The Sellers agree to provide the Purchaser
any additional information regarding the Company that the Purchaser reasonably
requests to ensure compliance with all applicable laws concerning money
laundering and similar activities.
4.33. Disclosure.
All
statements contained in any schedule, certificate, opinion, instrument, or
other
document delivered by or on behalf of the Sellers or the Company pursuant
hereto
or in connection with the transactions contemplated hereby shall be deemed
representations and warranties by each Seller and the Company herein. No
statement, representation or warranty by the Sellers or the Company in this
Agreement or in any schedule, certificate, opinion, instrument, or other
document furnished or to be furnished to the Purchaser pursuant hereto or
in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading or necessary in order to provide a prospective
purchaser of the business of the Company with full and fair disclosure
concerning the Company, its business, and the Company’s affairs.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
5.1 Organization
and Good Standing.
The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
5.2 Authority.
(a) The
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been, or will prior to Closing be,
duly
and validly approved and acknowledged by all necessary corporate action on
the
part of the Purchaser.
(b) The
execution of this Agreement and the delivery hereof to the Sellers and the
purchase contemplated herein have been, or will be prior to Closing, duly
authorized by the Purchaser’s Board of Directors having full power and authority
to authorize such actions.
5.3 Conflicts;
Consents of Third Parties.
(a) The
execution and delivery of this Agreement, the acquisition of the Shares by
Purchaser and the consummation of the transactions herein contemplated, and
the
compliance with the provisions and terms of this Agreement, are not prohibited
by the Articles of Incorporation or Bylaws of the Purchaser and will not
violate, conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any court order, indenture, mortgage,
loan
agreement, or other agreement or instrument to which the Purchaser is a party
or
by which it is bound.
(b) No
consent, waiver, approval, order, permit or authorization of, or declaration
or
filing with, or notification to, any person or governmental body is required
on
the part of the Purchaser in connection with the execution and delivery of
this
Agreement or the Purchaser Documents or the compliance by Purchaser with
any of
the provisions hereof or thereof.
5.4 Litigation.
There
are
no legal proceedings pending or, to the best knowledge of the Purchaser,
threatened that are reasonably likely to prohibit or restrain the ability
of the
Purchaser to enter into this Agreement or consummate the transactions
contemplated hereby.
5.5 Investment
Intention.
The
Purchaser is acquiring the Shares for its own account, for investment purposes
only and not with a view to the distribution (as such term is used in Section
2(11) of the Securities Act of 1933, as amended (the "Securities Act") thereof.
Purchaser understands that the Shares have not been registered under the
Securities Act and cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
5.6 Broker.
Except
for Punk Ziegel & Company, the Purchaser has not retained any broker in
connection with any transaction contemplated by this Agreement. Sellers shall
not be obligated to pay any fee or commission associated with the retention
or
engagement by the Purchaser of any broker in connection with any transaction
contemplated by this Agreement.
5.7 Patriot
Act.
The
Purchaser certifies that neither the Purchaser nor any of its subsidiaries
has
been designated, and is not owned or controlled, by a “suspected terrorist” as
defined in Executive Order 13224. The Purchaser hereby acknowledge that the
Company and the Sellers seek to comply with all applicable laws concerning
money
laundering and related activities. In furtherance of those efforts, the
Purchaser hereby represent, warrant and agree that: (i) none of the cash
or
property that the Purchaser has contributed or paid or will contribute and
pay
to the Sellers has been or shall be derived from, or related to, any activity
that is deemed criminal under United States law; and (ii) no contribution
or
payment by the Purchaser or any of its subsidiaries to the Sellers, to the
extent that they are within the Purchaser’s control shall cause the Sellers or
the Company to be in violation of the United States Bank Secrecy Act, the
United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act
of
2001. The Purchaser shall promptly notify the Sellers if any of these
representations ceases to be true and accurate regarding the Purchaser or
any of
its subsidiaries. The Purchaser agrees to provide the Sellers any additional
information regarding the Purchaser or any of its subsidiaries that the Sellers
reasonably requests to ensure compliance with all applicable laws concerning
money laundering and similar activities.
ARTICLE
VI
COVENANTS
6.1 Access
to Information.
The
Sellers and the Company agree that, prior to the Closing Date, the Purchaser
shall be entitled, through its officers, employees and representatives
(including, without limitation, its legal advisors and accountants), to make
such investigation of the properties, businesses and operations of the Company
and its Subsidiaries and such examination of the books, records and financial
condition of the Company and its Subsidiaries as it reasonably requests and
to
make extracts and copies of such books and records. Any such investigation
and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Sellers shall cooperate, and shall cause
the
Company and its Subsidiaries to cooperate, fully therein. No investigation
by
the Purchaser prior to or after the date of this Agreement shall diminish
or
obviate any of the representations, warranties, covenants or agreements of
the
Sellers contained in this Agreement or the Seller Documents. In order that
the
Purchaser may have full opportunity to make such physical, business, accounting
and legal review, examination or investigation as it may reasonably request
of
the affairs of the Company and its Subsidiaries, the Sellers shall cause
the
officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company and its Subsidiaries to cooperate fully with
such
representatives in connection with such review and examination.
