SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported): July 20, 2006
(Exact
name of registrant as specified in its charter)
Delaware
|
0-30185
|
20-4763096
|
(State
or Other Jurisdiction
|
(Commission
File
|
(I.R.S.
Employer
|
of
Incorporation)
|
Number)
|
Identification
Number)
|
2200
Arthur Kill Road
Staten
Island, NY 10309-1202
(Address
of principal executive offices) (zip code)
(718)
356-1500
(Registrant's
telephone number, including area code)
Jordan
1
Holdings Company
501
Johstone Avenue, Suite 501 Bartlesville, OK 74003
(Former
name and former address)
Copies
to:
Darrin
Ocasio, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Phone:
(212) 930-9700
Fax:
(212) 930-9725
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting
material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement
communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
On
July
20, 2006, Jordan 1 Holdings Company (the “Company”) entered into an exchange
agreement (the “Exchange Agreement”) pursuant to which the Company acquired all
of the equity of Delaware Fastener Acquisition Corp., a Delaware corporation
(“DFAC”), pursuant to an exchange agreement with the stockholders of DFAC.
Contemporaneously, DFAC acquired the assets, subject to certain liabilities,
of
Freundlich Supply Company, Inc. (“Freundlich Supply”), pursuant to an asset
purchase agreement (the “Asset Purchase Agreement”) dated May 24, 2006 among
DFAC, Freundlich Supply, and Michael Freundlich.
The
purchase of the assets was financed by the proceeds from the sale by the Company
of its securities pursuant to a securities purchase agreement (the “Purchase
Agreement”). As a result of the Exchange Agreement, DFAC became a wholly-owned
subsidiary of the Company. Upon completion of the foregoing transactions,
Company changed its name to Precision Aerospace Components, Inc. and DFAC
changed its name to Freundlich Supply Company, Inc.
The
following is a summary of the agreements which the Company entered into in
connection with these transactions on July 20, 2006.
Purchase
Agreement
The
Company entered into the Purchase Agreement with Barron Partners LP and Richard
Henri Kreger. pursuant to which the investors purchased the Company’s promissory
note in the principal amount of $1,000,000, 5,277,778 shares of its series
A
convertible preferred stock (the “series A preferred stock”) which are
convertible into 15,833,334 shares of common stock, and warrants to purchase
10,541,000 shares of common stock at $.35 per share and 10,541,000 shares of
common stock at $.60 per share. The following table sets forth the investment
by
each of the investors, the principal amount of note received, the number of
shares of series A preferred stock issued and the number of shares issuable
upon
conversion of the series A preferred stock (the “Conversion Shares”) and the
number of shares issuable upon exercise of each set of warrants, and the total
number of shares (“Total Shares) of common stock issuable if the Note, series A
preferred stock and all warrants are converted or exercises, as the case may
be.
|
|
Investment
|
|
Note
|
|
Series
A
Preferred
Stock
|
|
Conversion
Shares
|
|
Warrants
|
|
Total
Shares
|
|
Barron
Partners LP
|
|
$
|
5,250,000
|
|
$
|
1,000,000
|
|
|
4,722,222
|
|
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17,499,999
|
|
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9,624,369
|
|
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35,398,404
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|
Richard
Henri Kreger
|
|
$
|
500,000
|
|
|
--
|
|
|
555,556
|
|
|
1,666,668
|
|
|
916,631
|
|
|
3,499,930
|
|
Total
|
|
$
|
5,750,000
|
|
$
|
1,000,000
|
|
|
5,277,778
|
|
|
19,166,667
|
|
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10,541,000
|
|
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38,898,334
|
|
The
numbers under the column “Warrants” represents the number of shares of common
stock issuable upon exercise of each set of warrants. Thus, the investors have
an equal number of warrants exercisable at $.35 per share as those exercisable
at $.60 per share.
All
numbers of shares of common stock referred to in the description of the Purchase
Agreement reflect a one-for-150 reverse split, which was approved by the
directors and is subject to stockholder approval.
The
Purchase Agreement provides that, within 120 days from the July 20, 2006
closing, the Company will file a restated certificate of incorporation that
will
(i) change the authorized capital stock to 10,000,000 shares of preferred stock
and 90,000,000 shares of common stock and (ii) effect a one-for-150 reverse
split of the common stock. The number of shares of common stock in the foregoing
table reflects the one-for-150 reverse split. The number of Total Shares,
without giving effect to the reverse split, would be 5,309,760,600 shares for
Barron Partners and 524,989,500 shares for Mr. Kreger. The Company has an
authorized common stock of 100,000,000 shares. As a result, the investors will
not have the ability to convert the note or series A preferred stock or exercise
the warrants in full unless the reverse split is effected. If the reverse split
is not effective on or prior to the 120
th
day
after the closing, the Company is required to pay the investors liquidated
damages in an amount equal to 5% of the investment made by the investors, which
would be $287,500.
The
note
is convertible into common stock at a conversion price of $.30 per share. Each
share of series A preferred stock is convertible into common stock at a
conversion rate of three shares of common stock for each share of series A
preferred stock. The conversion rate is based on a conversion price of $.30
per
share of common stock, based on the purchase price of the preferred stock
divided by the number of shares of commons stock issuable upon conversion of
the
series A preferred stock. The conversion price of the note and the conversion
rate of the series A preferred stock are subject to adjustment in certain
instances, including the issuance by the Company of stock at a price which
is
less than the conversion price.
The
Purchase Agreement as well as the note, the certificate of designation for
the
series A preferred stock and the warrants provide for an adjustment in the
conversion price of the note and series A preferred stock and the exercise
price
of the warrants if the Company’s consolidated pre-tax income, as defined, is
less than $.034 per share on a fully-diluted basis for the year ended December
31, 2006 and less than $.051 per share for the year ended December 31, 2007.
The
maximum reduction in the purchase price for either year is 35%. Fully-diluted
pre-tax income is based on the number of shares of common stock which are
outstanding or are otherwise issuable, regardless of whether such shares would
be included in determining diluted earnings per share under generally accepted
accounting principles.
The
following table sets forth the initial conversion price of the notes, the
conversion ratio for the series A preferred stock and the exercise price of
the
$.35 and $.60 warrants and the adjusted numbers if (a) the pre-tax income per
share for each of the two years was 20% below the respective targets (a “20%
shortfall”) and (b) the pre-tax income per share for each of the two years was
35% or more below the targets (a “35% shortfall”). The number of shares reflects
the number of shares of common stock issuable upon conversion of the note or
the
series A preferred stock, and are based on the assumption that no notes or
preferred stock are converted into common stock until the adjustment has been
made for 2007. There is no adjustment in the number of shares issuable upon
exercise of the warrants. The Conversion Price relates to both the note and
the
series A preferred stock, and the number of shares reflects the number of shares
issuable upon full conversion of note and the conversion of all of the shares
of
series A preferred stock.
|
|
Conversion
Price/
|
|
Series
A
|
|
$.35
Warrant
|
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$.60
Warrant
|
|
|
|
Number
of Shares
|
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Conversion
Ratio
|
|
Exercise
Price
|
|
Exercise
Price
|
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Unadjusted
|
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$
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.30/
19,166,667
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|
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3:1
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$
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.35
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$
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.60
|
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20%
shortfall
|
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$
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.192/
29,947,917
|
|
|
4.6875:1
|
|
$
|
.224
|
|
$
|
.384
|
|
35%
shortfall
|
|
$
|
.12675/
45,364,892
|
|
|
7.1006:1
|
|
$
|
.1479
|
|
$
|
.2535
|
|
The
Series A preferred stock has no voting rights, except as required by law.
However, so long as any shares of series A preferred stock are outstanding,
the
Company shall not, without the affirmative approval of the holders of 75% of
the
shares of the series A preferred stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the series A preferred
stock or alter or amend the certificate of designation relating to the series
A
preferred stock, (b) authorize or create any class of stock ranking as to
dividends or distribution of assets upon liquidation senior to or otherwise
pari
passu with the series A preferred stock, or any of preferred stock possessing
greater voting rights or the right to convert at a more favorable price than
the
series A preferred stock, (c) amend its certificate of incorporation or other
charter documents in breach of any of these provisions, (d) increase the
authorized number of shares of Series A Preferred Stock, or (e) enter into
any
agreement with respect to the foregoing.
The
Purchase Agreement, the note, the certificate of designation for the series
A
preferred stock and the warrants provide that the notes or series A preferred
stock cannot be converted and the warrants cannot be exercised to the extent
that such conversion or exercise would result in the investor and its or his
affiliates owning beneficially more than 4.9% of our common stock. Beneficial
ownership is determined in accordance with
Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.
These
provisions cannot be modified.
The
Company agreed to have appointed such number of independent directors that
would
result in a majority of its directors being independent directors, that the
audit committee would be composed solely of independent directors and the
compensation committee would have a majority of independent directors. Failure
of the Company to meet these requirements for a period of 60 days for an excused
reason, as defined in the Purchase Agreement, or 75 days for a reason which
is
not an excused reason, would results in the imposition of liquidated damages
which are payable in cash or additional shares of series A preferred stock..
The
liquidated damages are computed in an amount equal to 15% per annum of the
principal amount of notes outstanding, up to a maximum of $862,500, which is
payable in cash or shares of series A preferred stock, at the election of the
investors.
The
Company and investors entered into a registration rights agreement pursuant
to
which the Company agreed to file, within 60 days after the closing, a
registration statement covering the common stock issuable upon conversion of
notes and the series A preferred stock and exercise of the warrants. The failure
of the Company to meet this schedule and other timetables provided in the
registration rights agreement would result in the imposition of liquidated
damages, which are payable through the issuance of additional shares of series
A
preferred stock at the rate of 2,100 shares of series A preferred stock for
each
day, based on the proposed registration of all of the underlying shares of
common stock, with a maximum of 750,000 shares.
The
warrants issued to the investors have a term of five years. The warrants provide
for adjustments if the Company does not the meet certain financial targets
described above. The warrants also provide that, with certain exceptions, if
the
Company issues common stock at a price, or warrants or other convertible
securities with an exercise or conversion price which is less than the exercise
price of the warrants, the exercise price of the warrants will be reduced to
the
sales price, exercise price or conversion price, as the case may be, of such
other securities.
The
note
is due on July 21, 2011, and it is convertible into common stock at a conversion
price of $.30 per share, subject to adjustment as described above. To the extent
that the Company pays the note prior to December 2, 2006, the note cannot be
converted. From and after December 2, 2006, the Company has no right to prepay
the note.
The
Company also reimbursed Barron Partners for its due diligence and other expenses
in the amount of $50,000. The Purchase Agreement provides that all officers
and
directors are subject to an 18 month lockup, during which period they may not
publicly sell their shares, except that this restriction is for twelve months
for Alex Katz as long as he is not an officer or director.
Exchange
Agreement
Pursuant
to the Exchange Agreement, the Company issued 21,000,000 shares of common stock
(which number does not reflect the reverse split - the number would be 140,000
shares of common stock after giving effect to the reverse split) and 2,611,000
shares of series B preferred stock.
Each
share of series B preferred stock automatically converts into two shares of
common stock upon the filing of an amendment to the Company’s certificate of
incorporation or restated certificate of incorporation which (i) changes the
authorized capital stock to 10,000,000 shares of preferred stock and 90,000,000
shares of common stock and (ii) effects a one-for-150 reverse split of the
common stock.
The
series B preferred stock votes with the common stock, on a share for share
basis, with each share of series B preferred stock having one vote, except
as
otherwise required by law. The vote of the holders of a majority of the
outstanding shares of series B preferred stock shall be required for any
amendment to the certificate of designation relating to the series B preferred
stock. Without the approval of holders of a majority of the shares of series
B
preferred stock, the Company will not merge or consolidate with or into any
other corporation or other entity or sell all or a significant portion of its
business and assets.
The
parties to the Exchange Agreement are subject to an 18 month lockup, during
which period they may not publicly sell their shares, except that this
restriction is for twelve months for Alex Katz as long as he is not an officer
or director of the Company.
The
common stock and series B preferred stock were issued to the following
stockholders pursuant to the Exchange Agreement:
Name
|
|
Common
Stock
|
|
Series
B Preferred Stock
|
|
Common
Stock As Adjusted (1)
|
|
Alexander
Kreger
|
|
|
13,692,000
|
|
|
1,702,372
|
|
|
3,112,494
|
|
BGRS
2005, LLC
|
|
|
3,150,000
|
|
|
391,650
|
|
|
804,300
|
|
Richard
Kreger
|
|
|
2,436,000
|
|
|
302,876
|
|
|
553,757
|
|
Aimee
Brooks
|
|
|
1,722,000
|
|
|
214,102
|
|
|
391,449
|
|
Total
|
|
|
21,000,000
|
|
|
2,611,000
|
|
|
4,362,000
|
|
(1)
The
common stock as adjusted represents shares of common stock after giving effect
to (i) the proposed 1-for-150 reverse stock split. (ii) the conversion of the
Series B preferred stock into shares of common stock, and (iii) the transfer
of
an aggregate of 250,000 shares of Series B preferred stock by Alexander Kreger,
Richard Kreger and Aimee Brooks to Midtown Partners & Co. LLC.
Stock
Redemption Agreement
The
Company entered into a stock redemption agreement with its then principal
stockholder, Venture Fund I, pursuant to which the Company purchased 29,000,000
shares of commons stock from Venture Fund I for a purchase price of $550,000
and
200,000 shares of series B preferred stock. The Company agreed to include in
a
registration statement the shares of common stock issuable upon conversion
of
the series B preferred stock held by Venture Fund I. The stock redemption
agreement does not provide for liquidated damages in the event the Company
does
not register such shares.
Asset
Purchase Agreement
On
July
20, 2006, Precision Aerospace Components, Inc., through its wholly-owned
subsidiary, Delaware Fastener Acquisition Corporation (“DFAC”) acquired
substantially all the assets and assumed accounts payable and certain operating
liabilities of Freundlich Supply Co., Inc. (“Seller”), a distributor of
aerospace quality lock nuts based in Staten Island, New York. The purchase
price
for the assets was $5,000,000, $4,250,000 of which was paid in cash at closing.
The balance, or $750,000, will be paid pursuant to a secured subordinated
promissory note over three years together with interest at the prevailing prime
interest rate plus one percent. The asset purchase agreement provided that
the
purchase price would be adjusted to the extent the Seller’s net working capital,
defined as the excess of accounts receivable, inventory and prepaid expenses
over accounts payable and accrued expenses, exceeded, or was less than,
$2,280,000 at closing. Net working capital totaled $2,543,943 at Closing, and,
accordingly, the purchase price was increased by $263,943, which amount was
paid
in cash at closing.
The
sole
shareholder and President of Seller executed a consulting agreement with DFAC
and will provide services for at least one year. He also executed a covenant
not
to compete. DFAC entered into a lease for the warehouse in Staten Island, New
York for a term of up to 12 years, including all renewal options. After closing,
DFAC changed its name to Freundlich Supply Company, Inc.
Item
2.01 Completion of Acquisition or Disposition of Assets
NOTE:
The
discussion contained in this Item 2.01 relates primarily to Freundlich Supply
Company. Information relating to the business and results of operations of
Jordan 1 has been previously reported in its Form 10-KSB for the year ended
December 31, 2005, Form 10-QSB for the quarter ended March 31, 2006, and prior
periodic filings with the Securities & Exchange Commission.
DESCRIPTION
OF PRECISION AEROSPACE COMPONENTS’ (FORMERLY JORDAN 1 HOLDINGS)
BUSINESS
Organizational
History
Jordan
1
Holdings Company (“Jordan 1”) was incorporated in Delaware on December 28, 2005
and is the successor to Gasel Transportation Lines, Inc. ("Gasel"), an Ohio
corporation that was organized under the laws of the State of Ohio on January
27, 1988.
Gasel
was
a trucking company that filed for bankruptcy in the Southern District of Ohio,
Eastern Division, in May of 2003. On December 12, 2005, a final plan of
reorganization was approved by the court and the bankruptcy proceeding was
dismissed.
On
December 30, 2005, Gasel entered into a private sale of stock under a Stock
Purchase Agreement with Venture Fund I, Inc., a Nevada corporation owned and
controlled by accredited investor Ruth Shepley, of Houston, Texas. Under
the terms of the Stock Purchase Agreement, Shepley purchased 29,000,000 shares
of restricted common stock for a purchase price of $100,000.
Since
December 30, 2005, Jordan 1 did not engage in any business
activity.
DESCRIPTION
OF FREUNDLICH SUPPLY COMPANY’S BUSINESS
Organizational
History
Freundlich
Supply Co., Inc. (“Freundlich Supply”) was incorporated in the State of New York
in 1980. Freundlich Supply’s corporate headquarters are located at 2200 Arthur
Kill Road, Staten Island, NY 10309, and its telephone number is (718)
356-1500.
Overview
of Business
Freundlich
Supply is a stocking distributor of aerospace quality, internally-threaded
fasteners. The Company distributes high-quality, domestically-manufactured
nut
products that are used primarily for aerospace and military applications and
for
industrial/commercial applications that require a high level of certified and
assured quality. The Company’s products are manufactured to exacting
specifications or are made from raw material that provide strength and
reliability required for aerospace applications.
Freundlich
Supply is a niche player in the North American aerospace fastener industry.
The
Company currently focuses exclusively on aero-space quality nut products,
serving as an authorized stocking distributor for seven of the premier nut
manufacturers in the United States.
Freundlich
Supply is a one-stop source for standard, self-locking, semi-special and special
nuts manufactured to several military, aerospace and equivalent specifications.
The Company maintains a large inventory of more than 7,600 SKUs comprised of
more than 18 million parts of premium quality, brand name nut products.
Management believes that the Company's demonstrated ability to immediately
fulfill a high percentage (approximately 80 percent) of customer orders from
stock-on-hand gives Freundlich Supply a distinct competitive advantage in the
marketplace. The Company sells its products pursuant to written purchase orders
it receives from its customers. All products are shipped via common
carrier.
Industry
Overview
The
fastener distribution industry is highly fragmented, with no one company holding
a dominant position. This is primarily caused by the varied uses of fasteners
and the size of the industry. Freundlich Supply competes with the numerous
fastener distributors which serve as authorized stocking distributors for the
seven nut manufacturers in the Company's supplier base. The company believes
that the depth of its 7,600-SKU inventory represents a competitive advantage.
As
a stocking distributor, Freundlich Supply has employed a business model of
maintaining levels of inventory on hand or on order with its suppliers that
can
satisfy its customers’ projected needs. This business model has allowed the
company to mitigate the supply shortage suffered by the industry. Certain
domestic manufacturing capacity was eliminated during a post-9/11 downturn
in
the aerospace industry. As the industry began a turnaround in 2004 and 2005,
driven by increased levels of defense spending and increased commercial demand
caused by new orders received by Boeing Company and others, manufacturer
delivery on the increased level of demand was delayed because of the decreased
capacity extant after 9/11.
Inventory
As
a
stocking distributor, Freundlich Supply maintains levels of inventory on hand
or
on to satisfy its customers’ projected needs. The Company has approximately
7,600 different types of nuts in its inventory. Freundlich Supply’s primary
suppliers include the following:
|
·
|
Republic
Fastener Mfg. Corp.
|
|
·
|
Alcoa
Fastening Systems
|
|
·
|
Bristol
Industries Inc.
|
|
·
|
Abbott-Interfast
Corporation
|
Customers
In
2004
and 2005, Freundlich Supply sold approximately 61% and 56%, respectively, of
its
products to the United States Department of Defense. All of these products
were
sold for maintenance, repair and operations functions, were shipped to various
government installations across the United States and were sold for many
different government programs. Through March 31, 2006, sales to the United
States Department of Defense represented 41 percent of total sales.
Freundlich
Supply’s commercial customers include original equipment manufacturers and other
distributors. Other than the sales to the United States Department of Defense,
no one customer represented more than 10 percent of total sales in 2004 or
2005.
Competition
The
fastener distribution industry is highly fragmented, with no one company holding
a dominant position. This is primarily caused by the varied uses of fasteners
and the size of the industry. Freundlich Supply competes with the numerous
fastener distributors which serve as authorized stocking distributors for the
seven nut manufacturers in the Company's supplier base. The company believes
that the depth of its 7,600-SKU inventory represents a competitive
advantage.
Few
barriers to entry exist for fastener distributors generally. However, the
business model employed by Freundlich Supply promotes barriers to entry not
generally seen in the industry.
|
·
|
Freundlich
Supply’s quality system is certified to AS9100:2004 and ISO 9001:2000
quality measures. As quality is an important measure of aerospace
suppliers, the company strives to maintain its quality system to
the
highest standards in the industry;
|
|
·
|
As
an authorized stocking distributor for the premier domestic manufacturers,
Freundlich Supply is able to maintain relationships with customers
not
generally available to the industry. Most manufacturers are not expanding
their network of authorized distributors;
and
|
|
·
|
As
a certified government supplier, i.e. because it is listed on the
“Qualified Supplier/Manufacturer List,” Freundlich Supply does not compete
with companies not so listed.
|
Government
Regulation
Freundlich
Supply is approved as a “qualified supplier” by the United States Department of
Defense, and as such can provide certain critical parts that other suppliers
not
so approved cannot supply.
The
Fastener Quality Act (“FQA”) and its implementing regulations issued by the
United States Department of Commerce require certain distributors of fasteners
to, among other things, maintain lot traceability for all of its products sold.
This requires that companies like Freundlich Supply keep their books and records
such that they can trace the origin of each item sold to the manufacturer from
which the item was purchased. The FQA imposes additional requirements on the
manufacturers of subject parts and on the users. Because of the demands of
the
industry, its customers, and its own quality systems, Freundlich Supply
maintains strict lot traceability for each item in inventory, and has done
so
for many years.
Employees
Freundlich
Supply has 20 employees, 19 of which are full time employees. We believe our
employee relations are very good.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
FORWARD
LOOKING STATEMENTS
Some
of
the statements contained in this Form 8-K that are not historical facts are
"forward-looking statements" which can be identified by the use of terminology
such as "estimates," "projects," "plans," "believes," "expects," "anticipates,"
"intends," or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Form 8-K, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products and licenses. No assurances can
be
given regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance
or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation:
1.
Our
ability to attract and retain management, and to integrate and maintain
technical information and management information systems;
2.
Our
ability to generate customer demand for our services;
3.
The
intensity of competition; and
4.
General economic conditions.
All
written and oral forward-looking statements made in connection with this Form
8-K that are attributable to us or persons acting on our behalf are expressly
qualified in their entirety by these cautionary statements. Given the
uncertainties that surround such statements, you are cautioned not to place
undue reliance on such forward-looking statements.
Freundlich
Supply Company Results of Operations
Three
Months ended March 31, 2006 compared to the Three Months ended March 31,
2005
Overview
Incoming
orders in the 3 months ended March 31, 2006 totaled $3,489,230, compared to
$1,724,647 in the 3 months ended March 31, 2005, an increase of $1,764,583,
or
102.3%. The backlog of unshipped orders increased to $3,356,588 at March 31,
2006, compared to $2,009,398 at March 31, 2005, an increase of 67.0%. Customer
orders are counted as part of the backlog upon receipt of firm, written purchase
orders from customers. Items remain in backlog pending receipt of products
from
the company’s suppliers or a future delivery date established by the customer at
the time the order is placed. Accordingly, management believes that trends
in
the Company’s backlog can be seen as a predictor of future revenue.
Revenues
Revenue
for the 3 months ended March 31, 2006 totaled $2,874,094, compared to $2,426,017
for the 3 months ended March 31, 2005. This increase of $448,077, or 18.5%,
was
caused by an increase in sales to non-United States Department of Defense
(“DOD”) customers to $1,840,730 during the 3 months ended March 31, 2006 from
$979,752 during the 3 months ended March 31, 2005. This increase of $860,978,
or
87.9%, offset a decrease in sales to the DOD to $1,066,815 during the 3 months
ended March 31, 2006 from $1,479,029 during the 3 months ended March 31, 2005.
Non-DOD sales typically carry a higher gross profit margin than sales to the
DOD, although other factors, including but not limited to market demand,
quantity purchased, the nature of the particular part being purchased and the
identity of the particular customer, impact pricing levels.
Cost
of Goods Sold
Gross
profits totaled $1,008,950 in the 3 months ended March 31, 2006, or 35.1% of
sales, compared to $828,204, or 34.1% of sales in the 3 months ended March
31,
2005. This increase in the company’s gross profit percentage is the result of
inflationary pressures in the industry, the company’s inventory position and its
policy of maintaining in inventory sufficient levels of products to meet
customers’ anticipated demand.
Sales,
General and Administrative Expenses
Sales,
general and administrative expenses totaled $433,736 in the 3 months ended
March
31, 2006, or 15.1% of sales, compared to $396,468, or 16.3% of sales in the
3
months ended March 31, 2005. This increase of $37,268, or 9.4%, was incurred
to
support the increased sales during the period.
Income
from Operations
Income
from operations totaled $574,424 in the 3 months ended March 31, 2006, compared
to $430,946 in the 3 months ended March 31, 2005. This increase resulted from
increased sales, gross profits and nominal increases in sales, general and
administrative expenses.
Significant
Balance Sheet Items
Accounts
Receivable
Accounts
Receivable increased to $1,007,458 at March 31, 2006, or 8.8% of annualized
sales, compared to $741,508 at March 31, 2005, or 7.6% of annualized sales.
The
company’s average collection period of its accounts receivable equaled 25.2 days
in the 3 months ended March 31, 2006, compared to 27.8 days in the 3 months
ended March 31, 2006.
Inventory
Inventory
decreased to $2,542,791 at March 31, 2006, compared to $2,634,466 at March
31,
2005. This decrease totaled $91,675, or 3.5%.
Accounts
Payable
Accounts
Payable decreased to $771,341 at March 31, 2006, compared to $1,204,645 at
March
31, 2005. The company generated the cash flow to pay down its accounts payable
through its operating activities.
Financial
Condition, Liquidity and Capital Resources
As
of
March 31, 2006, the company had cash and cash equivalents of $60,223, compared
to $0 at March 31, 2005. Net working capital totaled $1,900,916 at March 31,
2006, compared to $1,163,730 at March 31, 2005. Current assets totaled
$3,600,254 at March 31, 2006, compared to $3,412,495 at March 31, 2005. Current
liabilities totaled $1,699,338 at March 31, 2006, compared to $2,248,765 at
March 31, 2005. The increase in net working capital was generated from operating
activities during the period. The company had stockholder’s equity at March 31,
2006 of $1,681,165, compared to $981,837 at March 31, 2005. This increase
resulted from net profits for the period.
The
Company plans to grow through a combination of product line expansions,
strategic sales and marketing initiatives and through strategic acquisitions.
In
the next twelve months, the Company may have a need to raise additional funds.
The Company is currently not in negotiations with any potential acquisition
candidates. There is no assurance that the Company would be successful in
raising additional funds necessary to complete an acquisition on terms favorable
to the Company.
The
Company plans to install a new computer system and packaging equipment within
the next six months, which will cost approximately $150,000. There are no other
material capital expenditures planned for the next twelve months, other than
normal business expenditures and those noted above, for which the Company would
need to raise additional funds.
Year
ended December 31, 2005 compared to year ended December 31,
2004
Revenues
Revenue
for the year ended December 31, 2005 totaled $8,816,384, compared to $8,916,132
for the year ended December 31, 2004. This decrease was caused by a decrease
in
sales to the United States Department of Defense (“DOD”) in 2005. In 2004, sales
to the DOD totaled $5,514,165, whereas sales to the DOD in 2005 totaled
$5,012,988. This decrease of $501,177, or 9.1%, was partially offset by an
increase in sales to non-DOD customers of $401,429, or 11.8%. In 2004, sales
to
the DOD represented 60.8% of total sales, whereas such sales in 2005 represented
56.0% of total sales.
The
company’s backlog of unshipped orders increased to $2,772,455 at December 31,
2005, compared to $2,743,533 at December 31, 2004, an increase of 1.1%. Customer
orders are counted as part of the backlog upon receipt of firm, written purchase
orders from customers. Items remain in backlog pending receipt of products
from
the company’s suppliers or a future delivery date established by the customer at
the time the order is placed. Incoming orders in 2005 totaled $8,977,157,
compared to $10,154,662 in 2004, a decrease of $1,177,505, or
11.6%.
Cost
of Goods Sold
Gross
profits totaled $2,987,997 in 2005, or 33.9% of sales, compared to $2,946,068,
or 33.0% of sales in 2004. This increase in the company’s gross profit
percentage is the result of inflationary pressures in the industry, the
company’s inventory position and its policy of maintaining in inventory
sufficient levels of popular commodities to meet customers’ anticipated
demand.
Sales,
General and Administrative Expenses
Sales,
general and administrative expenses totaled $1,576,517 in 2005, or 17.9% of
sales, compared to $1,565,632 in 2004, or $17.6% of sales. The increase totaled
$10,885, or 0.7%.
Income
from Operations
Income
from operations totaled $1,408,322 in 2005, compared to $1,377,278 in 2004.
This
increase resulted from increased gross profits and nominal increases in sales,
general and administrative expenses.
Significant
Balance Sheet Items
Accounts
Receivable
Accounts
Receivable decreased to $603,783 at December 31, 2005, or 6.9% of sales,
compared to $726,878 at December 31, 2004, or 8.2% of sales. The company’s
average collection period of its accounts receivable equaled 27.6 days in 2005,
compared to 30.5 days in 2004.
Inventory
Inventory
increased to $2,569,602 at December 31, 2005, compared to $2,496,990 at December
31, 2004. This increase of $72,612, or 2.9%, was in connection with anticipated
increased sales in the first quarter of 2006.
Accounts
Payable
Accounts
Payable decreased to $527,136 at December 31, 2005, compared to $1,059,564
at
December 31, 2004. The company generated the cash flow to pay down its accounts
payable through its operating activities.
Financial
Condition, Liquidity and Capital Resources
As
of
December 31, 2005, the company had cash and cash equivalents of $0, compared
to
$68,291 at December 31, 2004. Net working capital totaled $1,754,252 at December
31, 2005, compared to $1,234,475 at December 31, 2004. Current assets totaled
$3,173,385 at December 31, 2005, compared to $3,302,159 at December 31, 2004.
Current liabilities totaled $1,411,657 at December 31, 2005, compared to
$2,067,684 at December 31, 2004. This decrease of $656,027 included a repayment
of $200,000 to the Company’s line of credit and a reduction in accounts payable
of $448,552. The increase in net working capital during 2005 was generated
from
operating activities during the year. The company had stockholder’s equity at
December 31, 2005 of $1,381,500, compared to $906,174 at December 31, 2004.
This
increase resulted from net profits for the year.
Critical
Accounting Policies
For
a
discussion of Critical Accounting Policies, please refer to Note 2 of the
Financial Statements include in Item 9.01 hereto.
RISK
FACTORS
An
investment in our securities involves a high degree of risk. In determining
whether to purchase our securities, you should carefully consider all of the
material risks described below, together with the other information contained
in
this prospectus before making a decision to purchase our securities. You should
only purchase our securities if you can afford to suffer the loss of your entire
investment.
RISKS
RELATED TO OUR BUSINESS:
Fluctuations
in our operating results and announcements and developments concerning our
business affect our stock price.
Our
quarterly operating results, the number of stockholders desiring to sell their
shares, changes in general economic conditions and the financial markets, the
execution of new contracts and the completion of existing agreements and other
developments affecting us, could cause the market price of our common stock
to
fluctuate substantially.
As
a result of the reverse acquisition, our expenses will increase
significantly.
As
a
result of the reverse acquisition, our ongoing expenses are expected to increase
significantly, including expenses in compensation to our officers, ongoing
public company expenses, including increased legal and accounting expenses
as a
result of our status as a reporting company and the requirement that we register
the shares of common stock issued underlying the convertible note, preferred
stock and warrants issued to Barron Partners LP, expenses incurred in complying
with the internal controls requirements of the Sarbanes-Oxley Act, and
obligations incurred in connection with the reverse acquisition. Our failure
to
generate sufficient revenue and gross profit could result in reduced profits
of
losses as a result of the additional expenses.
Our
officers and directors are involved in other businesses which may cause them
to
devote less time to our business.
Our
officers' and directors' involvement with other businesses may cause them to
allocate their time and services between us and other entities. Consequently,
they may give priority to other matters over our needs which may materially
cause us to lose their services temporarily
which
could affect our operations and profitability.
We
may not be able to continue to grow through acquisitions.
In
addition to our planned growth through the development of our business,
an
important part of our growth strategy is to expand our business and to acquire
other businesses in related industries. Such acquisitions may be made with
cash
or our securities or a combination of cash and securities. If our stock price
is
less than the exercise price of the outstanding warrants, it is not likely
that
that warrants will be exercised at their present exercise price. To the extent
that we require cash, we may have to borrow the funds or sell equity securities.
Any issuance of equity as a portion of the purchase price or any sale of equity,
to the extent that we are able to sell equity, to raise funds to enable us
to
pay the purchase price would result in dilution to our stockholders. We have
no
commitments from any financing source and we may not be able to raise any cash
necessary to complete an acquisition. If we fail to make any acquisitions,
our
future growth may be limited. As of the date of this report, we do not have
any
agreement as to any acquisition. Further, any acquisition may be subject to
government regulations.
If
we make any acquisitions, they may disrupt or have a negative impact on our
business.
If
we
make acquisitions, we could have difficulty integrating the acquired companies’
personnel and operations with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot predict the
affect expansion may have on our core business. Regardless of whether we are
successful in making an acquisition, the negotiations could disrupt our ongoing
business, distract our management and employees and increase our expenses.
In
addition to the risks described above, acquisitions are accompanied by a number
of inherent risks, including, without limitation, the following:
|
•
|
the
difficulty of integrating acquired products, services or
operations;
|
|
•
|
the
potential disruption of the ongoing businesses and distraction of
our
management and the management of acquired companies;
|
|
•
|
the
difficulty of incorporating acquired rights or products into our
existing
business;
|
|
•
|
difficulties
in disposing of the excess or idle facilities of an acquired company
or
business and expenses in maintaining such facilities;
|
|
•
|
difficulties
in maintaining uniform standards, controls, procedures and policies;
|
|
•
|
the
potential impairment of relationships with employees and customers
as a
result of any integration of new management
personnel;
|
|
•
|
the
potential inability or failure to achieve additional sales and enhance
our
customer base through cross-marketing of the products to new and
existing
customers;
|
|
•
|
the
effect of any government regulations which relate to the business
acquired;
|
|
•
|
potential
unknown liabilities associated with acquired businesses or product
lines,
or the need to spend significant amounts to retool, reposition or
modify
the marketing and sales of acquired products or the defense of any
litigation, whether of not successful, resulting from actions of
the
acquired company prior to our acquisition.
|
Our
business could be severely impaired if and to the extent that we are unable
to
succeed in addressing any of these risks or other problems encountered in
connection with these acquisitions, many of which cannot be presently
identified, these risks and problems could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations.
We
may be required to pay liquidated damages if our board does not consist of
a
majority of independent directors.
Our
Securities Purchase Agreement with Barron Partners LP and Richard Henri Kreger
requires us to (i) appoint such number of independent directors that would
result in a majority of our directors being independent directors, (ii) have
an
audit committee that is composed solely of independent directors and (iii)
have
a compensation committee that is composed of a majority of independent
directors. Our failure to maintain these requirements would results in our
payment of liquidated damages that are payable in cash or by the issuance of
additional shares of series A preferred stock at the election of the investors.
We
are dependent on a few large customers.
We
are
dependent on the aerospace and defense industries for a majority of our revenue
and as a result our business will be negatively impacted by any decline in
those
industries.
We
face risks relating to government contracts.
There
are
inherent risks in contracting with the U.S. government, including risks that
are
peculiar to the defense industry, which could have a material adverse effect
on
our business, prospects, financial condition and operating results, including
changes in the department of defense’s procurement policies and requirements.
RISKS
RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
There
are a large number of shares underlying our convertible note, series A
convertible preferred stock and warrants that may be available for future sale
and the sale of these shares may depress the market price of our common stock.
The
Company entered into a Securities Purchase Agreement with Barron Partners LP
and
Richard Henri Kreger pursuant to which the investors purchased the Company’s
promissory note in the principal amount of $1,000,000, 5,277,778 shares of
its
series A convertible preferred stock (the “series A preferred stock”) which are
convertible into 15,833,334 shares of common stock, and warrants to purchase
10,541,000 shares of common stock at $.35 per share and 10,541,000 shares of
common stock at $.60 per share.
The
Purchase Agreement provides that, within 120 days from the July 20, 2006
closing, the Company will file a restated certificate of incorporation that
will
(i) change the authorized capital stock to 10,000,000 shares of preferred stock
and 90,000,000 shares of common stock and (ii) effect a one-for-150 reverse
split of the common stock. The number of Total Shares, without giving effect
to
the reverse split, would be 5,309,760,600 shares for Barron Partners and
524,989,500 shares for Mr. Kreger. The Company has an authorized common stock
of
100,000,000 shares. As a result, the investors will not have the ability to
convert the note or series A preferred stock or exercise the warrants in full
unless the reverse split is effected. If the reverse split is not effective
on
or prior to the 120
th
day
after the closing, the Company is required to pay the investors liquidated
damages in an amount equal to 5% of the investment made by the investors, which
would be $287,500.
The
note
is convertible into common stock at a conversion price of $.30 per share. Each
share of series A preferred stock is convertible into common stock at a
conversion rate of three shares of common stock for each share of series A
preferred stock. The conversion rate is based on a conversion price of $.30
per
share of common stock, based on the purchase price of the preferred stock
divided by the number of shares of commons stock issuable upon conversion of
the
series A preferred stock. The conversion price of the note and the conversion
rate of the series A preferred stock are subject to adjustment in certain
instances, including the issuance by the Company of stock at a price which
is
less than the conversion price.
The
sale
of these shares may adversely affect the market price of our common
stock.
The
adjustable conversion price feature of our note, warrants and series A preferred
stock could require us to issue a substantially greater number of shares which
will cause dilution to our existing stockholders.
The
Purchase Agreement as well as the note, the certificate of designation for
the
series A preferred stock and the warrants provide for an adjustment in the
conversion price of the note and series A preferred stock and the exercise
price
of the warrants if the Company’s consolidated pre-tax income, as defined, for is
less than $.034 per share on a fully-diluted basis for the year ended December
31, 2006 and less than $.051 per share for the year ended December 31, 2007.
The
maximum reduction for either year is 35%. Fully-diluted pre-tax income is based
on the number of shares of common stock which are outstanding or are otherwise
issuable, regardless of whether such shares would be included in determining
diluted earnings per share under generally accepted accounting principles.
The
following table sets forth the initial conversion price of the notes, the
conversion ratio for the series A preferred stock and the exercise price of
the
$.35 and $.60 warrants and the adjusted numbers if (a) the pre-tax income per
share for each of the two years was 20% below the respective targets (a “20%
shortfall”) and (b) the pre-tax income per share for each of the two years was
35% or more below the targets (a “35% shortfall”). The number of shares reflects
the number of shares of common stock issuable upon conversion of the note or
the
series A preferred stock, and are based on the assumption that no notes or
preferred stock are converted into common stock until the adjustment has been
made for 2007. There is no adjustment in the number of shares issuable upon
exercise of the warrants. The Conversion Price relates to both the note and
the
series A preferred stock, and the number of shares reflects the number of shares
issuable upon full conversion of note and the conversion of all of the shares
of
series A preferred stock.
|
|
Conversion
Price/
|
|
Series
A
|
|
$.35
Warrant
|
|
$60
Warrant
|
|
|
|
Number
of Shares
|
|
Conversion
Ratio
|
|
Exercise
Price
|
|
Exercise
Price
|
|
Unadjusted
|
|
$
|
.30/
19,166,667
|
|
|
3:1
|
|
$
|
.35
|
|
$
|
.60
|
|
20%
shortfall
|
|
$
|
.192/
29,947,917
|
|
|
4.6875:1
|
|
$
|
.224
|
|
$
|
.384
|
|
35%
shortfall
|
|
$
|
.12675/
45,364,892
|
|
|
7.1006:1
|
|
$
|
.1479
|
|
$
|
.2535
|
|
As
illustrated, the number of shares of common stock issuable upon conversion
of
the conversion of the notes and the series A preferred stock and the warrants,
will increase if we do not meet the above-referenced targets and as a result
this will cause dilution to our stockholders.
RISKS
RELATING TO OUR COMMON STOCK:
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers
to
sell our securities and the ability of stockholder to sell their securities
in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As
a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
Because
we may be subject to the “penny stock” rules, you may have difficulty in selling
our common stock.
If
our
stock price is less than $5.00 per share, our stock may be subject to the SEC’s
penny stock rules, which impose additional sales practice requirements and
restrictions on broker-dealers that sell our stock to persons other than
established customers and institutional accredited investors. The application
of
these rules may affect the ability of broker-dealers to sell our common stock
and may affect your ability to sell any common stock you may own.
According
to the SEC, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
|
•
|
Control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
|
|
•
|
Manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
|
|
•
|
“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
•
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
•
|
The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
|
As
an issuer of “penny stock” the protection provided by the federal securities
laws relating to forward looking statements does not apply to
us.
Although
the federal securities law provide a safe harbor for forward-looking statements
made by a public company that files reports under the federal securities laws,
this safe harbor is not available to issuers of penny stocks. As a result,
if we
are a penny stock we will not have the benefit of this safe harbor protection
in
the event of any based upon an claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect
because of our failure to include any statements necessary to make the
statements not misleading.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and operating results and stockholders could lose confidence in our
financial reporting.
Effective
internal controls are necessary for us to provide reliable financial reports
and
effectively prevent fraud. If we cannot provide reliable financial reports
or
prevent fraud, our operating results could be harmed. We may be required in
the
future to document and test our internal control procedures in order to satisfy
the requirements of Section 404 of the Sarbanes-Oxley Act, which requires
increased control over financial reporting requirements, including annual
management assessments of the effectiveness of such internal controls and a
report by our independent certified public accounting firm addressing these
assessments. Failure to achieve and maintain an effective internal control
environment, regardless of whether we are required to maintain such controls
could also cause investors to lose confidence in our reported financial
information, which could have a material adverse effect on our stock
price.
The
Chairman of our board of directors will own a controlling interest in our voting
stock following the completion of a proposed 1-for-150 reverse split.
The
chairman of our board of directors, Alexander Kreger, will own approximately
53%
of our outstanding common stock immediately following the completion of our
proposed 1-for-150 reverse split. As a result, Mr. Kreger will have the ability
to control substantially all matters submitted to our stockholders for approval,
including:
|
·
|
election
of our board of directors;
|
|
·
|
removal
of any of our directors;
|
|
·
|
amendment
of our certificate of incorporation or bylaws;
and
|
|
·
|
adoption
of measures that could delay or prevent a change in control or impede
a
merger, takeover or other business combination involving
us.
|
DESCRIPTION
OF PROPERTY
Freundlich
Supply leases its sole warehouse and office space pursuant to a triple-net
lease
from an unrelated party for an annual rental charge of $144,000. The company
is
the sole user of the property. The property is located at 2200 Arthur Kill
Road,
Staten Island, New York. The building is comprised of 18,000 square feet, is
constructed from brick and cinder block, and is maintained in excellent
condition.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of July 25, 2006 with respect
to the beneficial ownership of the Company’s outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of the named executive
officers, directors and director nominees; and (iii) our directors, director
nominees and named executive officers as a group. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power
over
the shares beneficially owned.
|
|
Common
Stock
|
|
Percentage
of
|
|
Common
Stock
|
|
Percentage
of
|
|
Name
of Beneficial Owner(1)
|
|
Beneficially
Owned
|
|
Common
Stock
|
|
Beneficially
Owned
|
|
Common
Stock
|
|
|
|
Pre
1-for-150
|
|
Pre
1-for-150
|
|
Post
1-for-150
|
|
Post
1-for-150
|
|
|
|
Reverse
Split (2)
|
|
Reverse
Split (2)
|
|
Reverse
Split (3)
|
|
Reverse
Split (3)
|
|
Alexander
Kreger
|
|
|
13,692,000
|
|
|
43.2
|
%
|
|
3,112,494
|
|
|
53.3
|
%
|
Robert
Moyer
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
Chris
Phillips (4)
|
|
|
--
|
|
|
--
|
|
|
250,000
|
|
|
4.25
|
|
BGRS
2005, LLC (5)
|
|
|
3,150,000
|
|
|
9.9
|
|
|
804,300
|
|
|
13.7
|
|
Richard
Kreger
|
|
|
2,436,000
|
|
|
7.6
|
|
|
553,757
|
|
|
9.4
|
|
Aimee
Brooks
|
|
|
1,722,000
|
|
|
5.4
|
|
|
391,449
|
|
|
6.7
|
|
Midtown
Partners & Co. LLC (6)
|
|
|
--
|
|
|
--
|
|
|
500,000
|
|
|
8.5
|
|
All
officers and directors
|
|
|
13,692,000
|
|
|
43.2
|
|
|
3,612,494
|
|
|
61.9
|
|
as
a group (3 persons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less
than 1%
(1)
Except as otherwise indicated, the address of each beneficial owner is c/o
Precision Aerospace Components, Inc.