6.2 Conduct
of the Business Pending the Closing.
(a) Except
as
otherwise expressly contemplated by this Agreement or with the prior written
consent of the Purchaser, the Sellers shall, and shall cause the Company
to:
(i) Conduct
the respective businesses of the Company only in the ordinary course consistent
with past practice;
(ii) Use
its
best efforts to (A) preserve its present business operations, organization
(including, without limitation, management and the sales force) and goodwill
of
the Company and (B) preserve its present relationship with Persons having
business dealings with the Company;
(iii) Maintain
(A) all of the assets and properties of the Company in their current condition,
ordinary wear and tear excepted and (B) insurance upon all of the properties
and
assets of the Company in such amounts and of such kinds com-parable to that
in
effect on the date of this Agreement;
(iv) (A)
maintain the books, accounts and records of the Company in the ordinary course
of business consistent with past practices, (B) continue to collect accounts
receivable and pay accounts payable utilizing normal procedures and without
discounting or accelerating payment of such accounts, and (C) comply with
all
contractual and other obligations applicable to the operation of the Company;
and
(v) Comply
in
all material respects with applicable laws.
(b) Except
as
otherwise expressly contemplated by this Agreement or with the prior written
consent of the Purchaser, the Sellers shall not, and shall cause the Company
not
to:
(i) Declare,
set aside, make or pay any dividend or other distribution in respect of the
capital stock of the Company or repurchase, redeem or otherwise acquire any
outstanding shares of the capital stock or other securities of, or other
ownership interests in, the Company;
(ii) Transfer,
issue, sell or dispose of any shares of capital stock or other securities
of the
Company or grant options, warrants, calls or other rights to purchase or
otherwise acquire shares of the capital stock or other securities of the
Company;
(iii) Effect
any recapitalization, reclassification, stock split or like change in the
capitalization of the Company;
(iv) Amend
the
certificate of incorporation or by-laws of the Company;
(v) (A)
materially increase the annual level of compensation of any employee of the
Company, (B) increase the annual level of compensation payable or to become
payable by the Company to any of its executive officers, (C) grant any unusual
or extraordinary bonus, benefit or other direct or indirect compensation
to any
employee, director or consultant, (D) increase the coverage or benefits
available under any (or create any new) severance pay, termination pay, vacation
pay, company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or
other
employee benefit plan or arrangement made to, for, or with any of the directors,
officers, employees, agents or representatives of the Company or otherwise
modify or amend or terminate any such plan or arrangement or (E) enter into
any
employment, deferred compensation, severance, consulting, non-competition
or
similar agreement (or amend any such agreement) to which the Company is a
party
or involving a director, officer or employee of the Company in his or her
capacity as a director, officer or employee of the Company;
(vi) Except
for trade payables and for indebtedness for borrowed money incurred in the
ordinary course of business and consistent with past practice, borrow monies
for
any reason or draw down on any line of credit or debt obligation, or become
the
guarantor, surety, endorser or otherwise liable for any debt, obligation
or
liability (contingent or otherwise) of any other Person, or change the terms
of
payables or receivables;
(vii) Subject
to any lien (except for leases that do not materially impair the use of the
property subject thereto in their respective businesses as presently conducted),
any of the properties or assets (whether tangible or intangible) of the
Company;
(viii) Acquire
any material properties or assets or sell, assign, transfer, convey, lease
or
otherwise dispose of any of the material properties or assets (except for
fair
consideration in the ordinary course of business consistent with past practice)
of the Company except, with respect to the items listed on Schedule 6.2(b)(viii)
hereto, as previously consented to by the Purchaser;
(ix) Cancel
or
compromise any debt or claim or waive or release any material right of the
Company except in the ordinary course of business consistent with past
practice;
(x) Enter
into any commitment for capital expenditures out of the ordinary
course;
(xi) Permit
the Company to enter into any transaction or to make or enter into any Contract
which by reason of its size or otherwise is not in the ordinary course of
business consistent with past practice;
(xii) Permit
the Company to enter into or agree to enter into any merger or consolidation
with, any corporation or other entity, and not engage in any new business
or
invest in, make a loan, advance or capital contribution to, or otherwise
acquire
the securities of any other Person;
(xiii) Except
for transfers of cash pursuant to normal cash management practices, permit
the
Company to make any investments in or loans to, or pay any fees or expenses
to,
or enter into or modify any Contract with, any Seller or any Affiliate of
any
Seller; or
(xiv) Agree
to
do anything prohibited by this Section 6.2 or anything which would make any
of
the representations and warranties of the Sellers in this Agreement or the
Seller Documents untrue or incorrect in any material respect as of any time
through and including the Effective Time.