(2)
Applicable percentage ownership of common stock pre 1-for-150 reverse split
is
based on 31,677,900 shares of common stock outstanding as of July 25, 2006,
together with securities exercisable or convertible into shares of common stock
within 60 days of July 25, 2006 for each stockholder. Beneficial ownership
is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of common stock that are currently exercisable or exercisable
within 60 days of July 25, 2006 are deemed to be beneficially owned by the
person holding such securities for the purpose of computing the percentage
of
ownership of such person, but are not treated as outstanding for the purpose
of
computing the percentage ownership of any other person.
(3)
The
common stock ownership post 1-for-150 reverse split is based on 5,833,186 shares
of common stock post reverse split shares of common stock outstanding and
reflects (i) the proposed reverse split of the common stock, (ii) the conversion
of the Series B preferred stock into shares of common stock, and (iii) the
transfer of an aggregate of 250,000 shares of Series B preferred stock by
Alexander Kreger, Richard Kreger and Aimee Brooks to Midtown
Partners.
(4)
The
250,000 shares of common stock are owned by Midtown Partners & Co., LLC, of
which Mr. Phillips holds a 50% membership interest. Midtown Partners & Co.,
LLC is a registered broker-dealer.
(5)
BGRS
2005, LLC is managed by Alex Katz, a consultant to the Company. Mr. Katz has
sole dispositive and voting control over the shares of common stock of the
Company owned by BGRS 2005, LLC.
(6)
Bruce
Jordan has dispositive and voting control over the shares of common stock of
the
Company to be owned by Midtown Partners & Co., LLC. Midtown Partners &
Co., LLC is a registered broker-dealer.
Barron
Partners LP and Richard Henri Kreger each own shares of series A preferred
stock
and warrants which, if fully converted or exercised, would result in ownership
of more than 5% of our outstanding common stock. However, the series A preferred
stock may not be converted and the warrants may not be exercised if such
conversion would result in Barron Partners or Richard Henri Kreger owning more
than 4.9% of our outstanding common stock. The applicable instruments provide
that this limitation may not be waived. As a result, Barron Partners does not
beneficially own 5% or more of our common stock. Because Richard Henri Kreger
already owns more than 5% of the Company’s common stock, his series A preferred
stock may not be converted and his warrants may not be exercised until his
ownership of the Company’s common stock falls below 5%.
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive
Officers and Directors
Below
are
the names and certain information regarding the Company's executive officers,
directors and director nominees. Officers are elected annually by the Board
of
Directors. Each of the following officers and directors were elected on July
20,
2006 and will serve in their respective capacities on a part time basis.
Name
|
|
Age
|
|
Position
|
Alexander
Kreger
|
|
63
|
|
Chairman
of the Board, Director
|
Robert
P. Moyer
|
|
51
|
|
President,
Chief Executive Officer, Director
|
Chris
Phillips
|
|
34
|
|
Chief
Financial Officer, Secretary,
Director
|
Background
of Executive Officers and Directors
Alexander
Kreger. Mr. Kreger has served as the President of Kreger Truck Renting Company,
Inc. since 1999. Mr. Kreger has a BS in accounting and finance from the Wharton
School, University of Pennsylvania.
Robert
P.
Moyer. For the past five years, Robert Moyer has run his own financial
consulting and advisory business. He is licensed as a Certified Public
Accountant, and holds an MBA from Drexel University and a Bachelor of Science
from the Pennsylvania State University.
Chris
Phillips. Since October 2004, Chris Phillips has been the President and CEO
of
Apogee Financial Investments, Inc. a merchant bank which owns 100% of Midtown
Partners & Co., LLC, a NASD licensed broker-dealer. Since July 2000,
he has acted as the managing member of TotalCFO, LLC which
provides consulting and CFO services to a number of public and private
companies and high net worth individuals. Presently, he is a Board Member of
Telzuit Medical Technologies, Inc. (OTCBB: TZMT), Remote Dynamics,
Inc. (OTCBB: REDI) and an advisory board member for a number of other
public and private companies. Mr. Phillips holds a Bachelors of
Science Degree in Accounting and Finance and a Masters of Accountancy with
a concentration in Tax from the University of Florida. Mr. Phillips is a Florida
licensed Certified Public Accountant.
Consulting
Agreement
On
July
20, 2006, the Company entered into a consulting agreement with Alex Katz (the
“Consultant”) for a term of five years. The consulting agreement provides for
base compensation of $180,000 per year, which is to be increased each year
in
proportion to the increase in the Consumer Price Index. The Consultant shall
also be entitled to any bonus compensation, options or other equity grants,
established by a compensation committee comprised of independent directors
of
the Company.
Long
Term
Incentive Plan
In
July
2006, we adopted, subject to stockholder approval, the 2006 long-term incentive
plan covering 875,000 shares of common stock. The plan provides for the grant
of
incentive and non-qualified options, stock grants, stock appreciation rights
and
other equity-based incentives to employees, including officers, and consultants.
The 2006 Plan is to be administered by a committee of not less than two
directors each of whom is to be an independent director. In the absence of
a
committee, the plan is administered by the board of directors. Independent
directors are not eligible for discretionary options. However, each
newly-elected independent director receives at the time of his or her election,
a five-year option to purchase 25,000 shares of common stock at the market
price
on the date of his or her election. In addition, the plan provides for the
annual grant of an option to purchase 5,000 shares of common stock on April
1
st
of each
year, commencing April 1, 2007.
EXECUTIVE
COMPENSATION
The
following table sets forth information concerning the total compensation that
the Company has paid or that has accrued on behalf of the Company’s chief
executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ended June 30, 2005, 2004 and 2003.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
Awards
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Securities
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Restricted
|
|
Underlying
|
|
|
|
Other
|
|
Name
and
|
|
|
|
|
|
|
|
Compen-
|
|
Stock
Award(s)
|
|
Options/
|
|
LTIP
|
|
Compen-
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
sation
($)
|
|
($)
|
|
SARs
(#)
|
|
Payouts
($)
|
|
sation
($)
|
|
Gene
Thompson (1)
|
|
|
2005
|
|
|
61,993
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
President
|
|
|
2004
|
|
|
74,668
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
And
Director
|
|
|
2003
|
|
|
80,600
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
(1)
Gene
Thompson resigned from his positions as President, CEO, and Director upon
completion of the transactions described in Item 1.01, above.
The
following table sets forth information concerning the total compensation that
Freundlich Supply Company has paid or that has accrued on behalf of Freundlich’s
chief executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ended December 31, 2005, 2004 and 2003.
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
Awards
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Securities
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Restricted
|
|
Underlying
|
|
|
|
Other
|
|
Name
and
|
|
|
|
|
|
|
|
Compen-
|
|
Stock
Award(s)
|
|
Options/
|
|
LTIP
|
|
Compen-
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
sation
($)
|
|
($)
|
|
SARs
(#)
|
|
Payouts
($)
|
|
sation
($)
|
|
Michael
Freundlich
|
|
|
2005
|
|
|
186,329
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
President,
CEO
|
|
|
2004
|
|
|
186,329
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
2003
|
|
|
186,329
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
DESCRIPTION
OF SECURITIES
The
Company’s authorized capital stock consists of 100,000,000 shares of common
stock at a par value of $0.0001 per share and 10,000,000 shares of preferred
stock. As of July 25, 2006, there were 31,677,900 shares of voting stock of
the
Company issued and outstanding.
Holders
of the Company's common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of the Company's common stock representing a majority of
the
voting power of the Company's capital stock issued, outstanding and entitled
to
vote, represented in person or by proxy, are necessary to constitute a quorum
at
any meeting of stockholders. A vote by the holders of a majority of the
Company's outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to the Company's
articles of incorporation.
Holders
of the Company's common stock are entitled to share in all dividends that the
board of directors, in its discretion, declares from legally available funds.
In
the event of a liquidation, dissolution or winding up, each outstanding share
entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any,
having preference over the common stock. The Company's common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Company's common stock.
Our
certificate of incorporation gives our board of directors the power to issue
shares of preferred stock in one or more series without stockholder approval.
Our board of directors has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, of each
series of preferred stock. The purpose of authorizing our board of directors
to
issue preferred stock and determine its rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. The issuance
of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or could discourage
a
third party from acquiring, a majority of our outstanding voting stock. Except
for the series A preferred stock, we have no present plans to issue any shares
of preferred stock.
Series
A
Preferred Stock
The
board
of directors has created a series of series A preferred stock consisting of
7,100,000 shares. Each share of series A preferred stock is convertible into
three (3) shares of common stock. The Series A preferred stock has no voting
rights, except as required by law. However, so long as any shares of series
A
preferred stock are outstanding, the Company shall not, without the affirmative
approval of the holders of 75% of the shares of the series A preferred stock
then outstanding, (a) alter or change adversely the powers, preferences or
rights given to the series A preferred stock or alter or amend the certificate
of designation relating to the series A preferred stock, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon
liquidation senior to or otherwise pari passu with the series A preferred stock,
or any of preferred stock possessing greater voting rights or the right to
convert at a more favorable price than the series A preferred stock, (c) amend
its certificate of incorporation or other charter documents in breach of any
of
these provisions, (d) increase the authorized number of shares of Series A
Preferred Stock, or (e) enter into any agreement with respect to the
foregoing.
Series
B
Preferred Stock
The
board
of directors has created a series of series B preferred stock consisting of
2,900,000 shares. Each share of series B preferred stock automatically converts
into two (2) shares of common stock upon the filing of a certificate of
amendment to our certificate of incorporation which (i) amends the authorized
capital stock to 100,000,000 shares, of which 10,000,000 shares are preferred
stock, par value $.001 per share, and 90,000,000 shares of common stock, par
value $.001 per share, and (ii) effects a one-for-150 reverse split of the
Corporation’s issued and outstanding common stock. The board of directors has
approved such an amendment, subject to stockholder approval.
The
holders of the series B preferred stock have no dividend rights, except that,
if
a dividend is declared with respect to the common stock, the holders of the
series B preferred stock shall be entitled to dividends on the preferred stock
on an "as if converted" basis.
Except
as
provided by law and except for the following, the holders of the series B
preferred stock vote with the common stock as if the series B preferred stock
and the common stock were a single class, with each share of series B preferred
stock being entitled to one vote. The vote of the holders of a majority of
the
outstanding shares of Series B Preferred Stock shall be required for any
amendment to the certificate of designation relating to the series B
stock.
Series
A
Warrants
The
Company has 10,541,000 Series A Warrants issued and outstanding. The Series
A Warrants are exercisable at $0.35 per share for a term of five
years.
Series
B
Warrants
The
Company has 10,541,000 Series B Warrants issued and outstanding. The
Series B Warrants are exercisable at $0.60 per share for a term of five
years.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
for Securities
Shares
of
the Company’s common stock are quoted on the Over the Counter Bulletin Board
("OTCBB") under the symbol GSEL.
The
following table sets forth, for the periods indicated, the range of high and
low
intraday closing bid information per share of our common stock as quoted on
the
Over The Counter Bulletin Board.
Year
|
|
Period
|
|
Historic
Prices
|
|
|
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
2004
|
|
First
Quarter
|
|
0.13
|
|
0.07
|
|
|
Second
Quarter
|
|
0.38
|
|
0.11
|
|
|
Third
Quarter
|
|
0.55
|
|
0.30
|
|
|
Fourth
Quarter
|
|
0.77
|
|
0.22
|
|
|
|
|
|
|
|
2005
|
|
First
Quarter
|
|
0.37
|
|
0.17
|
|
|
Second
Quarter
|
|
0.39
|
|
0.18
|
|
|
Third
Quarter
|
|
0.26
|
|
0.04
|
|
|
Fourth
Quarter
|
|
0.03
|
|
0.02
|
|
|
|
|
|
|
|
2006
|
|
First
Quarter
|
|
0.14
|
|
0.03
|
|
|
Second
Quarter
|
|
0.06
|
|
0.01
|
|
|
Third
Quarter*
|
|
0.05
|
|
0.0001
|
*
Through
July 21, 2006.
Dividend
Policy
The
Company has not paid or declared any dividends on its common stock and does
not
anticipate paying cash dividends in the foreseeable future.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table shows information with respect to each equity compensation
plan
under which Freundlich’s common stock is authorized for issuance as of the
fiscal year ended December 31, 2005.
|
|
|
|
|
|
|
|
Plan
category
|
|
Number
of securities
|
|
Weighted
average
|
|
Number
of securities
|
|
|
|
to
be issued upon
|
|
exercise
price of
|
|
remaining
available for
|
|
|
|
exercise
of
|
|
outstanding
options,
|
|
future
issuance under
|
|
|
|
outstanding
options,
|
|
warrants
and rights
|
|
equity
compensation plans
|
|
|
|
warrants
and rights
|
|
|
|
(excluding
securities
|
|
|
|
|
|
|
|
reflected
in column (a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
by
security holders
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
approved
by security holders
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
LEGAL
PROCEEDINGS
Freundlich
Supply is not a party to any pending legal proceeding, nor is its property
the
subject of a pending legal proceeding, that is not in the ordinary course of
business or otherwise material to the financial condition of Freundlich’s
business.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Precision
Aerospace Components (formerly Jordan 1 Holdings Company)
As
permitted by Section 102(b)(7) of the General Corporation Law of the State
of
Delaware, Article Eighth of our Certificate of Incorporation includes a
provision that eliminates the personal liability of each of our directors for
monetary damages for breach of such director's fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty
to us
or our stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) under
Section 174 of the General Corporation Law; or (iv) for any transaction from
which the director derived an improper personal benefit. If the General
Corporation Law is amended to authorize the further elimination or limitation
of
the liability of directors, then the liability of a director shall be limited
to
the fullest extent allowed by the amendment. However, any repeal or modification
of the indemnity provided by the General Corporation Law shall not adversely
affect any limitation on the personal liability of our directors.
Our
Certificate of Incorporation requires us, to the extent and in the manner
provided by the General Corporation Law, to indemnify any person against
expenses, (including attorneys' fees), judgments, fines and amounts paid in
settlement, that are actually and reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding to which such person
was or is a party or is threatened to be made a party by reason of the fact
that
such person is or was one of our directors or officers.
Our
Bylaws provide that we must, to the fullest extent permitted by Section 145
of
the Delaware General Corporation Law, indemnify our directors and officers
for
actions they took in good faith and in a manner reasonably believed to be in,
or
not opposed to, our best interests. With respect to any criminal action or
proceeding, the officer or director must have had no reasonable cause to believe
that his conduct was unlawful. We are required by our Bylaws to advance, prior
to the final disposition of any proceeding, promptly following request
therefore, all expenses incurred by any officer or director in connection with
such proceeding. If the General Corporation Law is amended to provide narrower
rights to indemnification than are available under our Bylaws, such amendment
shall not apply to alleged actions or omissions that precede the effective
date
of such amendment. Our Bylaws permit us to indemnify our employees and agents
to
the fullest extent permitted by the General Corporation Law.
Section
145 of the General Corporation Law of the State of Delaware permits
indemnification of a corporation's agents (which includes officers and
directors) because he is a party (or he is threatened to be made a party) to
any
action or proceeding by reason of the fact that the person is or was an agent
of
the corporation or because he is a party (or he is threatened to be made a
party) to any action or proceeding brought by or on behalf of a corporation.
If
the agent is successful on the merits in defense of any action or proceeding,
the corporation must indemnify the agent against expenses actually and
reasonably incurred by the agent in such defense. Indemnification must be
authorized in the specific case upon a determination that indemnification is
proper because the person has met the applicable standard of conduct to require
indemnification. This provision of the General Corporation Law of the State
of
Delaware is not exclusive of any other rights to which persons seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to our directors, officers and controlling persons pursuant to
the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
See
Item
2.01.
See
Item
2.01.
The
Company changed its name to Precision Aerospace Components, Inc. upon completion
of the transactions described in Section 1.01, above.
(a)
Financial statements of business acquired.
Report
of
Independent Registered Public Accounting Firm
Freundlich
Supply Company, Inc. Balance Sheet as of March 31, 2006 and December 31,
2005
Freundlich
Supply Company, Inc. Statement of Income and Retained Earnings For The Three
Months Ended March 31, 2006 and The Year Ended December 31, 2005
Freundlich
Supply Company, Inc. Statements of Cash Flows For The Three Months Ended March
31, 2006 and The Year Ended December 31, 2005
Freundlich
Supply Company, Inc. Notes to Financial Statements
(b)
Pro
forma financial information.
Precision
Aerospace Components, Inc. Pro forma Consolidated Financial
Statements
Pro
forma
Consolidated Balance Sheet
Pro
forma
Consolidated Statements of Operations
Notes
to
Pro forma Consolidated Financial Statements
(c)
Exhibits
Exhibit
2.1
|
Securities
Purchase Agreement by and among Jordan 1 Holdings Company and Venture
Fund
I.
|
2.2
|
Securities
Exchange Agreement by and among Jordan 1 Holdings Inc., Delaware
Fastener
Acquisition Corporation, and the Shareholders of Delaware Fastener
Acquisition Corporation
|
3.1
|
Jordan
1 Holdings Company Certificate of
Incorporation
|
3.2
|
Jordan
1 Holdings Company Bylaws
|
3.3
|
Series
A Preferred Stock Certificate of
Designation
|
3.4
|
Series
B Preferred Stock Certificate of
Designation
|
10.1
|
Asset
Purchase Agreement by and among Delaware Fastener Acquisition Corporation,
Michael Freundlich, and Freundlich Supply Company
Inc.
|
10.2
|
Securities
Purchase Agreement by and among Jordan 1 Holdings Company, Barron
Partners
LP and certain Equity Investors
|
10.3
|
Registration
Rights Agreement
|
10.5
|
Form
of Series A Warrant
|
10.6
|
Form
of Series B Warrant
|
10.7
|
Alex
Katz Consulting Agreement
|
10.8
|
2006
Long Term Incentive Plan
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Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
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Precision
Aerospace Components, Inc.
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Dated:
July
26, 2006
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By:
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/s/
Robert P. Moyer
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Name:
Robert P. Moyer
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Title:
President & Chief Executive Officer
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FREUNDLICH
SUPPLY COMPANY, INC.
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FINANCIAL
STATEMENTS
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YEARS
ENDED DECEMBER 31, 2005 AND 2004
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(audited)
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QUARTERS
ENDED MARCH 31, 2006 AND 2005
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(unaudited)
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FREUNDLICH
SUPPLY COMPANY, INC.
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DECEMBER
31, 2005
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PAGE
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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2
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BALANCE
SHEETS
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3
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STATEMENTS
OF INCOME AND RETAINED EARNINGS
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4
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STATEMENTS
OF CASH FLOWS
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5
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NOTES
TO FINANCIAL STATEMENTS
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6-12
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KEMPISTY
& COMPANY
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CERTIFIED
PUBLIC ACCOUNTANTS, P.C.
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15
MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272
- FAX
(212) 513-1930
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Board
of Directors
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Freundlich
Supply Company, Inc.
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We
have audited the accompanying balance sheet of Freundlich Supply
Company,
Inc. as of December 31, 2005 and the related statements of income
and
retained earnings and cash flows for each of the years in the
two year
period then ended. These financial statements are the responsibility
of
the Company's management. Our responsibility is to express an
opinion on
these financial statements based on our audits.
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We
conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require
that we
plan and perform the audit to obtain reasonable assurance about
whether
the financial statements are free of material misstatement. An
audit
includes examining, on a test basis, evidence supporting the
amounts and
disclosures in the financial statements. An audit also includes
assessing
the accounting principles used and significant estimates made
by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for
our opinion.
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In
our opinion, the financial statements referred to above present
fairly, in
all material respects, the financial position of Freundlich Supply
Company, Inc. at December 31, 2005 and the results of its operations
and
its cash flows for each of the years in the two year period then
ended in
conformity with accounting principles generally accepted in the
United
States of America.
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Kempisty
& Company
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Certified
Public Accountants PC
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New
York, New York
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June
29, 2006
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FREUNDLICH
SUPPLY COMPANY, INC.
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BALANCE
SHEETS
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March
31,
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December
31,
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2006
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2005
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ASSETS
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Current
Assets
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Cash
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$
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60,223
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$
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-
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Accounts
receivable-trade (Note 3)
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1,007,458
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603,783
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Inventory
(Note 4)
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2,532,573
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2,569,602
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Total
Current Assets
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3,600,254
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3,173,385
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Property
and equipment-net (Note 5)
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20,936
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21,726
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Deposit
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400
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400
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TOTAL
ASSETS
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$
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3,621,590
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$
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3,195,511
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LIABILITIES
AND STOCKHOLDER'S EQUITY
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Current
Liabilities
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Bank
credit line (Note 6)
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$
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700,000
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$
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700,000
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Accounts
payable
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771,341
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527,136
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Rent
payable affiliate (Note 7)
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227,997
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191,997
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Due
to stockholder (Note 7)
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241,875
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394,878
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Total
Current Liabilities
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1,941,213
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1,814,011
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Commitments
and contingencies (Note 10)
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-
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-
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Stockholder's
Equity
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Common
stock no par value, 200 shares authorized, 100 shares
outstanding
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100,000
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100,000
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Additional
paid-in capital
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328,583
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328,583
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Retained
earnings
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1,251,794
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952,917
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Total
Stockholder's Equity
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1,680,377
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1,381,500
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TOTAL
LIABILITIES AND STOCKHOLDER'S EQUITY
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$
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3,621,590
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$
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3,195,511
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The
accompanying notes are an integral part of these financial
statements.
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FREUNDLICH
SUPPLY COMPANY, INC.
STATEMENTS
OF INCOME AND RETAINED
EARNINGS
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Three
Months Ended
March 31,
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Year
Ended December 31,
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2006
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2005
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2005
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2004
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(unaudited)
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(unaudited)
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Sales
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$
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2,874,094
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$
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2,426,017
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$
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8,816,384
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$
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8,916,132
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Cost
of sales
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1,865,144
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1,597,813
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5,828,387
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5,970,064
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Gross
Profit
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1,008,950
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828,204
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2,987,997
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2,946,068
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Operating
expenses:
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Selling,
general and administrative
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433,736
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396,468
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1,576,517
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1,565,632
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Dpreciation
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790
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790
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3,158
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3,158
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Total
Operating Expenses
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434,526
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397,258
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1,579,675
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1,568,790
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Income
from operations
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574,424
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430,946
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1,408,322
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1,377,278
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Other
expenses:
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Interest
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12,969
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12,263
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48,309
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43,707
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Net
income before provision for taxes
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561,455
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418,683
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1,360,013
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1,333,571
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Provision
for taxes
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253,000
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188,000
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612,000
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601,000
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Net
income
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308,455
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230,683
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748,013
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732,571
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Retained
earnings-beginning of period
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952,917
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477,591
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477,591
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344,040
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Add:
Proforma tax adjustment
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225,426
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176,853
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599,670
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595,684
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Less:
Dividends
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235,004
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331,874
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872,357
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1,194,704
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Retained
earnings-end of period
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$
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1,251,794
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$
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553,253
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$
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952,917
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$
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477,591
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The
accompanying notes are an integral part of these financial
statements.
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FREUNDLICH
SUPPLY COMPANY, INC.
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STATEMENTS
OF CASH FLOWS
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Three
Months Ended
March 31,
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Year
Ended December 31,
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2006
|
|
2005
|
|
2005
|
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2004
|
|
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|
(unaudited)
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|
(unaudited)
|
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
income
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$
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308,455
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$
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230,683
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$
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748,013
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$
|
732,571
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Adjustments
to reconcile net income to net cash provided by operating
activities:
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Provision
for taxes
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225,426
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|
176,853
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599,669
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595,684
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Depreciation
and amortization
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|
790
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|
790
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3,158
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|
3,158
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Changes
in operating assets and liabilities:
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(Increase)
decrease in accounts receivable
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(403,675
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)
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(14,630
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)
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|
123,095
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|
37,893
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(Increase)
decrease in inventory
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37,029
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(137,476
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)
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(72,612
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)
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(108,781
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)
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(Increase)
decrease in prepaid expenses
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-
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(30,000
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)
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10,000
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-
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Increase
(decrease) in accounts payable
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280,205
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184,560
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(448,552
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)
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387,616
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Total
adjustments
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139,775
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180,097
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214,758
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915,570
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NET
CASH PROVIDED BY OPERATING ACTIVITIES
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448,230
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410,780
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962,771
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1,648,141
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Net
change in stockholders' loan payable
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(153,003
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)
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(147,197
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)
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41,295
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(397,550
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)
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Dividends
paid
|
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|
(235,004
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)
|
|
(331,874
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)
|
|
(872,357
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)
|
|
(1,194,704
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)
|
Principal
payments on notes payable
|
|
|
-
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|
-
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(200,000
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)
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|
(125,000
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)
|
CASH
USED BY FINANCING ACTIVITIES
|
|
|
(388,007
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)
|
|
(479,071
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)
|
|
(1,031,062
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)
|
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(1,717,254
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)
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NET
INCREASE (DECREASE) IN CASH
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|
60,223
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(68,291
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)
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(68,291
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)
|
|
(69,113
|
)
|
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CASH
|
|
|
|
|
|
|
|
|
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|
Beginning
of period
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|
-
|
|
|
68,291
|
|
|
68,291
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|
137,404
|
|
|
|
|
|
|
|
|
|
|
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End
of period
|
|
$
|
60,223
|
|
$
|
-
|
|
$
|
-
|
|
$
|
68,291
|
|
|
|
|
|
|
|
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Supplemental
disclosure of noncash financing and investing activities:
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|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
12,969
|
|
$
|
12,263
|
|
$
|
48,309
|
|
$
|
43,751
|
|
Taxes
paid
|
|
$
|
27,574
|
|
$
|
11,147
|
|
$
|
12,331
|
|
$
|
5,316
|
|
The
accompanying notes are an integral part of these financial
statements.
|
FREUNDLICH
SUPPLY COMPANY, INC.
|
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|
NOTES
TO FINANCIAL STATEMENTS
|
(Amounts
and Disclosures at and for the Three Months
|
Ended
March 31, 2006 and 2005 Are
Unaudited)
|
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NOTE
1-
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ORGANIZATION
AND NATURE OF BUSINESS
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Freundlich
Supply Company, Inc. (“Freundlich Supply” or the “Company”) was
incorporated in the State of New York in 1980. Freundlich Supply
is a
specialty stocking distributor of a broad range of nut products
(standard,
self-locking, semi-specials and specials) used primarily for
aerospace and
military applications. The corporate headquarters is located
in Staten
Island, New York.
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NOTE
2-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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Basis
of Presentation
|
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|
The
financial statements reflect the historical results of the Company
except
that officer’s compensation and related expenses are based upon a
compensation structure for a company not solely owned by its
sole officer.
This resulted in a reduction of selling, general and administrative
expenses of $187,028 and $389,925 for the years ended December
31, 2005
and 2004 and $48,332 and $38,608 for three months ending March
31, 2006
and 2005. These expenses were reclassified to dividends
paid.
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|
Use
of Estimates
|
|
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|
The
preparation of financial statements in conformity with generally
accepted
accounting principles in the United States of America requires
management
to make estimates and assumptions that affect the amounts reported
in the
financial statements and accompanying disclosures. Although these
estimates are based on management’s best knowledge of current events and
actions Freundlich Supply may undertake in the future, actual
results may
ultimately differ from the estimates.
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Revenue
Recognition
|
|
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Revenues
are recognized when title, ownership and risk of loss pass to
the
customer. A sale occurs at the time of shipment from the Company’s
warehouse in Staten Island, New York, as the terms of Freundlich
Supply’s
sales are FOB shipping point.
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|
|
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
The
Company determines its gross profit by subtracting cost of goods
sold from
net sales. Cost of goods sold includes the cost of the products
sold and
excludes costs for selling, general and administrative expenses
and
depreciation and amortization, which are reported separately
in the income
statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
FREUNDLICH
SUPPLY COMPANY, INC.
|
|
NOTES
TO FINANCIAL STATEMENTS
|
(Amounts
and Disclosures at and for the Three Months
|
Ended
March 31, 2006 and 2005 Are
Unaudited)
|
NOTE
2-
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Shipping
and Handling Costs and Fees
|
|
|
|
|
|
|
|
|
|
|
|
Freundlich
Supply records the inbound freight cost on merchandise purchased
for
resale to cost of goods sold and records the outbound freight
cost on
merchandise sold as a component of selling, general and administrative
expenses in the income statement.
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
The
Company records an allowance for doubtful accounts to allow
for any
amounts that may not be recoverable. The amount of the allowance
is based
on an analysis of the Company’s prior collection experience, customer
credit worthiness, and current economic trends. Based on management's
review of accounts receivable, no allowance for doubtful accounts
is
considered necessary. The Company determines receivables to
be past due
based on the payment terms of original invoices. Interest is
not typically
charged on past due receivables.
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
primarily consist of merchandise purchased for resale and are
stated at
the lower of cost or market. Cost is determined under the specific
identification method. Freundlich Supply makes provisions for
obsolete or
slow moving inventories as necessary to reflect reduction in
inventory
value. Inventories are stated at fair value and no reserve
for excess and
obsolete inventory has been recorded.
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment are recorded at cost. Depreciation expense
is
determined using the straight-line method for financial reporting
and
income tax purposes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse
equipment
|
|
5
years
|
|
|
|
|
Computers
|
|
5
years
|
|
|
|
|
Furniture
and Fixtures
|
|
5
years
|
|
|
|
|
Equipment
|
|
5
years
|
|
|
|
|
Leasehold
Improvements
|
|
15
years
|
|
|
FREUNDLICH
SUPPLY COMPANY, INC.
NOTES
TO FINANCIAL STATEMENTS
(Amounts
and Disclosures at and for the Three Months
Ended
March 31, 2006 and 2005 Are Unaudited)
NOTE
2-
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash, accounts receivable, accounts
payable and accrued liabilities, bank debt and note due to shareholder.
Carrying
values are considered to approximate fair value due to their relative short-term
maturities.
Income
Taxes
Income
tax expense is recognized on the Freundlich earnings before tax at an effective
rate of 45%. Freundlich is currently taxed as an "S" Corporation for federal
and
New York State purposes. Accordingly, no provision for federal and state
income
taxes was reflected in their historical financial statements.
Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the combined financial
statements carrying amounts of existing assets and liabilities and their
respective income tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in
which those temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates
is
recognized as income in the period that included the enactment
date.
Interim
Financial Information
The
unaudited balance sheet and the unaudited statements of income and cash
flows
have been prepared in accordance with United States generally accepted
accounting principles for interim financial information. In the opinion
of
management, all adjustments (consisting solely of normal recurring accruals)
considered necessary for a fair presentation of the financial position,
results
of operations and cash flows as at March 31, 2006 and 2005, have been included.
Readers of these financial statements should note that the interim results
for
the three month period ended March 31, 2006 and 2005, are not necessarily
indicative of the results that may be expected for the fiscal year as a
whole.
FREUNDLICH
SUPPLY COMPANY, INC.
|
|
NOTES
TO FINANCIAL STATEMENTS
|
(Amounts
and Disclosures at and for the Three Months
|
Ended
March 31, 2006 and 2005 Are
Unaudited)
|
Note
3-
|
ACCOUNTS
RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
$
|
1,007,458
|
|
$
|
603,783
|
|
|
Allowance
for doubtful accounts
|
|
|
-
|
|
|
-
|
|
|
Accounts
receivable, net
|
|
$
|
1,007,458
|
|
$
|
603,783
|
|
|
|
|
|
|
|
|
|
|
Note
4-
|
INVENTORY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March
31, 2006
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
2,532,573
|
|
$
|
2,569,602
|
|
|
Reserve
for obsolescence
|
|
|
-
|
|
|
-
|
|
|
Total
Inventory
|
|
$
|
2,532,573
|
|
$
|
2,569,602
|
|
|
|
|
|
|
|
|
|
|
Note 5-
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March
31, 2006
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse
equipment
|
|
$
|
350,348
|
|
$
|
350,348
|
|
|
Leasehold
improvements
|
|
|
184,740
|
|
|
184,740
|
|
|
Furniture
and fixtures
|
|
|
70,416
|
|
|
70,416
|
|
|
Computers
|
|
|
74,675
|
|
|
74,675
|
|
|
Equipment
|
|
|
9,729
|
|
|
9,729
|
|
|
|
|
|
689,908
|
|
|
689,908
|
|
|
Less:
Accumulated depreciation
|
|
|
(668,972
|
)
|
|
(668,182
|
)
|
|
Net
property and equipment
|
|
$
|
20,936
|
|
$
|
21,726
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the year ending December 31, 2005 and 2004 was $3,158
and
$3,158, respectively and for the three months ended March 31,
2006 and
2005 $790 and $790,
respectively.
|
FREUNDLICH
SUPPLY COMPANY, INC.
NOTES
TO FINANCIAL STATEMENTS
(Amounts
and Disclosures at and for the Three Months
Ended
March 31, 2006 and 2005 Are Unaudited)
NOTE
6-BANK CREDIT LINE
Interest
is payable monthly, calculated at the Wall St. Journal Prime Rate. The
line of
credit provides for borrowings of up to $1,500,000 based on an advance
rate of
80% of qualified accounts receivable and 40% of qualified inventory. The
line of
credit matures on September 30, 2006. The line of credit is secured by
a blanket
lien on all Company assets. The loan repayment is also guaranteed by the
Company's President. As of March 31, 2006 and December 31, 2005, $700,000
was
outstanding under the credit line.
NOTE
7-RELATED PARTY TRANSACTION
An
individual who is an officer and the sole stockholder of the Company holds
an
unsecured, non-interest bearing note from the Company. This note is payable
on
demand and totals the following amounts on the dates indicated:
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
$
|
241,875
|
|
$
|
394,878
|
|
The
Company leases its operating facilities on a month to month basis from
an
affiliated company under an oral operating lease. Rent expense is as
follows:
|
|
Three
Months Ending
|
|
Year
Ending
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2005
|
|
2004
|
|
|
|
$
|
36,000
|
|
$
|
36,000
|
|
$
|
144,000
|
|
$
|
144,000
|
|
The
above
related party transactions are not necessarily indicative of the transactions
that would have been entered into had comparable transactions been entered
into
with independent parties.
FREUNDLICH
SUPPLY COMPANY, INC.
NOTES
TO FINANCIAL STATEMENTS
(Amounts
and Disclosures at and for the Three Months
Ended
March 31, 2006 and 2005 Are Unaudited)
NOTE
8-CAPITAL STOCK
The
Company is authorized to issue 200 shares of no par value common stock,
100 of
which are issued and outstanding. The common stock of the Company totals
the
following amounts on the dates indicated:
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
$
|
100,000
|
|
NOTE
9-INCOME TAXES
The
Company has elected to be taxed as an "S" corporation for federal and state
income tax purposes. The pro forma federal and state income tax provision
below
has been calculated as if the entity was a C corporation.
The
components of the Company's tax provision were as follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Current
income tax (benefit) expense
|
|
$
|
612,000
|
|
$
|
601,000
|
|
Deferred
income tax expense (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
$
|
612,000
|
|
$
|
601,000
|
|
The
reconciliation of the income tax computed at the U.S. Federal statutory
rate to
income tax expense for the periods ended December 31, 2005 and 2004 is
as
follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Tax
expense (benefit) at Federal rate (34%)
|
|
$
|
462,000
|
|
$
|
454,000
|
|
State
and local income tax, net of Federal benefit
|
|
|
150,000
|
|
|
147,000
|
|
Net
income tax
|
|
$
|
612,000
|
|
$
|
601,000
|
|
Deferred
income taxes reflect the net income tax effect of temporary differences
between
the carrying amounts of the assets and liabilities for financial reporting
purposes and amounts used for income taxes. The Company has no deferred
income
tax assets and liabilities.
FREUNDLICH
SUPPLY COMPANY, INC.
NOTES
TO FINANCIAL STATEMENTS
(Amounts
and Disclosures at and for the Three Months
Ended
March 31, 2006 and 2005 Are Unaudited)
NOTE
10-COMMITMENTS AND CONTINGENCIES
Per
the
terms of a supplier agreement between a customer's bank that facilitates
the
payment of the Company's invoices and the Company, the bank has a lien
on the
Company's receivables from that customer.
NOTE
11-SIGNIFICANT CLIENTS
During
the year ended December 31, 2005, sales to three customers accounted for
approximately 57 percent, 8 percent and 3 percent of revenue. For the year
ended
December 31, 2004, sales to three customers accounted for approximately
62
percent, 6 percent and 5 percent of revenue.
NOTE
12-SUBSEQUENT EVENTS
During
the quarter ended June 30, 2006, the Company extended the maturity of the
bank
credit line from June 30, 2006 to September 30, 2006.
Introduction
to Unaudited Pro Forma Consolidated Financial Statements
The
following unaudited pro forma consolidated statement of income reflects
adjustments to the Freundlich Supply historical statement of income for the
year
ended December 31, 2005, and the quarter ended March 31, 2006 to give effect
to:
|
·
|
The
reverse merger which was completed July 20, 2006 and the related
purchase
of the Freundlich Supply net assets as if both had occurred on January
1,
2005. In a transaction accounted for as a reverse merger, Freundlich
Supply is treated as the accounting
acquirer.
|
|
·
|
Other
adjustments required to reflect the combined results of operation
of
Freundlich Supply as an independent public company;
and
|
|
·
|
The
sale by Precision Aerospace Components, Inc of securities for net
proceeds
of $5,750,000.00
|
The
unaudited pro forma consolidated statements of income are not necessarily
indicative of what the actual results of operations of Freundlich Supply and
Precision Aerospace Components would have been assuming the transactions had
been completed as set forth above, nor do they purport to represent Freundlich
Supply results of operations for future periods.
The
following unaudited pro forma consolidated balance sheet reflects adjustments
to
Freundlich Supply’s historical balance sheet at December 31, 2005 to give effect
to this reverse merger.
The
unaudited pro forma consolidated financial statement should be read in
conjunction with the
historical
financial statements and related notes of Freundlich Supply which are included
in this form 8-K and the historical financial statement of Precision Aerospace
Components which are included with its filings to the SEC.
Precision
Aerospace Components, Inc.
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
December
31, 2005
|
|
Precision
|
|
Freundlich
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
Supply
|
|
|
|
|
|
Consolidated
|
|
|
|
Components,
|
|
Company,
|
|
Proforma
Adjustments
|
|
Balance
|
|
|
|
Inc.
|
|
Inc.
|
|
Amount
|
|
Explanation
|
|
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
0
|
|
$
|
4,750,000
|
|
|
a
|
|
$
|
247,879
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($4,465,568
|
)
|
|
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($1,036,553
|
)
|
|
d
|
|
|
|
|
Accounts
Receivable
|
|
|
|
|
|
603,783
|
|
|
|
|
|
|
|
|
603,783
|
|
Inventory
|
|
|
|
|
|
2,569,602
|
|
|
|
|
|
|
|
|
2,569,602
|
|
Total
Current Assets
|
|
|
0
|
|
|
3,173,385
|
|
|
247,879
|
|
|
|
|
|
3,421,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net
of accumulated depreciation)
|
|
|
0
|
|
|
21,726
|
|
|
|
|
|
|
|
|
21,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
0
|
|
|
400
|
|
|
|
|
|
|
|
|
400
|
|
Total
Other Assets
|
|
|
0
|
|
|
400
|
|
|
0
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
0
|
|
$
|
3,195,511
|
|
$
|
247,879
|
|
|
|
|
$
|
3,443,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit payable
|
|
$
|
0
|
|
$
|
700,000
|
|
|
($700,000
|
)
|
|
c
|
|
$
|
0
|
|
Accounts
Payable
|
|
|
|
|
|
527,136
|
|
|
|
|
|
|
|
|
527,136
|
|
Accrued
Expenses
|
|
|
|
|
|
191,997
|
|
|
(191,997
|
)
|
|
c
|
|
|
0
|
|
Loans
payable-Current Portion
|
|
|
|
|
|
394,878
|
|
|
1,000,000
|
|
|
b
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
(394,878
|
)
|
|
c
|
|
|
|
|
Seller
Note-Current Portion
|
|
|
|
|
|
|
|
|
150,000
|
|
|
e
|
|
|
150,000
|
|
Total
Current Liabilities
|
|
|
0
|
|
|
1,814,011
|
|
|
(136,875
|
)
|
|
|
|
|
1,677,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seller
Note
|
|
|
|
|
|
0
|
|
|
600,000
|
|
|
e
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
0
|
|
|
1,814,011
|
|
|
463,125
|
|
|
|
|
|
2,277,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value, 200 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized,
100 shares outstanding
|
|
|
|
|
|
100,000
|
|
|
(100,000
|
)
|
|
c
|
|
|
0
|
|
Additional
paid in capital
|
|
|
|
|
|
328,583
|
|
|
(328,583
|
)
|
|
c
|
|
|
0
|
|
Preferred
Stock Series A
|
|
|
|
|
|
|
|
|
4,750,000
|
|
|
a
|
|
|
4,750,000
|
|
Preferred
Stock Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Common
Stock, 100,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,677,900
shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Retained
Earnings
|
|
|
0
|
|
|
952,917
|
|
|
(2,750,110
|
)
|
|
c
|
|
|
(3,583,746
|
)
|
|
|
|
|
|
|
|
|
|
(1,036,553
|
)
|
|
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750,000
|
)
|
|
e
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
1,381,500
|
|
|
(215,246
|
)
|
|
|
|
|
1,166,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
$
|
3,195,511
|
|
$
|
247,879
|
|
|
|
|
$
|
3,443,390
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
The
accompanying notes are an integral part of the financial
statements.
Precision
Aerospace Components, Inc.
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
March
31, 2006
|
|
Precision
|
|
Freundlich
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
Supply
|
|
|
|
|
|
Consolidated
|
|
|
|
Components,
|
|
Company,
|
|
Proforma
Adjustments
|
|
Balance
|
|
|
|
Inc.
|
|
Inc.
|
|
Amount
|
|
Explanation
|
|
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
60,223
|
|
$
|
4,750,000
|
|
|
a
|
|
$
|
308,102
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($4,465,568
|
)
|
|
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($1,036,553
|
)
|
|
d
|
|
|
|
|
Accounts
Receivable
|
|
|
|
|
|
1,007,458
|
|
|
|
|
|
|
|
|
1,007,458
|
|
Inventory
|
|
|
|
|
|
2,532,573
|
|
|
|
|
|
|
|
|
2,532,573
|
|
Total
Current Assets
|
|
|
0
|
|
|
3,600,254
|
|
|
247,879
|
|
|
|
|
|
3,848,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net
of accumulated depreciation)
|
|
|
0
|
|
|
20,936
|
|
|
|
|
|
|
|
|
20,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
0
|
|
|
400
|
|
|
|
|
|
|
|
|
400
|
|
Total
Other Assets
|
|
|
0
|
|
|
400
|
|
|
0
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
0
|
|
$
|
3,621,590
|
|
$
|
247,879
|
|
|
|
|
$
|
3,869,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit payable
|
|
$
|
0
|
|
$
|
700,000
|
|
|
($700,000
|
)
|
|
c
|
|
$
|
0
|
|
Accounts
Payable
|
|
|
|
|
|
771,341
|
|
|
|
|
|
|
|
|
771,341
|
|
Accrued
Expenses
|
|
|
|
|
|
227,997
|
|
|
227,997
|
|
|
c
|
|
|
455,994
|
|
Loans
payable-Current Portion
|
|
|
|
|
|
241,875
|
|
|
1,000,000
|
|
|
b
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
(241,875
|
)
|
|
c
|
|
|
|
|
Seller
Note-Current Portion
|
|
|
|
|
|
|
|
|
225,000
|
|
|
e
|
|
|
225,000
|
|
Total
Current Liabilities
|
|
|
0
|
|
|
1,941,213
|
|
|
511,122
|
|
|
|
|
|
2,452,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seller
Note
|
|
|
|
|
|
0
|
|
|
525,000
|
|
|
e
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
0
|
|
|
1,941,213
|
|
|
1,036,122
|
|
|
|
|
|
2,977,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value, 200 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized,
100 shares outstanding
|
|
|
|
|
|
100,000
|
|
|
(100,000
|
)
|
|
c
|
|
|
0
|
|
Additional
paid in capital
|
|
|
|
|
|
328,583
|
|
|
(328,583
|
)
|
|
c
|
|
|
0
|
|
Preferred
Stock Series A
|
|
|
|
|
|
|
|
|
4,750,000
|
|
|
a
|
|
|
4,750,000
|
|
Preferred
Stock Series B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Common
Stock, 100,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,677,900
shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Retained
Earnings
|
|
|
0
|
|
|
1,251,794
|
|
|
(3,323,107
|
)
|
|
c
|
|
|
(3,857,866
|
)
|
|
|
|
|
|
|
|
|
|
(1,036,553
|
)
|
|
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750,000
|
)
|
|
e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
0
|
|
|
1,680,377
|
|
|
(788,243
|
)
|
|
|
|
|
892,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
0
|
|
$
|
3,621,590
|
|
$
|
247,879
|
|
|
|
|
$
|
3,869,469
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
0
|
|
The
accompanying notes are an integral part of the financial
statements.
Precision
Aerospace Components, Inc.
Unaudited
Pro Forma Condensed Consolidated Statement of Income
For
the Year Ended December 31, 2005
|
|
Precision
|
|
Freundlich
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
Supply
|
|
|
|
|
|
|
|
|
|
Components,
|
|
Company,
|
|
Proforma
Adjustments
|
|
|
|
|
|
Inc.
|
|
Inc.
|
|
Note
|
|
Amount
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
0
|
|
$
|
8,816,384
|
|
|
|
|
|
|
|
$
|
8,816,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
0
|
|
|
5,828,387
|
|
|
|
|
|
|
|
|
5,828,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
0
|
|
|
2,987,997
|
|
|
|
|
|
|
|
|
2,987,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
General and Administrative Expenses
|
|
|
0
|
|
|
1,576,517
|
|
|
f
|
|
|
488,000
|
|
|
2,064,517
|
|
Depreciation
and Amortization
|
|
|
0
|
|
|
3,158
|
|
|
g
|
|
|
16,842
|
|
|
20,000
|
|
Total
Operating Expenses
|
|
|
0
|
|
|
1,579,675
|
|
|
|
|
|
504,842
|
|
|
2,084,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
0
|
|
|
1,408,322
|
|
|
|
|
|
504,842
|
|
|
903,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
48,309
|
|
|
h
|
|
|
85,754
|
|
|
134,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre
Tax Income
|
|
|
0
|
|
|
1,360,013
|
|
|
|
|
|
590,596
|
|
|
769,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
0
|
|
|
612,000
|
|
|
i
|
|
|
(266,000
|
)
|
|
346,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
0
|
|
$
|
748,013
|
|
|
|
|
$
|
324,596
|
|
$
|
423,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
31,677,900
|
|
|
|
|
|
|
|
|
|
|
|
31,677,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Basic and Diluted Shares
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
The
accompanying notes are an integral part of the financial
statements.
Precision
Aerospace Components, Inc.
Unaudited
Pro Forma Condensed Consolidated Statement of Income
For
the Three Months Ended March 31, 2006
|
|
Precision
|
|
Freundlich
|
|
|
|
|
|
|
|
|
|
Aerospace
|
|
Supply
|
|
|
|
|
|
|
|
|
|
Components,
|
|
Company,
|
|
Proforma
Adjustments
|
|
|
|
|
|
Inc.
|
|
Inc.
|
|
Note
|
|
Amount
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
0
|
|
$
|
2,874,094
|
|
|
|
|
|
|
|
$
|
2,874,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
0
|
|
|
1,865,144
|
|
|
|
|
|
|
|
|
1,865,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
0
|
|
|
1,008,950
|
|
|
|
|
|
|
|
|
1,008,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
General and Administrative Expenses
|
|
|
0
|
|
|
433,736
|
|
|
j
|
|
|
122,000
|
|
|
555,736
|
|
Depreciation
and Amortization
|
|
|
0
|
|
|
790
|
|
|
k
|
|
|
4,210
|
|
|
5,000
|
|
Total
Operating Expenses
|
|
|
0
|
|
|
434,526
|
|
|
|
|
|
126,210
|
|
|
560,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
0
|
|
|
574,424
|
|
|
|
|
|
126,210
|
|
|
448,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
12,969
|
|
|
l
|
|
|
21,836
|
|
|
34,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre
Tax Income
|
|
|
0
|
|
|
561,455
|
|
|
|
|
|
148,046
|
|
|
413,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
0
|
|
|
253,000
|
|
|
i
|
|
|
(67,000
|
)
|
|
186,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
0
|
|
$
|
308,455
|
|
|
|
|
|
81,046
|
|
$
|
227,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
31,677,900
|
|
|
|
|
|
|
|
|
|
|
|
31,677,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income per Basic and Diluted Shares
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
The
accompanying notes are an integral part of the financial
statements.
Precision
Aerospace Components, Inc.
Notes
to Unaudited Pro Forma Condensed Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a
|
To
reflect the issuance of preferred shares
|
|
|
|
|
|
|
|
|
|
|
b
|
To
reflect short term loan from Barron Partners
|
|
|
|
|
|
|
|
|
|
|
c
|
To
reflect amount paid for assets of Freundlich Supply Company, Inc.
and
liabilities paid off, net of liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
d
|
To
reflect transaction settlement costs
|
|
|
|
|
|
|
|
|
|
|
e
|
To
reflect Seller Note issued as part of the consideration for asset
purchase
|
|
|
|
|
|
|
|
|
|
|
f
|
To
record the additional annual costs of being public, including the
following:
|
|
|
|
|
|
Salary
and benefits for management team
|
$144,000
|
|
|
|
|
Directors
and officers insurance
|
70,000
|
|
|
|
|
Compensation
for independent directors
|
30,000
|
|
|
|
|
Professional
fees
|
160,000
|
|
|
|
|
Investor
relations costs
|
84,000
|
|
|
|
|
|
$488,000
|
|
|
|
|
|
|
|
|
|
g
|
To
record depreciation and amortization of assets acquired through
purchase
of assets of
|
|
|
|
|
|
former
Freundlich Supply Co., Inc. and assets to be acquired during first
year of
operations, as follows:
|
|
|
|
|
|
Depreciation
of property and equipment acquired
|
$20,000
|
|
|
|
|
Depreciation
recorded in historical results
|
3,158
|
|
|
|
|
Pro
forma adjustment
|
$16,842
|
|
|
|
|
|
|
|
|
|
h
|
To
reflect interest that would accrue on debt, as follows:
|
|
|
|
|
|
Short
term loan from Barron Partners, to be paid off
|
|
|
|
|
|
within
90 days of date of loan
|
$7,500
|
|
|
|
|
Interest
on Seller note
|
59,063
|
|
|
|
|
Interest
on line of credit to replace short term loan
|
|
|
|
|
|
from
Barron Partners
|
67,500
|
|
|
|
|
Subtotal
|
134,063
|
|
|
|
|
Interest
Expense recorded in historical results
|
48,309
|
|
|
|
|
Pro
forma adjustment
|
$85,754
|
|
|
|
|
|
|
|
|
|
i
|
To
record pro forma income taxes
|
|
|
|
|
|
|
|
|
|
|
j
|
To
record the additional annual costs of being public, including the
following:
|
|
|
|
|
|
Salary
and benefits for management team
|
$36,000
|
|
|
|
|
Directors
and officers insurance
|
17,500
|
|
|
|
|
Compensation
for independent directors
|
7,500
|
|
|
|
|
Professional
fees
|
40,000
|
|
|
|
|
Investor
relations costs
|
21,000
|
|
|
|
|
|
$122,000
|
|
|
|
k
|
To
record depreciation and amortization of assets acquired through
purchase
of assets of
|
|
|
|
|
|
former
Freundlich Supply Co., Inc. and assets to be acquired during first
year of
operations, as follows:
|
|
|
|
|
|
Depreciation
of property and equipment acquired
|
$5,000
|
|
|
|
|
Depreciation
recorded in historical results
|
790
|
|
|
|
|
Pro
forma adjustment
|
$4,210
|
|
|
|
|
|
|
|
|
|
l
|
To
reflect interest that would accrue on debt, as follows:
|
|
|
|
|
|
Interest
on Seller note
|
$12,305
|
|
|
|
|
Interest
on line of credit
|
22,500
|
|
|
|
|
Subtotal
|
34,805
|
|
|
|
|
Interest
Expense recorded in historical results
|
12,969
|
|
|
|
|
Pro
forma adjustment
|
$21,836
|
|
|
|
SECURITIES
PURCHASE AGREEMENT
This
Agreement (the “Agreement”) is made as of the 20th day of July, 2006 by and
between Jordan 1 Holdings Company, a Delaware corporation having its offices
at
501 Johnstone Avenue, Suite 501, Bartlesville, OK, 74003 (the “Issuer”), and
Venture Fund I, Inc., a Nevada corporation having its offices at 2726 Northgate
Village Drive,
Houston,
TX 77068 (the “Seller”).
W
I T
N E S S E T H:
WHEREAS,
the
Seller is the owner of 29,000,000 shares of the Issuer’s common stock, par value
$.001 per share (“Common Stock”), which represents a controlling interest in the
Issuer; and
WHEREAS,
the Seller desire to sell to the Issuer, and the Issuer desires to purchase
from
the Seller, 29,000,000 shares of Common Stock (the “Shares”), on and subject to
the terms of this Agreement;
WHEREAS,
pursuant to that Securities Purchase Agreement (“SPA”) dated July 20, 2006 by
and between Issuer on the one hand, and Barron Partners LP and the Equity
Investors named in Exhibit “A” to the SPA, on the other hand, it has been agreed
that Issuer would re-purchase the Shares from Seller, and cancel same, under
the
terms and conditions hereinafter set forth and as set foth in the SPA;
WHEREFORE,
the parties hereto hereby agree as follows:
Sale
of the Shares
.
Subject
to the terms and conditions of this Agreement, and in reliance upon the
representations, warranties, covenants and agreements contained in this
Agreement, the Seller shall sell the Shares to the Issuer, and the Issuer shall
purchase the Shares from the Seller for a purchase price (the “Purchase Price”)
equal to:
(i)
Five
hundred fifty thousand dollars ($550,000); and
(ii)
Two
hundred thousand (200,000) shares of the Issuer’s Series B Convertible Preferred
Stock (the “Series B Preferred Stock”), each share of which shall be convertible
into two (2) shares of the Issuer’s Common Stock following the effectuation of a
reverse split by the Issuer. The Series B Preferred Stock and the underlying
400,000 shares of Common Stock shall have piggyback registration
rights.
Closing
.
(a)
The
purchase and sales of the Shares shall take place at a closing (the “Closing”),
to be held at such date, time and place within the City of New York as shall
be
determined by the Issuer on notice to the Seller.
(b)
At
the
Closing:
(i)
The
Seller shall deliver to the Issuer a certificate for the Shares, duly endorsed
in form for transfer to the Issuer.
(ii)
The
Issuer shall pay the Purchase Price for the Shares and deliver to Seller a
certificate for the Preferred Shares.
(iii)
The
Issuer shall deliver a good standing certificate issued by the Secretary of
State of the State of Delaware.
(iv)
Counsel
for the Issuer shall have given its opinion to the Issuer, which may be relied
on by any subsequent purchasers of the Issuer’s capital stock and their counsel
if such purchases take place as part of the next direct or indirect merger
or
similar transaction with an operating business that results in a change of
control of the Issuer, to the effect that all of the issued and outstanding
capital stock has been duly and validly authorized and issued and is fully
paid
and non-assessable and to such counsel’s knowledge not issued in violation of
any preemptive right, right of first refusal or other right, and that the
issuance of such capital stock was exempt from the registration requirements
of
the Securities Act of 1933, as amended, by virtue of Section 4(2) of the
Commission thereunder.
(v)
The
Issuer shall cancel the Shares.
(c)
At
and at
any time after the Closing, the parties shall duly execute, acknowledge and
deliver all such further assignments, conveyances, instruments and documents,
and shall take such other action consistent with the terms of this Agreement
to
carry out the transactions contemplated by this Agreement.
(d)
All
representations, covenants and warranties of the Issuer and Seller contained
in
this Agreement shall be true and correct on and as of the Closing Date with
the
same effect as though the same had been made on and as of such
date.
Representations
and Warranties of the Issuer
.
The
Issuer hereby makes the following representations and warranties to the
Seller:
(a)
The
Issuer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Issuer has the corporate power
to
own its properties and to carry on its business as now being conducted and
is
duly qualified to do business and is in good standing in each jurisdiction
in
which the failure to be so qualified and in good standing would have a material
adverse effect on the Issuer.
(b)
The
Issuer has the requisite power and authority to enter into this Agreement and
to
consummate the transactions contemplated hereby and otherwise to carry out
its
obligations hereunder. The Issuer is not in violation of any of the provisions
of its certificate of incorporation or by-laws, and Seller is not in violation
of its operating agreement. No consent, approval or agreement of any individual
or entity is required to be obtained by the Issuer in connection with the
execution and performance by the Issuer of this Agreement or the execution
and
performance by the Issuer of any agreements, instruments or other obligations
entered into in connection with this Agreement.
(c)
The
Issuer has authorized capital stock consisting of 100,000,000 shares of Common
Stock, par value $.001, and 10,000,000 shares of preferred stock, par value
$.001 per share (the “Preferred Stock”), of which 39,677,966 shares of Common
Stock, including the Shares, and no shares of Preferred Stock are presently
issued and outstanding.
(d)
The
Issuer is not a party to any agreement or understanding pursuant to which any
securities of any class of capital stock are to be issued or created or
transferred. The Issuer has not acquired any shares of Common Stock, and has
no
formal or informal agreements or understandings pursuant to which it can or
will
acquire any shares of Issuer Common Stock (other than this Agreement). Neither
the Issuer nor any officer, director or 5% stockholder of the Issuer has any
agreements, plans, understandings or proposals, whether formal or informal
or
whether oral or in writing, pursuant to which it or he granted or may have
issued or granted any individual or entity any Convertible Security or any
interest in the Issuer or the Issuer’s earnings or profits, however defined. As
used in this Agreement, the term “Convertible Securities” shall mean any
options, rights, warrants, convertible debt, equity securities or other
instrument or agreement upon the exercise or conversion of which or upon the
exchange of which or pursuant to the terms of which additional shares of any
class of capital stock of the Issuer may be issued.
(e)
There
is
no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Issuer’s knowledge, threatened against the Issuer or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against the Issuer that could prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
(f)
There
are
no material claims, actions, suits, proceedings, inquiries, labor disputes
or
investigations (whether or not purportedly on behalf of the Issuer) pending
or,
to the Issuer’s knowledge, threatened against the Issuer or any of its assets,
at law or in equity or by or before any governmental entity or in arbitration
or
mediation. No bankruptcy, receivership or debtor relief proceedings are pending
or, to the Issuer’s knowledge, threatened against the Issuer.
(g)
The
Issuer has complied with, is not in violation of, and has not received any
notices of violation with respect to, any federal, state, local or foreign
Law,
judgment, decree, injunction or order, applicable to it, the conduct of its
business, or the ownership or operation of its business. References in this
Agreement to “Laws” shall refer to any laws, rules or regulations of any
federal, state or local government or any governmental or quasi-governmental
agency, bureau, commission, instrumentality or judicial body (including, without
limitation, any federal or state securities law, regulation, rule or
administrative order).
(h)
The
Issuer is current with its reporting obligations under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
(i)
The
execution and delivery of this Agreement by the Issuer and the consummation
of
the transactions contemplated by this Agreement will not result in any material
violation of the Issuer’s certificate of incorporation or by-laws, or any
applicable Law.
Representations
and Warranties of the Seller
.
Venture
Fund I , hereby makes the following representations and warranties to the
Issuer, which may be relied on by any subsequent purchasers of the Issuer’s
capital stock and their counsel if such purchases take place as part of the
next
direct or indirect merger or similar transaction with an operating business
that
results in a change of control of the Issuer:
(a)
Seller
initially acquired the Shares in a private stock sale exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) of the Commission thereunder, pursuant to a Stock Purchase
Agreement by and between the Seller and Gasel Transportation Lines, Inc. dated
as of December 30, 2005.
(b)
Seller
owns the Shares free and clear of all
any
and
all liens, claims, encumbrances, preemptive rights, right of first refusal
and
adverse interests of any kind
.
(c)
Venture
Fund I is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. Venture Fund I has the corporate power
to
own its properties and to carry on its business as now being conducted and
is
duly qualified to do business and is in good standing in each jurisdiction
in
which the failure to be so qualified and in good standing would have a material
adverse effect on the Issuer.
(d)
Seller
has the requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby and otherwise to carry out
its
obligations hereunder. The Seller is not in violation of any of the provisions
of its certificate of incorporation or by-laws. No consent, approval or
agreement of any individual or entity is required to be obtained by the Seller
in connection with the execution and performance by the Seller of this Agreement
or the execution and performance by the Seller of any agreements, instruments
or
other obligations entered into in connection with this Agreement.
(e)
The
execution and delivery of this Agreement by the Seller and the consummation
of
the transactions contemplated by this Agreement will not result in any material
violation of the Seller’s certificate of incorporation or by-laws, or any
applicable Law.
(f)
There
is
no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Seller’s knowledge, threatened against the Seller or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against the Seller that could prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
(g)
There
are
no material claims, actions, suits, proceedings, inquiries, labor disputes
or
investigations (whether or not purportedly on behalf of the Issuer) pending
or,
to the Seller’s knowledge, threatened against the Seller or any of its assets,
at law or in equity or by or before any governmental entity or in arbitration
or
mediation. No bankruptcy, receivership or debtor relief proceedings are pending
or, to the Seller’s knowledge, threatened against the Seller.
(h)
The
Seller has complied with, is not in violation of, and has not received any
notices of violation with respect to, any federal, state, local or foreign
Law,
judgment, decree, injunction or order, applicable to it, the conduct of its
business, or the ownership or operation of its business. References in this
Agreement to “Laws” shall refer to any laws, rules or regulations of any
federal, state or local government or any governmental or quasi-governmental
agency, bureau, commission, instrumentality or judicial body (including, without
limitation, any federal or state securities law, regulation, rule or
administrative order).
(i)
At
the
time Seller was offered the Preferred Stock, it was, and at the date hereof
it
is, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section
15
of the Exchange Act.
(j)
Seller,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Preferred Stock, and has so evaluated the merits and risks of such investment.
Seller is able to bear the economic risk of an investment in the Preferred
Stock
and, at the present time, is able to afford a complete loss of such
investment.
(k)
Seller
is
not purchasing the Preferred Stock as a result of any advertisement, article,
notice or other communication regarding the Preferred Stock published in any
newspaper, magazine or similar media or broadcast over television or radio
or
presented at any seminar or any other general solicitation or general
advertisement.
(l)
The
Issuer is not a party to any agreement or understanding pursuant to which any
securities of any class of capital stock are to be issued or created or
transferred. The Issuer has not acquired any shares of Common Stock, and has
no
formal or informal agreements or understandings pursuant to which it can or
will
acquire any shares of Issuer Common Stock (other than this Agreement). Neither
the Issuer nor any officer, director or 5% stockholder of the Issuer has any
agreements, plans, understandings or proposals, whether formal or informal
or
whether oral or in writing, pursuant to which it or he granted or may have
issued or granted any individual or entity any Convertible Security or any
interest in the Issuer or the Issuer’s earnings or profits, however defined. As
used in this Agreement, the term “Convertible Securities” shall mean any
options, rights, warrants, convertible debt, equity securities or other
instrument or agreement upon the exercise or conversion of which or upon the
exchange of which or pursuant to the terms of which additional shares of any
class of capital stock of the Issuer may be issued.
(m)
There
is
no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Issuer’s knowledge, threatened against the Issuer or any of its
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against the Issuer that could prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
(n)
There
are
no material claims, actions, suits, proceedings, inquiries, labor disputes
or
investigations (whether or not purportedly on behalf of the Issuer) pending
or,
to the Issuer’s knowledge, threatened against the Issuer or any of its assets,
at law or in equity or by or before any governmental entity or in arbitration
or
mediation. No bankruptcy, receivership or debtor relief proceedings are pending
or, to the Issuer’s knowledge, threatened against the Issuer.
(o)
The
Issuer has complied with, is not in violation of, and has not received any
notices of violation with respect to, any federal, state, local or foreign
Law,
judgment, decree, injunction or order, applicable to it, the conduct of its
business, or the ownership or operation of its business. References in this
Agreement to “Laws” shall refer to any laws, rules or regulations of any
federal, state or local government or any governmental or quasi-governmental
agency, bureau, commission, instrumentality or judicial body (including, without
limitation, any federal or state securities law, regulation, rule or
administrative order).
Finder’s
Fee
.
Seller
represents and warrants that no person is entitled to receive a finder’s fee
from Seller in connection with this Agreement as a result of any action taken
by
the Issuer or Seller pursuant to this Agreement, and agrees to indemnify and
hold harmless the other party, its officers, directors and affiliates, in the
event of a breach of the representation and warranty set forth in this Section
4. This representation and warranty shall survive the Closing.
Escrow
.
A
portion of the Purchase Price equal to One Hundred Thousand Dollars ($100,000)
shall be held in escrow with Heskett & Heskett (the “Escrow Agent”) for a
period of six (6) months from the Closing. No later than fifteen days prior
to
the termination date of the Escrow, the Issuer shall give written notice to
the
Escrow Agent that the escrow is terminating and shall provide the Escrow Agent
with a written acknowledgement stating that there are no known claims against
the Issuer.
Termination
by Mutual Agreement
.
This
Agreement may be terminated at any time by mutual consent of the parties hereto,
provided that such consent to terminate is in writing and is signed by each
of
the parties hereto.
Miscellaneous
.
(a)
Entire
Agreement
.
This
Agreement constitutes the entire agreement of the parties, superseding and
terminating any and all prior or contemporaneous oral and written agreements,
understandings or letters of intent between or among the parties with respect
to
the subject matter of this Agreement. No part of this Agreement may be modified
or amended, nor may any right be waived, except by a written instrument which
expressly refers to this Agreement, states that it is a modification or
amendment of this Agreement and is signed by the parties to this Agreement,
or,
in the case of waiver, by the party granting the waiver. No course of conduct
or
dealing or trade usage or custom and no course of performance shall be relied
on
or referred to by any party to contradict, explain or supplement any provision
of this Agreement, it being acknowledged by the parties to this Agreement that
this Agreement is intended to be, and is, the complete and exclusive statement
of the agreement with respect to its subject matter. Any waiver shall be limited
to the express terms thereof and shall not be construed as a waiver of any
other
provisions or the same provisions at any other time or under any other
circumstances.
(b)
Severability
.
If any
section, term or provision of this Agreement shall to any extent be held or
determined to be invalid or unenforceable, the remaining sections, terms and
provisions shall nevertheless continue in full force and effect.
(c)
Notices
.
All
notices provided for in this Agreement shall be in writing signed by the party
giving such notice, and delivered personally or sent by overnight courier,
mail
or messenger against receipt thereof or sent by registered or certified mail,
return receipt requested, or by facsimile transmission or similar means of
communication if receipt is confirmed or if transmission of such notice is
confirmed by mail as provided in this Section 6(c). Notices shall be deemed
to
have been received on the date of personal delivery or telecopy or attempted
delivery. Notice shall be delivered to the parties at the following
addresses:
If
to the
Issuer:
Jordan
1
Holdings Co.
c/o
Heskett & Heskett
Attorneys
at Law
501
South
Johnstone, Suite 501
Bartlesville,
Oklahoma 74003
Facsimile:
(918) 336-3152
If
to
Seller:
Venture
Fund I, Inc.
c/o
Heskett & Heskett
Attorneys
at Law
501
South
Johnstone, Suite 501
Bartlesville,
Oklahoma 74003
Facsimile:
(918) 336-3152
With
a
copy to:
John
Heskett, Esq.
Heskett
& Heskett
Attorneys
at Law
501
South
Johnstone, Suite 501
Bartlesville,
Oklahoma 74003
Facsimile:
(918) 336-3152
Either
party may, by like notice, change the address, person or telecopier number
to
which notice shall be sent.
(d)
Governing
Law
.
This
Agreement shall be governed and construed in accordance with the laws of the
State of New York applicable to agreements executed and to be performed wholly
within such State, without regard to any principles of conflicts of law. Each
of
the parties hereby irrevocably consents and agrees that any legal or equitable
action or proceeding arising under or in connection with this Agreement shall
be
brought in the federal or state courts located in the County of New York in
the
State of New York, by execution and delivery of this Agreement, irrevocably
submits to and accepts the jurisdiction of said courts, (iii) waives any defense
that such court is not a convenient forum, and (iv) consent to any service
of
process made either (x) in the manner set forth in Section 10(c) of this
Agreement (other than by telecopier), or (y) any other method of service
permitted by law.
(e)
Waiver
of Jury Trial
.
EACH
PARTY
HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF ANY SUIT, ACTION
OR PROCEEDING TO ENFORCE THIS AGREEMENT OR ANY OTHER ACTION OR PROCEEDING WHICH
MAY ARISE
OUT OF
OR IN ANY WAY BE CONNECTED WITH THIS AGREEMENT OR ANY OF THE OTHER
DOCUMENTS.
(f)
Parties
to Pay Own Expenses
.
Each of
the parties to this Agreement shall be responsible and liable for its own
expenses incurred in connection with the preparation of this Agreement, the
consummation of the transactions contemplated by this Agreement and related
expenses.
(g)
Successors
.
This
Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, legal representatives, successors and assigns;
provided, however, that neither party may assign this Agreement or any of its
rights under this Agreement without the prior written consent of the other
party.
(h)
Further
Assurances
.
Each
party to this Agreement agrees, without cost or expense to any other party,
to
deliver or cause to be delivered such other documents and instruments as may
be
reasonably requested by any other party to this Agreement in order to carry
out
more fully the provisions of, and to consummate the transaction contemplated
by,
this Agreement.
(i)
Counterparts
.
This
Agreement may be executed simultaneously in two or more counterparts, each
of
which shall be deemed an original but all of which together shall constitute
one
and the same instrument.
(j)
No
Strict Construction
.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties with the advice of counsel to express their mutual intent, and no rules
of strict construction will be applied against any party.
(k)
Headings
.
The
headings in the Sections of this Agreement are inserted for convenience only
and
shall not constitute a part of this Agreement.
IN
WITNESS WHEREOF
,
the
parties hereto have caused this Agreement to be duly executed as of the date
first above written.
|
VENTURE
FUND I, INC.
By
:
/s/
Ruth Shepley
Name:
Ruth Shepley
Title:
President and Sole Director
|
|
|
|
JORDAN
1 HOLDINGS COMPANY
By:
/s/
Gene Thompson
Gene
Thompson, Chief Executive Officer
|
STOCK
EXCHANGE AGREEMENT
This
Agreement dated as of the 19th day of July, 2006, by and among Jordan 1 Holdings
Co., a Delaware corporation having its offices at 501 Johnstone Avenue, Suite
501, Bartlesville, OK, 74003 (the “Issuer”),
and
the
individuals named on Schedule I to this Agreement (collectively, the
“Stockholders” and each, individually, a “Stockholder”)
.
W
I T
N E S S E T H:
WHEREAS,
the Stockholders are the holders of all of the issued and outstanding capital
stock (the “Acquisition Shares”) of Delaware Fastener Acquisition Corp., a
Delaware corporation (“Acquisition Company”); and
WHEREAS,
the Stockholders, together with Barron Partners LP (“Barron”), are acquiring a
controlling interest in the Issuer;
WHEREAS,
pursuant to a separate preferred stock purchase agreement between the Issuer
and
a group of investors, the investors are acquiring the Company’s promissory note,
shares of series A convertible preferred stock and warrants to purchase common
stock, par value $.001 per share (“Common Stock”); and
WHEREAS,
the Company’s board of directors has approved, subject to stockholder approval,
a restated certificate of amendment (the “Restated Certificate”) which (i)
amends the Company’s authorized capital stock to 100,000,000 shares, of which
10,000,000 shares are preferred stock, par value $.001 per share, and 90,000,000
shares of common stock, par value $.001 per share, and (ii) effects a
one-for-150 reverse split of the Corporation’s issued and outstanding common
stock.
WHEREAS,
the Issuer is willing to issue shares of Common Stock and series B convertible
preferred stock (the “Series B Preferred”) to the Stockholders in consideration
for all of the issued and outstanding capital stock of Acquisition
Corp.
NOW,
THEREFORE, for the mutual consideration set out herein, the parties agree as
follows:
1.
Exchange
of Shares
.
(a)
Issuance
of Securities by Issuer
.
On and
subject to the conditions set forth in this Agreement, the Issuer will issue
to
Stockholders, in exchange for all of the Acquisition Shares, which represents
all of the issued and outstanding capital stock of Acquisition Company, an
aggregate of 21,000,000 shares (the “Shares”) of Common Stock and 2,611,000
shares of Series B Preferred. Each share of Series B Preferred shall be
convertible into two (2) shares of Common Stock upon the filing with the
Delaware Secretary of State of a certificate of amendment or restated
certificate of incorporation which (i) amends the authorized capital stock
to
100,000,000 shares, of which 10,000,000 shares are preferred stock, par value
$.001 per share, and 90,000,000 shares of common stock, par value $.001 per
share, and (ii) effects a one-for-150 reverse split of the Corporation’s issued
and outstanding common stock. The Series B Preferred shall be in substantially
the form of Exhibit A to this Agreement. The Shares and Series B Preferred
are
referred to as the “Securities.” The Securities will be issued to the
Stockholders in the amounts set forth after their respective names in Schedule
I
to this Agreement.
(b)
Transfer
of Acquisition Shares by the Stockholders
.
On and
subject to the conditions set forth in this Agreement, the Stockholders will
transfer to the Issuer all of the Acquisition Shares in exchange for the
Securities. Each Stockholder holds the number of Acquisition Shares set forth
after his or her name in Schedule I to this Agreement.
(c)
Closing
.
The
issuance of the Securities to the Stockholders and the transfer of the
Acquisition Shares to the Issuer will take place at a closing (the “Closing”) to
be held at the office of Sichenzia Ross Friedman Ference, LLP, 1065 Avenue
of
the Americas, 21
st
Floor,
New York, New York 10018 as soon as possible after or contemporaneously with
the
satisfaction or waiver of all of the conditions to closing set forth in Section
4 of this Agreement.
2.
Representations
and Warranties of the Issuer
.
The
Issuer hereby represents and warrants to the Stockholders as
follows:
(a)
General
.
(i)
The
Issuer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Issuer does not have any equity
investment or other interest, direct or indirect, in, or any outstanding loans,
advances or guarantees to or on behalf of, any domestic or foreign corporation,
limited liability company, association, partnership, joint venture or other
entity.
(ii)
Complete
and correct copies of the Issuer’s certificate of incorporation and by-laws are
available for review on the EDGAR system maintained by the U.S. Securities
and
Exchange Commission (the “Commission”).
(iii)
The
Issuer has full power and authority to carry out the transactions provided
for
in this Agreement, and this Agreement constitutes the legal, valid and binding
obligations of the Issuer, enforceable in accordance with its terms, except
as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditor’s rights and except
that any remedies in the nature of equitable relief are in the discretion of
the
court. All necessary action required to be taken by the Issuer for the
consummation of the transactions contemplated by this Agreement has been
taken.
(iv)
The
Shares, when issued pursuant to this Agreement, will be duly and validly
authorized and issued, fully paid and non-assessable. The issuance of the
Securities to Stockholders is exempt from the registration requirements of
the
Securities Act of 1933, as amended (the “Securities Act”), pursuant to an
exemption provided by Section 4(2) thereunder.
(v)
The
Series B Preferred, when issued pursuant to this Agreement will constitute
the
legal, valid and binding obligations of the Issuer, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency and other laws of general application affecting the enforcement
of
creditor’s rights and except that any remedies in the nature of equitable relief
are in the discretion of the court subject to the filing of the Restated
Certificate. The shares of Common Stock issuable upon exercise of the Warrants,
when issued upon payment of the exercise price provided in the Warrants, will
be
duly and validly authorized and issued, fully paid and non-assessable, subject
to the filing of the Restated Certificate
(b)
SEC
Documents
.
The
Issuer is registered pursuant to Section 12 of the Exchange Act and it current
with its reporting obligations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). None of the Issuer’s filings made pursuant to the
Exchange Act (collectively, the “Issuer SEC Documents”) contains any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Issuer SEC
Documents, as of their respective dates, complied in all material respects
with
the requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder, and are available on the Commission’s EDGAR system.
3.
Representations
and Warranties of Stockholders
.
Each
Stockholder hereby severally represents, warrants, covenants and agrees as
follows:
(a)
Such
Stockholder understands that the offer and sale of the Securities is being
made
only by means of this Agreement and understands that the Company has not
authorized the use of, and the Stockholder confirms that he or she is not
relying upon, any other information, written or oral, other than material
contained in this Agreement.
Such
Stockholder is aware that the purchase of the Securities involves a high degree
of risk and that such Stockholder may sustain, and has the financial ability
to
sustain, the loss of his or her entire investment, understands that no assurance
can be given that the Company will be profitable in the future, that there
is no
public market for the Common Stock, and the Issuer can give no assurance that
there will ever be a public market for the Common Stock.
Furthermore,
in subscribing for the Securities, such Stockholder acknowledges it is not
relying upon any projections or any statements of any kind relating to future
revenue, earnings, operations or cash flow in making an investment in the
Securities
.
(b)
Such
Stockholder severally represents to the Company that he or she is an accredited
investor within the meaning of Rule 501 of the Commission under the Securities
Act of 1933, as amended (the “Securities Act”) and it understands the meaning of
the term “accredited investor.” The requirements for an accredited investor as
set forth in Exhibit B. Such Stockholder further represents that he or she
has
such knowledge and experience in financial and business matters as to enable
the
Stockholder to understand the nature and extent of the risks involved in
purchasing the Securities. Such Stockholder is fully aware that such investments
can and sometimes do result in the loss of the entire investment. Such
Stockholder has engaged his or her own counsel and accountants to the extent
that the Stockholder deems it necessary.
(c)
All
of
the information provided by such Stockholder in his or her Confidential
Questionnaire is true and correct in all material respects.
(d)
Such
Stockholder is acquiring the Securities pursuant to this Agreement for his
or
her own account, for investment and not with a view to the sale or distribution
thereof, for the Stockholder’s own account and not on behalf of others; has not
granted any other person any interest or participation in or right or option
to
purchase all or any portion of the Securities; is aware that the Securities
are
restricted securities within the meaning of Rule 144 of the Commission under
the
Securities Act, and may not be sold or otherwise transferred other than pursuant
to an effective registration statement or an exemption from registration; and
understands and agrees that the certificates for the Securities shall bear
the
Company’s standard investment legend. The Stockholder understands the meaning of
these restrictions.
(e)
The
Stockholder will not transfer any Securities except in compliance with all
applicable federal and state securities laws and regulations, and, in such
connection, the Company may request an opinion of counsel reasonably acceptable
to the Company as to the availability of any exemption.
(f)
Such
Stockholder represents and warrants that no broker or finder was involved
directly or indirectly in connection with his or her purchase of the Securities
pursuant to this Agreement. Such Stockholder shall indemnify the Company and
hold it harmless from and against any manner of loss, liability, damage or
expense, including fees and expenses of counsel, resulting from a breach of
the
Stockholder’s warranty contained in this Paragraph 3(f).
(g)
Such
Stockholder understands that he or she has no registration rights with respect
to the Securities.
(h)
Such
Stockholder represents and warrants that the address set forth on Schedule
I to
this Agreement is its true and correct address, and understands that the Company
will rely on this representation in making filings under state securities or
blue sky laws.
(i)
Such
Stockholder approves the filing of the Restated Certificate with the
Secretary
of State of Delaware.
(j)
Such
Stockholder may not sell any shares of Common Stock in the public market during
the eighteen (18) month period following the date hereof; provided, however,
that after twelve (12) months from the date hereof, Alex Katz may sell shares
in
the public market as long as he is not an officer or director. Any shares owned
by a limited liability company which is wholly-owned or controlled by Alex
Katz
shall be treated as shares owned by Alex Katz and subject to the same
restrictions as Alex Katz. The restriction contained in this Section 3(j) shall
apply to any transferee, including any legatee or distribute. The restrictions
in this Section 3(j) shall not apply to shares issued pursuant to a stock option
or long-term incentive plans which may be approved by the Compensation Committee
provided that such committee is comprised of a majority of independent
directors.
4.
Conditions
to the Obligation of Stockholders and the Issuer
.
The
obligations of Stockholders and the Issuer under this Agreement are subject
to
the completion of the sale of preferred stock and warrants to Barron Partners
pursuant to an agreement between the Issuer and Barron Partners prior to or
contemporaneously with the exchange contemplated by this Agreement.
5.
Miscellaneous
.
(a)
This
Agreement constitutes the entire agreement between the parties relating to
the
subject matter hereof, superseding any and all prior or contemporaneous oral
and
prior written agreements, understandings and letters of intent. This Agreement
may not be modified or amended nor may any right be waived except by a writing
which expressly refers to this Agreement, states that it is a modification,
amendment or waiver and is signed by all parties with respect to a modification
or amendment or the party granting the waiver with respect to a waiver. No
course of conduct or dealing and no trade custom or usage shall modify any
provisions of this Agreement.
(b)
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York applicable to contracts made and to be performed entirely
within such State.
(c)
This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors and permitted assigns.
(d)
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
document.
(e)
The
various representations, warranties, and covenants set forth in this Agreement
or in any other writing delivered in connection therewith shall survive the
issuance of the Shares.
(f)
If
the
Stockholder is a resident of a state set forth in Exhibit C to this Agreement
or
if the Stockholder negotiates the purchase of the Shares from or receives this
Agreement while in Florida, the provisions of such Exhibit C relating to the
Stockholder’s purchase of the Shares are incorporated as if set forth in full in
this Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
Please
confirm your agreement with the foregoing by signing this Agreement where
indicated.
Very
truly yours,
/s/
Alexander Kreger
Alexander
Kreger
/s/
Alex Katz
BGRS
2005, LLC
By:
Alex
Katz, Manager
/s/
Richard Kreger
Richard
Kreger
/s/
Aimee Brooks
Aimee
Brooks
Accepted
this 20th day of July, 2006
JORDAN
1
HOLDINGS CO., INC.
By:
/s/
Robert P. Moyer
Robert
P.
Moyer, Chief Executive Officer
Schedule
I
Name
|
Acquisition
Shares
|
Common
Shares
|
Series
B Preferred Shares
|
Alex
Kreger
|
65.2
|
13,692,000
|
1,702,372
|
BGRS
2005, LLC
|
15
|
3,150,000
|
391,650
|
Richard
Kreger
|
11.6
|
2,436,000
|
302,876
|
Aimee
Brooks
|
8.2
|
1,722,000
|
214,102
|
Total
|
100
|
21,000,000
|
2,611,000
|
CERTIFICATE
OF INCORPORATION
OF
JORDAN
1
HOLDINGS COMPANY
I,
the
undersigned, for the purposes of incorporating and organizing a corporation
under the General Corporation Law of the State of Delaware, do execute this
Certificate of Incorporation and do hereby certify as follows:
FIRST
:
The
name of the corporation is Jordan 1 Holdings Company (the
“corporation”).
SECOND
:
The
address of the corporation’s registered office is 2711 Centerville Road,
Wilmington, DE 19808, County of New Castle. The name of the corporation’s
registered agent is Registered Agents, Ltd. whose address is the same as above.
THIRD
:
The
nature of business and purpose of the corporation is to engage in any lawful
act
or activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH
:
The
total number of shares of stock which the corporation shall have authority
to
issue is One Hundred Ten Million (110,000,000), of which One Hundred Million
(100,000,000) are Common Stock, having a par value each of One-tenth of One
Cent
($0.001), and Ten Million (10,000,000) are Preferred Stock, with a par value
of
One-tenth of One Cent ($.001) per share.
Authority
is hereby expressly vested in the Board of Directors of the corporation, subject
to the provisions of this Article FOURTH and to the limitations prescribed
by
law, to authorize the issue from time to time of one or more series of Preferred
Stock and with respect to each such series to fix by resolution or resolutions
adopted by the affirmative vote of a majority of the whole Board of Directors
providing for the issue of such series, the voting powers, full or limited,
if
any, of the shares of such series and the designations, preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited
to,
the determination or fixing of the following:
(a)
The
number of shares constituting the series and the designation of such
series.
(b)
The
dividend rate on the shares of such series, the conditions and dates upon which
such dividends shall be payable, the relation which such dividends shall bear
to
the dividends payable on any other class or classes or series of the
corporation’s capital stock, and whether such dividends shall be cumulative or
non-cumulative.
(c)
Whether
the shares of such series shall be subject to redemption by the corporation
at
the option of either the corporation or the holder or both or upon the happening
of a specified event, and, if made subject to any such redemption, the times
or
events, prices and other terms and conditions of such redemption.
(d)
The
terms
and amount of any sinking fund provided for the purchase or redemption of the
shares of such series.
(e)
Whether
or not the shares of such series shall be convertible into, or exchangeable
for,
at the option of either the holder or the corporation or upon the happening
of a
specified event, shares of any other class or classes or any other series of
the
same or any other class or classes of the corporation’s capital stock, and, if
provision be made for conversion or exchange, the times or events, prices,
rates, adjustments, and other terms and conditions of such conversions or
exchanges.
(f)
The
restrictions, if any, on the issue or reissue of any additional Preferred
Stock.
(g)
The
rights of the holders of the shares of such series upon the voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and
the
relative rights of priority, if any, of payment of shares of that
series.
(h)
The
provisions as to voting, optional and/or other special rights and preferences,
if any.
Dividends
on outstanding shares of Preferred Stock shall be paid or declared and set
apart
for payment before any dividends shall be paid or declared and set apart for
payment on the Common Stock with respect to the same dividend
period.
If
upon
any voluntary or involuntary liquidation, dissolution or winding up of the
corporation, the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the
full
preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
FIFTH
:
The
incorporator of the corporation is John Heskett.
SIXTH:
Unless
and except to the extent that the by-laws of the corporation shall so require,
the election of directors of the corporation need not be by written
ballot.
SEVENTH
:
In
furtherance and not in limitation of the powers conferred by the laws of the
State of Delaware, the Board of Directors of the corporation is expressly
authorized to make, alter and repeal the by-laws of the corporation, subject
to
the power of the stockholders of the corporation to alter or repeal any by-law
whether adopted by them or otherwise.
EIGHTH
:
A
director of the corporation shall not be personally liable to the corporation
or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director’s duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions
not
in good faith or which involve intentional misconduct or a knowing violation
of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the
General Corporation Law of the State of Delaware hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended General Corporation Law of the State
of
Delaware. Any repeal or modification of this Article by the stockholders of
the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
NINTH
:
The
corporation reserves the right at any time, and from time to time, to amend,
alter, change or repeal any provision contained in the Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in
this
article.
The
undersigned incorporator hereby acknowledges that the foregoing Certificate
of
Incorporation is his act and deed on this 28
th
day of
December, 2005.
/s/
John
Heskett
________________________________
John
Heskett, Incorporator
As
adopted by the Board of Directors on December 28, 2005
BYLAWS
OF
JORDAN
1
HOLDINGS COMPANY
(a
Delaware Corporation)
ARTICLE
I.