6.3 Consents.
The
Sellers shall use their best efforts, and the Purchaser shall cooperate with
the
Sellers, to obtain at the earliest practicable date all consents and approvals
required to consummate the transactions contemplated by this Agreement,
including, without limitation, the consents and approvals referred to in
Section
4.7 hereof; provided, however, that neither the Sellers nor the Purchaser
shall
be obligated to pay any consideration therefor to any third party from whom
consent or approval is requested.
6.4 Other
Actions.
Each
of
the Sellers and the Purchaser shall use its best efforts to (i) take all
actions
necessary or appropriate to consummate the transactions contemplated by this
Agreement and (ii) cause the fulfillment at the earliest practicable date
of all
of the conditions to their respective obligations to consummate the transactions
contemplated by this Agreement.
6.5 No
Solicitation.
The
Sellers will not, and will not cause or permit the Company or any of the
Company's directors, officers, employees, representatives or agents
(collectively, the "Representatives") to, directly or indirectly, (i) discuss,
negotiate, undertake, authorize, recommend, propose or enter into, either
as the
proposed surviving, merged, acquiring or acquired corporation, any transaction
involving a merger, consolidation, business combination, purchase or disposition
of any amount of the assets or capital stock or other equity interest in
the
Company other than the transactions contemplated by this Agreement (an
"Acquisition Transaction"), (ii) facilitate, encourage, solicit or initiate
discussions, negotiations or submissions of proposals or offers in respect
of an
Acquisition Transaction, (iii) furnish or cause to be furnished, to any Person,
any information concerning the business, operations, properties or assets
of the
Company in connection with an Acquisition Transaction, or (iv) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to do or seek any of the foregoing.
The Sellers will inform the Purchaser in writing immediately following the
receipt by any Seller, the Company or any Representative of any proposal
or
inquiry in respect of any Acquisition Transaction.
6.6 Preservation
of Records.
Subject
to Section 9.4(e) hereof (relating to the preservation of Tax records), the
Sellers and the Purchaser agree that each of them shall preserve and keep
the
records held by it relating to the business of the Company for a period of
three
years from the Closing Date and shall make such records and personnel available
to the other as may be reasonably required by such party in connection with,
among other things, any insurance claims by, legal proceedings against or
governmental investigations of the Sellers or the Purchaser or any of their
Affiliates or in order to enable the Sellers or the Purchaser to comply with
their respective obligations under this Agreement and each other agreement,
document or instrument contemplated hereby or thereby.
6.7 Publicity.
None
of
the Sellers nor the Purchaser shall issue any press release or public
announcement concerning this Agreement or the transactions contemplated hereby
without obtaining the prior written approval of the other party hereto, which
approval will not be unreasonably withheld or delayed, unless, in the sole
judgment of the Purchaser or the Sellers, disclosure is otherwise required
by
applicable Law or by the applicable rules of any stock exchange on which
the
Purchaser lists securities, provided that, to the extent required by applicable
law, the party intending to make such release shall use its best efforts
consistent with such applicable law to consult with the other party with
respect
to the text thereof.
6.8 Use
of
Name.
The
Sellers hereby agrees that upon the consummation of the transactions
contemplated hereby, the Purchaser and the Company shall have the sole right
to
the use of the name "New England Communications Systems, Inc." and the Sellers
shall not, and shall not cause or permit any Affiliate to, use such name
or any
variation or simulation thereof.
6.9 Employment
Agreements.
On
or
prior to the Closing Date, each of Myron Polulak and Carolyn Windesheim shall
enter into an employment agreement with the Company, substantially in the
form
of agreement attached hereto as Exhibit 6.9 (the “Employment Agreements”).
6.10 Board
of Directors.
The
Board
of Directors of the Company as of the Closing Date shall consist of one
executive officer of the Company and three members appointed by the
Purchaser.
6.11 Vehicle
Leases.
All
leases related to vehicles which are not used directly for the business of
the
Company shall be terminated or assumed by third parties on or prior to the
Closing Date.
6.12 Gary
Tallmon Consulting Agreement.
On
or
prior to the Closing Date, Gary Tallmon shall enter into a consulting agreement
with the Company, substantially in the form of agreement attached hereto
as
Exhibit 6.12 (the “Consulting Agreement”). The Consulting Agreement shall become
effective as of July 1, 2006.
6.13 Financial
Statements.
The
Sellers shall cooperate with the Purchaser, at Purchaser’s expense, to provide
all information required for the completion of audited financial statements
of
the Company for the years ended December 31,2004 and 2005 to be prepared
and
delivered no later than 60 days from the Closing Date.
6.14 Tax
Election.