Offices
Section
1.
Registered
Office.
The
registered office of the Corporation shall be established and maintained at
the
office of Corporation Service Company, in the City of Wilmington, in the County
of New Castle, in the State of Delaware, and said corporation shall be the
registered agent of the Corporation in charge thereof.
Section
2.
Other
Offices.
The
Corporation may have other offices, either within or outside the State of
Delaware, at such place or places as the Board of Directors may from time to
time determine or the business of the Corporation may require.
The
Corporation shall have a corporate seal which shall have
inscribed
thereon the name of the Corporation, the year of its
incorporation
and the words "Corporate Seal, Delaware," and may
use
the
same by causing it or a facsimile thereof be impressed or
affixed
or in any other manner reproduced upon any paper or document.
ARTICLE
III.
Meetings
of Stockholders.
Section
1.
Place
of Meetings.
All
meetings of the
stockholders,
commencing with the year 2005, shall be held at
such
place within or without the State of Delaware as shall be
designated
from time to time by the Board of Directors and stated
in
the
notice of such meeting or in a duly executed waiver of
notice
thereof.
Section
2.
Annual
Meetings.
Annual
meetings of
stockholders
shall be held on the second Tuesday in May, if not a
legal
holiday, or if a legal holiday, then on the next secular
day
following, at 10:00 a.m. (local time at the place of such
meeting),
or at such other date and time as shall be designated
by
the
Board of Directors, at which the stockholders shall elect
a
Board
of Directors. Any other proper business, notice of which
was
given
in the notice of the meeting, may be transacted at the
annual
meetings.
Section
3.
Special
Meetings.
Special
meetings of the
stockholders,
for any purpose or purposes, unless otherwise
prescribed
by
statute
or
by
the
Certificate of Incorporation, may
be
called
by
the
President and shall be called by the President
or
the
Secretary at the direction of a majority of the entire
Board
of
Directors or at the request in writing of stockholders
owning
fifty-one per centum (51%) of the entire capital stock of
the
Corporation issued and outstanding and entitled to vote.
Business
transacted at any special meeting of stockholders shall
be
limited
to
the
purpose or purposes stated in the
notice.
Section
4.
Notices.
Whenever
stockholders are required or
permitted
to take any action at a meeting,
a
written
notice of
the
meeting shall be given which shall state the place, date and
hour
of
the meeting, and in the case of a special meeting, the
purpose
or purposes for which the meeting is called. The written
notice
of
any
meeting
shall be given not less than ten {10) nor
more
than
sixty (60) days before the date of the meeting to each
stockholder
entitled to vote at such meeting.
Section
5.
Quorum.
The
holders of a majority of the stock
issued
and outstanding and entitled to vote thereat,
present
or
represented
by proxy at any meeting, shall constitute a quorum of
the
stockholders
for
the
transaction of business except as
otherwise
provided by statute or by the Certificate of
Incorporation.
If, however, such quorum shall not be present or
represented
at any meeting of the stockholders, the stockholders
entitled
to vote thereat, present in person or presented by proxy, shall have power
to
adjourn the meeting from time to
time,
without notice other than announcement of the time and
place
of
the adjourned meeting at the meeting, until a quorum
shall
be
present or represented. At such adjourned meeting at
which
a
quorum shall be present or represented any business may
be
transacted which might have been transacted at the meeting as
originally
notified. If the adjournment is for more than thirty
(30)
days, or if
after
the
adjournment a new record date is fixed
for
the
adjourned meeting, a notice of the adjourned meeting
shall
be
given to each stockholder of record entitled to vote at
the
meeting.
Section
6.
Required
Vote.
When a
quorum is present at any
meeting,
the vote of the holders of a majority of the stock
having
voting power present in person or represented by proxy
shall
decide any question properly brought before such meeting,
unless
the question is one which by express provision of the
statutes
or of the Certificate of Incorporation or these
By-Laws
a
different vote is required, in which case such express
provision
shall govern and control the decision of such question.
Section
7.
Voting
and Proxies.
Each
stockholder shall be
entitled
to one vote in person or by proxy for each share of
capital
stock having voting power held by such stockholder.
Except
as
otherwise required by applicable law, a proxy shall be
valid
only for the meeting for which it is given or solicited and
any
adjournment or adjournments thereof. A duly executed proxy
shall
be
irrevocable if it states that it is irrevocable and if,
and
only
as long as, it is coupled with an interest sufficient in
law to
support an irrevocable power. A proxy may be made
irrevocable
regardless of whether the interest with which it is
coupled
is an interest in the stock itself or an interest in the
Corporation generally.
Section
8.
Voting
Lists.
The
Secretary shall have charge
of
the
stock ledger and shall prepare and make, or cause to be
prepared
and made, at least ten days before every meeting of
stockholders,
a complete list of the stockholders entitled to
vote
at
the meeting, arranged in alphabetical order, and showing
the
address of each stockholder and the number of shares
registered
in the name of each stockholder. Such list shall be
open
to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a
period
of
at least ten days prior to the meeting, either at a
place
within the city where the meeting is to be held, which .
place
shall be specified in the notice of the meeting, or if not
so
specified, at the place where the meeting is to be held. The
list
shall also be produced and kept at the time and place of the
meeting
during the whole time thereof, and may be inspected by
any
stockholder who is present. Upon the willful neglect or refusal of the directors
to produce such a list at any meeting for the election of directors, they shall
be ineligible for election to any office at such meeting. The stock ledger
shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by this Section 8 or the books of the
Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section
9.
Written
Consents of Stockholders.
Unless
otherwise provided in the Certificate of Incorporation, any action required
to
be taken at any annual or special meeting of stockholders of the Corporation
or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without
a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding
stock
having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those
stockholders who have not consented in writing.
Section
10.
Record
Date.
In order
that the Corporation may determine the stockholders entitled to notice of or
to
vote at
any
meeting of stockholders or any adjournment thereof, or to
express
consent to corporate action in writing without a meeting,
or
entitled to receive payment of any dividend or other
distribution
or allotment of any rights, or entitled to exercise
any
rights in respect of any change, conversion or exchange of
stock
or
for the purpose of any other lawful action, the Board of
Directors,
may fix, in advance, a record date, which shall not be
more
than
sixty (60) nor less than ten {10) days before the date
of
such
meeting, nor more than sixty (60) days prior to any other
action.
A
determination of stockholders of record entitled to
notice
of
or to vote at a meeting of stockholders shall apply to
any
adjournment of the meeting; provided, however, that the Board
of
Directors may fix a new record date for the adjourned meeting.
If
no
record date
is
fixed:
(a) the record date for determining
stockholders
entitled to notice of or to vote at a meeting of
stockholders
shall be at the close of business on the day next
preceding
the day on which notice is given, or, if notice
is
waived,
at the close of business on the day next preceding the
day
on
which the meeting is held; (b) the record date for
-determining
stockholders entitled to express consent to corporate
action
in
writing without a meeting, when no prior action by the
Board
of
Directors is necessary, shall be the day on which the
first
written consent is expressed; (c) the record date for
determining
stockholders for any other purpose shall be at the
close
of
business on the day on which the Board of Directors
adopts
the resolution relating thereto.
.ARTICLE
IV.
Directors.
Section
1.
Powers.
The
business and affairs of the
Corporation
shall be managed by or under the direction of its
Board
of
Directors, except as otherwise provided by statute or by
the
Certificate of Incorporation.
Section
2.
Number.
The
Board of Directors of the
Corporation
shall consist of seven directors. The first Board of
Directors
shall consist of three directors. Thereafter, within
the
limits above specified, the number of directors shall be
determined by resolution of the Board of Directors.
Section
3.
Election
and Term of Office.
Directors shall be
elected
at the annual meeting of stockholders, except as provided .
in
Sections 4, 5, and 6 of this Article. Each director shall
hold
office until his or her successor is elected and qualified
or until
his or her earlier resignation or removal.
Section
4.
Vacancies.
Vacancies
in the Board of Directors
(including
vacancies arising from the removal of directors) and
newly
created directorships resulting from any increase in the
authorized
number of directors may be filled by a majority of the
directors
then in office, although less than a quorum, or by a sole
remaining
director, and any director so elected shall hold office
until
the
next annual meeting of stockholders and until his or her
successor
is elected and qualified or until his or her earlier
resignation
or removal. If there are no directors in office, then
an
election of directors may be held in the manner provided by
statute.
If, at the time of filling any vacancy or any newly
created
directorship, the directors then in office shall constitute
less
than
a majority of the whole Board (as constituted immediately
prior
to
any such increase), the Court of Chancery may, upon
application
of any stockholder or stockholders holding at least ten
percent
(10%) of the total number of share shares at the time
outstanding
having the right to vote for such directors, summarily
order
an
election to be held to fill any such vacancies or newly
created
directorships, or to replace the directors chosen by the
directors
then in office.
Section
5.
Removal.
At any
special meeting of the
stockholders,
duly called as provided in these By-Laws, any
director
may, by the affirmative vote of the holders of a
im
jority
of
all the shares of stock outstanding and entitled to
vote
for
the election of directors, be removed from office,
either
with or without cause, and his or her successor may be
elected
at such meeting or the remaining directors may, to the
extent
vacancies are not filled by such election, fill any
vacancy
or vacancies created by such removal.
Section
6.
Resignations.
Unless
otherwise provided in the
Certificate
of Incorporation or these By-Laws, when one or more
directors
shall resign from the Board of Directors, effective at
a
future
date, a majority of the Board including those directors
who
have
so resigned, shall have power to fill such vacancy or
vacancies,
the vote thereon to take effect when such resignation
or
resignations shall become effective, and each director so
chosen
shall hold office as provided in this Article for the
filling
of other vacancies.
Section
7.
Meetings.
The
Board of Directors of the
Corporation
may hold meetings, both regular and special, either
within
or
without the State of Delaware. The first meeting of
each
newly elected Board of Directors shall be held at such time
and
place
as shall be fixed by the newly elected Board. Regular
meetings
of the Board of Directors may be held without notice at
such
time and at such place as shall from time to time be determined by the Board.
Special meetings of the Board of
Directors
may be called by the President on two days' notice to
each
director, either personally or by telecopier or telegram, or.
on
seven
days' notice to each director by mail; special meetings
shall
be
called by the President or Secretary in like manner and '
on'like
notice on the written request of a majority of the
directors
then in office. Members of the Board of Directors, or
any
committee designated by the Board, may participate in a
meeting
of the Board or committee by means of conference
telephone
or similar communications equipment by means of which
all
persons participating in the meeting can hear each other, and
such
participation in a meeting shall constitute presence in
person
at such meeting.
Section
8.
Quorum.
At
all
meetings of the Board of
Directors
a majority of the whole Board shall constitute a
quorum
for
the
transaction of business. Unless otherwise provided by
the
Certificate of Incorporation or these By-Laws or by statute,
the
vote
of the majority of the directors present at a meeting at
'which
a
quorum is present shall be the act of the Board of
Directors.
If a quorum shall not be present at any meeting of
the
Board
of Directors, the directors present thereat may adjourn
the
meeting from time to time without notice other than
announcement
at the meeting, until
a
quorum
shall
be
present.
Section
9.
Written
Consents.
Any
action required or
permitted
to be taken at any meeting of the Board of Directors or
of
any
committee thereof may be taken without a meeting if all
members
of
the
Board or
committee, as the case may be, consent
thereto
in writing, and the writing or writings are filed with
the
minutes of proceedings of the Board or committee.
Section
10.
Compensation.
The
Board
of Directors shall
have
authority to fix the compensation of directors:
ARTICLE
V.
Officers,
etc.
Section
1.
Officers.
The
officers of the Corporation
shall
be
a Chief Executive Officer, a President, a Secretary and
a
Chief
Financial Officer or Treasurer_ The Corporation may also
have,
at
the discretion of the Board of Directors, a Chairman,
one
or
more Vice Presidents, Assistant Secretaries and Assistant
Treasurers, and such other officers as may be appointed in
accordance
with the provisions of Section 3 of this Article V.
One
person may hold two or more offices, except that the Presi
-dent
may
not hold the office of Secretary.
Section
2.
Election.
The
officers of the Corporation,
except
such officers as may be appointed in accordance with the
provisions
of Section 3 or Section 5 of this Article V, shall be '
chosen
annually by the newly-elected Board of Directors, and each
shall
hold his or her office for the term prescribed by the Board
of
Directors and until his or•her successor is elected and qualified or until his
or her earlier resignation or removal.
Section
3.
Subordinate
Officers, Etc.
The
Board of
Directors
may appoint such other officers as the business of the
Corporation
may require, each of whom shall hold office for such
term,
have such authority and perform such duties as are provided
in
these
By-Laws
or as the Board of Directors may from
tFine
to
time
determine.
Section
4.
Removal
and Resignation.
Any
officer
may
be
removed,
either with or without cause, by a majority of the
directors
at the time in office, at any regular or special
meeting
of the Board of Directors, or, except in the case of an
officer
chosen by the Board of Directors, by any officer upon
whom
such
power of removal may be conferred by the Board of
Directors.
Any
officer may resign at any time by giving written notice
to
the
Board of Directors, or the President or Secretary of the
Corporation.
Any such resignation shall take effect at the date
of
the
receipt of such notice or at any later time specified
therein;
and, unless otherwise specified therein, the acceptance
of
such
resignation shall not be necessary to make it effective.
Section
5.
Vacancies.
A
vacancy
in any office because of
death,
resignation, removal, disqualification or any other cause
shall
be
filled in the same manner prescribed in these By-Laws
for
regular appointments to such office.
Section
6.
Chairman
of the Board_
The
Chairman of the
Board,
if
one is elected, shall preside at all meetings of
stockholders
and at all meetings of the Board of Directors, and
shall
perform such other duties and have such other powers as the
Board of
Directors may from time to time prescribe.
Section
7.
President.
The
President shall be the Chief
Executive
Officer of the Corporation, shall have general and
active
management of the business of the Corporation and shall
see
that
all orders and resolutions of the Board of Directors are
carried
into effect. He or she shall execute bonds, mortgages
and
other
contracts requiring a seal, under the seal of the
Corporation,
except where required or permitted by law to be
otherwise
signed and executed and except where the signing and
execution
thereof shall be expressly delegated by the Board of
Directors
to some other officer or agent of the Corporation, and
shall
perform such other duties and have such other powers as the
Board
of
Directors may from time to time prescribe.
Section
8.
Vice
President.
The Vice
President, or if there
be
more
than one, the Vice Presidents in the order determined by
the
Board
of Directors (oi if there be no such determination,
then
in
the
order
of their election), in the absence of the
President
or in the event of his or her inability or refusal to
act,
shall perform the duties and exercise the powers of the
President
and shall perform such other duties and have such other
powers
as
the Board of Directors may from time to time prescribe.
Section
10.
Secretary
and Assistant Secretaries.
The
Secretary
shall attend all meetings of the Board of Directors and
all
meetings of the stockholders and shall record all the proceedings of such
meetings in a book to be kept for that purpose, and shall perform like duties
for the standing
committees
when required. He or she shall give, or cause to be
given,
notice of all meetings of the stockholders and special
meetings
of the Board of Directors, and shall perform such other
duties
and have such other powers as may from time to time be
prescribed
by the Board of Directors or the President. He or she
shall
have custody of the corporate seal of the Corporation; he
or
she,
or an Assistant Secretary, shall have authority to affix
the
same
to any instrument requiring it; and when so affixed, it
may
be
attested by his or her signature or by the signature of
such
Assistant Secretary. The Board of Directors may give
general
authority to any other officer to affix the seal of the
Corporation
and to attest the affixing by his or her signature.
The
Assistant Secretary, or if there be more than one, the
Assistant
Secretaries in the order determined by the Board of
Directors
(or if there be no such determination, then in the
order
of
their election), shall, in the absence of the Secretary
or
in the
event of his or her inability or refusal to act,
perform
the duties and exercise the powers of the Secretary and
shall
perform such other duties and have such other powers as the
Board
of
Directors may from time to time prescribe.
Section
11.
Chief
Financial Officer or Treasurer and
Assistant
Treasurers.
The
Chief Financial Officer or Treasurer
shall
have the custody of the corporate funds and securities and
shall
keep full and accurate accounts of receipts and
disbursements
in books belonging to the Corporation and shall
deposit
all moneys and other valuable effects in the name and to
the
credit of the Corporation in such depositories as may be
designated
by the Board of Directors. He or she shall disburse
the
funds of
the
Corporation as may be ordered by the. Board of
Directors,
taking proper vouchers for such disbursements, and
shall
render to the Chief Executive Officer and the Board of
Directors,
at its regular meetings, or when the Board of
Directors
so requires, an account of all his or her transactions
as
Chief
Financial
Officer
or
Treasurer,
as the case may be, and
of
the
financial condition of the Corporation.
If
required by the Board of Directors, he or she shall give
the
Corporation a bond (which shall be renewed every
six
years)
in
such
sum and with such surety or sureties as shall be satisfactory to the Board
of
Directors for the faithful performance of the duties of his or her office and
for the
restoration
to the Corporation, in case of his or her death,
resignation,
retirement or removal from office, of all books,
papers,
vouchers, money and other property of whatever kind in
his
or
her possession or under his or her control belonging to
the
Corporation.
The
Assistant Treasurer, or if there be more than one, the
Assistant
Treasurers in the order determined by the Board of
Directors
(or if there be no such determination, then in the
order
of
their election), shall, in the absence of the Chief
Financial
Officer or Treasurer, as the case may be, or in the
event
of
his
or
her
inability or refusal to act, perform the
duties
and exercise the powers of such officer and shall perform
such
other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section
12.
Salaries
of Officers and Agents.
The
salaries
of
the
officers and agents of the Corporation shall be fixed from
time
to
time by the Board of Directors, and no officer shall be
prevented
from receiving such salaries by reason of the fact that
he
or she
is`or was a director of the Corporation.
ARTICLE
VI.
Committees
of Directors.
The
Board
of Directors may, by resolution passed by a
majority
of the whole Board of Directors, designate one or more
committees,
each committee to consist of one or more directors.
The
Board
of Directors may designate one or more directors as
alternate
members of any committee, who may replace any absent or
disqualified
member at any meeting of the committee. In the
absence
or disqualification of a member of
a
committee,
the
member
or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they
constitute
a quorum, may unanimously appoint another member of
the
Board
of Directors to act at the meeting in the place of any
such
absent or disqualified member. Such committee or committees
shall
have such name or names as may be determined from time to
time
by
resolution adopted by the Board of Directors. Any such
committee,
to the extent provided
in
the
resolution of the Board
of
Directors, or in these By-Laws, shall have and may exercise
all
the
powers and authority of the Board of Directors in the
management
of the business and affairs of the Corporation, and
may
authorize the seal of the Corporation to be affixed to all
papers
which may require it; but no such committee shall have the
power
or
authority in reference to amending the Certificate of
Incorporation,
adopting an agreement of merger or consolidation,
recommending
to the stockholders the sale, lease or exchange of
all
or
substantially all of the Corporation's property and
assets,
recommending to the stockholders a dissolution of the
Corporation
or a revocation of a dissolution, or amending these
By-Laws;
and, unless the resolution, By-Laws, or Certificate of
Incorporation
expressly so provide, no such committee shall have
the
power
or authority to declare a dividend or to authorize the
issuance
of stock.
ARTICLE
VII.
Stock
Certificates.
Section
1.
Form.
Every
holder of stock on the
Corporation
shall
be
entitled
to have a certificate signed by, or
in
the
name of the Corporation by the Chairman of the Board, or
the
President or a Vice-President, and by the Treasurer or an
Assistant
Treasurer, or the Secretary or an Assistant Secretary
of
the
Corporation certifying the number of shares owned by him
or
her in
the Corporation. Any of or all the signatures on the
certificate
may be a facsimile. In case any officer, transfer
agent
or
registrar who has signed or whose facsimile signature
has
been
placed upon a certificate shall have ceased to be such
officer,
transfer agent or registrar before such certificate is
issued,
it may be issued by the Corporation with the same effect
as if
he, she or it were such officer, transfer agent or registrar at the date of
issue.
Section
2.
Lost
Certificates.
The
Corporation may issue a
new
certificate of stock in the place of any certificate
theretofore
issued by it, alleged to have been lost, stolen or
destroyed,
and the Corporation may require the owner of the lost,
stolen
or destroyed certificate, or his or her legal
representative,
to give the Corporation a bond sufficient to
indemnify
it against any claim that may be made against it on
account
of the alleged loss, theft or destruction of any such
certificate
or the issuance of such new certificate.
Section
3.
Transfers
of Stock.
Upon
surrender to the
Corporation or the transfer agent of the Corporation of a
certificate
for shares duly endorsed or accompanied by proper
evidence
of succession, assignment or authority to transfer, it
shall
be
the duty of the Corporation to issue a new certificate
to
the
person entitled thereto, cancel the old certificate and
record
the transaction upon its books.
Section
4.
Registered
Stockholders.
The
Corporation shall
be
entitled to recognize the exclusive right of a person registered on its books
as
the owner of shares to receive
dividends,
and to vote as such owner, and to
hold
liable
for
calls
and
assessments a person registered on its books as the
owner of
shares, and shall not be bound to recognize any
equitable
or other claim to interest in such shares on the part
of
any
other person, whether or not it shall have express or
other
notice thereof, except as otherwise provided by law.
ARTICLE
VIII.
General
Provisions.
Section
1.
Dividends.
The
Board of Directors, at
any
regular or special meeting thereof, subject to any
restrictions
contained in the Certificate of Incorporation, may
declare
and pay dividends upon the shares of the Corporation's
capital
stock either (1) out of its surplus, as defined in and
computed
in accordance with Sections 154, 242, and 244 of the
General
Corporation Law of the State of Delaware, or (2) in case
there
shall be no such surplus, out of net profits for the fiscal
year
in
which the dividend is declared and/or the preceding fiscal year. If the capital
of the Corporation, computed in accordance with Sections 154, 242, and 244
of
the General Corporation Law of the State of Delaware, shall have been
diminished
by depreciation in the value of its property, or by
losses,
or otherwise, to an amount less than the aggregate amount
of
the
capital represented by the issued and outstanding stock of
all
classes having a preference upon the distribution of assets,
the
Board
of Directors of the Corporation shall not declare and
pay
out
of such net profits any dividends upon any shares of any
classes
of its capital stock until the deficiency in the amount
of
capital represented by the issued and outstanding stock of all
classes
having a preference upon the distribution of assets shall
have
been
repaired. Dividends may be paid in cash, in property,
or
in
shares of the Corporation's capital stock, in the case of
shares
with par value at par, and in the case of shares without
par
value
at such price as may be fixed by the Board of Directors. Before payment of
any
dividend, there may be set
aside
out
of any funds of the Corporation available for dividends
such
sum
or
sums
as the
directors from time to time, in their
absolute
discretion, think proper as a reserve or reserves to
meet
contingencies,
or for equalizing dividends, or for repairing
or
maintaining any property of the Corporation, or for such other
purposes
as the directors shall think conducive to the interest
of
the
Corporation, and the directors may modify or abolish any
such
reserve in the manner in which it was created.
Section
2.
Checks.
All
checks or demands for money and
notes
of
the Corporation shall be signed by such officer or
officers
or such other person or persons as the Board of Directors may from time to
time
designate.
Section
3.
Fiscal
Year.
The
fiscal year of the
Corporation shall be the calendar year.
ARTICLE
IX.
Amendment
of By-Laws.
These
By-Laws may be altered or repealed at any annual
meeting
of
the
stockholders, or at any special meeting of the
stockholders
if notice of such alteration or repeal be contained
in
the
notice of such special meeting, by a vote of the holders
of
a
majority of the outstanding stock of the Corporation
entitled
to vote, or (except as otherwise expressly provided in a
By-Law
adopted by the stockholders) at any valid meeting of the
Board
of
Directors
by
a
vote of
a majority of the whole Board.
ARTICLE
X. Notices.
Section
1.
How
Given.
Whenever, under the provisions of
the
statutes or of the Certificate of Incorporation or of these
By-Laws,
notice is required to be given to any director or
stockholder,
it shall not be construed to mean personal notice,
but
such
notice may be given in writing, by mail, addressed to
such
director or stockholder, at his or her address as it appears
on
the
records of the Corporation, with postage thereon prepaid,
and
such
notice shall be deemed to be given at the time when the
same
shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section
2.
Waiver
of Notice.
Whenever
notice is required
to
be
given under any provision of the General Corporation Law of
the
State
of Delaware or of the Certificate of Incorporation or
these
By-Laws, a written waiver thereof, signed by the person
entitled
to notice, whether before or after the time stated
therein
shall be deemed equivalent to notice. Attendance of a
person
at
a meeting shall constitute a waiver of notice of such
meeting,
except when the person attends a meeting for the express
purpose
of objecting, at the beginning of the meeting, to the
transaction
of any business because the meeting is not lawfully
called
or
convened. Neither the business to be transacted at,
nor the
purpose of, any regular or special meeting of the
stockholders,
directors, or members of a committee of directors
need be
specified in any written waiver of notice unless
specifically
so required by the Certificate of Incorporation or
these
By-Laws.
ARTICLE
XI.
Limitation
of Liability
A
director of the Corporation shall not be personally liable
to
the
Corporation or its stockholders for monetary damages for
breach
of
fiduciary duty as a director except for liability (i)
for
any
breach of the director's duty of loyalty to the
Corporation
or its stockholders, (ii) for acts or omissions not
in
good
faith or which involve intentional misconduct or a
knowing
violation of law, (iii) under Section 174 of the Delaware
General
Corporation Law, as the same exists or hereafter may be
amended,
or (iv) for' any transaction from which the director
derived
an improper personal benefit. If the Delaware General
Corporation
Law hereafter is amended to authorize the further
elimination
or limitation of the liability of directors, then the
liability
of a director of the corporation, in addition to the
limitation
on personal liability provided herein, shall be
limited
to the fullest extent permitted by the amended Delaware
General
Corporation Law. Any repeal or modification of this
Article
IX by the stockholders of the Corporation shall be
prospective
only, and shall not adversely affect any limitation
on
the
personal liability of a director of the Corporation
existing
at the time of such repeal or modification.
ARTICLE
XII.
Indemnification.
Each
director and officer of the Corporation shall be
indemnified
to the fullest extent now or hereafter permitted by
law
in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal,
administrative
or investigative, by reason of the fact that he is
or
was a
director or officer of the Corporation or is or was
serving
at the request of the Corporation as a director, officer,
employee
or agent of another corporation, partnership, joint
venture,
trust or other enterprise. Without limiting the
generality
of the foregoing, the Corporation shall indemnify each
person
within the scope of the foregoing to the extent to which
it
is
given the power to do so by Section 145 of the General
Corporation
Law of the State of Delaware as in effect on the
effective
date of these By-Laws or as thereafter amended.
|
JORDAN
1 HOLDINGS COMPANY
Certificate
of Designation
Of
Series
A Convertible Preferred Stock
Pursuant
to Section 151(g) of the Delaware General Corporation Law, Jordan 1 Holdings
Company, a Delaware corporation (the “Corporation”), does hereby certify as
follows:
1.
The
following resolution was duly adopted by the Board of Directors of the
Corporation on July 20, 2006:
RESOLVED,
that pursuant to Article FOURTH of the Certificate of Incorporation of this
Corporation, there be created a series of the Preferred Stock, par value $.001
per share (“Preferred Stock”), consisting of seven million one hundred thousand
(7,100,000) shares, to be designated as the Series A Convertible Preferred
Stock
(“Series A Preferred Stock”), and that the holders of shares the Series A
Preferred Stock shall have the rights, preferences and privileges set forth
in
the Statement of Designations set forth in Exhibit A to this Resolution
(“Certificate of Designation”); and it was further
RESOLVED,
that any one of the chief executive officer, president or chief financial
officer of this Corporation be, and hereby is, authorized and empowered to
execute and file with the Secretary of State of the State of Delaware, the
Certificate of Designation setting forth the rights, preferences, privileges
and
limitations of the holders of the Series A Preferred Stock.
2.
Set
forth
as Exhibit A to this Certificate of Designation is a true and correct copy
of
the Statement of Designations relating to the Series A Preferred
Stock.
IN
WITNESS WHEREOF, Jordan 1 Holdings Company has caused this certificate to be
signed by its duly authorized officer this 20
th
day of
July, 2006.
By:
/s/
Robert P. Moyer
Name:
Robert P. Moyer
Title:
Chief Executive Officer and Director
Exhibit
A
STATEMENT
OF DESIGNATIONS
Section
1
.
Definitions
.
Section
1
.
Definitions
.
Capitalized terms used and not otherwise defined herein that are defined in
the
Purchase Agreement (as defined below) shall have the meanings given such terms
in the Purchase Agreement. For the purposes hereof, the following terms shall
have the following meanings:
“
Bankruptcy
Event
”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not stayed
or
dismissed within 90 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 90 days; (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors;
(f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (g) the Company or any Significant Subsidiary thereof, by any
act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for
the purpose of effecting any of the foregoing.
“
Closing
Date
”
means
the Closing Date, as defined in the Purchase Agreement.
“
Commission
”
means
the Securities and Exchange Commission.
“
Common
Stock
”
means
the Company’s common stock, par value $.001 per share, and stock of any other
class into which such shares may hereafter have been reclassified or changed;
provided, however, that numbers of shares of Common Stock and per share
information in this Statement of Designations reflect the Reverse Split. In
the
event that any shares of Preferred Stock are converted prior to the
effectiveness of the Reverse Split, all references to conversion rates or ratios
shall be multiplied by one hundred fifty (150) and all references to conversion
prices or other per share price computations shall be divided by one hundred
fifty (150).
“
Common
Stock Equivalents
”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“
Conversion
Date
”
shall
have the meaning set forth in Section 6(a).
“
Conversion
Ratio
”
shall
mean the number of shares of Common Stock issuable upon conversion of one share
of Series A Preferred Stock. The Conversion Ratio shall initially be three
(3),
subject to adjustment as provided in this Certificate of
Designation.
“
Conversion
Price
”
shall
mean the Purchase Price Per Share divided by the Conversion Ratio, and shall
be
subject to adjusted from time to time as provided in this Statement of
Designations. The Conversion Price shall initially be $.30.
“
Conversion
Shares
”
means,
collectively, the shares of Common Stock into which the shares of Series A
Preferred Stock are convertible in accordance with the terms
hereof.
“
Conversion
Shares Registration Statement
”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Conversion Shares by the Holder,
who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“
Dilutive
Issuance
”
shall
have the meaning set forth in Section 7(b) hereof.
“
Effective
Date
”
means
the date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“
Exchange
Act
”
means
the Securities Exchange Act of 1934, as amended.
“
Exempt
Issuance
”
shall
have the meaning set forth in Section 1.3.10 of the Purchase
Agreement.
“
Fundamental
Transaction
”
shall
have the meaning set forth in Section 7(f)(iv) hereof.
“
Holder
”
shall
have the meaning given such term in Section 2 hereof.
“
Investors
”
shall
mean the persons named in Schedule A to the Purchase Agreement.
“
Junior
Securities
”
means
the Common Stock, Series B Convertible Preferred Stock and all other equity
or
equity equivalent securities of the Company other than those securities that
are
explicitly senior in rights or liquidation preference to the Series A Preferred
Stock.
“
Net
Income
”
shall
have the meaning set forth in the Purchase Agreement.
“
Original
Issue Date
”
shall
mean the date of the first issuance of any shares of the Series A Preferred
Stock regardless of the number of transfers of any particular shares of Series
A
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
“
Person
”
means
a
corporation, an association, a partnership, a limited liability company, a
business association, an individual, a trust, a government or political
subdivision thereof or a governmental agency.
“
Pre-tax
Income
”
shall
have the meaning set forth in the Purchase Agreement.
“
Purchase
Agreement
”
means
the Securities Purchase Agreement dated as of July 19, 2006, pursuant to which
the shares of Series A Preferred Stock were initially issued, as the same shall
be amended, modified or supplemented from time to time in accordance with its
terms, a copy of which is on file at the principal offices of the
Company.
“
Purchase
Price
”
mean
of
the Equity Purchase Price as defined in the Purchase Agreement.
“
Purchase
Price per Share
”
shall
mean ninety cents ($.90).
“
Registration
Rights Agreement
”
means
the Registration Rights Agreement, dated as of the Closing Date, to which the
Company and the original Holders are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Reverse
Split
”
shall
mean the one-for-150 reverse split contemplated by the Purchase
Agreement.
“
Securities
”
shall
have the meaning set forth in Section 1.3.29 of the Purchase
Agreement.
“
Securities
Act
”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“
Series
A Preferred Stock
”
shall
have the meaning set forth in Section 2.
“
Subsidiary
”
shall
mean a corporation, limited liability company, partnership, joint venture or
other business entity of which the Company owns beneficially or of record more
than a majority of the equity interest.
“
Trading
Day
”
means
a
day on which the Common Stock is traded on a Trading Market.
“
Trading
Market
”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“
Transaction
Documents
”
shall
have the meaning set forth in the Purchase Agreement.
“
VWAP
”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on
a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Series A Preferred
Stock then outstanding.
“
Warrants
”
shall
have the meaning set forth in the Purchase Agreement.
Section
2
.
Designation,
Amount and Par Value
.
The
series of preferred stock, par value $.001 per share (“Preferred Stock”)
consisting of seven million one hundred thousand (7,100,000 shares) shall be
designated as the Company’s Series A Convertible Preferred Stock (the
“
Series
A Preferred Stock
”)
and
the number of shares so designated shall not be increased without the consent
of
all of the holders of 75% of the then outstanding shares of Series A Preferred
Stock (each a “
Holder
”
and
collectively, the “
Holders
”).
In
the event of the conversion of shares of Series A Preferred Stock into this
Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once
more
designated as part of a particular Series by the Company’s Board of Directors.
In addition, if the Company shall not issue the maximum number of shares of
Series A Preferred Stock, the Company may, from time to time, by resolution
of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares
of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the number
of shares of Series A Preferred Stock then issued or reserved for issuance.
The
number of shares by which the Series A Preferred Stock is reduced shall have
the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company’s Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of Delaware such
certificate as shall be necessary to reflect any reduction in the number of
shares constituting the Series A Preferred Stock. The Series A Preferred Stock
shall be senior to the Series B Convertible Preferred Stock as to dividends
and
upon voluntary or involuntary liquidation, dissolution or winding
up.
Section
3
.
Dividends
and Other Distributions
.
No
dividends shall be payable with respect to the Series A Preferred Stock. No
dividends shall be payable with respect to the Common Stock of the Series B
Convertible Preferred Stock while the Series A Preferred Stock is outstanding.
The Company shall not redeem or purchase any shares of Common Stock or Series
B
Convertible Preferred Stock while the Series A Preferred Stock is outstanding
except as contemplated by the Purchase Agreement or except for the purchase
of
fractional shares in connection with the Reverse Split.
Section
4
.
Voting
Rights
.
The
Series A Preferred Stock shall have no voting rights. However, so long as any
shares of Series A Preferred Stock are outstanding, the Company shall not,
without the affirmative approval of the Holders of 75% of the shares of the
Series A Preferred Stock then outstanding, (a) alter or change adversely the
powers, preferences or rights given to the Series A Preferred Stock or alter
or
amend this Certificate of Designation, (b) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a Liquidation
(as
defined in Section 5) senior to or otherwise pari passu with the Series A
Preferred Stock, or any of preferred stock possessing greater voting rights
or
the right to convert at a more favorable price than the Series A Preferred
Stock, (c) amend its certificate of incorporation or other charter documents
in
breach of any of the provisions hereof, (d) increase the authorized number
of
shares of Series A Preferred Stock, or (e) enter into any agreement with respect
to the foregoing. The holders of the Series A Preferred Stock will not be
entitled to vote as a class with respect to the increase or decrease in the
number of authorized shares of preferred stock; provided, however, that the
provisions of Section 6(c) of this Certificate of Designation may not be amended
or waived.
Section
5
.
Liquidation
.
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary
or
involuntary (a “
Liquidation
”),
the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to the Purchase Price divided by the number of shares which
were
issued (included shares that were issued and converted or otherwise acquired
by
the Company), which amount is referred to as the “
Liquidation
Value
,”
before
any distribution or payment shall be made to the holders of any Junior
Securities and after any distributions or payments made to holders of any class
or series of securities which are senior to the Series A Preferred Stock upon
voluntary or involuntary liquidation, dissolution or winding up, and if the
assets of the Company shall be insufficient to pay in full such amounts, then
the entire assets to be distributed to the Holders shall be distributed among
the Holders ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. In
the
event the assets of the Company available for distribution to the holders of
shares of Series A Preferred Stock upon dissolution, liquidation or winding
up
of the Company, whether voluntary or involuntary, shall be insufficient to
pay
in full all amounts to which such holders are entitled pursuant to Section
5, no
such distribution shall be made on account of any shares of any other class
or
series of capital stock of the Company ranking on a parity with the shares
of
Series A Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. At the election of a Holder
made by written notice delivered to the Company at least two (2) business days
prior to the effective date of the subject transaction, as to the shares of
Series A Preferred Stock held by such Holder, a Fundamental Transaction
(excluding for purposes of this Section 5 any Fundamental Transaction described
in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or Change of Control shall be treated
as
a Liquidation as to such Holder.
Section
6
.
Conversion
.
a)
Conversions
at Option of Holder
.
Each
share of Series A Preferred Stock shall be initially convertible (subject to
the
limitations set forth in Section 6(c)), into such number of shares of Common
Stock based on the Conversion Ratio at the option of the Holders, at any time
and from time to time from and after the Original Issue Date. Holders shall
effect conversions by providing the Company with the form of conversion notice
attached hereto as
Annex
A
(a
“
Notice
of Conversion
”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of the stock certificate(s) representing the number of
shares of Series A Preferred Stock so converted, with such stock certificates
being duly endorsed in full for transfer to the Company or with an applicable
stock power duly executed by the Holder in the manner and form as deemed
reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
shall specify the number of shares of Series A Preferred Stock to be converted,
the number of shares of Series A Preferred Stock owned prior to the conversion
at issue, the number of shares of Series A Preferred Stock owned subsequent
to
the conversion at issue, the stock certificate number and the shares of Series
A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the applicable stock certificates to the Company by overnight delivery service
(the “
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued. If the initial Conversion Price is adjusted
pursuant to Section 7 or as otherwise provided herein, the Conversion Ratio
shall likewise be adjusted and the new Conversion Ratio shall determined by
dividing the Purchase Price Per Share by the new Conversion Price. Thereafter,
subject to any further adjustments in the Conversion Price, each share of Series
A Preferred Stock shall be initially convertible into Common Stock based on
the
new Conversion Ratio.
b)
Automatic
Conversion Upon Change of Control
.
Subject
to Section 5, all of the outstanding shares of Series A Preferred Stock shall
be
automatically converted into the Conversion Shares upon the close of business
on
the business day immediately preceding the date fixed for consummation of any
transaction resulting in a Change of Control of the Company (an “Automatic
Conversion Event”). A “Change in Control” means a consolidation or merger of the
Company with or into another company or entity in which the Company is not
the
surviving entity or the sale of all or substantially all of the assets of the
Company to another company or entity not controlled by the then existing
stockholders of the Company in a transaction or series of transactions. The
Company shall not be obligated to issue certificates evidencing the Conversion
Shares unless certificates evidencing the shares of Series A Preferred Stock
so
converted are either delivered to the Company or its transfer agent or the
holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by
it in connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 6(b), the Company shall promptly send written notice
thereof, by hand delivery or by overnight delivery, to the holder of record
of
all of the Series A Preferred Stock at its address then shown on the records
of
the Company, which notice shall state that certificates evidencing shares of
Series A Preferred Stock must be surrendered at the office of the Company (or
of
its transfer agent for the Common Stock, if applicable).
c)
Beneficial
Ownership Limitation
.
Except
as provided in Section 6(b) of this Statement of Designations, which shall
apply
as stated therein if an Automatic Conversion Event shall occur, the Company
shall not effect any conversion of the Series A Preferred Stock, and the Holder
shall not have the right to convert any portion of the Series A Preferred Stock
to the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.9% of the number of shares
of
the Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining, non-converted
shares of Series A Preferred Stock beneficially owned by the Holder or any
of
its affiliates, so long as such shares of Series A Preferred Stock are not
convertible within sixty (60) days from the date of such determination, and
(B)
exercise or conversion of the unexercised or non-converted portion of any other
securities of the Company (including the Warrants) subject to a limitation
on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates, so long as such other securities
of the Company are not exercisable nor convertible within sixty (60) days from
the date of such determination. For purposes of this Section 6(c), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in the
most recent of the following: (A) the Company’s most recent quarterly reports,
Form 10-Q, Form 10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case
may be, as filed with the Commission under the Exchange Act (B) a more recent
public announcement by the Company or (C) any other written notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the Holder,
the Company shall within two (2) Trading Days confirm orally and in writing
to
the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after
giving effect to the conversion or exercise of securities of the Company,
including the Series A Preferred Stock, by the Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was
publicly reported by the Company. For purposes of this Section 6(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act. This Section 6(c) may be not be waived or amended.
d)
Mechanics
of Conversion
i.
Delivery
of Certificate Upon Conversion
.
Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “
Share
Delivery Date
”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Series A Preferred Stock, and (B) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay
accrued dividends in cash). After the Effective Date, the Company shall, upon
request of the Holder, deliver any certificate or certificates required to
be
delivered by the Company under this Section electronically through the
Depository Trust Company or another established clearing Company performing
similar functions if the Company’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after the Conversion Date,
the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return
the
certificates representing the shares of Series A Preferred Stock tendered for
conversion.
ii.
Obligation
Absolute; Partial Liquidated Damages
.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of Series A Preferred Stock in accordance with the terms hereof are absolute
and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any or all of its Series A Preferred Stock, the Company may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason (other than the inability of the Company
to
issue shares of Common Stock as a result of the limitation set forth in Section
6(c) hereof) unless, an injunction from a court, on notice, restraining and
or
enjoining conversion of all or part of this Series A Preferred Stock shall
have
been sought and obtained and the Company posts a surety bond for the benefit
of
the Holder in the amount of 150% of the Conversion Value of Series A Preferred
Stock outstanding, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and
the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the Company
shall
issue Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. If the Company fails to deliver to the Holder such certificate
or
certificates pursuant to Section 6(d)(i) within two Trading Days of the Share
Delivery Date applicable to such conversion, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for each $5,000
of
Conversion Value of Series A Preferred Stock being converted, $50 per Trading
Day (increasing to $100 per Trading Day after three (3) Trading Days and
increasing to $200 per Trading Day six (6) Trading Days after such damages
begin
to accrue) for each Trading Day after the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages for the Company’s failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available
to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
iii.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
.
If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
Date the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating
to
such Share Delivery Date (a “
Buy-In
”),
then
the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion
at
issue multiplied by (2) the price at which the sell order giving rise to such
purchase obligation was executed. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted conversion of shares of Series A Preferred Stock with respect
to
which the aggregate sale price giving rise to such purchase obligation is
$10,000, under clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the shares of Series
A
Preferred Stock as required pursuant to the terms hereof.
iv.
Reservation
of Shares Issuable Upon Conversion
.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 7)
upon the conversion of all outstanding shares of Series A Preferred Stock.
The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement.
v.
Fractional
Shares
.
Upon a
conversion hereunder, the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of his or her Series A Preferred Stock shall
be dropped and eliminated.
vi.
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock on conversion of the
Series A Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such shares of Series A Preferred Stock so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
vii.
Absolute
Obligation
.
Except
as expressly provided herein, no provision of this Certificate of Designation
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the liquidated damages (if any) on, the shares of Series
A
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
Section
7
.
Certain
Adjustments
.
a)
Stock
Dividends and Stock Splits
.
If the
Company, at any time while the Series A Preferred Stock is outstanding: (A)
shall pay a stock dividend or otherwise make a distribution or distributions
on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to this Series
A Preferred Stock), (B) subdivide outstanding shares of Common Stock into a
larger number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue
by reclassification of shares of the Common Stock any shares of capital stock
of
the Company, then the Conversion Value shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b)
Price
Adjustment
.
U
ntil
such
time as the Investors hold no Securities, except for (i) Exempt Issuances,
(ii)
issuances
covered by Sections 7(a), 7(c) and 7(d) hereof or (iii) an issuance of Common
Stock upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7
,
as to
all of which this Section 7(b) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or issues warrants, options, convertible
debt or equity securities with a exercise price per share or conversion price
which is less than the Conversion Price then in effect (such lower sales price,
conversion or exercise price, as the case may be, being referred to as the
“Lower Price”), the Conversion Price in effect from and after the date of such
transaction shall be reduced to the Lower Price. For purpose of determining
the
exercise price of warrants issued by the Company, the price, if any, paid per
share for the warrants shall be added to the exercise price of the
warrants.
c)
Conversion
Price Adjustment Based on Pre-Tax Income Per Share
.
i.
|
In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2006 is less than $.034 per share on a fully-diluted basis,
then the Conversion Price shall be reduced by the percentage shortfall,
up
to a maximum of 35%. Thus, if Pre-Tax Income for the year ended December
31, 2006 is $.0289 per share on a fully-diluted basis, the Conversion
Price shall be reduced by 15%. Such reduction shall be made at the
time
the Company files its Form 10-KSB for the year ended December 31, 2006,
and shall apply to the Note and all shares of the Series A Preferred
Stock, as the case may be, which are outstanding on the date the Form
10-KSB is filed, or, if not filed on time, on the date that filing
was
required.
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ii.
|
In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2007 is less than $.051 per share on a fully-diluted basis,
then the Conversion Price then in effect shall be reduced by the
percentage shortfall, up to a maximum of 35%. Thus, if Pre-Tax Income
for
the year ended December 31, 2007 is $.04335 per share on a fully-diluted
basis, the Conversion Price shall be reduced by 15%. Such reduction
shall
be made at the time the Company files its Form 10-KSB for the year
ended
December 31, 2007, and shall apply to the Note and all shares of the
Series A Preferred Stock, as the case may be, which are outstanding
on the
date the Form 10-KSB is filed, or, if not filed on time, on the date
that
filing was required.
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iii.
|
For
purpose of determining Pre-Tax Income Per Share on a fully-diluted
basis,
all shares of Common Stock issuable upon conversion of convertible
securities and upon exercise of warrants and options shall be deemed
to be
outstanding, regardless of whether (i) such shares are treated as
outstanding for determining diluted earnings per share under GAAP,
(ii)
such securities are “in the money,” or (iii) such shares may be issued as
a result of the 4.9% Limitation.
|
d)
Pro
Rata Distributions
.
If the
Company, at any time while Series A Preferred Stock is outstanding, shall
distribute to all holders of Common Stock (and not to Holders) evidences of
its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price shall be determined by
multiplying such Conversion Price in effect immediately prior to the record
date
fixed for determination of stockholders entitled to receive such distribution
by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP
on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described
in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is
made and shall become effective immediately after the record date mentioned
above.
e)
Calculations
.
All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Company or any of its subsidiaries. For purposes of
this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares and shares owned by subsidiaries, if
any) actually issued and outstanding.
f)
Notice
to Holders
.
i.
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to any of this Section 7,
the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of
an
MFN Transaction (as defined in the Purchase Agreement).
ii.
Notices
of Other Events
.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E)
the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Series A Preferred Stock, and shall cause to be mailed to
the
Holders at their last addresses as they shall appear upon the stock books of
the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating
(x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to become
effective or close, and the date as of which it is expected that holders of
the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction;
provided
,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
iii.
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
iv.
Fundamental
Transaction
.
If, at
any time while this Series A Preferred Stock is outstanding, (A) the Company
effects any merger or consolidation of the Company with or into another Person,
(B) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “
Fundamental
Transaction
”),
then
upon any subsequent conversion of this Series A Preferred Stock, the Holder
shall have the right to receive, for each Conversion Share that would have
been
issuable upon such conversion absent such Fundamental Transaction, the same
kind
and amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the “
Alternate
Consideration
”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of the Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Certificate of Designations with the same terms
and
conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder’s right to convert such preferred
stock into Alternate Consideration. The terms of any agreement pursuant to
which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
7(f)(iv) and insuring that this Series A Preferred Stock (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. Notwithstanding the foregoing or any
other provisions of this Certificate of Designations, in the event that the
agreement relating to a Fundamental Transaction provides for the conversion
or
exchange of the Series A Preferred Stock into equity or debt securities, cash
or
other consideration and the agreement is approved by the holders of a majority
of the. then-outstanding shares of Series A Preferred Stock, then the holders
of
the Series A Preferred Stock shall have only the rights set forth in such
agreement.
Section
8
.
Miscellaneous
.
a)
Notices
.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at its principal address
as
reflected in its most recent filing with the Commission. Any and all notices
or
other communications or deliveries to be provided by the Company hereunder
shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given when received, and any notice by
telecopier shall be effective if confirmation of receipt is given by the party
to whom the notice is transmitted.
b)
Lost
or Mutilated Preferred Stock Certificate
.
If a
Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if
requested, all reasonably satisfactory to the Company.
c)
Next
Business Day
.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
d)
Headings
.
The
headings contained herein are for convenience only, do not constitute a part
of
this Certificate of Designations and shall not be deemed to limit or affect
any
of the provisions hereof.
e)
Rank
of Series
.
For
purposes of this Certificate of Designation, any stock of any series or class
of
the Company shall be deemed to rank
(i)
prior
to the shares of Series A Preferred Stock, as to dividends or upon liquidation,
dissolution or winding up, as the case may be, if the holders of such class
or
classes shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Company, as
the
case may be, in preference or priority to the holders of shares of Series A
Preferred Stock;
(ii)
on a
parity with shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
A
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Company, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority, one over
the other, as between the holders of such stock and the holders of shares of
Series A Preferred Stock; and
(iii)
junior to shares of Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of Series A Preferred Stock shall
be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference
or
priority to the holders of shares of such class or classes.
f)
Amendment
.
This
Certificate of Designation may be amended with the approval of the Company’s
board of directors and the consent of the holders of seventy-five percent (75%)
of the outstanding shares of Series A Preferred Stock, except that the
conversion limitation set forth in Section 6.2(b) shall not be
amended.
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.0001 per share (the “
Common
Stock
”),
of
Jordan 1 Holdings Company, a Delaware corporation (the “
Company
”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion
calculations:
Date
to Effect Conversion:
________________________________________
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Number
of shares of Common Stock owned prior to Conversion:
_______________
|
Number
of shares of Series A Preferred Stock to be Converted:
________________
|
Value
of shares of Series A Preferred Stock to be Converted:
____________________
|
Number
of shares of Common Stock to be Issued:
___________________________
|
Certificate
Number of Series A Preferred Stock attached
hereto:_________________
|
Number
of Shares of Series A Preferred Stock represented by attached
certificate:_________
|
|
|
Number
of shares of Series A Preferred Stock subsequent to Conversion:
________________
|
[HOLDER]
By:___________________________________
Name:
Title:
|
CERTIFICATE
OF DESIGNATION OF
JORDAN
1
HOLDINGS COMPANY
Series
B Convertible Preferred Stock
Pursuant
to Section 151(g) of the Delaware General Corporation Law, Jordan 1 Holdings
Company, a Delaware corporation (the “Corporation”), does hereby certify as
follows:
1.
The
following resolution was duly adopted by the directors of the Corporation by
an
action in writing on July 19, 2006:
RESOLVED,
that pursuant to Article FOURTH of the Certificate of Incorporation of this
Corporation, there be created a series of the preferred stock, par value $.001
per share, consisting of 2,900,000 shares, to be designated as the Series B
Convertible Preferred Stock (“Series B Preferred Stock”), and that the holders
of shares of the Series B Preferred Stock shall have the voting power,
designations, preferences, limitations, restrictions and relative rights in
the
Certificate of Designation set forth in Exhibit A to this Action in Writing;
and
it is further
RESOLVED,
that any one of the chief executive officer, president and chief financial
officer (each, an “Authorized Officer”) of this Corporation be, and hereby is,
authorized and empowered to execute and file with the Secretary of State of
the
State of Delaware, the Certificate of Designation.
2.
Set
forth
as Exhibit A to this Certificate of Designation is a true and correct copy
of
the rights, preferences and privileges of the holders of the Series B Preferred
Stock.
IN
WITNESS WHEREOF, Jordan 1 Holdings Company has caused this certificate to be
signed on this 20th day of July, 2006.
By:
/s/
Robert P. Moyer
Name:
Robert P. Moyer
Title:
Chief Executive Officer and Director
Exhibit
A
Statement
of Designation
Series
B Convertible Preferred Stock
The
designation of, the number of shares constituting, and the rights, preferences,
privileges and restrictions relating to, the Series B Convertible Preferred
Stock are as follows:
1.
Designation
and Number of Shares
.
(a)
The
designation of this series of two million nine hundred thousand (2,900,000)
shares of preferred stock, par value $.001 per share (“Preferred Stock”),
created by the Board of Directors of the Corporation pursuant to the authority
granted to it by the certificate of incorporation of the Corporation is “Series
B Convertible Preferred Stock,” which is hereinafter referred to as the “Series
B Preferred Stock.” In the event of the conversion of shares of Series B
Preferred Stock into this Corporation’s common stock, par value $.001 per share
(“Common Stock”), pursuant to Section 4 of this Statement of Designation, or in
the event that the Corporation shall otherwise acquire and cancel any shares
of
Series B Preferred Stock, the shares of Series B Preferred Stock so converted
or
otherwise acquired and canceled shall have the status of authorized but unissued
shares of Preferred Stock, without designation as to series until such stock
is
once more designated as part of a particular series by the Corporation’s Board
of Directors. In addition, if the Corporation shall not issue the maximum number
of shares of Series B Preferred Stock, the Corporation may, from time to time,
by resolution of the Board of Directors, reduce the number of shares of Series
B
Preferred Stock authorized, provided, that no such reduction shall reduce the
number of authorized shares to a number which is less than the number of shares
of Series B Preferred Stock then issued or reserved for issuance. The number
of
shares by which the Series B Preferred Stock is reduced shall have the status
of
authorized but unissued shares of Preferred Stock, without designation as to
series, until such stock is once more designated as part of a particular Series
B by the Corporation’s Board of Directors. The Board of Directors shall cause to
be filed with the Secretary of State of Delaware such certificate as shall
be
necessary to reflect any reduction in the number of shares constituting the
Series B Preferred Stock. The Series B Preferred Stock is junior and
subordinated to the Series A Convertible Preferred Stock of this Corporation
as
to dividends and upon voluntary or involuntary liquidation, dissolution or
winding up.
2.
Dividend
Rights
.
(a)
Except
as
provided in Section 2(b) of this Statement of Designation, the holders of the
Series B Preferred Stock shall be not entitled to receive any
dividends.
(b)
If
the
Corporation shall pay to the holders of Common Stock any dividends or other
distributions, other than distributions payable in shares of Common Stock,
the
Corporation shall pay to the holders of the Series B Preferred Stock a dividend
per share of Series B Preferred Stock equal to the dividend which would have
been paid if the Series B Preferred Stock had been converted into Common Stock
on and as of the record date for such dividend. Such dividend shall be paid
on
the same dividend payment date that the dividend is paid to the holders of
the
Common Stock, and the record date shall be the same record date used for
determining holders of Common Stock entitled to such dividend. Any dividends
shall be paid only out of funds of this Corporation legally available
therefor.
3.
Voting
Rights
.
(a)
Except
as
otherwise required by law or as provided in Section 3(b) or Section 3(c) of
this
Statement of Designation, the holders of the Series B Preferred Stock shall
have
one vote per share and shall vote together with the holders of the Common Stock
as if the Common Stock and the Series B Preferred Stock were one class of
stock..
(b)
The
vote
of the holders of a majority of the outstanding shares of Series B Preferred
Stock shall be required for any amendment to this Certificate of
Designation.
(c)
The
Corporation shall not take any of the following actions without the approval
of
the holders of a majority of the shares of Series B Preferred
Stock:
(i)
The
merger or consolidation of the Corporation with or into any other corporation
or
other entity.
(ii)
The
sale
by the Corporation of all or a significant portion of its business and
assets.
(d)
Where
the
holder of the Series B Preferred Stock vote as a single class, each share of
Series B Preferred Stock shall be entitled to one vote. The consent may be
given
in writing by the holders of a majority of the outstanding shares of Series
B
Preferred Stock without a meeting.
(e)
Nothing
in this Statement of Designations shall be construed to require the approval
of
the holders of the Series B Preferred Stock for the authorization or issuance
of
any series of preferred stock, whether senior to, on a parity with or junior
to
the Series B Preferred Stock.
4.
Conversion
into Common Stock
.
(a)
The
shares of Series B Preferred Stock shall not be convertible into Common Stock
until and unless a Conversion Event, as hereinafter defined, shall occur. Upon
the occurrence of a Conversion Event, each share of Series B Preferred Stock
shall be automatically converted into Common Stock at the Conversion Rate,
as
hereinafter defined, without any action on the part of the holders.
(b)
A
Conversion Event shall mean the filing with the Secretary of State of a
certificate of amendment or restated certificate of incorporation which, in
addition to any other amendments effected thereby, (i) amends the authorized
capital stock to 100,000,000 shares, of which 10,000,000 shares are preferred
stock, par value $.001 per share, and 90,000,000 shares of common stock, par
value $.001 per share, and (ii) effects a one-for-150 reverse split of the
Corporation’s issued and outstanding common stock.
(c)
The
Conversion Rate shall mean the number of shares of Common Stock issuable upon
conversion of one share of Series B Preferred Stock. The Conversion Rate shall
initially be two (2) shares of Common Stock for each share of Preferred Stock,
subject to adjustment in the event of any stock split, stock distribution,
stock
dividend, combination of shares, reverse split or any other
recapitalization.
(d)
In
the
event of the merger or consolidation of the Corporation in a transaction in
which the Corporation is not the surviving entity, the shares of Series B
Preferred Stock then outstanding will be deemed converted into Common Stock
immediately prior to the effective time of the transaction or as otherwise
provided in the agreement of merger or consolidation which has been approved
by
the holders of a majority of the outstanding shares of Series B Preferred
Stock.
(e)
No
fractional shares shall be issued upon conversion of the Series B Preferred
Stock into Common Stock. In the event that fractional shares would be issuable,
the Corporation will issue upon conversion such additional fractional share
as
will result in the issuance of a whole number of shares of Common
Stock.
(f)
The
Common Stock issuable upon conversion of the Series B Preferred Stock shall,
when so issued, be duly and validly authorized and issued, fully paid and
non-assessable.
5.
Redemption
.
The
Corporation shall have no right to redeem any shares of Series B Preferred
Stock.
6.
Liquidation
Rights
.
(a)
In
the
event of the liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, subject to the rights of to the rights of the holders
of any class or series of capital stock which is senior to the Series B
Preferred Stock upon voluntary or involuntary liquidation, dissolution or
winding up, the holders of the Series B Preferred Stock shall be entitled to
receive an amount equal to $.01 per share.
(b)
The
sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other
consideration) of all or substantially all of the property and assets of the
Corporation shall be deemed a voluntary dissolution, liquidation or winding
up
of the Corporation for purposes of this Section 6.
(c)
The
consolidation or merger of the Corporation into another corporation in which
the
Corporation is not the surviving corporation shall be governed by Section 4(d)
of this Certificate of Designation.
(d)
In
the
event the assets of the Corporation available for distribution to the holders
of
shares of Series B Preferred Stock upon dissolution, liquidation or winding
up
of the Corporation, whether voluntary or involuntary, shall be insufficient
to
pay in full all amounts to which such holders are entitled pursuant to Section
6(a)(i) of this Statement of Designation, no such distribution shall be made
on
account of any shares of any other class or series of capital stock of the
Corporation ranking on a parity with the shares of Series B Preferred Stock
upon
such dissolution, liquidation or winding up unless proportionate distributive
amounts shall be paid on account of the shares of Series B Preferred Stock,
ratably, in proportion to the full distributable amounts for which holders
of
all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
(e)
Upon
the
dissolution, liquidation or winding up of the Corporation, the holders of shares
of Series B Preferred Stock then outstanding shall be entitled to be paid out
of
the assets of the Corporation available for distribution to its stockholders
all
amounts to which such holders are entitled pursuant to Section 6(a) of this
Statement of Designation before any payment shall be made to the holders of
any
class or series of capital stock of the Corporation ranking junior upon
liquidation to Series B Preferred Stock.
7.
Notice
.
Each
notice or other communication pursuant to this Statement of Designation shall
be
in writing signed by the party giving such notice, and delivered personally
or
sent by overnight courier, mail or messenger against receipt thereof or sent
by
registered or certified mail, return receipt requested, to the Corporation
at
its executive offices, or to such other address or person as the Corporation
may
advise the holders of the Series B Preferred Stock by like notice, or to any
holder at his address set forth on the Corporation’s records. Notices shall be
deemed to have been received on the date of personal delivery or, if sent by
certified or registered mail, return receipt requested, shall be deemed to
be
delivered on the fifth (5th) business day after the date of mailing, except
that
notice of change in the person or address shall be effective on actual
receipt.
8.
Rank
of Series
.
For
purposes of this Certificate of Designation, any stock of any series or class
of
the Corporation shall be deemed to rank:
(a)
prior
to
the shares of Series B Preferred Stock, as to dividends or upon liquidation,
dissolution or winding up, as the case may be, if the holders of such class
or
classes shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation,
as
the case may be, in preference or priority to the holders of shares of Series
B
Preferred Stock;
(b)
on
a
parity with shares of Series B Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
B
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the holders of
shares of Series B Preferred Stock; and
(c)
junior
to
shares of Series B Preferred Stock as to dividends or upon liquidation,
dissolution or winding up, as the case may be, if such class shall be Common
Stock or if the holders of shares of Series B Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or classes.
9.
No
Preemptive Rights
.
No
holder of the Series B Preferred Stock shall, as such holder, be entitled as
of
right to purchase or subscribe for any shares of stock of the Corporation of
any
class or any series now or hereafter authorized or any securities convertible
into or exchangeable for any shares, or any warrants, options, rights or other
instruments evidencing rights to subscribe for or purchase any such shares,
whether such shares, securities, warrants, options, rights or other instruments
be unissued or issued and thereafter acquired by the Corporation.
10.
Transfer
Agent and Registrar
.
The
Corporation may appoint a transfer agent and registrar for the issuance,
transfer and conversion of the Series B Preferred Stock and for the payment
of
dividends to the holders of the Series B Preferred Stock.
ASSET
PURCHASE AGREEMENT
This
Asset Purchase Agreement (“Agreement”) is dated May 24, 2006, by and among
Freundlich Supply Company, Inc., a New York corporation (“Seller” or the
“Company”); and Michael Freundlich, a resident of New York (“Freundlich” or the
“Shareholder”); and Delaware Fastener Acquisition Corporation, a Delaware
corporation (“Buyer”).
RECITALS
The
Company is engaged in the business of selling a broad range of nut products
used
primarily for aerospace and military applications.
Shareholder
owns one hundred (100) shares of the common stock of Seller, no par value per
share, which constitutes one hundred percent (100%) of the issued and
outstanding shares of capital stock of Seller. Seller desires to sell, and
Buyer
desires to purchase, the Assets of Seller for the consideration and subject
to
the terms set forth in this Agreement.
The
parties, intending to be legally bound, agree as follows:
SECTION
1
DEFINITIONS
AND USAGE
1.1
DEFINITIONS
For
purposes of this Agreement, the following terms and variations thereof have
the
meanings specified or referred to in this Section 1.1:
“Accounts
Receivable”-- (a) all trade accounts receivable and other rights to payment from
customers of Seller and the full benefit of all security for such accounts
or
rights to payment, including all trade accounts receivable representing amounts
receivable in respect of goods shipped or products sold or services rendered
to
customers of Seller, (b) all other accounts or notes receivable of Seller and
the full benefit of all security for such accounts or notes and (c) any claim,
remedy or other right related to any of the foregoing.
“Accounts
Receivable Assignment” - as defined in Section 2.11.
“Adjustment
Amount”-- as defined in Section 2.8.
“Agreed
Working Capital”-- as defined in Section 2.9(b).
“Allocation
of Purchase Price” -- the agreed values of the Assets and Assumed Liabilities to
be transferred from Seller to Buyer hereunder, which allocation shall be used
by
the parties for all Tax purposes and in all filings, declarations and reports
with the IRS in respect thereof, including the reports required to be filed
under Section 1060 of the Code.
“Assets”--
as defined in Section 2.1.
“Assignment
and Assumption Agreement”-- as defined in Section 2.7(a)(ii).
“Assumed
Liabilities”-- as defined in Section 2.4(a).
“Balance
Sheet”-- as defined in Section 3.4.
“Best
Efforts”-- the efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to achieve that result as expeditiously
as
possible, provided, however, that a Person required to use Best Efforts under
this Agreement will not be thereby required to take actions that would result
in
a material adverse change in the benefits to such Person of this Agreement
and
the Contemplated Transactions or to dispose of or make any change to its
business, expend any material funds or incur any other material burden.
“Bill
of
Sale”-- as defined in Section 2.7(a)(i).
“Breach”--
any breach of, or any material inaccuracy in, any representation or warranty
or
any breach of, or failure to perform or comply with, any covenant or obligation,
in or of this Agreement or any other Contract, or any event which with the
passing of time or the giving of notice, or both, would constitute such a
breach, inaccuracy or failure.
“Bulk
Sales Laws”-- as defined in Section 5.10.
“Business
of the Seller” - Seller
is
a
stocking distributor of internally-threaded fasteners, focusing on high-quality,
domestically-manufactured nut products. The Company’s nut products are used
primarily for aerospace and military applications and for industrial/commercial
applications that require a high level of certified/assured quality.
“Business
Day”-- any day other than (a) Saturday or Sunday or (b) any other day on which
banks in New York are permitted or required to be closed.
“Buyer”--
as defined in the first paragraph of this Agreement.
“Buyer
Indemnified Persons”-- as defined in Section 11.2.
“Closing”--
as defined in Section 2.6.
“Closing
Date”-- the date on which the Closing actually takes place.
“Closing
Financial Statements”-- as defined in Section 3.9.
“Closing
Working Capital”-- as defined in Section 2.9(c).
“COBRA”--
as defined in Section 3.14(f).
“Code”--
the Internal Revenue Code of 1986.
“Confidential
Information”-- as defined in Section 12.1.
“Consent”--
any approval, consent, ratification, waiver or other authorization.
“Consulting
Agreement”-- as defined in Section 2.7(a)(v).
“Contemplated
Transactions”-- all of the transactions contemplated by this Agreement.
“Contract”--
any agreement, contract, Lease, consensual obligation, promise or undertaking
(whether written or oral and whether express or implied), whether or not legally
binding.
“Copyrights”--
as defined in Section 3.23(a)(iii).
“Damages”--
as defined in Section 11.2.
“Employee
Plans”-- as defined in Section 3.14(a).
“Encumbrance”--
any charge, claim, community or other marital property interest, condition,
equitable interest, lien, option, pledge, security interest, mortgage, right
of
way, easement, encroachment, servitude, right of first option, right of first
refusal or similar restriction, including any restriction on use, voting (in
the
case of any security or equity interest), transfer, receipt of income or
exercise of any other attribute of ownership.
“Environment”--
soil, land surface or subsurface strata, surface waters (including navigable
waters and ocean waters), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life and any other
environmental medium or natural resource.
“Environmental,
Health and Safety Liabilities”-- any cost, damages, expense, liability,
obligation or other responsibility arising from or under any Environmental
Law
or Occupational Safety and Health Law, including those consisting of or relating
to:
a.
any
environmental, health or safety matter or condition (including on-site or
off-site contamination, occupational safety and health and regulation of any
chemical substance or product);
b.
any
fine,
penalty, judgment, award, settlement, legal or administrative proceeding,
damages, loss, claim, demand or response, remedial or inspection cost or expense
arising under any Environmental Law or Occupational Safety and Health Law;
c.
financial
responsibility under any Environmental Law or Occupational Safety and Health
Law
for cleanup costs or corrective action, including any cleanup, removal,
containment or other remediation or response actions (“Cleanup”) required by any
Environmental Law or Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or
d.
any
other
compliance, corrective or remedial measure required under any Environmental
Law
or Occupational Safety and Health Law.
The
terms
“removal,” “remedial” and “response action” include the types of activities
covered by the United States Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (CERCLA).
“Environmental
Law”-- any Legal Requirement that requires or relates to:
a.
advising
appropriate authorities, employees or the public of intended or actual Releases
of pollutants or hazardous substances or materials, violations of discharge
limits or other prohibitions and the commencement of activities, such as
resource extraction or construction, that could have significant impact on
the
Environment;
b.
preventing
or reducing to acceptable levels the Release of pollutants or hazardous
substances or materials into the Environment;
c.
reducing
the quantities, preventing the Release or minimizing the hazardous
characteristics of wastes that are generated;
d.
assuring
that products are designed, formulated, packaged and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of;
e.
protecting
resources, species or ecological amenities;
f.
reducing
to acceptable levels the risks inherent in the transportation of hazardous
substances, pollutants, oil or other potentially harmful substances;
g.
cleaning
up pollutants that have been Released, preventing the Threat of Release or
paying the costs of such clean up or prevention; or
h.
making
responsible parties pay private parties, or groups of them, for damages done
to
their health or the Environment or permitting self-appointed representatives
of
the public interest to recover for injuries done to public assets.
“ERISA”--
the Employee Retirement Income Security Act of 1974.
“Escrow
Agent”-- as defined in Section 2.3(b)
“Escrow
Deposit” -- as defined in Section 2.3(b).
“Exchange
Act”-- the Securities Exchange Act of 1934.
“Excluded
Assets”-- as defined in Section 2.2.
“Facilities”--
any real property, leasehold or other interest in real property currently owned
or operated by Seller, including the Tangible Personal Property used or operated
by Seller. Notwithstanding the foregoing, for purposes of the definitions of
“Hazardous Activity” and “Remedial Action” and Sections 3.20 and 11.3,
“Facilities” shall mean any real property, leasehold or other interest in real
property currently or formerly owned or operated by Seller, including the
Tangible Personal Property used or operated by Seller at the Facilities
specified in Section 3.8.
“GAAP”--
generally accepted accounting principles for financial reporting in the United
States, applied on a basis consistent with the basis on which the Balance Sheet
and the other financial statements referred to in Section 3.4 were prepared.
“Governing
Documents”-- with respect to any particular entity, (a) if a corporation, the
articles or certificate of incorporation and the bylaws; (b) if a general
partnership, the partnership agreement and any statement of partnership; (c)
if
a limited partnership, the limited partnership agreement and the certificate
of
limited partnership; (d) if a limited liability company, the articles of
organization and operating agreement; (e) if another type of Person, any other
charter or similar document adopted or filed in connection with the creation,
formation or organization of the Person; (f) all equityholders’ agreements,
voting agreements, voting trust agreements, joint venture agreements,
registration rights agreements or other agreements or documents relating to
the
organization, management or operation of any Person or relating to the rights,
duties and obligations of the equityholders of any Person; and (g) any amendment
or supplement to any of the foregoing.
“Governmental
Authorization”-- any Consent, license, registration or permit issued, granted,
given or otherwise made available by or under the authority of any Governmental
Body or pursuant to any Legal Requirement.
“Governmental
Body”-- any:
a.
nation,
state, county, city, town, borough, village, district or other jurisdiction;
b.
federal,
state, local, municipal, foreign or other government;
c.
governmental
or quasi-governmental authority of any nature (including any agency, branch,
department, board, commission, court, tribunal or other entity exercising
governmental or quasi-governmental powers);
d.
multinational
organization or body;
e.
body
exercising, or entitled or purporting to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power; or
f.
official
of any of the foregoing.
“Hazardous
Activity”-- the distribution, generation, handling, importing, management,
manufacturing, processing, production, refinement, Release, storage, transfer,
transportation, treatment or use (including any withdrawal or other use of
groundwater) of Hazardous Material in, on, under, about or from any of the
Facilities or any part thereof into the Environment and any other act, business,
operation or thing that increases the danger, or risk of danger, or poses an
unreasonable risk of harm, to persons or property on or off the Facilities.
“Hazardous
Material”-- any substance, material or waste which is or will foreseeably be
regulated by any Governmental Body, including any material, substance or waste
which is defined as a “hazardous waste,” “hazardous material,” “hazardous
substance,” “extremely hazardous waste,” “restricted hazardous waste,”
“contaminant,” “toxic waste” or “toxic substance” under any provision of
Environmental Law, and including petroleum, petroleum products, asbestos,
presumed asbestos-containing material or asbestos-containing material, urea
formaldehyde and polychlorinated biphenyls.
“Improvements”--
all buildings, structures, fixtures and improvements located on the Land or
included in the Assets, including those under construction.
“Income
Tax Refunds”—as defined in Section 2.1(j)
“Indemnified
Person”-- as defined in Section 11.9.
“Indemnifying
Person”-- as defined in Section 11.9.
“Intellectual
Property Assets”-- as defined in Section 3.23(a).
“Interim
Balance Sheet”-- as defined in Section 3.4.
“Inventories”--
all inventories of Seller, wherever located, including all finished goods,
work
in process, raw materials, spare parts and all other materials and supplies
to
be used or consumed by Seller in the production of finished goods.
“IRS”--
the United States Internal Revenue Service and, to the extent relevant, the
United States Department of the Treasury.
“Knowledge”--
an individual will be deemed to have Knowledge of a particular fact or other
matter if:
a.
that
individual is actually aware of that fact or matter; or
b.
a
prudent
individual could be expected to discover or otherwise become aware of that
fact
or matter in the course of conducting a reasonably comprehensive investigation
regarding the accuracy of any representation or warranty contained in this
Agreement.
A
Person
(other than an individual) will be deemed to have Knowledge of a particular
fact
or other matter if any individual who is serving, or who has at any time served,
as a director, officer, partner, executor or trustee of that Person (or in
any
similar capacity) has, or at any time had, Knowledge of that fact or other
matter (as set forth in (a) and (b) above), and any such individual (and any
individual party to this Agreement) will be deemed to have conducted a
reasonably comprehensive investigation regarding the accuracy of the
representations and warranties made herein by that Person or individual.
“Lease”
-
as defined in Section 2.7(a)(iv).
“Legal
Requirement”-- any federal, state, local, municipal, foreign, international,
multinational or other constitution, law, ordinance, principle of common law,
code, regulation, statute or treaty.
“Liability”--
with respect to any Person, any liability or obligation of such Person of any
kind, character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, disputed or undisputed, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, and
whether or not the same is required to be accrued on the financial statements
of
such Person.
“Marks”--
as defined in Section 3.23(a)(i).
“Material
Consents”-- as defined in Section 7.3.
“Occupational
Safety and Health Law”-- any Legal Requirement designed to provide safe and
healthful working conditions and to reduce occupational safety and health
hazards, including the Occupational Safety and Health Act, and any program,
whether governmental or private (such as those promulgated or sponsored by
industry associations and insurance companies), designed to provide safe and
healthful working conditions.
“Order”--
any order, injunction, judgment, decree, ruling, assessment or arbitration
award
of any Governmental Body or arbitrator.
“Ordinary
Course of Business”-- an action taken by a Person will be deemed to have been
taken in the Ordinary Course of Business only if that action:
(a)
is
consistent in nature, scope and magnitude with the past practices of such Person
and is taken in the ordinary course of the normal, day-to-day operations of
such
Person;
(b)
does
not
require authorization by the board of directors or Shareholder of such Person
(or by any Person or group of Persons exercising similar authority) and does
not
require any other separate or special authorization of any nature; and
(c)
is
similar in nature, scope and magnitude to actions customarily taken, without
any
separate or special authorization, in the ordinary course of the normal,
day-to-day operations of other Persons that are in the same line of business
as
such Person.
“Patents”--
as defined in Section 3.23(a)(ii).
“Permitted
Encumbrances”-- as defined in Section 3.7.
“Person”--
an individual, partnership, corporation, business trust, limited liability
company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental
Body.
“Proceeding”--
any action, arbitration, audit, hearing, investigation, litigation or suit
(whether civil, criminal, administrative, judicial or investigative, whether
formal or informal, whether public or private) commenced, brought, conducted
or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
“Purchase
Price”-- as defined in Section 2.3.
“Record”--
information that is inscribed on a tangible medium or that is stored in an
electronic or other medium and is retrievable in perceivable form.
“Related
Person”--
With
respect to a particular individual:
a.
each
other member of such individual’s Family;
b.
any
Person that is directly or indirectly controlled by any one or more members
of
such individual’s Family;
c.
any
Person in which members of such individual’s Family hold (individually or in the
aggregate) a Material Interest; and
d.
any
Person with respect to which one or more members of such individual’s Family
serves as a director, officer, partner, executor or trustee (or in a similar
capacity).
With
respect to a specified Person other than an individual:
a.
any
Person that directly or indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under common control with such
specified Person;
b.
any
Person that holds a Material Interest in such specified Person;
c.
each
Person that serves as a director, officer, partner, executor or trustee of
such
specified Person (or in a similar capacity);
d.
any
Person in which such specified Person holds a Material Interest; and
e.
any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity).
For
purposes of this definition, (a) “control” (including “controlling,” “controlled
by,” and “under common control with”) means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies
of
a Person, whether through the ownership of voting securities, by contract or
otherwise, and shall be construed as such term is used in the rules promulgated
under the Securities Act; (b) the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, (iii) any other natural person who is
related to the individual or the individual’s spouse within the second degree
and (iv) any other natural person who resides with such individual; and (c)
“Material Interest” means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of voting securities or other voting
interests representing at least ten percent (10%) of the outstanding voting
power of a Person or equity securities or other equity interests representing
at
least ten percent (10%) of the outstanding equity securities or equity interests
in a Person.
“Release”--
any release, spill, emission, leaking, pumping, pouring, dumping, emptying,
injection, deposit, disposal, discharge, dispersal, leaching or migration on
or
into the Environment or into or out of any property.
“Remedial
Action”-- all actions, including any capital expenditures, required or
voluntarily undertaken (a) to clean up, remove, treat or in any other way
address any Hazardous Material or other substance; (b) to prevent the Release
or
Threat of Release or to minimize the further Release of any Hazardous Material
or other substance so it does not migrate or endanger or threaten to endanger
public health or welfare or the Environment; (c) to perform pre-remedial studies
and investigations or post-remedial monitoring and care; or (d) to bring all
Facilities and the operations conducted thereon into compliance with
Environmental Laws and environmental Governmental Authorizations.
“Representative”--
with respect to a particular Person, any director, officer, manager, employee,
agent, consultant, advisor, accountant, financial advisor, legal counsel or
other representative of that Person.
“Retained
Liabilities”-- as defined in Section 2.4(b).
“SEC”--
the United States Securities and Exchange Commission.
“Secured
Subordinated Promissory Note”-- as defined in Section 2.7(b)(ii).
“Securities
Act”-- as defined in Section 3.3.
“Security
Agreement” - as defined in Section 2.7(b)(ii).
“Seller”--
as defined in the first paragraph of this Agreement.
“Seller
Contract”-- any Contract (a) under which Seller has or may acquire any rights or
benefits; (b) under which Seller has or may become subject to any obligation
or
liability; or (c) by which Seller or any of the assets owned or used by Seller
is or may become bound.
“Shareholder”--
as defined in the first paragraph of this Agreement.
“Software”--
all computer software and subsequent versions thereof, including source code,
object, executable or binary code, objects, comments, screens, user interfaces,
report formats, templates, menus, buttons and icons and all files, data,
materials, manuals, design notes and other items and documentation related
thereto or associated therewith.
“Subsidiary”--
with respect to any Person (the “Owner”), any corporation or other Person of
which securities or other interests having the power to elect a majority of
that
corporation’s or other Person’s board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred),
are
held by the Owner or one or more of its Subsidiaries.
“Tangible
Personal Property”-- all machinery, equipment, tools, furniture, office
equipment, computer hardware, supplies, materials, vehicles and other items
of
tangible personal property (other than Inventories) of every kind owned or
leased by Seller (wherever located and whether or not carried on Seller’s
books), together with any express or implied warranty by the manufacturers
or
sellers or lessors of any item or component Part thereof and all maintenance
records and other documents relating thereto.
“Tax”--
any income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, property, part environmental, windfall profit,
customs, vehicle, airplane, boat, vessel or other title or registration, capital
stock, franchise, employees’ income withholding, foreign or domestic
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever
and any interest, penalty, addition or additional amount thereon imposed,
assessed or collected by or under the authority of any Governmental Body or
payable under any tax-sharing agreement or any other Contract.
“Tax
Return”-- any return (including any information return), report, statement,
schedule, notice, form, declaration, claim for refund or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
“Third
Party”-- a Person that is not a party to this Agreement.
“Third-Party
Claim”-- any claim against any Indemnified Person by a Third Party, whether or
not involving a Proceeding.
“Threat
of Release”-- a reasonable likelihood of a Release that may require action in
order to prevent or mitigate damage to the Environment that may result from
such
Release.
“WARN
Act”-- as defined in Section 3.21(d).
1.2
USAGE
a.
Interpretation.
In this Agreement, unless a clear contrary intention appears:
(i)
the
singular number includes the plural number and vice versa;
(ii)
reference
to any Person includes such Person’s successors and assigns but, if applicable,
only if such successors and assigns are not prohibited by this Agreement, and
reference to a Person in a particular capacity excludes such Person in any
other
capacity or individually;
(iii)
reference
to any gender includes each other gender;
(iv)
reference
to any agreement, document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof;
(v)
reference
to any Legal Requirement means such Legal Requirement as amended, modified,
codified, replaced or reenacted, in whole or in part, and in effect from time
to
time, including rules and regulations promulgated thereunder, and reference
to
any section or other provision of any Legal Requirement means that provision
of
such Legal Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or reenactment
of
such section or other provision;
(vi)
“hereunder,”
“hereof,” “hereto,” and words of similar import shall be deemed references to
this Agreement as a whole and not to any particular Article, Section or other
provision hereof;
(vii)
“including”
(and with correlative meaning “include”) means including without limiting the
generality of any description preceding such term;
(viii)
“or”
is
used in the inclusive sense of “and/or”;
(ix)
with
respect to the determination of any period of time, “from” means “from and
including” and “to” means “to and including;” and
(x)
references
to documents, instruments or agreements shall be deemed to refer as well to
all
addenda, exhibits, schedules or amendments thereto.
b.
Accounting
Terms and Determinations. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP.
c.
Legal
Representation of the Parties. This Agreement was negotiated by the parties
with
the benefit of legal representation, and any rule of construction or
interpretation otherwise requiring this Agreement to be construed or interpreted
against any party shall not apply to any construction or interpretation hereof.
SECTION
2
SALE
AND TRANSFER OF ASSETS; CLOSING
2.1
ASSETS TO BE SOLD
Upon
the
terms and subject to the conditions set forth in this Agreement, at the Closing,
Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer
shall purchase and acquire from Seller, free and clear of any Encumbrances
other
than Permitted Encumbrances, all of Seller’s right, title and interest in and to
all of Seller’s personal property and assets, tangible and intangible, of every
kind and description, wherever located, including the following (but excluding
the Excluded Assets):
a.
all
Tangible Personal Property, including those items described in Exhibit 2.1(a);
b.
all
Inventories;
c.
all
Accounts Receivable;
d.
all
Seller Contracts, including those listed in Exhibit 3.18(a), and all outstanding
offers or solicitations made by or to Seller to enter into any Contract;
e.
all
Governmental Authorizations and all pending applications therefor or renewals
thereof, in each case to the extent transferable to Buyer, including those
listed in Exhibit 3.15(b);
f.
all
data
and Records related to the operations of Seller, including client and customer
lists and Records, referral sources, research and development reports and
Records, production reports and Records, service and warranty Records, equipment
logs, operating guides and manuals, financial and accounting Records, creative
materials, advertising materials, promotional materials, studies, reports,
correspondence and other similar documents and Records and, subject to Legal
Requirements, copies of all personnel Records and other Records described in
Section 2.2(g) and certification documentation for the Inventory;
g.
all
of
the intangible rights and property of Seller, including Intellectual Property
Assets, going concern value, goodwill, telephone, telecopy and e-mail addresses
and listings and those items listed in Exhibits 3.23(d), (e) and (f);
h.
all
insurance benefits, including rights and proceeds, arising from or relating
to
the Assets or the Assumed Liabilities prior to the Closing, unless expended
in
accordance with this Agreement;
i.
all
claims of Seller against third parties relating to the Assets, whether choate
or
inchoate, known or unknown, contingent or noncontingent, including all such
claims listed in Exhibit 2.1(j); and
j.
all
rights of Seller relating to deposits and prepaid expenses, claims for refunds
and rights to offset in respect thereof that are not listed in Exhibit 2.2(e).
As reflected in Exhibit 2.2(e), Seller and the Shareholder may be entitled
to
certain Income Tax Refunds relating to the operations of Seller. Such Income
Tax
Refunds are not included in the Assets.
All
of
the property and assets to be transferred to Buyer hereunder are herein referred
to collectively as the “Assets.”
Notwithstanding
the foregoing, the transfer of the Assets pursuant to this Agreement shall
not
include the assumption of any Liability related to the Assets unless Buyer
expressly assumes that Liability pursuant to Section 2.4(a).
2.2
EXCLUDED ASSETS
Notwithstanding
anything to the contrary contained in Section 2.1 or elsewhere in this
Agreement, the following assets of Seller (collectively, the “Excluded Assets”)
are not part of the sale and purchase contemplated hereunder, are excluded
from
the Assets and shall remain the property of Seller after the Closing:
a.
all
cash,
cash equivalents and short-term investments;
b.
all
minute books, stock Records and corporate seals;
c.
the
shares of capital stock of Seller held in treasury;
d.
all
rights of Seller under this Agreement, the Bill of Sale, the Assignment and
Assumption Agreement, the Secured Subordinated Promissory Note, the Security
Agreement and all other documents to be delivered in connection with the
Contemplated Transactions; and
e.
the
property and assets expressly designated in Exhibit 2.2(e), including but not
limited to the Income Tax Refunds and real property owned by Seller or its
affiliates.
2.3
CONSIDERATION
a.
The
consideration for the Assets (the “Purchase Price”) will be (a) Five million
dollars ($5,000,000.00) plus or minus the Adjustment Amount and (b) the
assumption of the Assumed Liabilities. In accordance with Section 2.7(b), at
the
Closing, the Purchase Price, prior to adjustment on account of the Adjustment
Amount, shall be delivered by Buyer to Seller as follows: (a) Four million
two
hundred fifty thousand dollars ($4,250,000.00) by certified check or other
immediately available funds, net of the Escrow Deposit; and (b) Seven hundred
fifty thousand dollars ($750,000.00) payable in the form of the Secured
Subordinated Promissory Note. The security for the Secured Subordinated
Promissory Note is defined in Section 2.7(b)(ii). The Adjustment Amount shall
be
paid in accordance with Section 2.8.
b.
The
Escrow Deposit, in the initial amount of $25,000.00, shall be paid by Buyer
to
Howard J. Kerker, Esquire, attorney for Seller, (the “Escrow Agent”)
contemporaneous with execution of this Agreement. The Escrow Deposit shall
be
held in an interest bearing account. The full amount of the Escrow Deposit,
together will all interest earned thereon, will be credited against the cash
consideration to be paid by Buyer at Closing, subject to the provisions of
Sections 9.2(b) and 9.2(c).
2.4
LIABILITIES
a.
Assumed
Liabilities. On the Closing Date, but effective as of the Closing, Buyer shall
assume and agree to discharge only the following Liabilities of Seller (the
“Assumed Liabilities”):
(i)
any
trade
account payable reflected on the Interim Balance Sheet (other than a trade
account payable to any Shareholder or a Related Person of Seller or any
Shareholder) that remains unpaid at and is not delinquent as of the Closing;
(ii)
any
trade
account payable (other than a trade account payable to any Shareholder or a
Related Person of Seller or any Shareholder) incurred by Seller in the Ordinary
Course of Business between the date of the Interim Balance Sheet and the Closing
that remains unpaid at and is not delinquent as of the Closing;
(iii)
any
Liability to Seller’s customers incurred by Seller in the Ordinary Course of
Business for nondelinquent orders outstanding as of the Closing reflected on
Seller’s books (other than any Liability arising out of or relating to a Breach
that occurred prior to the Closing); and
(iv)
any
liability to Seller’s suppliers for unfilled purchase orders, provided that such
unfilled purchase orders shall be for a quantity of parts that will be sold
in
the Ordinary Course of Business for a cost consistent with prevailing market
cost.
b.