At
the
sole discretion of the Purchaser, the Sellers agree to make a timely election
under Internal Revenue Code Section 338(h)(10) (“338(h)(10) election”), and
Purchaser shall indemnify and hold harmless Sellers from and against any
Tax
liabilities imposed on Sellers as a result of having made any such 338(h)(10)
election to the extent that such Tax liabilities exceed the Tax liabilities
that
the Sellers would incur in the absence of such election (the “Purchaser Tax
Payments”). Within sixty (60) days of Purchaser’s requiring such 338(h)(10)
election, Sellers shall provide a tax opinion from certified public accountants
stating the extent of such Tax liabilities for the Sellers to the extent
Purchaser requires a 338(h)(10) election. Unless within thirty-five (35)
business days of delivery of such tax opinion by Sellers to Purchaser, Sellers
have received a written objection from Purchaser to such tax opinion then
such
tax opinion shall be considered the final tax opinion with respect to this
matter (the “Final Tax Opinion”). If within thirty-five (35) business days of
delivery of the tax opinion by Sellers to Purchaser, Seller receives a written
objection from Purchaser to such tax opinion, then the Sellers and Purchaser
shall attempt to reconcile their differences diligently and in good faith
and
any resolution by them shall be final, binding and conclusive. If the Sellers
and the Purchaser are unable to reach a resolution with such effect within
ten
(10) business days of the Sellers’ receipt of the Purchaser’s written notice,
the Sellers and the Purchaser shall submit such dispute for resolution to
an
independent tax accounting firm mutually appointed by the Sellers and the
Purchaser (the “Independent Tax Firm”), which shall determine and report to the
parties and such report shall be final, binding and conclusive on the parties
hereto. The fees and disbursements of the Independent Tax Firm shall be shared
equally by the Sellers and the Purchaser. In the event that the Sellers incur
any Tax obligations as a result of the 338(h)(10) election as determined
by the
Final Tax Opinion which are in excess of amounts due had the transactions
set
forth herein been taxed as a stock sale, then the amount that the Purchaser
shall be required to reimburse Sellers under this paragraph (1) shall be
grossed
up to assure that Sellers do not incur any Tax cost as a result of the
338(h)(10) election and the reimbursement payments under this paragraph and
(2)
shall take into account the highest marginal income tax rate applicable to
payments of this type at the applicable times as applies to any of the Sellers.
Any Purchaser Tax Payments shall be treated by the parties as additional
Seller
Purchase Price and shall be paid to Sellers not less than seven (7) days
prior
to the time Sellers are required to pay such amounts with a Federal tax return
or estimate.
6.15 Tax
Matters.
(a) Tax
Periods Ending on or Before the Closing Date.
The
Sellers shall prepare or cause to be prepared and file or cause to be filed
all
Tax Returns for the Company for all periods ending on or prior to the Closing
Date which are filed after the Closing Date as soon as practicable and prior
to
the date due (including any proper extensions thereof). The Sellers shall
permit
the Company and the Purchaser to review and provide comments, if any, on
each
such Return described in the preceding sentence prior to filing. Unless the
Purchaser or the Company provides comments to the Sellers, the Company shall
deliver to the Sellers each such Return signed by the appropriate officer(s)
of
the Company for filing within ten (10) days following the Seller’s delivery to
the Company and the Purchaser of any such Return. The Sellers shall deliver
to
the Company promptly after filing each such Return a copy of the filed Return
and evidence of its filing. The Sellers shall pay the costs and expenses
incurred in the preparation and filing of the Tax Returns on or before the
date
such costs and expenses are due.
If
the
Company provides comments to the Sellers and at the end of such ten (10)
day
period the Company and the Sellers have failed to reach written agreement
with
respect to all of such disputed items, the parties shall submit the unresolved
items to arbitration for final determination. Promptly, but no later than
thirty
(30) days after its acceptance of its appointment as arbitrator, the arbitrator
shall render an opinion as to the disputed items. The determination of the
arbitrator shall be conclusive and binding upon the parties. The Company
and the
Sellers (as a group) shall each pay one half of the fees, costs and expenses
of
the arbitrator. The prevailing party may be entitled to an award of pre-
and
post-award interest as well as reasonable attorneys’ fees incurred in connection
with the arbitration and any judicial proceedings related thereto as determined
by the arbitrator.
(b) Tax
Periods Beginning Before and Ending After the Closing Date.
The
Company or the Purchaser shall prepare or cause to be prepared and file or
cause
to be filed any Returns of the Company for Tax periods that begin before
the
Closing Date and end after the Closing Date. To the extent such Taxes are
not
fully reserved for in the Company’s financial statements, the Sellers shall pay
to the Company an amount equal to the unreserved portion of such Taxes that
relates to the portion of the Tax period ending on the Closing Date. Such
payment, if any, shall be paid by the Sellers within fifteen (15) days after
receipt of written notice from the Company or the Purchaser that such Taxes
were
paid by the Company or the Purchaser for a period beginning prior to the
Closing
Date. For purposes of this Section, in the case of any Taxes that are imposed
on
a periodic basis and are payable for a Taxable period that includes (but
does
not end on) the Closing Date, the portion of such Tax that relates to the
portion of such Tax period ending on the Closing Date shall (i) in the case
of
any Taxes other than Taxes based upon or related to income or receipts, be
deemed to be the amount of such Tax for the entire Tax period multiplied
by a
fraction the numerator of which is the number of days in the Tax period ending
on the Closing Date and the denominator of which is the number of days in
the
entire Tax period (the “Pro Rata Amount”), and (ii) in the case of any Tax based
upon or related to income or receipts, be deemed equal to the amount that
would
be payable if the relevant Tax period ended on the Closing Date. The Sellers
shall pay to the Company with the payment of any taxes due hereunder, the
Sellers’ Pro Rata Amount of the costs and expenses incurred by the Purchaser or
the Company in the preparation and filing of the Tax Returns. Any net operating
losses or credits relating to a Tax period that begins before and ends after
the
Closing Date shall be taken into account as though the relevant Tax period
ended
on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a reasonable manner as agreed to by
the
parties.
(c) Refunds
and Tax Benefits.
Any Tax
refunds that are received after the Closing Date by the Sellers (other than
tax
refunds received in connection with such Sellers individual tax Returns),
the
Purchaser or the Company, and any amounts credited against Tax to which the
Sellers, the Purchaser or the Company become entitled, shall be for the account
of the Company, and the Sellers shall pay over to the Company any such refund
or
the amount of any such credit within fifteen (15) days after receipt or
entitlement thereto. In addition, to the extent that a claim for refund or
a
proceeding results in a payment or credit against Tax by a taxing authority
to
the Sellers, the Sellers shall pay such amount to the Company within fifteen
(15) days after receipt or entitlement thereto.
(d) Cooperation
on Tax Matters.
(i) The
Purchaser, the Company and the Sellers shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing
of
any Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
The
Company and the Sellers agree (A) to retain all books and records with respect
to Tax matters pertinent to the Company relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations
(and,
to the extent notified by the Purchaser or the Sellers, any extensions thereof)
of the respective tax periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding
any
such books and records and, if the other party so requests, the Company or
the
Sellers, as the case may be, shall allow the other party to take possession
of
such books and records.
(ii) The
Purchaser and the Sellers further agree, upon request, to use their commercially
reasonable best efforts to obtain any certificate or other document from
any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(iii) The
Purchaser and the Sellers further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to §6043 of the Code and all Treasury Department Regulations promulgated
thereunder.
ARTICLE
VII
CONDITIONS
TO CLOSING
7.1 Conditions
Precedent to Obligations of Purchaser.
The
obligation of the Purchaser to consummate the transactions contemplated by
this
Agreement is subject to the fulfillment, on or prior to the Closing Date,
of
each of the following conditions (any or all of which may be waived by the
Purchaser in whole or in part to the extent permitted by applicable
law):
(a) all
representations and warranties of the Sellers contained herein shall be true
and
correct as of the date hereof;
(b) all
representations and warranties of the Sellers contained herein qualified
as to
materiality shall be true and correct, and the representations and warranties
of
the Sellers contained herein not qualified as to materiality shall be true
and
correct in all material respects, at and as of the Closing Date with the
same
effect as though those representations and warranties had been made again
at and
as of that time;
(c) the
Sellers shall have performed and complied in all material respects with all
obligations and covenants required by this Agreement to be performed or complied
with by them on or prior to the Closing Date;
(d) the
Purchaser shall have been furnished with certificates (dated the Closing
Date
and in form and substance reasonably satisfactory to the Purchaser) executed
by
each Seller certifying as to the fulfillment of the conditions specified
in
Sections 7.1(a), 7.1(b) and 7.1(c) hereof;
(e) Certificates
representing 100% of the Shares shall have been, or shall at the Closing
be,
validly delivered and transferred to the Purchaser, free and clear of any
and
all Liens;
(f) there
shall not have been or occurred any Material Adverse Change;
(g) the
Sellers shall have obtained all consents and waivers referred to in Section
4.7
hereof, in a form reasonably satisfactory to the Purchaser, with respect
to the
transactions contemplated by this Agreement;
(h) no
Legal
Proceedings shall have been instituted or threatened or claim or demand made
against the Sellers, the Company, or the Purchaser seeking to restrain or
prohibit or to obtain substantial damages with respect to the consummation
of
the transactions contemplated hereby, and there shall not be in effect any
order
by a governmental body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated
hereby;
(i) the
Purchaser shall have received the written resignations of each director of
the
Company, other than Myron Polulak;
(j)
the
Employment Agreements shall have been executed by Myron Polulak, Carolyn
Windesheim and the Company and the Consulting Agreement shall have been executed
by Gary Tallmon and the Company;
(k) the
Purchaser shall have received information satisfactory in its sole discretion
to
verify the accuracy of the backlog and financial projections delivered by
the
Sellers to the Purchaser; and
(l) On
the
Effective Date, the Company must have a GAAP working capital position (current
assets minus current liabilities) of at least $972,000.
7.2 Conditions
Precedent to Obligations of the Sellers.