Retained
Liabilities. The Retained Liabilities shall remain the sole responsibility
of
and shall be retained, paid, performed and discharged solely by Seller.
“Retained Liabilities” shall mean every Liability of Seller other than the
Assumed Liabilities, including:
(i)
any
Liability arising out of or relating to products of Seller sold prior to the
Closing other than to the extent assumed under Section 2.4(a)(iii);
(ii)
any
Liability under any Contract assumed by Buyer pursuant to Section 2.4(a) that
arises after the Closing but that arises out of or relates to any Breach that
occurred prior to the Closing;
(iii)
any
Liability for Taxes, including (A) any Taxes arising as a result of Seller’s
operation of its business or ownership of the Assets prior to the Closing,
(B)
any Taxes that will arise as a result of the sale of the Assets pursuant to
this
Agreement and (C) any deferred Taxes of any nature;
(iv)
any
Liability under any Contract not assumed by Buyer under Section 2.4(a),
including any Liability arising out of or relating to Seller’s credit facilities
or any security interest related thereto;
(v)
any
Environmental, Health and Safety Liabilities arising out of or relating to
the
operation of Seller’s business or Seller’s leasing, ownership or operation of
real property;
(vi)
any
Liability under the Employee Plans or relating to payroll, vacation, sick leave,
workers’ compensation, unemployment benefits, pension benefits, employee stock
option or profit-sharing plans, health care plans or benefits or any other
employee plans or benefits of any kind for Seller’s employees or former
employees or both;
(vii)
any
Liability under any employment, severance, retention or termination agreement
with any employee of Seller or any of its Related Persons;
(viii)
any
Liability arising out of or relating to any employee grievance whether or not
the affected employees are hired by Buyer;
(ix)
any
Liability of Seller to any Shareholder or Related Person of Seller or any
Shareholder;
(x)
any
Liability to indemnify, reimburse or advance amounts to any officer, director,
employee or agent of Seller;
(xi)
any
Liability to distribute to Shareholder or otherwise apply all or any part of
the
consideration received hereunder;
(xii)
any
Liability arising out of any Proceeding pending as of the Closing;
(xiii)
any
Liability arising out of any Proceeding commenced after the Closing and arising
out of or relating to any occurrence or event happening prior to the Closing;
(xiv)
any
Liability arising out of or resulting from Seller’s compliance or noncompliance
with any Legal Requirement or Order of any Governmental Body;
(xv)
any
Liability of Seller under this Agreement or any other document executed in
connection with the Contemplated Transactions; and
(xvi)
any
Liability of Seller based upon Seller’s acts or omissions occurring after the
Closing.
2.5
ALLOCATION
The
Purchase Price shall be allocated as shall be agreed at Closing. After the
Closing, the parties shall make consistent use of the allocation, fair market
value and useful lives as agreed for all Tax purposes and in all filings,
declarations and reports with the IRS in respect thereof, including the reports
required to be filed under Section 1060 of the Code. Buyer shall prepare and
deliver IRS Form 8594 to Seller within forty-five (45) days after the Closing
Date to be filed with the IRS. In any Proceeding related to the determination
of
any Tax, neither Buyer nor Seller or Shareholder shall contend or represent
that
such allocation is not a correct allocation.
2.6
CLOSING
The
purchase and sale provided for in this Agreement (the “Closing”) will take place
at the offices of Sichenzia Ross Friedman Ference LLP, 1065 Avenue of the
Americas, 21
st
Floor,
New York, NY 10018, on or before June 30, 2006, unless Buyer and Seller
otherwise agree. Subject to the provisions of Article 9, failure to consummate
the purchase and sale provided for in this Agreement on the date and time and
at
the place determined pursuant to this Section 2.6 will not result in the
termination of this Agreement and will not relieve any party of any obligation
under this Agreement. In such a situation, the Closing will occur as soon as
practicable, subject to Article 9.
2.7
CLOSING OBLIGATIONS
In
addition to any other documents to be delivered under other provisions of this
Agreement, at the Closing:
a.
Seller
and Shareholder, as the case may be, shall deliver to Buyer, together with
funds
sufficient to pay (i) one-half of all sales taxes, and (ii) all other Taxes
necessary for the transfer, filing or recording thereof:
(i)
a
bill of
sale for all of the Assets that are Tangible Personal Property in the form
of
Exhibit 2.7(a)(i) (the “Bill of Sale”) executed by Seller;
(ii)
assignments
of all Intellectual Property Assets and separate assignments of all registered
Marks, Patents and Copyrights in the form of Exhibit 2.7(a)(ii) executed by
Seller;
(iii)
such
other deeds, bills of sale, assignments, certificates of title, documents and
other instruments of transfer and conveyance as may reasonably be requested
by
Buyer, each in form and substance satisfactory to Buyer and its legal counsel
and executed by Seller;
(iv)
the
lease
for the Premises in the form of Exhibit 2.7(a)(iv) (the “Lease”);
(v)
a
certificate executed by Seller and the Shareholder as to the accuracy of their
representations and warranties as of the date of this Agreement and as of the
Closing in accordance with Section 7.1 and as to their compliance with and
performance of their covenants and obligations to be performed or complied
with
at or before the Closing in accordance with Section 7.2 (Exhibit 2.7(a)(v));
(vi)
an
opinion of counsel for the Seller and the Shareholder in form and substance
satisfactory to Buyer and its legal counsel (Exhibit 2.7(a)(vi)) ;
(vii)
a
certificate of the Secretary of Seller certifying, as complete and accurate
as
of the Closing (Exhibit 2.7(a)(vii)), attached copies of the Governing Documents
of Seller, certifying and attaching all requisite resolutions or actions of
Seller’s board of directors and Shareholder approving the execution and delivery
of this Agreement and the consummation of the Contemplated Transactions and
the
change of name contemplated by Section 5.9 and certifying to the incumbency
and
signatures of the officers of Seller executing this Agreement and any other
document relating to the Contemplated Transactions and accompanied by the
requisite documents for amending the relevant Governing Documents of Seller
required to effect such change of name in form sufficient for filing with the
appropriate Governmental Body;
(viii)
the
Consulting Agreement in the form of Exhibit 2.7(b)(v);
(ix)
an
assignment of all of the Assets that are intangible personal property in the
form of Exhibit 2.7(a)(ix), which assignment shall also contain Buyer’s
undertaking and assumption of the Assumed Liabilities (the “Assignment and
Assumption Agreement”) executed by Seller; and
(x)
the
Allocation of Purchase Price, in the form of Exhibit 2.7(a)(x).
b.
Buyer
shall deliver to Seller and Shareholder, as the case may be, together with
funds
sufficient to pay one-half of all sales taxes necessary for the transfer, filing
or recording thereof:
(i)
Four
million two hundred fifty thousand dollars ($4,250,000.00) by certified check
or
other immediately available funds, net of the Escrow Deposit;
(ii)
a
promissory note executed by Buyer and payable to Seller in the principal amount
of Seven hundred fifty thousand dollars ($750,000.00) in the form of Exhibit
2.7(b)(ii) (the “Secured Subordinated Promissory Note”). The Secured
Subordinated Promissory Note shall be secured with a subordinated lien on the
Assets, which subordinated lien will be evidenced by the Security Agreement.
The
Seller will agree to execute a commercially reasonable subordination agreement
proffered by lenders to Buyer either contemporaneous with or subsequent to
the
Closing, and will execute whatever documents may be reasonably necessary to
make
Seller’s security interest in the Assets subordinate to Buyer’s
lenders;
(iii)
the
Security Agreement (Exhibit 2.7(b)(iii)) and Financing Statement necessary
to
perfect Seller’s security interest in the Assets, subject to the limitations in
Section 2.7(b)(ii);
(iv)
the
Assignment and Assumption Agreement, as such term is defined in Section
2.7(a)(ix) above;
(v)
the
Consulting Agreement in the form of Exhibit 2.7(b)(v);
(vi)
a
certificate executed by Buyer as to the accuracy of its representations and
warranties as of the date of this Agreement and as of the Closing in accordance
with Section 8.1 and as to its compliance with and performance of its covenants
and obligations to be performed or complied with at or before the Closing in
accordance with Section 8.2 (Exhibit 2.7(b)(vi));
(vii)
an
opinion of counsel for the Buyer in form and substance satisfactory to Seller
and Stockholder (Exhibit 2.7(b)(vii));
(viii)
a
certificate of the Secretary of Buyer certifying, as complete and accurate
as of
the Closing (Exhibit 2.7(b)(viii)), attached copies of the Governing Documents
of Buyer and certifying and attaching all requisite resolutions or actions
of
Buyer’s board of directors approving the execution and delivery of this
Agreement and the consummation of the Contemplated Transactions and certifying
to the incumbency and signatures of the officers of Buyer executing this
Agreement and any other document relating to the Contemplated
Transactions;
(ix)
the
executed Lease; and
(x)
the
Allocation of Purchase Price, in the form of Exhibit 2.7(a)(x).
2.8
ADJUSTMENT AMOUNT AND PAYMENT
The
“Adjustment Amount” (which may be a positive or negative number) will be equal
to the amount determined by subtracting the Closing Working Capital from the
Agreed Working Capital. If the Adjustment Amount is positive, the Adjustment
Amount shall be subtracted from the cash consideration to be paid at Closing.
If
the Adjustment Amount is negative, the Adjustment Amount shall be added to
the
cash consideration to be paid at Closing.
2.9
ADJUSTMENT PROCEDURE
a.
“Working
Capital” as of a given date shall mean the amount calculated by subtracting the
Assumed Liabilities as of that date from the sum of (i) all Accounts Receivable,
regardless of the aging thereof, and (ii) Inventory included in the Assets
as of
that date.
b.
The
Agreed Working Capital Amount is $2,280,000.00.
c.
The
day
before Closing, Seller shall deliver to Buyer (i) a list of its Accounts
Receivable as of that date showing the aging thereof, (ii) a statement of its
Inventory value as of that date, and (iii) a list of the Assumed Liabilities
as
of that date. Buyer shall then determine the Working Capital as of the Closing
by subtracting the Assumed Liabilities as of that date from the sum of the
Accounts Receivable as of that date and the Inventory as of that date (the
“Closing Working Capital”).
d.
The
Adjustment Amount shall be determined by subtracting the Closing Working Capital
from the Agreed Working Capital.
2.10
CONSENTS
a.
If
there
are any Material Consents that have not yet been obtained (or otherwise are
not
in full force and effect) as of the Closing, in the case of each Seller Contract
as to which such Material Consents were not obtained (or otherwise are not
in
full force and effect) (the “Restricted Material Contracts”), Buyer may waive
the closing conditions as to any such Material Consent and either:
(i)
elect
to
have Seller continue its efforts to obtain the Material Consents; or
(ii)
elect
to
have Seller retain that Restricted Material Contract and all Liabilities arising
therefrom or relating thereto, on a cost neutral basis to Seller.
If
Buyer
elects to have Seller continue its efforts to obtain any Material Consents
and
the Closing occurs, notwithstanding Sections 2.1 and 2.4, neither this Agreement
nor the Assignment and Assumption Agreement nor any other document related
to
the consummation of the Contemplated Transactions shall constitute a sale,
assignment, assumption, transfer, conveyance or delivery or an attempted sale,
assignment, assumption, transfer, conveyance or delivery of the Restricted
Material Contracts, and following the Closing, the parties shall use Best
Efforts, and cooperate with each other, to obtain the Material Consent relating
to each Restricted Material Contract as quickly as practicable. Pending the
obtaining of such Material Consents relating to any Restricted Material
Contract, the parties shall cooperate with each other in any reasonable and
lawful arrangements designed to provide to Buyer the benefits of use of the
Restricted Material Contract for its term (or any right or benefit arising
thereunder, including the enforcement for the benefit of Buyer of any and all
rights of Seller against a third party thereunder). Once a Material Consent
for
the sale, assignment, assumption, transfer, conveyance and delivery of a
Restricted Material Contract is obtained, Seller shall promptly assign,
transfer, convey and deliver such Restricted Material Contract to Buyer, and
Buyer shall assume the obligations under such Restricted Material Contract
assigned to Buyer from and after the date of assignment to Buyer pursuant to
a
special-purpose assignment and assumption agreement substantially similar in
terms to those of the Assignment and Assumption Agreement (which special-purpose
agreement the parties shall prepare, execute and deliver in good faith at the
time of such transfer, all at no additional cost to Buyer).
b.
If
there
are any Consents not listed on Exhibit 7.3 necessary for the assignment and
transfer of any Seller Contracts to Buyer (the “Nonmaterial Consents”) which
have not yet been obtained (or otherwise are not in full force and effect)
as of
the Closing, Buyer shall elect at the Closing, in the case of each of the Seller
Contracts as to which such Nonmaterial Consents were not obtained (or otherwise
are not in full force and effect) (the “Restricted Nonmaterial Contracts”),
whether to:
(i)
accept
the assignment of such Restricted Nonmaterial Contract, in which case, as
between Buyer and Seller, such Restricted Nonmaterial Contract shall, to the
maximum extent practicable and notwithstanding the failure to obtain the
applicable Nonmaterial Consent, be transferred at the Closing pursuant to the
Assignment and Assumption Agreement as elsewhere provided under this Agreement;
or
(ii)
reject
the assignment of such Restricted Nonmaterial Contract, in which case,
notwithstanding Sections 2.1 and 2.4, (A) neither this Agreement nor the
Assignment and Assumption Agreement nor any other document related to the
consummation of the Contemplated Transactions shall constitute a sale,
assignment, assumption, conveyance or delivery or an attempted sale, assignment,
assumption, transfer, conveyance or delivery of such Restricted Nonmaterial
Contract, and (B) Seller shall retain such Restricted Nonmaterial Contract
and
all Liabilities arising therefrom or relating thereto.
2.11
|
ASSIGNMENT
OF ACCOUNTS RECEIVABLE FROM BUYER TO
SELLER
|
In
the
event that Buyer shall not receive payment of any of the Accounts Receivable
within 90 days of Closing, Buyer may assign such uncollected Accounts Receivable
to Seller at any time within 180 days after Closing (an “Accounts Receivable
Assignment”), provided, however, that if Buyer shall assign any of such Accounts
Receivable to Seller after 120 days after Closing but before 180 days after
Closing, Buyer shall provide Seller with whatever assistance Seller may
reasonably request in the collection of such Accounts Receivable. Upon the
occurrence of an Accounts Receivable Assignment, Buyer shall reduce the amount
of its next payments due under the Secured Subordinated Promissory Note by
the
total amount of the Accounts Receivable assigned. This reduction shall not
be
subject to the escrow provisions of Section 11.8 regarding items proposed to
be
set off by Buyer against its liability to Seller, but shall be deemed to be
agreed to by Seller.
SECTION
3
REPRESENTATIONS
AND WARRANTIES OF SELLER AND SHAREHOLDER
Seller
and the Shareholder represent and warrant, jointly and severally, to Buyer
as
follows:
3.1
ORGANIZATION AND GOOD STANDING
a.
Exhibit
3.1(a) contains a complete and accurate list of Seller’s jurisdiction of
incorporation and any other jurisdictions in which it is qualified to do
business as a foreign corporation. Seller is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that
it
purports to own or use, and to perform all its obligations under the Seller
Contracts. Seller is duly qualified to do business as a foreign corporation
and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification.
b.
Complete
and accurate copies of the Governing Documents of Seller, as currently in
effect, are attached to Exhibit 3.1(b).
c.
Seller
has no Subsidiary and, except as disclosed in Exhibit 3.1(c), does not own
any
shares of capital stock or other securities of any other Person.
3.2
ENFORCEABILITY; AUTHORITY; NO CONFLICT
a.
This
Agreement constitutes the legal, valid and binding obligation of Seller and
each
Shareholder, enforceable against each of them in accordance with its terms.
Upon
the execution and delivery by Seller and Shareholder of the Consulting
Agreement, the Noncompetition Agreement and each other agreement to be executed
or delivered by any or all of Seller and Shareholder at the Closing
(collectively, the “Seller’s Closing Documents”), each of Seller’s Closing
Documents will constitute the legal, valid and binding obligation of each of
Seller and the Shareholder, enforceable against each of them in accordance
with
its terms. Seller has the absolute and unrestricted right, power and authority
to execute and deliver this Agreement and the Seller’s Closing Documents to
which it is a party and to perform its obligations under this Agreement and
the
Seller’s Closing Documents, and such action has been duly authorized by all
necessary action by the Shareholder and board of directors. Each Shareholder
has
all necessary legal capacity to enter into this Agreement and the Seller’s
Closing Documents to which such Shareholder is a party and to perform his
obligations hereunder and thereunder.
b.
Except
as
set forth in Exhibit 3.2(b), neither the execution and delivery of this
Agreement, nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse
of
time):
(i)
Breach
(A) any provision of any of the Governing Documents of Seller or (B) any
resolution adopted by the board of directors or the Shareholder;
(ii)
Breach
or
give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under
any Legal Requirement or any Order to which Seller or the Shareholder, or any
of
the Assets, may be subject;
(iii)
contravene,
conflict with or result in a violation or breach of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Governmental Authorization that is
held by Seller or that otherwise relates to the Assets or to the business of
Seller;
(iv)
cause
Buyer to become subject to, or to become liable for the payment of, any Tax,
other than one-half of all sales taxes necessary for the transfer, filing or
recording of and of the Assets;
(v)
Breach
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or payment
under, or to cancel, terminate or modify, any Seller Contract;
(vi)
result
in
the imposition or creation of any Encumbrance upon or with respect to any of
the
Assets; or
(vii)
result
in
any shareholder of the Seller having the right to exercise dissenters’ appraisal
rights.
c.
Except
as
set forth in Exhibit 3.2(c), neither Seller nor the Shareholder is required
to
give any notice to or obtain any Consent from any Person in connection with
the
execution and delivery of this Agreement or the consummation or performance
of
any of the Contemplated Transactions.
3.3
CAPITALIZATION
The
authorized equity securities of Seller consist of two hundred (200) shares
of
common stock, no par value per share, of which one hundred (100) shares are
issued and outstanding, and all of which are owned by the Shareholder.
Shareholder is and will be on the Closing Date the record and beneficial owner
and holder of the shares owned by him, free and clear of all Encumbrances.
There
are no Contracts relating to the issuance, sale or transfer of any equity
securities or other securities of Seller. None of the outstanding equity
securities of Seller was issued in violation of the Securities Act of 1933,
as
amended (the “Securities Act”), or any other Legal Requirement.
3.4
FINANCIAL STATEMENTS
Seller
has delivered to Buyer: (a) an unaudited balance sheet of Seller as at December
31, 2005 (the “Balance Sheet”), and the related unaudited statement of income
for the year then ended; (b) unaudited balance sheets of Seller as at December
31 in each of the fiscal years 2001 through 2004, and the related unaudited
statement of income for each of the fiscal years then ended; and (c) an
unaudited balance sheet of Seller as at March 31, 2006, (the “Interim Balance
Sheet”) and the related unaudited statement of income for the two (2) months
then ended. Such financial statements fairly present (and the financial
statements delivered pursuant to Section 5.8 will fairly present) the financial
condition and the results of operations of Seller as at the respective dates
of
and for the periods referred to in such financial statements. The financial
statements referred to in this Section 3.4 and delivered pursuant to Section
5.8
reflect and will reflect the consistent application of accounting principles
throughout the periods involved, except as disclosed in the notes to such
financial statements. The financial statements have been and will be prepared
from and are in accordance with the accounting Records of Seller.
3.5
BOOKS
AND RECORDS
The
books
of account and other financial Records of Seller, all of which have been made
available to Buyer, are complete and correct and represent actual, bona fide
transactions and have been maintained in accordance with sound business
practices and maintenance of an adequate system of internal controls. The minute
books of Seller, all of which have been made available to Buyer, contain
accurate and complete Records of all meetings held of, and corporate action
taken by, the Shareholder, the board of directors and committees of the board
of
directors of Seller, and no meeting of the Shareholder, board of directors
or
committee has been held for which minutes have not been prepared or are not
contained in such minute books.
3.6
SUFFICIENCY OF ASSETS
Except
as
set forth in Exhibit 3.6, the Assets (a) constitute all of the assets, tangible
and intangible, of any nature whatsoever, necessary to operate Seller’s business
in the manner presently operated by Seller and (b) include all of the operating
assets of Seller.
3.7
TITLE
TO ASSETS; ENCUMBRANCES
Seller
owns good and transferable title to all of the Assets free and clear of any
Encumbrances other than those described in Exhibit 3.7 (“Encumbrances”). Seller
warrants to Buyer that, at the time of Closing, all Assets shall be free and
clear of all Encumbrances other than those identified on Exhibit 3.7 as
acceptable to Buyer (“Permitted Encumbrances”).
3.8
CONDITION OF FACILITIES
a.
Use
of
the Facilities for the various purposes for which it is presently being used
is
permitted as of right under all applicable zoning legal requirements and is
not
subject to “permitted nonconforming” use or structure classifications. All
Improvements are in compliance with all applicable Legal Requirements, including
those pertaining to zoning, building and the disabled, are in good repair and
in
good condition, ordinary wear and tear excepted, and are free from latent and
patent defects. No part of any Improvement encroaches on any real property
not
included in the Facilities, and there are no buildings, structures, fixtures
or
other Improvements primarily situated on adjoining property which encroach
on
any part of the Land. The Land for each owned Facility abuts on and has direct
vehicular access to a public road or has access to a public road via a
permanent, irrevocable, appurtenant easement benefiting such Land and comprising
a part of the Facilities, is supplied with public or quasi-public utilities
and
other services appropriate for the operation of the Facilities located thereon
and is not located within any flood plain or area subject to wetlands regulation
or any similar restriction. To Seller’s knowledge, after reasonable
investigation, there is no existing or proposed plan to modify or realign any
street or highway or any existing or proposed eminent domain proceeding that
would result in the taking of all or any part of any Facility or that would
prevent or hinder the continued use of any Facility as heretofore used in the
conduct of the business of Seller.
b.
Each
item
of Tangible Personal Property is in repair and operating condition, ordinary
wear and tear excepted, is suitable for immediate use in the Ordinary Course
of
Business and is free from latent and patent defects. No item of Tangible
Personal Property is in need of repair or replacement other than as part of
routine maintenance in the Ordinary Course of Business. Except as disclosed
in
Exhibit 3.8(b), all Tangible Personal Property used in Seller’s business is in
the possession of Seller.
3.9
ACCOUNTS RECEIVABLE
All
Accounts Receivable that are reflected on the Balance Sheet or the Interim
Balance Sheet or on the accounting Records of Seller as of the Closing Date
represent or will represent valid obligations arising from sales actually made
or services actually performed by Seller in the Ordinary Course of Business.
Except to the extent paid prior to the Closing Date, such Accounts Receivable
are or will be as of the Closing Date current and collectible net of the
respective reserves shown on the Balance Sheet or the Interim Balance Sheet
or
as included in the Closing Working Capital (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve in
the
Accounts Receivable included in the Closing Working Capital, will not represent
a greater percentage of the Accounts Receivable reflected in the Accounts
Receivable included in the Closing Working Capital than the reserve reflected
on
the Interim Balance Sheet represented of the Accounts Receivable reflected
thereon and will not represent a material adverse change in the composition
of
such Accounts Receivable in terms of aging). Subject to such reserves, each
of
such Accounts Receivable either has been or will be collected in full, without
any setoff, within ninety (90) days after the day on which it first becomes
due
and payable. There is no contest, claim, defense or right of setoff, other
than
returns in the Ordinary Course of Business of Seller, under any Contract with
any account debtor of an Account Receivable relating to the amount or validity
of such Account Receivable. Exhibit 3.9 contains a complete and accurate list
of
all Accounts Receivable as of the date of the Interim Balance Sheet, which
list
sets forth the aging of each such Account Receivable.
3.10
INVENTORIES
All
items
included in the Inventories consist of a quality saleable in the Ordinary Course
of Business of Seller except for items of below-standard quality, all of which
have been written off or written down to net realizable value in the Balance
Sheet or the Interim Balance Sheet or on the accounting Records of Seller as
of
the Closing Date, as the case may be. Seller is not in possession of any
inventory not owned by Seller, including goods already sold. Inventories now
on
hand that were purchased after the date of the Balance Sheet or the Interim
Balance Sheet were purchased in the Ordinary Course of Business of Seller at
a
cost not exceeding market prices prevailing at the time of purchase. All items
of Inventory meet the original quality specifications of the respective
manufacturers. The Seller has on file, and such information is included in
the
Assets, proper certification documentation for the Inventory.
3.11
NO
UNDISCLOSED LIABILITIES
Except
as
set forth in Exhibit 3.11, Seller has no Liability except for Liabilities
reflected or reserved against in the Balance Sheet or the Interim Balance Sheet
and current liabilities incurred in the Ordinary Course of Business of Seller
since the date of the Interim Balance Sheet.
3.12
TAXES
a.
Tax
Returns Filed and Taxes Paid. Seller has filed or caused to be filed on a timely
basis all Tax Returns and all reports with respect to Taxes that are or were
required to be filed pursuant to applicable Legal Requirements. All Tax Returns
and reports filed by Seller are true, correct and complete, subject to
amendments thereof in connection with the Income Tax Refunds. Seller has paid,
or made provision for the payment of, all Taxes that have or may have become
due
for all periods covered by the Tax Returns or otherwise, or pursuant to any
assessment received by Seller, except such Taxes, if any, as are listed in
Exhibit 3.12(a) and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the Balance
Sheet and the Interim Balance Sheet. Except as provided in Exhibit 3.12(a),
Seller currently is not the beneficiary of any extension of time within which
to
file any Tax Return. No claim has ever been made or is expected to be made
by
any Governmental Body in a jurisdiction where Seller does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
Encumbrances on any of the Assets that arose in connection with any failure
(or
alleged failure) to pay any Tax, and Seller has no Knowledge of any basis for
assertion of any claims attributable to Taxes which, if adversely determined,
would result in any such Encumbrance.
b.
Delivery
of Tax Returns and Information Regarding Audits and Potential Audits. Seller
has
delivered or made available to Buyer copies of, and Exhibit 3.12(b) contains
a
complete and accurate list of, all Tax Returns filed since 2002.
c.
Proper
Accrual. The charges, accruals and reserves with respect to Taxes on the Records
of Seller are adequate (determined in accordance with GAAP) and are at least
equal to Seller’s liability for Taxes. There exists no proposed tax assessment
or deficiency against Seller except as disclosed in the Balance Sheet or in
Exhibit 3.12(c).
d.
Specific
Potential Tax Liabilities and Tax Situations.
(i)
Withholding.
All Taxes that Seller is or was required by Legal Requirements to withhold,
deduct or collect have been duly withheld, deducted and collected and, to the
extent required, have been paid to the proper Governmental Body or other Person.
(ii)
Tax
Sharing or Similar Agreements. There is no tax sharing agreement, tax allocation
agreement, tax indemnity obligation or similar written or unwritten agreement,
arrangement, understanding or practice with respect to Taxes (including any
advance pricing agreement, closing agreement or other arrangement relating
to
Taxes) that will require any payment by Seller.
(iii)
Consolidated
Group. Seller (A) has not been a member of an affiliated group within the
meaning of Code Section 1504(a) (or any similar group defined under a similar
provision of state, local or foreign law) and (B) has no liability for Taxes
of
any person (other than Seller and its Subsidiaries) under Treas. Reg. sect.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor by contract or otherwise.
(iv)
S
Corporation. Seller is an S corporation as defined in Code Section 1361, and
Seller is not and has not been subject to either the built-in-gains tax under
Code Section 1374 or the passive income tax under Code Section 1375. Exhibit
3.12(d)(iv) lists all the states and localities with respect to which Seller
is
required to file any corporate, income or franchise tax returns and sets forth
whether Seller is treated as the equivalent of an S corporation by or with
respect to each such state or locality. Seller has properly filed Tax Returns
with and paid and discharged any liabilities for taxes in any states or
localities in which it is subject to Tax.
(v)
Substantial
Understatement Penalty. Seller has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section 6662, if
any.
3.13
NO
MATERIAL ADVERSE CHANGE
Since
the
date of the Balance Sheet, there has not been any material adverse change in
the
business, operations, prospects, assets, results of operations or condition
(financial or other) of Seller, and, to Seller’s Knowledge, after reasonable
investigation, no event has occurred or circumstance exists that may result
in
such a material adverse change.
3.14
EMPLOYEE BENEFITS
a.
Set
forth
in Exhibit 3.14(a) is a complete and correct list of all “employee benefit
plans” as defined by Section 3(3) of ERISA, all specified fringe benefit plans
as defined in Section 6039D of the Code, and all other bonus,
incentive-compensation, deferred-compensation, profit-sharing, stock-option,
stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership,
savings, severance, change-in-control, supplemental-unemployment, layoff,
salary-continuation, retirement, pension, health, life-insurance, disability,
accident, group-insurance, vacation, holiday, sick-leave, fringe-benefit or
welfare plan, and any other employee compensation or benefit plan, agreement,
policy, practice, commitment, contract or understanding (whether qualified
or
nonqualified, currently effective or terminated, written or unwritten) and
any
trust, escrow or other agreement related thereto that (i) is maintained or
contributed to by Seller or any other corporation or trade or business
controlled by, controlling or under common control with Seller (within the
meaning of Section 414 of the Code or Section 4001(a)(14) or 4001(b) of ERISA)
(“ERISA Affiliate”) or has been maintained or contributed to in the last six (6)
years by Seller or any ERISA Affiliate, or with respect to which Seller or
any
ERISA Affiliate has or may have any liability, and (ii) provides benefits,
or
describes policies or procedures applicable to any current or former director,
officer, employee or service provider of Seller or any ERISA Affiliate, or
the
dependents of any thereof, regardless of how (or whether) liabilities for the
provision of benefits are accrued or assets are acquired or dedicated with
respect to the funding thereof (collectively the “Employee Plans”). Exhibit
3.14(a) identifies as such any Employee Plan that is (w) a “Defined Benefit
Plan” (as defined in Section 414(l) of the Code); (x) a plan intended to meet
the requirements of Section 401(a) of the Code; (y) a “Multiemployer Plan” (as
defined in Section 3(37) of ERISA); or (z) a plan subject to Title IV of ERISA,
other than a Multiemployer Plan. Also set forth on Exhibit 3.14(a) is a complete
and correct list of all ERISA Affiliates of Seller during the last six (6)
years.
b.
Seller
has delivered to Buyer true, accurate and complete copies of (i) the documents
comprising each Employee Plan (or, with respect to any Employee Plan which
is
unwritten, a detailed written description of eligibility, participation,
benefits, funding arrangements, assets and any other matters which relate to
the
obligations of Seller or any ERISA Affiliate); (ii) all trust agreements,
insurance contracts or any other funding instruments related to the Employee
Plans; (iii) all rulings, determination letters, no-action letters or advisory
opinions from the IRS, the U.S. Department of Labor, the Pension Benefit
Guaranty Corporation (“PBGC”) or any other Governmental Body that pertain to
each Employee Plan and any open requests therefor; (iv) the most recent
actuarial and financial reports (audited and/or unaudited) and the annual
reports filed with any Government Body with respect to the Employee Plans during
the current year and each of the three preceding years; (v) all collective
bargaining agreements pursuant to which contributions to any Employee Plan(s)
have been made or obligations incurred (including both pension and welfare
benefits) by Seller or any ERISA Affiliate, and all collective bargaining
agreements pursuant to which contributions are being made or obligations are
owed by such entities; (vi) all securities registration statements filed with
respect to any Employee Plan; (vii) all contracts with third-party
administrators, actuaries, investment managers, consultants and other
independent contractors that relate to any Employee Plan, (viii) with respect
to
Employee Plans that are subject to Title IV of ERISA, the Form PBGC-1 filed
for
each of the three most recent plan years; and (ix) all summary plan
descriptions, summaries of material modifications and memoranda, employee
handbooks and other written communications regarding the Employee Plans.
c.
Except
as
disclosed in Exhibit 3.14(c), full payment has been made of all amounts that
are
required under the terms of each Employee Plan to be paid as contributions
with
respect to all periods prior to and including the last day of the most recent
fiscal year of such Employee Plan ended on or before the date of this Agreement
and all periods thereafter prior to the Closing Date, and no accumulated funding
deficiency or liquidity shortfall (as those terms are defined in Section 302
of
ERISA and Section 412 of the Code) has been incurred with respect to any such
Employee Plan, whether or not waived. The value of the assets of each Employee
Plan exceeds the amount of all benefit liabilities (determined on a plan
termination basis using the actuarial assumptions established by the PBGC as
of
the Closing Date) of such Employee Plan. Seller is not required to provide
security to an Employee Plan under Section 401(a)(29) of the Code. The funded
status of each Employee Plan that is a Defined Benefit Plan is disclosed on
Exhibit 3.14(c) in a manner consistent with the Statement of Financial
Accounting Standards No. 87. Seller has paid in full all required insurance
premiums, subject only to normal retrospective adjustments in the ordinary
course, with regard to the Employee Plans for all policy years or other
applicable policy periods ending on or before the Closing Date.
d.
Except
as
disclosed in Exhibit 3.14(d), no Employee Plan, if subject to Title IV of ERISA,
has been completely or partially terminated, nor has any event occurred nor
does
any circumstance exist that could result in the partial termination of such
Employee Plan. The PBGC has not instituted or threatened a Proceeding to
terminate or to appoint a trustee to administer any of the Employee Plans
pursuant to Subtitle 1 of Title IV of ERISA, and no condition or set of
circumstances exists that presents a material risk of termination or partial
termination of any of the Employee Plans by the PBGC. None of the Employee
Plans
has been the subject of, and no event has occurred or condition exists that
could be deemed, a reportable event (as defined in Section 4043 of ERISA) as
to
which a notice would be required (without regard to regulatory monetary
thresholds) to be filed with the PBGC. Seller has paid in full all insurance
premiums due to the PBGC with regard to the Employee Plans for all applicable
periods ending on or before the Closing Date.
e.
Neither
Seller nor any ERISA Affiliate has any liability or has Knowledge of any facts
or circumstances that might give rise to any liability, and the Contemplated
Transactions will not result in any liability, (i) for the termination of or
withdrawal from any Employee Plan under Sections 4062, 4063 or 4064 of ERISA,
(ii) for any lien imposed under Section 302(f) of ERISA or Section 412(n) of
the
Code, (iii) for any interest payments required under Section 302(e) of ERISA
or
Section 412(m) of the Code, (iv) for any excise tax imposed by Section 4971
of
the Code, (v) for any minimum funding contributions under Section 302(c)(11)
of
ERISA or Section 412(c)(11) of the Code or (vi) for withdrawal from any
Multiemployer Plan under Section 4201 of ERISA.
f.
Seller
has, at all times, complied, and currently complies, in all material respects
with the applicable continuation requirements for its welfare benefit plans,
including (1) Section 4980B of the Code (as well as its predecessor provision,
Section 162(k) of the Code) and Sections 601 through 608, inclusive, of ERISA,
which provisions are hereinafter referred to collectively as “COBRA” and (2) any
applicable state statutes mandating health insurance continuation coverage
for
employees.
g.
The
form
of all Employee Plans is in compliance with the applicable terms of ERISA,
the
Code, and any other applicable laws, including the Americans with Disabilities
Act of 1990, the Family Medical Leave Act of 1993 and the Health Insurance
Portability and Accountability Act of 1996, and such plans have been operated
in
compliance with such laws and the written Employee Plan documents. Neither
Seller nor any fiduciary of an Employee Plan has violated the requirements
of
Section 404 of ERISA. All required reports and descriptions of the Employee
Plans (including Internal Revenue Service Form 5500 Annual Reports, Summary
Annual Reports and Summary Plan Descriptions and Summaries of Material
Modifications) have been (when required) timely filed with the IRS, the U.S.
Department of Labor or other Governmental Body and distributed as required,
and
all notices required by ERISA or the Code or any other Legal Requirement with
respect to the Employee Plans have been appropriately given.
h.
Each
Employee Plan that is intended to be qualified under Section 401(a) of the
Code
has received a favorable determination letter from the IRS, and Seller has
no
Knowledge of any circumstances that will or could result in revocation of any
such favorable determination letter. Each trust created under any Employee
Plan
has been determined to be exempt from taxation under Section 501(a) of the
Code,
and Seller is not aware of any circumstance that will or could result in a
revocation of such exemption. Each Employee Welfare Benefit Plan (as defined
in
Section 3(1) of ERISA) that utilizes a funding vehicle described in Section
501(c)(9) of the Code or is subject to the provisions of Section 505 of the
Code
has been the subject of a notification by the IRS that such funding vehicle
qualifies for tax-exempt status under Section 501(c)(9) of the Code or that
the
plan complies with Section 505 of the Code, unless the IRS does not, as a matter
of policy, issue such notification with respect to the particular type of plan.
With respect to each Employee Plan, no event has occurred or condition exists
that will or could give rise to a loss of any intended tax consequence or to
any
Tax under Section 511 of the Code.
i.
There
is
no material pending or threatened Proceeding relating to any Employee Plan,
nor
is there any basis for any such Proceeding. Neither Seller nor any fiduciary
of
an Employee Plan has engaged in a transaction with respect to any Employee
Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject Seller or Buyer to a Tax or penalty imposed by either
Section 4975 of the Code or Section 502(l) of ERISA or a violation of Section
406 of ERISA. The Contemplated Transactions will not result in the potential
assessment of a Tax or penalty under Section 4975 of the Code or Section 502(l)
of ERISA nor result in a violation of Section 406 of ERISA.
j.
Seller
has maintained workers’ compensation coverage as required by applicable state
law through purchase of insurance and not by self-insurance or otherwise except
as disclosed to Buyer on Exhibit 3.14(j).
k.
Except
as
required by Legal Requirements and as provided in Section 10.1(d), the
consummation of the Contemplated Transactions will not accelerate the time
of
vesting or the time of payment, or increase the amount, of compensation due
to
any director, employee, officer, former employee or former officer of Seller.
There are no contracts or arrangements providing for payments that could subject
any person to liability for tax under Section 4999 of the Code.
l.
Except
for the continuation coverage requirements of COBRA, Seller has no obligations
or potential liability for benefits to employees, former employees or their
respective dependents following termination of employment or retirement under
any of the Employee Plans that are Employee Welfare Benefit Plans.
m.
None
of
the Contemplated Transactions will result in an amendment, modification or
termination of any of the Employee Plans. No written or oral representations
have been made to any employee or former employee of Seller promising or
guaranteeing any employer payment or funding for the continuation of medical,
dental, life or disability coverage for any period of time beyond the end of
the
current plan year (except to the extent of coverage required under COBRA).
No
written or oral representations have been made to any employee or former
employee of Seller concerning the employee benefits of Buyer.
n.
With
respect to any Employee Plan that is a “multiemployer plan” within the meaning
of Section 4001(a)(3) of ERISA (“Multiemployer Plan”), and any other
Multiemployer Plan to which Seller has at any time had an obligation to
contribute:
(i)
all
contributions required by the terms of such Multiemployer Plan and any
collective bargaining agreement have been made when due; and
(ii)
Seller
would not be subject to any withdrawal liability under Part 1 of Subtitle E
of
Title IV of ERISA if, as of the date hereof, Seller were to engage in a
“complete withdrawal” (as defined in ERISA Section 4203) or a “partial
withdrawal” (as defined in ERISA Section 4205) from such Multiemployer Plan.
3.15
COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
a.
Except
as
set forth in Exhibit 3.15(a):
(i)
Seller
is, and at all times since January 1, 2001, has been, in full compliance with
each Legal Requirement that is or was applicable to it or to the conduct or
operation of its business or the ownership or use of any of its assets;
(ii)
no
event
has occurred or circumstance exists that (with or without notice or lapse of
time) (A) may constitute or result in a violation by Seller of, or a failure
on
the part of Seller to comply with, any Legal Requirement or (B) may give rise
to
any obligation on the part of Seller to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature; and
(iii)
Seller
has not received, at any time since January 1, 2001, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential violation of,
or
failure to comply with, any Legal Requirement or (B) any actual, alleged,
possible or potential obligation on the part of Seller to undertake, or to
bear
all or any portion of the cost of, any remedial action of any nature.
b.
Exhibit
3.15(b) contains a complete and accurate list of each Governmental Authorization
that is held by Seller or that otherwise relates to Seller’s business or the
Assets. Each Governmental Authorization listed or required to be listed in
Exhibit 3.15(b) is valid and in full force and effect. Except as set forth
in
Exhibit 3.15(b):
(i)
Seller
is, and at all times since January 1, 2001, has been, in full compliance with
all of the terms and requirements of each Governmental Authorization identified
or required to be identified in Exhibit 3.15(b);
(ii)
no
event
has occurred or circumstance exists that may (with or without notice or lapse
of
time) (A) constitute or result directly or indirectly in a violation of or
a
failure to comply with any term or requirement of any Governmental Authorization
listed or required to be listed in Exhibit 3.15(b) or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any Governmental Authorization listed
or
required to be listed in Exhibit 3.15(b);
(iii)
Seller
has not received, at any time since January 1, 2001, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential violation of
or
failure to comply with any term or requirement of any Governmental Authorization
or (B) any actual, proposed, possible or potential revocation, withdrawal,
suspension, cancellation, termination of or modification to any Governmental
Authorization; and
(iv)
all
applications required to have been filed for the renewal of the Governmental
Authorizations listed or required to be listed in Exhibit 3.15(b) have been
duly
filed on a timely basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate
Governmental Bodies.
The
Governmental Authorizations listed in Exhibit 3.15(b) collectively constitute
all of the Governmental Authorizations necessary to permit Seller to lawfully
conduct and operate its business in the manner in which it currently conducts
and operates such business and to permit Seller to own and use its assets in
the
manner in which it currently owns and uses such assets.
3.16
LEGAL PROCEEDINGS; ORDERS
a.
Except
as
set forth in Exhibit 3.16(a), there is no pending or, to Seller’s Knowledge,
threatened Proceeding:
(i)
by
or
against Seller or that otherwise relates to or may affect the business of,
or
any of the assets owned or used by, Seller; or
(ii)
that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Contemplated Transactions.
To
the
Knowledge of Seller, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement
of
any such Proceeding. Seller has delivered to Buyer copies of all pleadings,
correspondence and other documents relating to each Proceeding listed in Exhibit
3.16(a). There are no Proceedings listed or required to be listed in Exhibit
3.16(a) that could have a material adverse effect on the business, operations,
assets, condition or prospects of Seller or upon the Assets.
b.
Except
as
set forth in Exhibit 3.16(b):
(i)
there
is
no Order to which Seller, its business or any of the Assets is subject; and
(ii)
to
the
Knowledge of Seller, no officer, director, agent or employee of Seller is
subject to any Order that prohibits such officer, director, agent or employee
from engaging in or continuing any conduct, activity or practice relating to
the
business of Seller.
c.
Except
as
set forth in Exhibit 3.16(c):
(i)
Seller
is, and, at all times since January 1, 2001, has been in compliance with all
of
the terms and requirements of each Order to which it or any of the Assets is
or
has been subject;
(ii)
no
event
has occurred or circumstance exists that is reasonably likely to constitute
or
result in (with or without notice or lapse of time) a violation of or failure
to
comply with any term or requirement of any Order to which Seller or any of
the
Assets is subject; and
(iii)
Seller
has not received, at any time since January 1, 2001, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible or potential violation of, or
failure to comply with, any term or requirement of any Order to which Seller
or
any of the Assets is or has been subject.