The
obligations of the Sellers to consummate the transactions contemplated by
this
Agreement are subject to the fulfillment, prior to or on the Closing Date,
of
each of the following conditions (any or all of which may be waived by the
Sellers in whole or in part to the extent permitted by applicable
law):
(a) all
representations and warranties of the Purchaser contained herein shall be
true
and correct as of the date hereof;
(b) all
representations and warranties of the Purchaser contained herein qualified
as to
materiality shall be true and correct, and all representations and warranties
of
the Purchaser contained herein not qualified as to materiality shall be true
and
correct in all material respects, at and as of the Closing Date with the
same
effect as though those representations and warranties had been made again
at and
as of that date;
(c) the
Purchaser shall have performed and complied in all material respects with
all
obligations and covenants required by this Agreement to be performed or complied
with by Purchaser on or prior to the Closing Date;
(d) the
Sellers shall have been furnished with certificates (dated the Closing Date
and
in form and substance reasonably satisfactory to the Sellers) executed by
the
Chief Executive Officer and Chief Financial Officer of the Purchaser certifying
as to the fulfillment of the conditions specified in Sections 7.2(a), 7.2(b)
and
7.2(c);
(e) no
Legal
Proceedings shall have been instituted or threatened or claim or demand made
against the Sellers, the Company, or the Purchaser seeking to restrain or
prohibit or to obtain substantial damages with respect to the consummation
of
the transactions contemplated hereby, and there shall not be in effect any
Order
by a Governmental Body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated
hereby;
(f) the
Employment Agreements shall have been executed by Myron Polulak, Carolyn
Windesheim and the Company and the Consulting Agreement shall have been executed
by Gary Tallmon and the Company; and
(g) appropriate
actions shall have been taken to remove each Seller from any personal guarantees
provided on behalf of the Company or indemnification shall have been provided
for such guarantees which is acceptable in the sole discretion of the
Sellers.
ARTICLE
VIII
DOCUMENTS
TO BE DELIVERED
8.1 Documents
to be Delivered by the Sellers.
At
the
Closing, the Sellers shall deliver, or cause to be delivered, to the Purchaser
the following:
(a) stock
certificates representing the Shares, duly endorsed in blank or accompanied
by
stock transfer powers and with all requisite stock transfer tax stamps attached;
(b) the
certificates referred to in Section 7.1(d) and 7.1(e) hereof;
(c) copies
of
all consents and waivers referred to in Section 7.1(g) hereof;
(d) Employment
Agreements, substantially in the form of Exhibit 6.9 hereto, duly executed
by
each Seller;
(e) written
resignations of each of the directors of the Company, other than Myron
Polulak;
(f) certificate
of good standing with respect to the Company issued by the Secretary of State
of
the State of incorporation, and for each state in which the Company is qualified
to do business as a foreign corporation; and
(g) such
other documents as the Purchaser shall reasonably request.
8.2 Documents
to be Delivered by the Purchaser.
At
the
Closing, the Purchaser shall deliver to the Sellers the following:
(a) The
Purchase Price;
(b) the
certificates referred to in Section 7.2(d) hereof; and
(c) such
other documents as the Sellers shall reasonably request.
ARTICLE
IX
INDEMNIFICATION
9.1 Indemnification.
(a) Subject
to Section 9.2 hereof, the Sellers hereby agrees to jointly and severally
indemnify and hold the Purchaser, the Company, and their respective directors,
officers, employees, Affiliates, agents, successors and assigns (collectively,
the "Purchaser Indemnified Parties") harmless from and against:
(i) any
and
all liabilities of the Company of every kind, nature and description, absolute
or contingent, existing as against the Company prior to and including the
Closing Date or thereafter coming into being or arising by reason of any
state
of facts existing, or any transaction entered into, on or prior to the Closing
Date, except to the extent that the same have been fully provided for in
the
Balance Sheet, or disclosed in the notes thereto or were incurred in the
ordinary course of business between the Balance Sheet date and the Closing
Date;
(ii) subject
to Section 10.3, any and all losses, liabilities, obligations, damages, costs
and expenses based upon, attributable to or resulting from the failure of
any
representation or warranty of the Sellers set forth in Section 4 hereof,
or any
representation or warranty contained in any certificate delivered by or on
behalf of the Sellers pursuant to this Agreement, to be true and correct
in all
respects as of the date made;
(iii) any
and
all losses, liabilities, obligations, damages, costs and expenses based upon,
attributable to or resulting from the breach of any covenant or other agreement
on the part of the Sellers under this Agreement;
(iv) any
and
all notices, actions, suits, proceedings, claims, demands, assessments,
judgments, costs, penalties and expenses, including reasonable attorneys'
and
other professionals' fees and disbursements (collectively, "Expenses") incident
to any and all losses, liabilities, obligations, damages, costs and expenses
with respect to which indemnification is provided hereunder (collectively,
"Losses").