3.17
ABSENCE OF CERTAIN CHANGES AND EVENTS
Except
as
set forth in Exhibit 3.17, since the date of the Balance Sheet, Seller has
conducted its business only in the Ordinary Course of Business and there has
not
been any:
a.
change
in
Seller’s authorized or issued capital stock, grant of any stock option or right
to purchase shares of capital stock of Seller or issuance of any security
convertible into such capital stock;
b.
amendment
to the Governing Documents of Seller;
c.
payment
(except in the Ordinary Course of Business) or increase by Seller of any
bonuses, salaries or other compensation to any shareholder, director, officer
or
employee or entry into any employment, severance or similar Contract with any
director, officer or employee;
d.
adoption
of, amendment to or increase in the payments to or benefits under, any Employee
Plan;
e.
damage
to
or destruction or loss of any Asset, whether or not covered by insurance;
f.
entry
into, termination of or receipt of notice of termination of (i) any license,
distributorship, dealer, sales representative, joint venture, credit or similar
Contract to which Seller is a party, or (ii) any Contract or transaction
involving a total remaining commitment by Seller;
g.
sale
(other than sales of Inventories in the Ordinary Course of Business), lease
or
other disposition of any Asset or property of Seller (including the Intellectual
Property Assets) or the creation of any Encumbrance on any Asset;
h.
cancellation
or waiver of any claims or rights with a value to Seller;
i.
indication
by any customer or supplier of an intention to discontinue or change the terms
of its relationship with Seller;
j.
material
change in the accounting methods used by Seller; or
k.
Contract
by Seller to do any of the foregoing.
3.18
CONTRACTS; NO DEFAULTS
a.
Exhibit
3.18(a) contains an accurate and complete list, and Seller has delivered to
Buyer accurate and complete copies, of:
(i)
each
Seller Contract that involves performance of services or delivery of goods
or
materials by Seller;
(ii)
each
Seller Contract that involves performance of services or delivery of goods
or
materials to Seller;
(iii)
each
Seller Contract that was not entered into in the Ordinary Course of Business
and
that involves expenditures or receipts of Seller;
(iv)
each
Seller Contract affecting the ownership of, leasing of, title to, use of or
any
leasehold or other interest in any real or personal;
(v)
each
Seller Contract with any labor union or other employee representative of a
group
of employees relating to wages, hours and other conditions of employment;
(vi)
each
Seller Contract (however named) involving a sharing of profits, losses, costs
or
liabilities by Seller with any other Person;
(vii)
each
Seller Contract containing covenants that in any way purport to restrict
Seller’s business activity or limit the freedom of Seller to engage in any line
of business or to compete with any Person;
(viii)
each
Seller Contract providing for payments to or by any Person based on sales,
purchases or profits, other than direct payments for goods;
(ix)
each
power of attorney of Seller that is currently effective and outstanding;
(x)
each
Seller Contract entered into other than in the Ordinary Course of Business
that
contains or provides for an express undertaking by Seller to be responsible
for
consequential damages;
(xi)
each
Seller Contract for capital expenditures;
(xii)
each
Seller Contract not denominated in U.S. dollars;
(xiii)
each
written warranty, guaranty and/or other similar undertaking with respect to
contractual performance extended by Seller other than in the Ordinary Course
of
Business; and
(xiv)
each
amendment, supplement and modification (whether oral or written) in respect
of
any of the foregoing.
Exhibit
3.18(a) sets forth reasonably complete details concerning such Contracts,
including the parties to the Contracts, the amount of the remaining commitment
of Seller under the Contracts and the location of Seller’s office where details
relating to the Contracts are located.
b.
Except
as
set forth in Exhibit 3.18(b), Shareholder does not have nor may he acquire
any
rights under, and Shareholder does not have nor may he become subject to any
obligation or liability under, any Contract that relates to the business of
Seller or any of the Assets.
c.
Except
as
set forth in Exhibit 3.18(c):
(i)
each
Contract identified or required to be identified in Exhibit 3.18(a) and which
is
to be assigned to or assumed by Buyer under this Agreement is in full force
and
effect and is valid and enforceable in accordance with its terms;
(ii)
each
Contract identified or required to be identified in Exhibit 3.18(a) and which
is
being assigned to or assumed by Buyer is assignable by Seller to Buyer without
the consent of any other Person; and
(iii)
to
the
Knowledge of Seller, no Contract identified or required to be identified in
Exhibit 3.18(a) and which is to be assigned to or assumed by Buyer under this
Agreement will upon completion or performance thereof have a material adverse
affect on the business, assets or condition of Seller or the business to be
conducted by Buyer with the Assets.
d.
Except
as
set forth in Exhibit 3.18(d):
(i)
Seller
is, and at all times since January 1, 2001, has been, in compliance with all
applicable terms and requirements of each Seller Contract which is being assumed
by Buyer;
(ii)
each
other Person that has or had any obligation or liability under any Seller
Contract which is being assigned to Buyer is, and at all times since January
1,
2001, has been, in full compliance with all applicable terms and requirements
of
such Contract;
(iii)
no
event
has occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with or result in a Breach of, or give Seller
or
other Person the right to declare a default or exercise any remedy under, or
to
accelerate the maturity or performance of, or payment under, or to cancel,
terminate or modify, any Seller Contract that is being assigned to or assumed
by
Buyer;
(iv)
no
event
has occurred or circumstance exists under or by virtue of any Contract that
(with or without notice or lapse of time) would cause the creation of any
Encumbrance affecting any of the Assets; and
(v)
Seller
has not given to or received from any other Person, at any time since January
1,
2001, any notice or other communication (whether oral or written) regarding
any
actual, alleged, possible or potential violation or Breach of, or default under,
any Contract which is being assigned to or assumed by Buyer.
e.
There
are
no renegotiations of, attempts to renegotiate or outstanding rights to
renegotiate any material amounts paid or payable to Seller under current or
completed Contracts with any Person having the contractual or statutory right
to
demand or require such renegotiation and no such Person has made written demand
for such renegotiation.
f.
Each
Contract relating to the sale, design, manufacture or provision of products
or
services by Seller has been entered into in the Ordinary Course of Business
of
Seller and has been entered into without the commission of any act alone or
in
concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
3.19
INSURANCE
a.
Seller
has delivered to Buyer:
(i)
accurate
and complete copies of all policies of insurance (and correspondence relating
to
coverage thereunder) to which Seller is a party or under which Seller is
covered, a list of which is included in Exhibit 3.19(a); and
(ii)
accurate
and complete copies of all pending applications by Seller for policies of
insurance.
b.
Exhibit
3.19(b) describes:
(i)
any
self-insurance arrangement by or affecting Seller, including any reserves
established thereunder;
(ii)
any
Contract or arrangement, other than a policy of insurance, for the transfer
or
sharing of any risk to which Seller is a party or which involves the business
of
Seller; and
(iii)
all
obligations of Seller to provide insurance coverage to Third Parties (for
example, under Leases or service agreements) and identifies the policy under
which such coverage is provided.
c.
Except
as
set forth in Exhibit 3.19(c):
(i)
all
policies of insurance to which Seller is a party or that provide coverage to
Seller:
(A)
are
valid, outstanding and enforceable;
(B)
are
issued by an insurer that is financially sound and reputable;
(C)
taken
together, provide adequate insurance coverage for the Assets and the operations
of Seller for all risks normally insured against by a Person carrying on the
same business or businesses as Seller in the same location; and
(D)
are
sufficient for compliance with all Legal Requirements and Seller Contracts;
(ii)
Seller
has not received (A) any refusal of coverage or any notice that a defense will
be afforded with reservation of rights or (B) any notice of cancellation or
any
other indication that any policy of insurance is no longer in full force or
effect or that the issuer of any policy of insurance is not willing or able
to
perform its obligations thereunder;
(iii)
Seller
has paid all premiums due, and has otherwise performed all of its obligations,
under each policy of insurance to which it is a party or that provides coverage
to Seller; and
(iv)
Seller
has given notice to the insurer of all claims that may be insured thereby.
3.20
ENVIRONMENTAL MATTERS
Except
as
disclosed in Exhibit 3.20:
a.
Seller
is, and at all times has been, in full compliance with, and has not been and
is
not in violation of or liable under, any Environmental Law. Neither Seller
nor
the Shareholder has any basis to expect, nor has any of them or any other Person
for whose conduct they are or may be held to be responsible received, any actual
or threatened order, notice or other communication from (i) any Governmental
Body or private citizen acting in the public interest or (ii) the current or
prior owner or operator of any Facilities, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any Facility or other property or asset (whether
real, personal or mixed) in which Seller has or had an interest, or with respect
to any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used or processed by Seller or
any
other Person for whose conduct it is or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
b.
There
are
no pending or, to the Knowledge of Seller, threatened claims, Encumbrances,
or
other restrictions of any nature resulting from any Environmental, Health and
Safety Liabilities or arising under or pursuant to any Environmental Law with
respect to or affecting any Facility or any other property or asset (whether
real, personal or mixed) in which Seller has or had an interest.
c.
Neither
Seller nor the Shareholder has any Knowledge of or any basis to expect, nor
has
any of them, or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any Facility or property or asset (whether real,
personal or mixed) in which Seller has or had an interest, or with respect
to
any property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used or processed by Seller or any other Person
for whose conduct it is or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled or received.
d.
Neither
Seller nor any other Person for whose conduct it is or may be held responsible
has any Environmental, Health and Safety Liabilities with respect to any
Facility or, to the Knowledge of Seller, with respect to any other property
or
asset (whether real, personal or mixed) in which Seller (or any predecessor)
has
or had an interest or at any property geologically or hydrologically adjoining
any Facility or any such other property or asset.
e.
There
are
no Hazardous Materials present on or in the Environment at any Facility or,
to
Seller’s Knowledge, after reasonable investigation, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, aboveground or underground storage tanks, landfills, land deposits,
dumps, equipment (whether movable or fixed) or other containers, either
temporary or permanent, and deposited or located in land, water, sumps, or
any
other part of the Facility or such adjoining property, or incorporated into
any
structure therein or thereon. Neither Seller nor any Person for whose conduct
it
is or may be held responsible, or to the Knowledge of Seller, any other Person,
has permitted or conducted, or is aware of, any Hazardous Activity conducted
with respect to any Facility or any other property or assets (whether real,
personal or mixed) in which Seller has or had an interest except in full
compliance with all applicable Environmental Laws.
f.
There
has
been no Release or, to the Knowledge of Seller, Threat of Release, of any
Hazardous Materials at or from any Facility or at any other location where
any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by any Facility, or from any
other property or asset (whether real, personal or mixed) in which Seller has
or
had an interest, or to the Knowledge of Seller any geologically or
hydrologically adjoining property, whether by Seller or any other Person.
g.
Seller
has delivered to Buyer true and complete copies and results of any reports,
studies, analyses, tests, or monitoring possessed or initiated by Seller
pertaining to Hazardous Materials or Hazardous Activities in, on, or under
the
Facilities, or concerning compliance, by Seller or any other Person for whose
conduct it is or may be held responsible, with Environmental Laws.
3.21
EMPLOYEES
a.
Exhibit
3.21(a) contains a complete and accurate list of the following information
for
each employee, director, independent contractor, consultant and agent of Seller,
including each employee on leave of absence or layoff status: name; job title;
date of hiring or engagement; current compensation paid or payable and any
change in compensation since January 1, 2003; sick and vacation leave that
is
accrued but unused; and service credited for purposes of vesting and eligibility
to participate under any Employee Plan, or any other employee or director
benefit plan.
b.
Exhibit
3.21(b) contains a complete and accurate list of the following information
for
each retired employee or director of Seller, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name; pension benefits;
pension option election; retiree medical insurance coverage; retiree life
insurance coverage; and other benefits.
c.
Exhibit
3.21(c) states the number of employees terminated by Seller since July 1, 2005,
and contains a complete and accurate list of the following information for
each
employee of Seller who has been terminated or laid off, or whose hours of work
have been reduced by more than fifty percent (50%) by Seller, in the six (6)
months prior to the date of this Agreement: (i) the date of such termination,
layoff or reduction in hours; and (ii) the reason for such termination, layoff
or reduction in hours.
d.
Seller
has not violated the Worker Adjustment and Retraining Notification Act (the
“WARN Act”) or any similar state or local Legal Requirement. Seller has
terminated no employees during the ninety (90) day period prior to the date
of
this Agreement.
e.
To
the
Knowledge of Seller, no officer, director, agent, employee, consultant, or
contractor of Seller is bound by any Contract that purports to limit the ability
of such officer, director, agent, employee, consultant, or contractor (i) to
engage in or continue or perform any conduct, activity, duties or practice
relating to the business of Seller or (ii) to assign to Seller or to any other
Person any rights to any invention, improvement, or discovery. No former or
current employee of Seller is a party to, or is otherwise bound by, any Contract
that in any way adversely affected, affects, or will affect the ability of
Seller or Buyer to conduct the business as heretofore carried on by Seller.
3.22
LABOR DISPUTES; COMPLIANCE
a.
Seller
has complied in all respects with all Legal Requirements relating to employment
practices, terms and conditions of employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar Taxes and occupational safety and
health. Seller is not liable for the payment of any Taxes, fines, penalties,
or
other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements.
b.
Except
as
disclosed in Exhibit 3.22(b), (i) Seller has not been, and is not now, a party
to any collective bargaining agreement or other labor contract; (ii) there
has
not been, there is not presently pending or existing, and to Seller’s Knowledge
there is not threatened, any strike, slowdown, picketing, work stoppage or
employee grievance process involving Seller; (iii) to Seller’s Knowledge no
event has occurred or circumstance exists that could provide the basis for
any
work stoppage or other labor dispute; (iv) there is not pending or, to Seller’s
Knowledge, threatened against or affecting Seller any Proceeding relating to
the
alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed with the National
Labor Relations Board or any comparable Governmental Body, and there is no
organizational activity or other labor dispute against or affecting Seller
or
the Facilities; (v) no application or petition for an election of or for
certification of a collective bargaining agent is pending; (vi) no grievance
or
arbitration Proceeding exists that might have an adverse effect upon Seller
or
the conduct of its business; (vii) there is no lockout of any employees by
Seller, and no such action is contemplated by Seller; and (viii) to Seller’s
Knowledge there has been no charge of discrimination filed against or threatened
against Seller with the Equal Employment Opportunity Commission or similar
Governmental Body.
3.23
INTELLECTUAL PROPERTY ASSETS
a.
The
term
“Intellectual Property Assets” means all intellectual property owned or licensed
(as licensor or licensee) by Seller in which Seller has a proprietary interest,
including:
(i)
Seller’s
name, all assumed fictional business names, trade names, registered and
unregistered trademarks, service marks and applications (collectively, “Marks”);
(ii)
all
patents, patent applications and inventions and discoveries that may be
patentable (collectively, “Patents”);
(iii)
all
registered and unregistered copyrights in both published works and unpublished
works (collectively, “Copyrights”);
(iv)
all
rights in mask works;
(v)
all
know-how, trade secrets, confidential or proprietary information, customer
lists, Software, technical information, data, process technology, plans,
drawings and blue prints (collectively, “Trade Secrets”); and
(vi)
all
rights in internet web sites and internet domain names presently used by Seller
(collectively “Net Names”).
b.
Exhibit
3.23(b) contains a complete and accurate list and summary description, including
any royalties paid or received by Seller, and Seller has delivered to Buyer
accurate and complete copies, of all Seller Contracts relating to the
Intellectual Property Assets, except for any license implied by the sale of
a
product and perpetual, paid-up licenses for commonly available Software programs
under which Seller is the licensee. There are no outstanding and, to Seller’s
Knowledge, no threatened disputes or disagreements with respect to any such
Contract.
c.
Except
as
set forth in Exhibit 3.23(c), the Intellectual Property Assets are all those
necessary for the operation of Seller’s business as it is currently conducted.
Seller is the owner or licensee of all right, title and interest in and to
each
of the Intellectual Property Assets, free and clear of all Encumbrances, and
has
the right to use without payment to a Third Party all of the Intellectual
Property Assets, other than in respect of licenses listed in Exhibit 3.23(c).
d.
Marks
(i)
Exhibit
3.23(d) contains a complete and accurate list and summary description of all
Marks.
(ii)
Except
as
identified in Exhibit 3.23(d), all Marks have been registered with the United
States Patent and Trademark Office, are currently in compliance with all formal
Legal Requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and enforceable
and are not subject to any maintenance fees or taxes or actions falling due
within ninety (90) days after the Closing Date.
(iii)
No
Mark
has been or is now involved in any opposition, invalidation or cancellation
Proceeding and, to Seller’s Knowledge, no such action is threatened with respect
to any of the Marks.
(iv)
To
Seller’s Knowledge, there is no potentially interfering trademark or trademark
application of any other Person.
(v)
No
Mark
is infringed or, to Seller’s Knowledge, has been challenged or threatened in any
way. None of the Marks used by Seller infringes or is alleged to infringe any
trade name, trademark or service mark of any other Person.
(vi)
All
products and materials containing a Mark bear the proper federal registration
notice where permitted by law.
e.
Trade
Secrets
(i)
With
respect to each Trade Secret, the documentation relating to such Trade Secret,
if any, is current, accurate and sufficient in detail and content to identify
and explain it and to allow its full and proper use without reliance on the
knowledge or memory of any individual.
(ii)
Seller
has taken all reasonable precautions to protect the secrecy, confidentiality
and
value of all Trade Secrets (including the enforcement by Seller of a policy
requiring each employee or contractor to execute proprietary information and
confidentiality agreements substantially in Seller’s standard form, and all
current and former employees and contractors of Seller have executed such an
agreement).
(iii)
Seller
has good title to and an absolute right to use the Trade Secrets. The Trade
Secrets are not part of the public knowledge or literature and, to Seller’s
Knowledge, have not been used, divulged or appropriated either for the benefit
of any Person (other than Seller) or to the detriment of Seller. No Trade Secret
is subject to any adverse claim or has been challenged or threatened in any
way
or infringes any intellectual property right of any other Person.
f.
Net
Names
(i)
Exhibit
3.23(f) contains a complete and accurate list and summary description of all
Net
Names.
(ii)
All
Net
Names have been registered in the name of Seller and are in compliance with
all
formal Legal Requirements.
(iii)
No
Net
Name has been or is now involved in any dispute, opposition, invalidation or
cancellation Proceeding and, to Seller’s Knowledge, no such action is threatened
with respect to any Net Name.
(iv)
To
Seller’s Knowledge, there is no domain name application pending of any other
person which would or would potentially interfere with or infringe any Net
Name.
(v)
No
Net
Name is infringed or, to Seller’s Knowledge, has been challenged, interfered
with or threatened in any way. No Net Name infringes, interferes with or is
alleged to interfere with or infringe the trademark, copyright or domain name
of
any other Person.
3.24
COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT AND EXPORT CONTROL AND
ANTIBOYCOTT LAWS
a.
Seller
and its Representatives have not, to obtain or retain business, directly or
indirectly offered, paid or promised to pay, or authorized the payment of,
any
money or other thing of value (including any fee, gift, sample, travel expense
or entertainment with a value in excess of one hundred dollars ($100.00) in
the
aggregate to any one individual in any year) or any commission payment, to:
(i)
any
person who is an official, officer, agent, employee or representative of any
Governmental Body or of any existing or prospective customer (whether government
owned or nongovernment owned);
(ii)
any
political party or official thereof;
(iii)
any
candidate for political or political party office; or
(iv)
any
other
individual or entity;
while
knowing or having reason to believe that all or any portion of such money or
thing of value would be offered, given, or promised, directly or indirectly,
to
any such official, officer, agent, employee, representative, political party,
political party official, candidate, individual, or any entity affiliated with
such customer, political party or official or political office.
b.
Except
as
set forth in Exhibit 3.24(b), Seller has made all payments to Third Parties
by
check mailed to such Third Parties’ principal place of business or by wire
transfer to a bank located in the same jurisdiction as such party’s principal
place of business.
c.
Each
transaction is properly and accurately recorded on the books and Records of
Seller, and each document upon which entries in Seller’s books and Records are
based is complete and accurate in all respects. Seller maintains a system of
internal accounting controls adequate to insure that Seller maintains no
off-the-books accounts and that Seller’s assets are used only in accordance with
Seller’s management directives.
d.
Seller
has at all times been in compliance with all Legal Requirements relating to
export control and trade embargoes. No product sold or service provided by
Seller during the last five (5) years has been, directly or indirectly, sold
to
or performed on behalf of Cuba, Iraq, Iran, Libya or North Korea.
e.
Except
as
set forth in Exhibit 3.24(e), Seller has not violated the antiboycott
prohibitions contained in 50 U.S.C. sect. 2401 et seq. or taken any action
that
can be penalized under Section 999 of the Code. Except as set forth in Exhibit
3.24(e), during the last five (5) years, Seller has not been a party to, is
not
a beneficiary under and has not performed any service or sold any product under
any Seller Contract under which a product has been sold to customers in Bahrain,
Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria,
United Arab Emirates or the Republic of Yemen.
3.25
RELATIONSHIPS WITH RELATED PERSONS
Except
as
disclosed in Exhibit 3.25, neither Seller nor the Shareholder nor any Related
Person of any of them has, or has had, any interest in any property (whether
real, personal or mixed and whether tangible or intangible) used in or
pertaining to Seller’s business. Neither Seller, Shareholder nor any Related
Person of any of them owns, or has owned, of record or as a beneficial owner,
an
equity interest or any other financial or profit interest in any Person that
has
(a) had business dealings or a material financial interest in any transaction
with Seller other than business dealings or transactions disclosed in Exhibit
3.25, each of which has been conducted in the Ordinary Course of Business with
Seller at substantially prevailing market prices and on substantially prevailing
market terms or (b) engaged in competition with Seller with respect to any
line
of the products or services of Seller (a “Competing Business”) in any market
presently served by Seller, except for ownership of less than one percent (1%)
of the outstanding capital stock of any Competing Business that is publicly
traded on any recognized exchange or in the over-the-counter market. Except
as
set forth in Exhibit 3.25, neither Seller, Shareholder nor any Related Person
of
either of them is a party to any Contract with, or has any claim or right
against, Seller.
3.26
BROKERS OR FINDERS
Neither
Seller nor any of its Representatives have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders’ fees or agents’ commissions
or other similar payments in connection with the sale of Seller’s business or
the Assets or the Contemplated Transactions, except the liability of Seller
to
Pinnacle Capital Corporation. Seller and the Shareholder indemnify Buyer, its
Shareholder, directors, officers, employees and agents from any liability for
payment of the fee and related costs payable to Pinnacle Capital Corporation.
3.27
SECURITIES LAW MATTERS
Seller
is
acquiring the Secured Subordinated Promissory Note for its own account and
not
with a view to its distribution within the meaning of Section 2(11) of the
Securities Act.
3.28
SOLVENCY
a.
Seller
is
not now insolvent and will not be rendered insolvent by any of the Contemplated
Transactions. As used in this section, “insolvent” means that the sum of the
debts and other probable Liabilities of Seller exceeds the present fair saleable
value of Seller’s assets.
b.
Immediately
after giving effect to the consummation of the Contemplated Transactions: (i)
Seller will be able to pay its Liabilities as they become due in the usual
course of its business; (ii) Seller will not have unreasonably small capital
with which to conduct its present or proposed business; (iii) Seller will have
assets (calculated at fair market value) that exceed its Liabilities; and (iv)
taking into account all pending and threatened litigation, final judgments
against Seller in actions for money damages are not reasonably anticipated
to be
rendered at a time when, or in amounts such that, Seller will be unable to
satisfy any such judgments promptly in accordance with their terms (taking
into
account the maximum probable amount of such judgments in any such actions and
the earliest reasonable time at which such judgments might be rendered) as
well
as all other obligations of Seller. The cash available to Seller, after taking
into account all other anticipated uses of the cash, will be sufficient to
pay
all such debts and judgments promptly in accordance with their terms.
3.29
DISCLOSURE
a.
No
representation or warranty or other statement made by Seller or the Shareholder
in this Agreement, any Exhibit hereto, the certificates delivered pursuant
to
Section 2.7(a) or otherwise in connection with the Contemplated Transactions
contains any untrue statement or omits to state a material fact necessary to
make any of them, in light of the circumstances in which it was made, not
misleading.
b.
Seller
does not have Knowledge of any fact, after reasonable investigation, that has
specific application to Seller (other than general economic or industry
conditions) and that may materially adversely affect the assets, business,
prospects, financial condition or results of operations of Seller that has
not
been set forth in this Agreement.
SECTION
4
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer
represents and warrants to Seller and Shareholder as follows:
4.1
ORGANIZATION AND GOOD STANDING
Buyer
is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as it is now conducted.
4.2
AUTHORITY; NO CONFLICT
a.
This
Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms. Upon the execution
and
delivery by Buyer of the Assignment and Assumption Agreement, the Consulting
Agreement, the Secured Subordinated Promissory Note, the Security Agreement,
the
Lease and each other agreement to be executed or delivered by Buyer at Closing
(collectively, the “Buyer’s Closing Documents”), each of the Buyer’s Closing
Documents will constitute the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its respective terms. Buyer has
the
absolute and unrestricted right, power and authority to execute and deliver
this
Agreement and the Buyer’s Closing Documents and to perform its obligations under
this Agreement and the Buyer’s Closing Documents, and such action has been duly
authorized by all necessary corporate action.
b.
Neither
the execution and delivery of this Agreement by Buyer nor the consummation
or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i)
any
provision of Buyer’s Governing Documents;
(ii)
any
resolution adopted by the board of directors or the Shareholder of Buyer;
(iii)
any
Legal
Requirement or Order to which Buyer may be subject; or
(iv)
any
Contract to which Buyer is a party or by which Buyer may be bound.
Buyer
is
not and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
4.3
CERTAIN PROCEEDINGS
There
is
no pending Proceeding that has been commenced against Buyer and that challenges,
or may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no
such Proceeding has been threatened.
4.4
BROKERS OR FINDERS
Neither
Buyer nor any of its Representatives have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders’ fees or agents’ commissions
or other similar payment in connection with the Contemplated Transactions.
SECTION
5
COVENANTS
OF SELLER PRIOR TO CLOSING
5.1
ACCESS AND INVESTIGATION
Between
the date of this Agreement and the Closing Date, and upon reasonable advance
notice received from Buyer, Seller shall (and Shareholder shall cause Seller
to)
(a) afford Buyer and its Representatives and prospective lenders and their
Representatives (collectively, “Buyer Group”) full and free access, during
regular business hours, to Seller’s personnel, properties (including subsurface
testing), Contracts, Governmental Authorizations, books and Records and other
documents and data, such rights of access to be exercised in a manner that
does
not unreasonably interfere with the operations of Seller; (b) furnish Buyer
Group with copies of all such Contracts, Governmental Authorizations, books
and
Records and other existing documents and data as Buyer may reasonably request;
(c) furnish Buyer Group with such additional financial, operating and other
relevant data and information as Buyer may reasonably request; and (d) otherwise
cooperate and assist, to the extent reasonably requested by Buyer, with Buyer’s
investigation of the properties, assets and financial condition related to
Seller. In addition, Buyer shall have the right to have the Real Property and
Tangible Personal Property inspected by Buyer Group, at Buyer’s sole cost and
expense, for purposes of determining the physical condition and legal
characteristics of the Real Property and Tangible Personal Property. In the
event subsurface or other destructive testing is recommended by any of Buyer
Group, Buyer shall be permitted to have the same performed. Buyer shall restore
the Real Property as close to its pre-test condition as is reasonably
practicable.
5.2
OPERATION OF THE BUSINESS OF SELLER
Between
the date of this Agreement and the Closing, Seller shall (and Shareholder shall
cause Seller to):
a.
conduct
its business only in the Ordinary Course of Business;
b.
except
as
otherwise directed by Buyer in writing, and without making any commitment on
Buyer’s behalf, use its Best Efforts to preserve intact its current business
organization, keep available the services of its officers, employees and agents
and maintain its relations and good will with suppliers, customers, landlords,
creditors, employees, agents and others having business relationships with
it;
c.
confer
with Buyer prior to implementing operational decisions of a material nature,
other than in the Ordinary Course of Business;
d.
otherwise
report periodically to Buyer concerning the status of its business, operations
and finances;
e.
make
no
material changes in management personnel without prior consultation with Buyer;
f.
maintain
the Assets in a state of repair and condition that complies with Legal
Requirements and is consistent with the requirements and normal conduct of
Seller’s business;
g.
keep
in
full force and effect, without amendment, all material rights relating to
Seller’s business;
h.
comply
with all Legal Requirements and contractual obligations applicable to the
operations of Seller’s business;
i.
continue
in full force and effect the insurance coverage under the policies set forth
in
Exhibit 3.19 or substantially equivalent policies;
j.
except
as
required to comply with ERISA or to maintain qualification under Section 401(a)
of the Code, not amend, modify or terminate any Employee Plan without the
express written consent of Buyer, and except as required under the provisions
of
any Employee Plan, not make any contributions to or with respect to any Employee
Plan without the express written consent of Buyer, provided that Seller shall
contribute that amount of cash to each Employee Plan necessary to fully fund
all
of the benefit liabilities of such Employee Plan on a plan-termination basis
as
of the Closing Date;
k.
cooperate
with Buyer and assist Buyer in identifying the Governmental Authorizations
required by Buyer to operate the business from and after the Closing Date and
either transferring existing Governmental Authorizations of Seller to Buyer,
where permissible, or obtaining new Governmental Authorizations for Buyer;
l.
upon
request from time to time, execute and deliver all documents, make all truthful
oaths, testify in any Proceedings and do all other acts that may be reasonably
necessary or desirable in the opinion of Buyer to consummate the Contemplated
Transactions, all without further consideration; and
m.
maintain
all books and Records of Seller relating to Seller’s business in the Ordinary
Course of Business.
5.3
NEGATIVE COVENANT
Except
as
otherwise expressly permitted herein, between the date of this Agreement and
the
Closing Date, Seller shall not, and Shareholder shall not permit Seller to,
without the prior written Consent of Buyer, (a) take any affirmative action,
or
fail to take any reasonable action within its control, as a result of which
any
of the changes or events listed in Sections 3.13 or 3.17 would be likely to
occur; (b) make any modification to any material Contract or Governmental
Authorization, other than in the Ordinary Course of Business; (c) allow the
levels of finished goods, supplies or other materials included in the
Inventories to vary materially from the levels customarily maintained; or (d)
enter into any compromise or settlement of any litigation, proceeding or
governmental investigation relating to the Assets, the business of Seller or
the
Assumed Liabilities.
5.4
REQUIRED APPROVALS
As
promptly as practicable after the date of this Agreement, Seller shall make
all
filings required by Legal Requirements to be made by it in order to consummate
the Contemplated Transactions. Seller and Shareholder also shall cooperate
with
Buyer and its Representatives with respect to all filings that Buyer elects
to
make or, pursuant to Legal Requirements, shall be required to make in connection
with the Contemplated Transactions. Seller and Shareholder also shall cooperate
with Buyer and its Representatives in obtaining all Material Consents (including
taking all actions requested by Buyer to cause early termination of any
applicable waiting period under the HSR Act).
5.5
NOTIFICATION
Between
the date of this Agreement and the Closing, Seller and Shareholder shall
promptly notify Buyer in writing if any of them becomes aware of (a) any fact
or
condition that causes or constitutes a Breach of any of Seller’s representations
and warranties made as of the date of this Agreement or (b) the occurrence
after
the date of this Agreement of any fact or condition that would or be reasonably
likely to (except as expressly contemplated by this Agreement) cause or
constitute a Breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or
Seller’s or the Shareholder’s discovery of, such fact or condition. Such
delivery shall not affect any rights of Buyer under Section 9.2 and Article
11.
During the same period, Seller and Shareholder also shall promptly notify Buyer
of the occurrence of any Breach of any covenant of Seller or Shareholder in
this
Article 5 or of the occurrence of any event that may make the satisfaction
of
the conditions in Article 7 impossible or unlikely.
5.6
NO
NEGOTIATION
Until
such time as this Agreement shall be terminated pursuant to Section 9.1, neither
Seller nor the Shareholder shall directly or indirectly solicit, initiate,
encourage or entertain any inquiries or proposals from, discuss or negotiate
with, provide any nonpublic information to or consider the merits of any
inquiries or proposals from any Person (other than Buyer) relating to any
business combination transaction involving Seller, including the sale by
Shareholder of Seller’s stock, the merger or consolidation of Seller or the sale
of Seller’s business or any of the Assets (other than in the Ordinary Course of
Business). Seller and Shareholder shall notify Buyer of any such inquiry or
proposal within twenty-four (24) hours of receipt or awareness of the same
by
Seller or the Shareholder.
5.7
BEST
EFFORTS
Seller
and Shareholder shall use their Best Efforts to cause the conditions in Article
7 and Section 8.3 to be satisfied.
5.8
INTERIM FINANCIAL STATEMENTS
Until
the
Closing Date, Seller shall deliver to Buyer within ten (10) days after the
end
of each month a copy of the balance sheet and income statement for such month
prepared in a manner and containing information consistent with Seller’s current
accountant-prepared, unaudited financial statements.
5.9
CHANGE OF NAME
On
or
before the Closing Date, Seller shall (a) amend its Governing Documents and
take
all other actions necessary to change its name to one sufficiently dissimilar
to
Seller’s present name, in Buyer’s judgment, to avoid confusion and (b) take all
actions requested by Buyer to enable Buyer to change its name to Seller’s
present name. In the event that Seller shall assume from the Buyer an
uncollectible account receivable and then collect such account receivable,
Buyer
shall cooperate with Seller to enable it to negotiate for Seller’s benefit a
check that may be payable to “Freundlich Supply Company, Inc.” or similar
name.
5.10
PAYMENT OF LIABILITIES
Seller
shall pay or otherwise satisfy in the Ordinary Course of Business all of its
Liabilities and obligations. Buyer and Seller hereby waive compliance with
the
bulk-transfer provisions of the Uniform Commercial Code (or any similar law)
(“Bulk Sales Laws”) in connection with the Contemplated Transactions.
SECTION
6
COVENANTS
OF BUYER PRIOR TO CLOSING
6.1
REQUIRED APPROVALS
As
promptly as practicable after the date of this Agreement, Buyer shall make,
or
cause to be made, all filings required by Legal Requirements to be made by
it to
consummate the Contemplated Transactions. Buyer also shall cooperate, and cause
its Related Persons to cooperate, with Seller (a) with respect to all filings
Seller shall be required by Legal Requirements to make and (b) in obtaining
all
Consents identified in Exhibit 3.2(c), provided, however, that Buyer shall
not
be required to dispose of or make any change to its business, expend any
material funds or incur any other burden in order to comply with this Section
6.1.
6.2
BEST
EFFORTS
Buyer
shall use its Best Efforts to cause the conditions in Article 8 and Section
7.3
to be satisfied.
SECTION
7
CONDITIONS
PRECEDENT TO BUYER’S OBLIGATION TO CLOSE
Buyer’s
obligation to purchase the Assets and to take the other actions required to
be
taken by Buyer at the Closing is subject to the satisfaction, at or prior to
the
Closing, of each of the following conditions (any of which may be waived by
Buyer, in whole or in part):
7.1
ACCURACY OF REPRESENTATIONS
a.
All
of
Seller’s and Shareholder’s representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), shall have been accurate in all material respects
as
of the date of this Agreement, and shall be accurate in all material respects
as
of the time of the Closing as if then made.
b.
Each
of
the representations and warranties in Sections 3.2(a) and 3.4, and each of
the
representations and warranties in this Agreement that contains an express
materiality qualification, shall have been accurate in all respects as of the
date of this Agreement, and shall be accurate in all respects as of the time
of
the Closing as if then made.
7.2
SELLER’S PERFORMANCE
All
of
the covenants and obligations that Seller and Shareholder are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), shall have been duly performed and complied with
in
all material respects.
7.3
CONSENTS
Each
of
the Consents identified in Exhibit 7.3 (the “Material Consents”) shall have been
obtained and shall be in full force and effect.
7.4
ADDITIONAL DOCUMENTS
Seller
and Shareholder shall have caused the documents and instruments required by
Section 2.7(a) and the following documents to be delivered (or tendered subject
only to Closing) to Buyer:
a.
an
opinion of Howard J. Kerker, Esquire, dated the Closing Date, in the form of
Exhibit 7.4(a);
b.
The
articles of incorporation and all amendments thereto of Seller, duly certified
as of a recent date by the Secretary of State of the jurisdiction of Seller’s
incorporation (Exhibit 7.4(b));
c.
If
requested by Buyer, any Consents or other instruments that may be required
to
permit Buyer’s qualification in each jurisdiction in which Seller is licensed or
qualified to do business as a foreign corporation under the name “Freundlich
Supply Company” or any derivative thereof;
c.
Releases
of all Encumbrances on the Assets, other than Permitted Encumbrances;
d.
Certificates
dated as of a date not earlier than the third business day prior to the Closing
as to the good standing of Seller and payment of all applicable State Taxes
by
Seller, executed by the appropriate officials of the State of New York and
each
jurisdiction in which Seller is licensed or qualified to do business as a
foreign corporation as specified in Exhibit 3.1(a); and
e.
Such
other documents as Buyer may reasonably request for the purpose of:
(i)
evidencing
the accuracy of any of Seller’s representations and warranties;
(ii)
evidencing
the performance by Seller or the Shareholder of, or the compliance by Seller
or
the Shareholder with, any covenant or obligation required to be performed or
complied with by Seller or such Shareholder;
(iii)
evidencing
the satisfaction of any condition referred to in this Article 7; or
(iv)
otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions.
7.5
NO
PROCEEDINGS
Since
the
date of this Agreement, there shall not have been commenced or threatened
against Buyer, or against any Related Person of Buyer, any Proceeding (a)
involving any challenge to, or seeking Damages or other relief in connection
with, any of the Contemplated Transactions or (b) that may have the effect
of
preventing, delaying, making illegal, imposing limitations or conditions on
or
otherwise interfering with any of the Contemplated Transactions.
7.6
NO
CONFLICT
Neither
the consummation nor the performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time),
contravene or conflict with or result in a violation of or cause Buyer or any
Related Person of Buyer to suffer any adverse consequence under (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order
that
has been published, introduced or otherwise proposed by or before any
Governmental Body, excluding Bulk Sales Laws.
7.7
GOVERNMENTAL AUTHORIZATIONS
Buyer
shall have received such Governmental Authorizations as are necessary or
desirable to allow Buyer to operate the Assets from and after the Closing.
7.8
ENVIRONMENTAL REPORT
Buyer
shall have received an environmental site assessment report with respect to
Seller’s Facilities, which report shall be acceptable in form and substance to
Buyer in its sole discretion.
7.9
WARN
ACT NOTICE PERIODS AND EMPLOYEES
a.
All
requisite notice periods under the Warn Act shall have expired.
b.
Substantially
all employees of Seller shall be available for hiring by Buyer, in its sole
discretion, on and as of the Closing Date.
SECTION
8
CONDITIONS
PRECEDENT TO SELLER’S OBLIGATION TO CLOSE
Seller’s
obligation to sell the Assets and to take the other actions required to be
taken
by Seller at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by
Seller in whole or in part):
8.1
ACCURACY OF REPRESENTATIONS
All
of
Buyer’s representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), shall have been accurate in all material respects as of the
date
of this Agreement and shall be accurate in all material respects as of the
time
of the Closing as if then made.
8.2
BUYER’S PERFORMANCE
All
of
the covenants and obligations that Buyer is required to perform or to comply
with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), shall have been performed and complied with in all material
respects.
8.3
CONSENTS
Each
of
the Consents identified in Exhibit 8.3 shall have been obtained and shall be
in
full force and effect.
8.4
ADDITIONAL DOCUMENTS
Buyer
shall have caused the documents and instruments required by Section 2.7(b)
and
the following documents to be delivered (or tendered subject only to Closing)
to
Seller and Shareholder:
a.
an
opinion of Sichenzia Ross Friedman Ference LLP, dated the Closing Date, in
the
form of Exhibit 2.7(b)(vii); and
b.
such
other documents as Seller may reasonably request for the purpose of
(i)
evidencing
the accuracy of any representation or warranty of Buyer,
(ii)
evidencing
the performance by Buyer of, or the compliance by Buyer with, any covenant
or
obligation required to be performed or complied with by Buyer or
(iii)
evidencing
the satisfaction of any condition referred to in this Article 8.
8.5
NO
INJUNCTION
There
shall not be in effect any Legal Requirement or any injunction or other Order
that (a) prohibits the consummation of the Contemplated Transactions and (b)
has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
SECTION
9
TERMINATION
9.1
TERMINATION EVENTS
By
notice
given prior to or at the Closing, subject to Section 9.2, this Agreement may
be
terminated as follows:
a.
by
Buyer
if a material Breach of any provision of this Agreement has been committed
by
Seller or Shareholder and such Breach has not been waived by Buyer;
b.
by
Seller
if a material Breach of any provision of this Agreement has been committed
by
Buyer and such Breach has not been waived by Seller;
c.
by
Buyer
if any condition in Article 7 has not been satisfied as of the date specified
for Closing in the first sentence of Section 2.6 or if satisfaction of such
a
condition by such date is or becomes impossible (other than through the failure
of Buyer to comply with its obligations under this Agreement), and Buyer has
not
waived such condition on or before such date;
d.
by
Seller
if any condition in Article 8 has not been satisfied as of the date specified
for Closing in the first sentence of Section 2.6 or if satisfaction of such
a
condition by such date is or becomes impossible (other than through the failure
of Seller or the Shareholder to comply with their obligations under this
Agreement), and Seller has not waived such condition on or before such date;
e.
by
mutual
consent of Buyer and Seller;
f.
by
Buyer
if the Closing has not occurred on or before June 30, 2006, or such later date
as the parties may agree upon, unless the Buyer is in material Breach of this
Agreement; or
g.
by
Seller
if the Closing has not occurred on or before June 30, 2006, or such later date
as the parties may agree upon, unless the Seller or Shareholder are in material
Breach of this Agreement.
9.2
EFFECT OF TERMINATION
a.
Each
party’s right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of such
right of termination will not be an election of remedies. If this Agreement
is
terminated pursuant to Section 9.1, all obligations of the parties under this
Agreement will terminate, except that the obligations of the parties in this
Section 9.2 and Articles 12 and 13 (except for those in Section 13.5) will
survive, provided, however, that, if this Agreement is terminated because of
a
Breach of this Agreement by the nonterminating party or because one or more
of
the conditions to the terminating party’s obligations under this Agreement is
not satisfied as a result of the party’s failure to comply with its obligations
under this Agreement, the terminating party’s right to pursue all legal remedies
will survive such termination unimpaired.
b.
In
the
event the Agreement shall be terminated by Buyer under Sections 9.1(a) or
9.1(c), the Escrow Deposit, and all interest earned thereon, shall be returned
to Buyer. In this event, all obligations of the Escrow Agent shall
cease.
c.
In
the
event the Agreement shall be terminated for any other reason, the Escrow
Deposit, and all interest earned thereon, shall be paid to Seller as liquidated
damages. In this event, all obligations of the Escrow Agent shall
cease.
SECTION
10
ADDITIONAL
COVENANTS
10.1
EMPLOYEES AND EMPLOYEE BENEFITS
a.
Information
on Active Employees. For the purpose of this Agreement, the term “Active
Employees” shall mean all employees employed on the Closing Date by Seller for
its business who are:
(i)
bargaining
unit employees currently covered by a collective bargaining agreement; or
(ii)
employed
exclusively in Seller’s business as currently conducted, including employees on
temporary leave of absence, including family medical leave, military leave,
temporary disability or sick leave, but excluding employees on long-term
disability leave.
b.
Employment
of Active Employees by Buyer.
(i)
Buyer
is
not obligated to hire any Active Employee but may interview all Active
Employees. Buyer will provide Seller with a list of Active Employees to whom
Buyer has made an offer of employment that has been accepted to be effective
on
the Closing Date (the “Hired Active Employees”). Subject to Legal Requirements,
Buyer will have reasonable access to the Facilities and personnel Records
(including performance appraisals, disciplinary actions, grievances and medical
Records) of Seller for the purpose of preparing for and conducting employment
interviews with all Active Employees and will conduct the interviews as
expeditiously as possible prior to the Closing Date. Access will be provided
by
Seller upon reasonable prior notice during normal business hours. Effective
immediately before the Closing, Seller will terminate the employment of all
of
its Hired Active Employees.