(b) Subject
to Section 9.2, Purchaser hereby agrees to indemnify and hold the Sellers
and
their respective Affiliates, agents, successors and assigns (collectively,
the
"Seller Indemnified Parties") harmless from and against:
(i) any
and
all Losses based upon, attributable to or resulting from the failure of any
representation or warranty of the Purchaser set forth in Section 5 hereof,
or
any representation or warranty contained in any certificate delivered by
or on
behalf of the Purchaser pursuant to this Agreement, to be true and correct
as of
the date made;
(ii) any
and
all Losses based upon, attributable to or resulting from the breach of any
covenant or other agreement on the part of the Purchaser under this Agreement
or
arising from the ownership or operation of the Company from and after the
Closing Date; and
(iii) any
and
all Expenses incident to the foregoing.
9.2 Limitations
on Indemnification for Breaches of Representations and
Warranties.
An
indemnifying party shall not have any liability under Section 9.1(a)(ii)
or
Section 9.1(b)(i) hereof unless the aggregate amount of Losses and Expenses
to
the indemnified parties finally determined to arise thereunder based upon,
attributable to or resulting from the failure of any representation or warranty
to be true and correct, other than the representations and warranties set
forth
in Sections 4.3, 4.11, 4.24 and 4.29 hereof, exceeds $25,000 (the “Basket”) and,
in such event, the indemnifying party shall be required to pay the entire
amount
of such Losses and Expenses in excess of $25,000 (the
“Deductible”).
9.3 Indemnification
Procedures.
(a) In
the
event that any Legal Proceedings shall be instituted or that any claim or
demand
("Claim") shall be asserted by any Person in respect of which payment may
be
sought under Section 9.1 hereof (regardless of the Basket or the Deductible
referred to above), the indemnified party shall reasonably and promptly cause
written notice of the assertion of any Claim of which it has knowledge which
is
covered by this indemnity to be forwarded to the indemnifying party. The
indemnifying party shall have the right, at its sole option and expense,
to be
represented by counsel of its choice, which must be reasonably satisfactory
to
the indemnified party, and to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder.
If the indemnifying party elects to defend against, negotiate, settle or
otherwise deal with any Claim which relates to any Losses indemnified against
hereunder, it shall within five (5) days (or sooner, if the nature of the
Claim
so requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder,
fails to notify the indemnified party of its election as herein provided
or
contests its obligation to indemnify the indemnified party for such Losses
under
this Agreement, the indemnified party may defend against, negotiate, settle
or
otherwise deal with such Claim. If the indemnified party defends any Claim,
then
the indemnifying party shall reimburse the indemnified party for the Expenses
of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
however, that such indemnified party shall be entitled to participate in
any
such defense with separate counsel at the expense of the indemnifying party
if,
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party
that
would make such separate representation advisable; and provided, further,
that
the indemnifying party shall not be required to pay for more than one such
counsel for all indemnified parties in connection with any Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
(b) After
any
final judgment or award shall have been rendered by a court, arbitration
board
or administrative agency of competent jurisdiction and the expiration of
the
time in which to appeal therefrom, or a settlement shall have been consummated,
or the indemnified party and the indemnifying party shall have arrived at
a
mutually binding agreement with respect to a Claim hereunder, the indemnified
party shall forward to the indemnifying party notice of any sums due and
owing
by the indemnifying party pursuant to this Agreement with respect to such
matter
and the indemnifying party shall be required to pay all of the sums so due
and
owing to the indemnified party by wire transfer of immediately available
funds
within 10 business days after the date of such notice.
(c) The
failure of the indemnified party to give reasonably prompt notice of any
Claim
shall not release, waive or otherwise affect the indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party can demonstrate actual loss and prejudice as a result of such
failure.
9.4 Tax
Treatment of Indemnity Payments.
The
Sellers and the Purchaser agree to treat any indemnity payment made pursuant
to
this Article 9 as an adjustment to the Purchase Price for federal, state,
local
and foreign income tax purposes.
ARTICLE
X
MISCELLANEOUS
10.1 Payment
of Sales, Use or Similar Taxes.
All
sales, use, transfer, intangible, recordation, documentary stamp or similar
Taxes or charges, of any nature whatsoever, applicable to, or resulting from,
the transactions contemplated by this Agreement shall be borne by the
Sellers.
10.2 Survival
of Representations and Warranties.
The
parties hereto hereby agree that the representations and warranties contained
in
this Agreement or in any certificate, document or instrument delivered in
connection herewith, shall survive the execution and delivery of this Agreement,
and the Closing hereunder, regardless of any investigation made by the parties
hereto; provided, however, that any claims or actions with respect thereto
(other than claims for indemnifications with respect to the representation
and
warranties contained in Sections 4.3, 4.11, 4.24 and 4.29 which shall survive
for periods coterminous with any applicable statutes of limitation) shall
terminate unless within twenty four (24) months after the Closing Date written
notice of such claims is given to the Sellers or such actions are
commenced.
10.3 Expenses.
Except
as
otherwise provided in this Agreement, the Sellers and the Purchaser shall
each
bear its own expenses incurred in connection with the negotiation and execution
of this Agreement and each other agreement, document and instrument contemplated
by this Agreement and the consummation of the transactions contemplated hereby
and thereby, it being understood that in no event shall the Company bear
any of
such costs and expenses.
10.4 Specific
Performance.
The
Sellers acknowledge and agree that the breach of this Agreement would cause
irreparable damage to the Purchaser and that the Purchaser will not have
an
adequate remedy at law. Therefore, the obligations of the Sellers under this
Agreement, including, without limitation, the Sellers' obligation to sell
the
Shares to the Purchaser, shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith.
Such
remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement
or
otherwise.
10.5 Further
Assurances.
The
Sellers and the Purchaser each agrees to execute and deliver such other
documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
10.6 Submission
to Jurisdiction; Consent to Service of Process.
(a) The
parties hereto hereby irrevocably submit to the non-exclusive jurisdiction
of
any federal or state court located within the State of Connecticut over any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby and each party hereby irrevocably agrees that all claims
in
respect of such dispute or any suit, action proceeding related thereto may
be
heard and determined in such courts. The parties hereby irrevocably waive,
to
the fullest extent permitted by applicable law, any objection which they
may now
or hereafter have to the laying of venue of any such dispute brought in such
court or any defense of inconvenient forum for the maintenance of such dispute.
Each of the parties hereto agrees that a judgment in any such dispute may
be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Each
of
the parties hereto hereby consents to process being served by any party to
this
Agreement in any suit, action or proceeding by the mailing of a copy thereof
in
accordance with the provisions of Section 10.10.
10.7 Entire
Agreement; Amendments and Waivers.
This
Agreement (including the schedules and exhibits hereto) represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the party against whom enforcement
of any
such amendment, supplement, modification or waiver is sought. No action taken
pursuant to this Agreement, including without limitation, any investigation
by
or on behalf of any party, shall be deemed to constitute a waiver by the
party
taking such action of compliance with any representation, warranty, covenant
or
agreement contained herein. The waiver by any party hereto of a breach of
any
provision of this Agreement shall not operate or be construed as a further
or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or
remedy
by such party preclude any other or further exercise thereof or the exercise
of
any other right, power or remedy. All remedies hereunder are cumulative and
are
not exclusive of any other remedies provided by law.
10.8 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Connecticut.
10.9 Table
of Contents and Headings.
The
table
of contents and section headings of this Agreement are for reference purposes
only and are to be given no effect in the construction or interpretation
of this
Agreement.
10.10 Notices.
All
notices and other communications under this Agreement shall be in writing
and
shall be deemed given when delivered personally or mailed by certified mail,
return receipt requested, to the parties (and shall also be transmitted by
facsimile to the Persons receiving copies
thereof) at the following addresses (or to such other address as a party
may
have specified by notice given to the other party pursuant to this
provision):
WPCS
International Incorporated
One
East
Uwchlan Avenue, Suite 301
Exton,
Pennsylvania 19341
Attn:
Andrew Hidalgo, President
Phone:
(610) 903-0400
Facsimile:
(610) 903-0401
Copy
to:
Thomas
A.
Rose, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Phone:
(212) 930-9700
Facsimile:
(212) 930-9725
Myron
Polulak
Carolyn
Windesheim
Gary
Tallmon
New
England Communications Systems, Inc.
15
Industrial Park Place
Middletown,
Connecticut 06457
Phone:
(860) 632-2678
Facsimile:
(860) 613-0827
Copy
to:
Robert
L.
Iamonaco, Esq.
Byrne
& Storm, P.C.
330
Main
Street
Hartford,
Connecticut 06106
Phone:
(860) 525-3700
Facsimile:
(860) 525-0287
10.11 Severability.
If
any
provision of this Agreement is invalid or unenforceable, the balance of this
Agreement shall remain in effect.
10.12 Binding
Effect; Assignment.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Nothing in this Agreement
shall create or be deemed to create any third party beneficiary rights in
any
person or entity not a party to this Agreement except as provided below.
No
assignment of this Agreement or of any rights or obligations hereunder may
be
made by either the Sellers or the Purchaser (by operation of law or otherwise)
without the prior written consent of the other parties hereto and any
attempted assignment
without the required consents shall be void;
[intentionally
blank]
| |
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WPCS
INTERNATIONAL INCORPORATED
|
|
|
|
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By: |
/s/
ANDREW HIDALGO |
| |
Andrew
Hidalgo, |
| |
President |
| |
|
|
| |
SELLERS:
|
|
|
|
| |
By: |
/s/ MYRON
POLULAK |
| |
Myron Polulak |
| |
|
|
| |
|
|
|
|
| |
By: |
/s/
CAROLYN
WINDESHEIM |
| |
Carolyn Windesheim |
| |
|
|
| |
|
|
|
|
| |
By: |
/s/ GARY
TALLMON |
| |
Gary Tallmon |
| |
Title |
ANNEX
A
|
Seller
|
Voting |
Non-Voting |
Shares |