(ii)
Neither
Seller nor the Shareholder nor their Related Persons shall solicit the continued
employment of any Active Employee (unless and until Buyer has informed Seller
in
writing that the particular Active Employee will not receive any employment
offer from Buyer) or the employment of any Hired Active Employee after the
Closing. Buyer shall inform Seller promptly of the identities of those Active
Employees to whom it will not make employment offers, and Seller shall assist
Buyer in complying with the WARN Act as to those Active Employees.
(iii)
It
is
understood and agreed that (A) Buyer’s expressed intention to extend offers of
employment as set forth in this section shall not constitute any commitment,
Contract or understanding (expressed or implied) of any obligation on the part
of Buyer to a post-Closing employment relationship of any fixed term or duration
or upon any terms or conditions other than those that Buyer may establish
pursuant to individual offers of employment, and (B) employment offered by
Buyer
is “at will” and may be terminated by Buyer or by an employee at any time for
any reason (subject to any written commitments to the contrary made by Buyer
or
an employee and Legal Requirements). Nothing in this Agreement shall be deemed
to prevent or restrict in any way the right of Buyer to terminate, reassign,
promote or demote any of the Hired Active Employees after the Closing or to
change adversely or favorably the title, powers, duties, responsibilities,
functions, locations, salaries, other compensation or terms or conditions of
employment of such employees.
c.
Salaries
and Benefits.
(i)
Seller
shall be responsible for (A) the payment of all wages and other remuneration
due
to Active Employees with respect to their services as employees of Seller
through the close of business on the Closing Date, including pro rata bonus
payments and all vacation pay earned prior to the Closing Date; (B) the payment
of any termination or severance payments and the provision of health plan
continuation coverage in accordance with the requirements of COBRA and Sections
601 through 608 of ERISA; and (C) any and all payments to employees required
under the WARN Act.
(ii)
Seller
shall be liable for any claims made or incurred by Active Employees and their
beneficiaries through the Closing Date under the Employee Plans. For purposes
of
the immediately preceding sentence, a charge will be deemed incurred, in the
case of hospital, medical or dental benefits, when the services that are the
subject of the charge are performed and, in the case of other benefits (such
as
disability or life insurance), when an event has occurred or when a condition
has been diagnosed that entitles the employee to the benefit.
c.
Seller’s
Retirement Plans. All Hired Active Employees who are participants in Seller’s
retirement plans shall retain their accrued benefits under Seller’s retirement
plans as of the Closing Date, and Seller (or Seller’s retirement plans) shall
retain sole liability for the payment of such benefits as and when such Hired
Active Employees become eligible therefor under such plans. All Hired Active
Employees shall become fully vested in their accrued benefits under Seller’s
retirement plans as of the Closing Date, and Seller will so amend such plans
if
necessary to achieve this result. Seller shall cause the assets of each Employee
Plan to equal or exceed the benefit liabilities of such Employee Plan on a
plan-termination basis as of the Closing.
d.
No
Transfer of Assets. Neither Seller nor Shareholder nor their respective Related
Persons will make any transfer of pension or other employee benefit plan assets
to Buyer.
e.
General
Employee Provisions.
(i)
Seller
and Buyer shall give any notices required by Legal Requirements and take
whatever other actions with respect to the plans, programs and policies
described in this Section 10.1 as may be necessary to carry out the arrangements
described in this Section 10.1.
(ii)
Seller
and Buyer shall provide each other with such plan documents and summary plan
descriptions, employee data or other information as may be reasonably required
to carry out the arrangements described in this Section 10.1.
(iii)
If
any of
the arrangements described in this Section 10.1 are determined by the IRS or
other Governmental Body to be prohibited by law, Seller and Buyer shall modify
such arrangements to as closely as possible reflect their expressed intent
and
retain the allocation of economic benefits and burdens to the parties
contemplated herein in a manner that is not prohibited by law.
(iv)
Seller
shall provide Buyer with completed I-9 forms and attachments with respect to
all
Hired Active Employees, except for such employees as Seller certifies in writing
to Buyer are exempt from such requirement.
(v)
Buyer
shall not have any responsibility, liability or obligation, whether to Active
Employees, former employees, their beneficiaries or to any other Person, with
respect to any employee benefit plans, practices, programs or arrangements
(including the establishment, operation or termination thereof and the
notification and provision of COBRA coverage extension) maintained by Seller.
10.2
PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY SELLER
Seller
shall pay in a timely manner all Taxes resulting from or payable in connection
with the sale of the Assets pursuant to this Agreement, regardless of the Person
on whom such Taxes are imposed by Legal Requirements, except that Buyer shall
pay one-half of all sales taxes imposed on the transfer of the Assets.
10.3
PAYMENT OF OTHER RETAINED LIABILITIES
In
addition to payment of Taxes pursuant to Section 10.2, Seller shall pay, or
make
adequate provision for the payment, in full all of the Retained Liabilities
and
other Liabilities of Seller under this Agreement. If any such Liabilities are
not so paid or provided for, or if Buyer reasonably determines that failure
to
make any payments will impair Buyer’s use or enjoyment of the Assets or conduct
of the business previously conducted by Seller with the Assets, Buyer may,
at
any time after the Closing Date, elect to make all such payments directly (but
shall have no obligation to do so) and set off and deduct the full amount of
all
such payments from the first maturing installments of the unpaid principal
balance of the Secured Subordinated Promissory Note pursuant to Section 11.8.
Buyer shall receive full credit under the Secured Subordinated Promissory Note
and this Agreement for all payments so made.
10.4
REMOVING EXCLUDED ASSETS
On
or
before the Closing Date, Seller shall remove all Excluded Assets from all
Facilities and other Real Property to be occupied by Buyer. Such removal shall
be done in such manner as to avoid any damage to the Facilities and other
properties to be occupied by Buyer and any disruption of the business operations
to be conducted by Buyer after the Closing. Any damage to the Assets or to
the
Facilities resulting from such removal shall be paid by Seller at the Closing.
Should Seller fail to remove the Excluded Assets as required by this Section,
Buyer shall have the right, but not the obligation, (a) to remove the Excluded
Assets at Seller’s sole cost and expense; (b) to store the Excluded Assets and
to charge Seller all storage costs associated therewith; (c) to treat the
Excluded Assets as unclaimed and to proceed to dispose of the same under the
laws governing unclaimed property; or (d) to exercise any other right or remedy
conferred by this Agreement or otherwise available at law or in equity. Seller
shall promptly reimburse Buyer for all costs and expenses incurred by Buyer
in
connection with any Excluded Assets not removed by Seller on or before the
Closing Date.
10.5
REPORTS AND RETURNS
Seller
shall promptly after the Closing prepare and file all reports and returns
required by Legal Requirements relating to the business of Seller as conducted
using the Assets, to and including the Closing.
10.6
ASSISTANCE IN PROCEEDINGS
Seller
will cooperate with Buyer and its counsel in the contest or defense of, and
make
available its personnel and provide any testimony and access to its books and
Records in connection with, any Proceeding involving or relating to (a) any
Contemplated Transaction or (b) any action, activity, circumstance, condition,
conduct, event, fact, failure to act, incident, occurrence, plan, practice,
situation, status or transaction on or before the Closing Date involving Seller
or its business or the Shareholder.
10.7
NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT
a.
Noncompetition.
For a period of five (5) years after the Closing Date, neither Seller nor
Shareholder shall, anywhere in the United States, directly or indirectly invest
in, own, manage, operate, finance, control, advise, render services to or
guarantee the obligations of any Person engaged in or planning to become engaged
in the Business of the Seller (“Competing Business”), provided, however, that
Seller may purchase or otherwise acquire up to (but not more than) five percent
(5%) of any class of the securities of any Person (but may not otherwise
participate in the activities of such Person) if such securities are listed
on
any national or regional securities exchange or have been registered under
Section 12(g) of the Exchange Act.
b.
Nonsolicitation.
For a period of five (5) years after the Closing Date, neither Seller nor
Shareholder shall, directly or indirectly:
(i)
solicit
the business of any Person who is a customer of Buyer;
(ii)
cause,
induce or attempt to cause or induce any customer, supplier, licensee, licensor,
franchisee, employee, consultant or other business relation of Buyer to cease
doing business with Buyer, to deal with any competitor of Buyer or in any way
interfere with its relationship with Buyer;
(iii)
cause,
induce or attempt to cause or induce any customer, supplier, licensee, licensor,
franchisee, employee, consultant or other business relation of Seller on the
Closing Date or within the year preceding the Closing Date to cease doing
business with Buyer, to deal with any competitor of Buyer or in any way
interfere with its relationship with Buyer; or
(iv)
hire,
retain or attempt to hire or retain any employee or independent contractor
of
Buyer or in any way interfere with the relationship between Buyer and any of
its
employees or independent contractors.
c.
Nondisparagement.
After the Closing Date, neither Seller nor Shareholder shall disparage Buyer
or
any of Buyer’s shareholders, directors, officers, employees or agents.
d.
Modification
of Covenant. If a final judgment of a court or tribunal of competent
jurisdiction determines that any term or provision contained in Section 10.7(a)
through (c) is invalid or unenforceable, then the parties agree that the court
or tribunal will have the power to reduce the scope, duration or geographic
area
of the term or provision, to delete specific words or phrases or to replace
any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of
the
invalid or unenforceable term or provision. This Section 10.7 will be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed. This Section 10.7 is reasonable and necessary to
protect and preserve Buyer’s legitimate business interests and the value of the
Assets and to prevent any unfair advantage conferred on Seller.
10.8
CUSTOMER AND OTHER BUSINESS RELATIONSHIPS
After
the
Closing, Seller and Shareholder will cooperate with Buyer in its efforts to
continue and maintain for the benefit of Buyer those business relationships
of
Seller existing prior to the Closing and relating to the business to be operated
by Buyer after the Closing, including relationships with lessors, employees,
regulatory authorities, licensors, customers, suppliers and others, and Seller
will satisfy the Retained Liabilities in a manner that is not detrimental to
any
of such relationships. Seller and Shareholder will refer to Buyer all inquiries
relating to such business. Neither Seller nor any of its officers, employees,
agents or the Shareholder shall take any action that would tend to diminish
the
value of the Assets after the Closing or that would interfere with the business
of Buyer to be engaged in after the Closing, including disparaging the name
or
business of Buyer.
10.9
RETENTION OF AND ACCESS TO RECORDS
After
the
Closing Date, Buyer shall retain for a period consistent with Buyer’s
record-retention policies and practices those Records of Seller delivered to
Buyer. Buyer also shall provide Seller and Shareholder and their Representatives
reasonable access thereto, during normal business hours and on at least three
days’ prior written notice, to enable them to prepare financial statements or
tax returns or deal with tax audits. After the Closing Date, Seller shall
provide Buyer and its Representatives reasonable access to Records that are
Excluded Assets, during normal business hours and on at least three days’ prior
written notice, for any reasonable business purpose specified by Buyer in such
notice.
10.10
FURTHER ASSURANCES
Subject
to the proviso in Section 6.1, the parties shall cooperate reasonably with
each
other and with their respective Representatives in connection with any steps
required to be taken as part of their respective obligations under this
Agreement, and shall (a) furnish upon request to each other such further
information; (b) execute and deliver to each other such other documents; and
(c)
do such other acts and things, all as the other party may reasonably request
for
the purpose of carrying out the intent of this Agreement and the Contemplated
Transactions.
SECTION
11
INDEMNIFICATION;
REMEDIES
11.1
SURVIVAL
All
representations, warranties, covenants and obligations in this Agreement, the
certificates delivered pursuant to Section 2.7 and any other certificate or
document delivered pursuant to this Agreement shall survive the Closing and
the
consummation of the Contemplated Transactions, subject to Section 11.7. The
right to indemnification, reimbursement or other remedy based upon such
representations, warranties, covenants and obligations shall not be affected
by
any investigation (including any environmental investigation or assessment)
conducted with respect to, or any Knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of or compliance with any such representation, warranty, covenant or obligation.
The waiver of any condition based upon the accuracy of any representation or
warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification, reimbursement or
other
remedy based upon such representations, warranties, covenants and obligations.
11.2
INDEMNIFICATION AND REIMBURSEMENT BY SELLER AND SHAREHOLDER
Seller
and each Shareholder, jointly and severally, will indemnify and hold harmless
Buyer, and its Representatives, shareholders, subsidiaries and Related Persons
(collectively, the “Buyer Indemnified Persons”), and will reimburse the Buyer
Indemnified Persons for any loss, liability, claim, damage, expense (including
costs of investigation and defense and reasonable attorneys’ fees and expenses)
or diminution of value, whether or not involving a Third-Party Claim
(collectively, “Damages”), arising from or in connection with:
a.
any
Breach of any representation or warranty made by Seller or the Shareholder
in
(i) this Agreement (ii) the certificates delivered pursuant to Section 2.7
(for
this purpose, each such certificate will be deemed to have stated that Seller’s
and the Shareholder’s representations and warranties in this Agreement fulfill
the requirements of Section 7.1 as of the Closing Date as if made on the Closing
Date), (iii) any transfer instrument or (iv) any other certificate, document,
writing or instrument delivered by Seller or the Shareholder pursuant to this
Agreement;
b.
any
Breach of any covenant or obligation of Seller or the Shareholder in this
Agreement or in any other certificate, document, writing or instrument delivered
by Seller or the Shareholder pursuant to this Agreement;
c.
any
Liability arising out of the ownership or operation of the Assets prior to
the
Closing other than the Assumed Liabilities;
d.
any
brokerage or finder’s fees or commissions or similar payments based upon any
agreement or understanding made, or alleged to have been made, by any Person
with Seller or the Shareholder (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions;
e.
any
product or component thereof manufactured by or shipped, or any services
provided by, Seller, in whole or in part, prior to the Closing Date;
f.
any
noncompliance with any Bulk Sales Laws or fraudulent transfer law in respect
of
the Contemplated Transactions;
g.
any
liability under the WARN Act or any similar state or local Legal Requirement
that may result from an “Employment Loss”, as defined by 29 U.S.C. sect.
2101(a)(6), caused by any action of Seller prior to the Closing or by Buyer’s
decision not to hire previous employees of Seller;
h.
any
Employee Plan established or maintained by Seller; or
i.
any
Retained Liabilities.
11.3
INDEMNIFICATION AND REIMBURSEMENT BY SELLER-- ENVIRONMENTAL MATTERS
In
addition to the other indemnification provisions in this Article 11, Seller
and
each Shareholder, jointly and severally, will indemnify and hold harmless Buyer
and the other Buyer Indemnified Persons, and will reimburse Buyer and the other
Buyer Indemnified Persons, for any Damages (including costs of cleanup,
containment or other remediation) arising from or in connection with:
a.
any
Environmental, Health and Safety Liabilities arising out of or relating to:
(i)
the ownership or operation by any Person at any time on or prior to the Closing
Date of any of the Facilities, Assets or the business of Seller, or (ii) any
Hazardous Materials or other contaminants that were present on the Facilities
or
Assets at any time on or prior to the Closing Date; or
b.
any
bodily injury (including illness, disability and death, regardless of when
any
such bodily injury occurred, was incurred or manifested itself), personal
injury, property damage (including trespass, nuisance, wrongful eviction and
deprivation of the use of real property) or other damage of or to any Person
or
any Assets in any way arising from or allegedly arising from any Hazardous
Activity conducted by any Person with respect to the business of Seller or
the
Assets prior to the Closing Date or from any Hazardous Material that was (i)
present or suspected to be present on or before the Closing Date on or at the
Facilities (or present or suspected to be present on any other property, if
such
Hazardous Material emanated or allegedly emanated from any Facility and was
present or suspected to be present on any Facility, on or prior to the Closing
Date) or (ii) Released or allegedly Released by any Person on or at any
Facilities or Assets at any time on or prior to the Closing Date.
Buyer
will be entitled to control any Remedial Action, any Proceeding relating to
an
Environmental Claim and, except as provided in the following sentence, any
other
Proceeding with respect to which indemnity may be sought under this Section
11.3. The procedure described in Section 11.9 will apply to any claim solely
for
monetary damages relating to a matter covered by this Section 11.3.
11.4
INDEMNIFICATION AND REIMBURSEMENT BY BUYER
Buyer
will indemnify and hold harmless Seller, and will reimburse Seller, for any
Damages arising from or in connection with:
a.
any
Breach of any representation or warranty made by Buyer in this Agreement or
in
any certificate, document, writing or instrument delivered by Buyer pursuant
to
this Agreement;
b.
any
Breach of any covenant or obligation of Buyer in this Agreement or in any other
certificate, document, writing or instrument delivered by Buyer pursuant to
this
Agreement;
c.
any
claim
by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on Buyer’s behalf) in connection with
any of the Contemplated Transactions;
d.
any
Assumed Liabilities; or
e.
any
liability arising out of the ownership or operation of the Assets after the
Closing, other than the Retained Liabilities
11.5
LIMITATIONS ON AMOUNT-- SELLER AND SHAREHOLDER
Seller
and Shareholder shall have no liability (for indemnification or otherwise)
with
respect to claims under Section 11.2(a) until the total of all Damages with
respect to such matters exceeds twenty-five thousand dollars ($25,000). Total
damages shall not exceed the Purchase Price. However, this Section 11.5 will
not
apply to claims under Section 11.2(c) through (i) or to matters arising in
respect of Sections 3.14, 3.20, 3.29, or to any Breach of any of Seller’s and
Shareholder’s representations and warranties of which the Seller had Knowledge,
after reasonable investigation, at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Seller or
the
Shareholder of any covenant or obligation, and Seller and the Shareholder will
be jointly and severally liable for all Damages with respect to such Breaches.
11.6
LIMITATIONS ON AMOUNT-- BUYER
Buyer
will have no liability (for indemnification or otherwise) with respect to claims
under Section 11.4(a) until the total of all Damages with respect to such
matters exceeds twenty-five thousand dollars ($25,000). However, this Section
11.6 will not apply to claims under Section 11.4(c), 11.4(d), 11.4(e) or matters
arising in respect of Section 4.4 or to any Breach of any of Buyer’s
representations and warranties of which Buyer had Knowledge at any time prior
to
the date on which such representation and warranty is made or any intentional
Breach by Buyer of any covenant or obligation, and Buyer will be liable for
all
Damages with respect to such Breaches.
11.7
TIME
LIMITATIONS
(a)
If
the
Closing occurs, Seller and Shareholder will have liability (for indemnification
or otherwise) with respect to any Breach of (i) a covenant or obligation to
be
performed or complied with prior to the Closing Date (other than those in
Sections 2.1 and 2.4(b) and Articles 10 and 12, as to which a claim may be
made
at any time) or (ii) a representation or warranty, only if Buyer notifies Seller
or Shareholder on or before May 31, 2009 of a claim specifying the factual
basis
of the claim in reasonable detail to the extent then known by Buyer.
(b)
If
the
Closing occurs, Buyer will have liability (for indemnification or otherwise)
with respect to any Breach of (i) a covenant or obligation to be performed
or
complied with prior to the Closing Date (other than those in Article 12, as
to
which a claim may be made at any time) or (ii) a representation or warranty,
only if Seller or Shareholder notify Buyer on or before May 31, 2009 of a claim
specifying the factual basis of the claim in reasonable detail to the extent
then known by Seller or the Shareholder.
11.8
RIGHT OF SETOFF
Upon
notice to Seller specifying in reasonable detail the basis therefor, Buyer
may
propose to set off any amount to which it may be entitled under this Article
11
against amounts otherwise payable under the Secured Subordinated Promissory.
Any
amount so proposed shall be deposited by Buyer into an escrow account maintained
by its attorney until such claim is agreed to by the parties or otherwise
finally determined. The proposal to exercise such right of setoff by Buyer
in
good faith, whether or not ultimately determined to be justified, will not
constitute an event of default under the Secured Subordinated Promissory Note
or
any instrument securing the Secured Subordinated Promissory Note. Neither the
exercise of nor the failure to exercise such right of setoff or to give a notice
of a claim will constitute an election of remedies or limit Buyer in any manner
in the enforcement of any other remedies that may be available to it.
11.9
THIRD-PARTY CLAIMS
a.
Promptly
after receipt by a Person entitled to indemnity under Section 11.2, 11.3 (to
the
extent provided in the last sentence of Section 11.3) or 11.4 (an “Indemnified
Person”) of notice of the assertion of a Third-Party Claim against it, such
Indemnified Person shall give notice to the Person obligated to indemnify under
such Section (an “Indemnifying Person”) of the assertion of such Third-Party
Claim, provided that the failure to notify the Indemnifying Person will not
relieve the Indemnifying Person of any liability that it may have to any
Indemnified Person, except to the extent that the Indemnifying Person
demonstrates that the defense of such Third-Party Claim is prejudiced by the
Indemnified Person’s failure to give such notice.
b.
If
an
Indemnified Person gives notice to the Indemnifying Person pursuant to Section
11.9(a) of the assertion of a Third-Party Claim, the Indemnifying Person shall
be entitled to participate in the defense of such Third-Party Claim and, to
the
extent that it wishes (unless (i) the Indemnifying Person is also a Person
against whom the Third-Party Claim is made and the Indemnified Person determines
in good faith that joint representation would be inappropriate or (ii) the
Indemnifying Person fails to provide reasonable assurance to the Indemnified
Person of its financial capacity to defend such Third-Party Claim and provide
indemnification with respect to such Third-Party Claim), to assume the defense
of such Third-Party Claim with counsel satisfactory to the Indemnified Person.
After notice from the Indemnifying Person to the Indemnified Person of its
election to assume the defense of such Third-Party Claim, the Indemnifying
Person shall not, so long as it diligently conducts such defense, be liable
to
the Indemnified Person under this Article 11 for any fees of other counsel
or
any other expenses with respect to the defense of such Third-Party Claim, in
each case subsequently incurred by the Indemnified Person in connection with
the
defense of such Third-Party Claim, other than reasonable costs of investigation.
If the Indemnifying Person assumes the defense of a Third-Party Claim, (i)
such
assumption will conclusively establish for purposes of this Agreement that
the
claims made in that Third-Party Claim are within the scope of and subject to
indemnification, and (ii) no compromise or settlement of such Third-Party Claims
may be effected by the Indemnifying Person without the Indemnified Person’s
Consent unless (A) there is no finding or admission of any violation of Legal
Requirement or any violation of the rights of any Person; (B) the sole relief
provided is monetary damages that are paid in full by the Indemnifying Person;
and (C) the Indemnified Person shall have no liability with respect to any
compromise or settlement of such Third-Party Claims effected without its
Consent. If notice is given to an Indemnifying Person of the assertion of any
Third-Party Claim and the Indemnifying Person does not, within ten (10) days
after the Indemnified Person’s notice is given, give notice to the Indemnified
Person of its election to assume the defense of such Third-Party Claim, the
Indemnifying Person will be bound by any determination made in such Third-Party
Claim or any compromise or settlement effected by the Indemnified Person.
c.
Notwithstanding
the foregoing, if an Indemnified Person determines in good faith that there
is a
reasonable probability that a Third-Party Claim may adversely affect it or
its
Related Persons other than as a result of monetary damages for which it would
be
entitled to indemnification under this Agreement, the Indemnified Person may,
by
notice to the Indemnifying Person, assume the exclusive right to defend,
compromise or settle such Third-Party Claim, but the Indemnifying Person will
not be bound by any determination of any Third-Party Claim so defended for
the
purposes of this Agreement or any compromise or settlement effected without
its
Consent (which may not be unreasonably withheld).
d.
Notwithstanding
the provisions of Section 13.4, Seller and each Shareholder hereby consent
to
the nonexclusive jurisdiction of any court in which a Proceeding in respect
of a
Third-Party Claim is brought against any Buyer Indemnified Person for purposes
of any claim that a Buyer Indemnified Person may have under this Agreement
with
respect to such Proceeding or the matters alleged therein and agree that process
may be served on Seller and Shareholder with respect to such a claim anywhere
in
the world.
e.
With
respect to any Third-Party Claim subject to indemnification under this Article
11: (i) both the Indemnified Person and the Indemnifying Person, as the case
may
be, shall keep the other Person fully informed of the status of such Third-Party
Claim and any related Proceedings at all stages thereof where such Person is
not
represented by its own counsel, and (ii) the parties agree (each at its own
expense) to render to each other such assistance as they may reasonably require
of each other and to cooperate in good faith with each other in order to ensure
the proper and adequate defense of any Third-Party Claim.
f.
With
respect to any Third-Party Claim subject to indemnification under this Article
11, the parties agree to cooperate in such a manner as to preserve in full
(to
the extent possible) the confidentiality of all Confidential Information and
the
attorney-client and work-product privileges. In connection therewith, each
party
agrees that: (i) it will use its Best Efforts, in respect of any Third-Party
Claim in which it has assumed or participated in the defense, to avoid
production of Confidential Information (consistent with applicable law and
rules
of procedure), and (ii) all communications between any party hereto and counsel
responsible for or participating in the defense of any Third-Party Claim shall,
to the extent possible, be made so as to preserve any applicable attorney-client
or work-product privilege.
11.10
OTHER CLAIMS
A
claim
for indemnification for any matter not involving a Third-Party Claim may be
asserted by notice to the party from whom indemnification is sought and shall
be
paid promptly after such notice.
SECTION
12
CONFIDENTIALITY
12.1
DEFINITION OF CONFIDENTIAL INFORMATION
a.
As
used
in this Article 12, the term “Confidential Information” includes any and all of
the following information of Seller, Buyer or Shareholder that has been or
may
hereafter be disclosed in any form, whether in writing, orally, electronically
or otherwise, or otherwise made available by observation, inspection or
otherwise by either party (Buyer on the one hand or Seller and Shareholder,
collectively, on the other hand) or its Representatives (collectively, a
“Disclosing Party”) to the other party or its Representatives (collectively, a
“Receiving Party”):
(i)
all
information that is a trade secret under applicable trade secret or other law;
(ii)
all
information concerning product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current and planned research and
development, current and planned manufacturing or distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer hardware, Software and computer
software and database technologies, systems, structures and architectures;
(iii)
all
information concerning the business and affairs of the Disclosing Party (which
includes historical and current financial statements, financial projections
and
budgets, tax returns and accountants’ materials, historical, current and
projected sales, capital spending budgets and plans, business plans, strategic
plans, marketing and advertising plans, publications, client and customer lists
and files, contracts, the names and backgrounds of key personnel and personnel
training techniques and materials, however documented), and all information
obtained from review of the Disclosing Party’s documents or property or
discussions with the Disclosing Party regardless of the form of the
communication; and
(iv)
all
notes, analyses, compilations, studies, summaries and other material prepared
by
the Disclosing Party to the extent containing or based, in whole or in part,
upon any information included in the foregoing.
b.
Any
trade
secrets of a Disclosing Party shall also be entitled to all of the protections
and benefits under applicable trade secret law and any other applicable law.
If
any information that a Disclosing Party deems to be a trade secret is found
by a
court of competent jurisdiction not to be a trade secret for purposes of this
Article 12, such information shall still be considered Confidential Information
of that Disclosing Party for purposes of this Article 12 to the extent included
within the definition. In the case of trade secrets, each of Buyer, Seller
and
Shareholder hereby waives any requirement that the other party submit proof
of
the economic value of any trade secret or post a bond or other security.
12.2
RESTRICTED USE OF CONFIDENTIAL INFORMATION
a.
Each
Receiving Party acknowledges the confidential and proprietary nature of the
Confidential Information of the Disclosing Party and agrees that such
Confidential Information (i) shall be kept confidential by the Receiving Party;
(ii) shall not be used for any reason or purpose other than to evaluate and
consummate the Contemplated Transactions; and (iii) without limiting the
foregoing, shall not be disclosed by the Receiving Party to any Person, except
in each case as otherwise expressly permitted by the terms of this Agreement
or
with the prior written consent of an authorized representative of Seller with
respect to Confidential Information of Seller or Shareholder (each, a “Seller
Contact”) or an authorized representative of Buyer with respect to Confidential
Information of Buyer (each, a “Buyer Contact”). Each of Buyer and Seller and
Shareholder shall disclose the Confidential Information of the other party
only
to its Representatives who require such material for the purpose of evaluating
the Contemplated Transactions and are informed by Buyer, Seller or Shareholder,
as the case may be, of the obligations of this Article 12 with respect to such
information. Each of Buyer, Seller and Shareholder shall (iv) enforce the terms
of this Article 12 as to its respective Representatives; (v) take such action
to
the extent necessary to cause its Representatives to comply with the terms
and
conditions of this Article 12; and (vi) be responsible and liable for any breach
of the provisions of this Article 12 by it or its Representatives.
b.
Unless
and until this Agreement is terminated, Seller and each Shareholder shall
maintain as confidential any Confidential Information (including for this
purpose any information of Seller or Shareholder of the type referred to in
Sections 12.1(a)(i), (ii) and (iii), whether or not disclosed to Buyer) of
the
Seller or Shareholder relating to any of the Assets or the Assumed Liabilities.
Notwithstanding the preceding sentence, Seller may use any Confidential
Information of Seller before the Closing in the Ordinary Course of Business
in
connection with the transactions permitted by Section 5.2.
c.
From
and
after the Closing, the provisions of Section 12.2(a) above shall not apply
to or
restrict in any manner Buyer’s use of any Confidential Information of the Seller
or Shareholder relating to any of the Assets or the Assumed Liabilities.
12.3
EXCEPTIONS
Sections
12.2(a) and (b) do not apply to that part of the Confidential Information of
a
Disclosing Party that a Receiving Party demonstrates (a) was, is or becomes
generally available to the public other than as a result of a breach of this
Article 12 or the Confidentiality Agreement by the Receiving Party or its
Representatives; (b) was or is developed by the Receiving Party independently
of
and without reference to any Confidential Information of the Disclosing Party;
or (c) was, is or becomes available to the Receiving Party on a nonconfidential
basis from a Third Party not bound by a confidentiality agreement or any legal,
fiduciary or other obligation restricting disclosure. Neither Seller nor the
Shareholder shall disclose any Confidential Information of Seller or Shareholder
relating to any of the Assets or the Assumed Liabilities in reliance on the
exceptions in clauses (b) or (c) above.
12.4
LEGAL PROCEEDINGS
If
a
Receiving Party becomes compelled in any Proceeding or is requested by a
Governmental Body having regulatory jurisdiction over the Contemplated
Transactions to make any disclosure that is prohibited or otherwise constrained
by this Article 12, that Receiving Party shall provide the Disclosing Party
with
prompt notice of such compulsion or request so that it may seek an appropriate
protective order or other appropriate remedy or waive compliance with the
provisions of this Article 12. In the absence of a protective order or other
remedy, the Receiving Party may disclose that portion (and only that portion)
of
the Confidential Information of the Disclosing Party that, based upon advice
of
the Receiving Party’s counsel, the Receiving Party is legally compelled to
disclose or that has been requested by such Governmental Body, provided,
however, that the Receiving Party shall use reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded by any Person
to
whom any Confidential Information is so disclosed. The provisions of this
Section 12.4 do not apply to any Proceedings between the parties to this
Agreement.
12.5
RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION
If
this
Agreement is terminated, each Receiving Party shall (a) destroy all Confidential
Information of the Disclosing Party prepared or generated by the Receiving
Party
without retaining a copy of any such material; (b) promptly deliver to the
Disclosing Party all other Confidential Information of the Disclosing Party,
together with all copies thereof, in the possession, custody or control of
the
Receiving Party or, alternatively, with the written consent of a Seller Contact
or a Buyer Contact (whichever represents the Disclosing Party) destroy all
such
Confidential Information; and (c) certify all such destruction in writing to
the
Disclosing Party, provided, however, that the Receiving Party may retain a
list
that contains general descriptions of the information it has returned or
destroyed to facilitate the resolution of any controversies after the Disclosing
Party’s Confidential Information is returned.
12.6
ATTORNEY-CLIENT PRIVILEGE
The
Disclosing Party is not waiving, and will not be deemed to have waived or
diminished, any of its attorney work product protections, attorney-client
privileges or similar protections and privileges as a result of disclosing
its
Confidential Information (including Confidential Information related to pending
or threatened litigation) to the Receiving Party, regardless of whether the
Disclosing Party has asserted, or is or may be entitled to assert, such
privileges and protections. The parties (a) share a common legal and commercial
interest in all of the Disclosing Party’s Confidential Information that is
subject to such privileges and protections; (b) are or may become joint
defendants in Proceedings to which the Disclosing Party’s Confidential
Information covered by such protections and privileges relates; (c) intend
that
such privileges and protections remain intact should either party become subject
to any actual or threatened Proceeding to which the Disclosing Party’s
Confidential Information covered by such protections and privileges relates;
and
(d) intend that after the Closing the Receiving Party shall have the right
to
assert such protections and privileges. No Receiving Party shall admit, claim
or
contend, in Proceedings involving either party or otherwise, that any Disclosing
Party waived any of its attorney work-product protections, attorney-client
privileges or similar protections and privileges with respect to any
information, documents or other material not disclosed to a Receiving Party
due
to the Disclosing Party disclosing its Confidential Information (including
Confidential Information related to pending or threatened litigation) to the
Receiving Party.
SECTION
13
GENERAL
PROVISIONS
13.1
EXPENSES
Except
as
otherwise provided in this Agreement, each party to this Agreement will bear
its
respective fees and expenses incurred in connection with the preparation,
negotiation, execution and performance of this Agreement and the Contemplated
Transactions, including all fees and expense of its Representatives. If this
Agreement is terminated, the obligation of each party to pay its own fees and
expenses will be subject to any rights of such party arising from a Breach
of
this Agreement by another party.
13.2
PUBLIC ANNOUNCEMENTS AND DISCLOSURES
Any
public announcement, press release or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyer determines. Except with the prior consent
of
Buyer or as permitted by this Agreement, neither Seller, Shareholder nor any
of
their Representatives shall disclose to any Person (a) the fact that any
Confidential Information of Seller or Shareholder has been disclosed to Buyer
or
its Representatives, that Buyer or its Representatives have inspected any
portion of the Confidential Information of Seller or Shareholder, that any
Confidential Information of Buyer has been disclosed to Seller, Shareholder
or
their Representatives or that Seller, Shareholder or their Representatives
have
inspected any portion of the Confidential Information of Buyer or (b) any
information about the Contemplated Transactions, including the status of such
discussions or negotiations, the execution of any documents (including this
Agreement) or any of the terms of the Contemplated Transactions or the related
documents (including this Agreement). Seller and Buyer will consult with each
other concerning the means by which Seller’s employees, customers, suppliers and
others having dealings with Seller will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for any such
communication. Buyer retains the right to disclose this Agreement in its
entirety in public filings with the U.S. Securities and Exchange
Commission.
13.3
NOTICES
All
notices, Consents, waivers and other communications required or permitted by
this Agreement shall be in writing and shall be deemed given to a party when
(a)
delivered to the appropriate address by hand or by nationally recognized
overnight courier service (costs prepaid); (b) sent by facsimile or e-mail
with
confirmation of transmission by the transmitting equipment; or (c) received
or
rejected by the addressee, if sent by certified mail, return receipt requested,
in each case to the following addresses, facsimile numbers or e-mail addresses
and marked to the attention of the person (by name or title) designated below
(or to such other address, facsimile number, e-mail address or person as a
party
may designate by notice to the other parties):
Seller
(before the Closing):
Freundlich
Supply Company, Inc.
2200
Arthur Kill Road
Staten
Island, NY 10309
Attention:
Michael Freundlich
Fax
no.:
(718) 356-3661
E-mail
address: inspector1492@aol.com
with
a
mandatory copy to:
Howard
J.
Kerker, Esquire
600
Madison Avenue
22nd
Floor
New
York,
NY 10022
Fax
no.:
(212) 758-1747
E-mail
address: hjkpc@aol.com
Seller
(after the Closing):
Freundlich
Supply Company, Inc.
2200
Arthur Kill Road
Staten
Island, NY 10309
Attention:
Michael Freundlich
Fax
no.:
(718) 356-3661
E-mail
address: inspector1492@aol.com
with
a
mandatory copy to:
Howard
J.
Kerker, Esquire
600
Madison Avenue
22nd
Floor
New
York,
NY 10022
Fax
no.:
(212) 758-1747
E-mail
address: hjkpc@aol.com
Shareholder:
Michael
Freundlich
2200
Arthur Kill Road
Staten
Island, NY 10309
Fax
no.:
(718) 356-3661
E-mail
address: inspector1492@aol.com
with
a
mandatory copy to:
Howard
J.
Kerker, Esquire
600
Madison Avenue
22nd
Floor
New
York,
NY 10022
Fax
no.:
(212) (212) 758-1747
E-mail
address: hjkpc@aol.com
Buyer:
Delaware
Fastener Acquisition Corporation
P.
O. Box
2127
Jenkintown,
PA 19046
Attention:
Alex Katz
Fax
no.:
(215) 885-6281
E-mail
address: katza@comcast.net
with
a
mandatory copy to:
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
NY 10018
Attention:
Darrin M. Ocasio, Esq.
Fax
no.:
(212) 930-9725
E-mail
address: dmocasio@srff.com
13.4
JURISDICTION; SERVICE OF PROCESS
Any
Proceeding arising out of or relating to this Agreement or any Contemplated
Transaction may be brought in the courts of the State of New York, County of New
York, or, if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, and each of the parties irrevocably
submits to the exclusive jurisdiction of each such court in any such Proceeding,
waives any objection it may now or hereafter have to venue or to convenience
of
forum, agrees that all claims in respect of the Proceeding shall be heard and
determined only in any such court and agrees not to bring any Proceeding arising
out of or relating to this Agreement or any Contemplated Transaction in any
other court. The parties agree that either or both of them may file a copy
of
this paragraph with any court as written evidence of the knowing, voluntary
and
bargained agreement between the parties irrevocably to waive any objections
to
venue or to convenience of forum. Process in any Proceeding referred to in
the
first sentence of this section may be served on any party anywhere in the world.
13.5
ENFORCEMENT OF AGREEMENT
Buyer,
Seller and Shareholder acknowledge and agree that each respective party would
be
irreparably damaged if any of the provisions of this Agreement are not performed
in accordance with their specific terms and that any Breach of this Agreement
by
either party could not be adequately compensated in all cases by monetary
damages alone. Accordingly, in addition to any other right or remedy to which
a
party hereto may be entitled, at law or in equity, it shall be entitled to
enforce any provision of this Agreement by a decree of specific performance
and
to temporary, preliminary and permanent injunctive relief to prevent Breaches
or
threatened Breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.
13.6
WAIVER; REMEDIES CUMULATIVE
The
rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither any failure nor any delay by any party in exercising any
right, power or privilege under this Agreement or any of the documents referred
to in this Agreement will operate as a waiver of such right, power or privilege,
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or
the
exercise of any other right, power or privilege. To the maximum extent permitted
by applicable law, (a) no claim or right arising out of this Agreement or any
of
the documents referred to in this Agreement can be discharged by one party,
in
whole or in part, by a waiver or renunciation of the claim or right unless
in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of that party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
13.7
ENTIRE AGREEMENT AND MODIFICATION
This
Agreement supersedes all prior agreements, whether written or oral, between
the
parties with respect to its subject matter (including any letter of intent
and
any confidentiality agreement between Buyer and Seller) and constitutes (along
with the Exhibits and other documents delivered pursuant to this Agreement)
a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended,
supplemented, or otherwise modified except by a written agreement executed
by
the party to be charged with the amendment.
13.8
ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
No
party
may assign any of its rights or delegate any of its obligations under this
Agreement without the prior written consent of the other parties, except that
Buyer may assign any of its rights and delegate any of its obligations under
this Agreement to any Subsidiary of Buyer and may collaterally assign its rights
hereunder to any financial institution providing financing in connection with
the Contemplated Transactions. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon and inure to the benefit of
the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement, except such rights
as shall inure to a successor or permitted assignee pursuant to this Section
13.9.
13.9
SEVERABILITY
If
any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain
in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to
the
extent not held invalid or unenforceable.
13.10
CONSTRUCTION
The
headings of Articles and Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references
to
“Articles” and “Sections” refer to the corresponding Articles and Sections of
this Agreement.
13.11
TIME OF ESSENCE
With
regard to all dates and time periods set forth or referred to in this Agreement,
time is of the essence.
13.12
GOVERNING LAW
This
Agreement will be governed by and construed under the laws of the State of
New
York without regard to conflicts-of-laws principles that would require the
application of any other law.
13.13
EXECUTION OF AGREEMENT
This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. The exchange
of copies of this Agreement and of signature pages by facsimile transmission
shall constitute effective execution and delivery of this Agreement as to the
parties and may be used in lieu of the original Agreement for all purposes.
Signatures of the parties transmitted by facsimile shall be deemed to be their
original signatures for all purposes.
13.14
SHAREHOLDER OBLIGATIONS
The
liability of each Shareholder hereunder shall be joint and several with Seller
and with the other Shareholder. Where in this Agreement provision is made for
any action to be taken or not taken by Seller, Shareholder jointly and severally
undertake to cause Seller to take or not take such action, as the case may
be.
Without limiting the generality of the foregoing, Shareholder shall be jointly
and severally liable with Seller for the indemnities set forth in Article 11.
13.15
REPRESENTATIVE OF SELLER AND SHAREHOLDER
a.
Seller
hereby constitutes and appoints Shareholder as its representative (“Selling
Parties’ Representative”) and its true and lawful attorney in fact, with full
power and authority in its name and on its behalf:
(i)
to
act in
the absolute discretion of the Selling Parties Representative, but only with
respect to the following provisions of this Agreement, with the power to: (A)
designate the accounts for payment of the Purchase Price pursuant to Section
2.7(b)(i); (B) act pursuant to Section 2.9 with respect to any Purchase Price
adjustment; (C) consent to the assignment of rights under this Agreement in
accordance with Section 13.9; (D) give and receive notices pursuant to Section
13.3; (E) terminate this Agreement pursuant to Section 9.1 or waive any
provision of this Agreement pursuant to Article 8, Section 9.1 and Section
13.6;
(F) accept service of process pursuant to Section 13.4; and (G) act in
connection with any matter as to which Seller and the Shareholder, jointly
and
severally, have obligations, or are Indemnified Persons, under Article 11;
and
(ii)
in
general, to do all things and to perform all acts, including executing and
delivering all agreements, certificates, receipts, instructions and other
instruments contemplated by or deemed advisable to effectuate the provisions
of
this Section 13.15.
This
appointment and grant of power and authority is coupled with an interest and
is
in consideration of the mutual covenants made herein and is irrevocable and
shall not be terminated by any act of either of the Shareholder or Seller or
by
operation of law, whether by the death or incapacity of the Shareholder or
by
the occurrence of any other event. Each Shareholder and Seller hereby consents
to the taking of any and all actions and the making of any decisions required
or
permitted to be taken or made by the Selling Parties Representative pursuant
to
this Section 13.15. Each of the Shareholder and Seller agree that the Selling
Parties Representative shall have no obligation or liability to any Person
for
any action or omission taken or omitted by the Selling Parties Representative
in
good faith hereunder, and each of the Shareholder shall, on a proportionate
basis in accordance with his or her ownership interest in the Seller, indemnify
and hold the Selling Parties Representative harmless from and against any and
all loss, damage, expense or liability (including reasonable counsel fees and
expenses) which the Selling Parties Representative may sustain as a result
of
any such action or omission by the Selling Parties Representative hereunder.
b.
Buyer
shall be entitled to rely upon any document or other paper delivered by the
Selling Parties Representative as (i) genuine and correct and (ii) having been
duly signed or sent
by
the
Selling Parties Representative, and the Buyer shall not be liable to either
the
Shareholder or Seller for any action taken or omitted to be taken by Buyer
in
such reliance.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above.
|
FREUNDLICH
SUPPLY COMPANY, INC.
by:
/s/ Michael
Freundlich
Michael
Freundlich, President
SHAREHOLDER
/s/
Michael
Freundlich
Michael
Freundlich
DELAWARE
FASTENER ACQUISITION
CORPORATION
by:
/s/
Alex
Katz
Name:
Alex Katz
Title:
President
ESCROW
AGENT
/s/
Howard J.
Kerker
Howard
J. Kerker, Esquire, with regard to
Sections
2.3(b), 9.2(b) and 9.2(c)
only
|
SECURITIES
PURCHASE AGREEMENT
BETWEEN
JORDAN
1 HOLDINGS COMPANY
AND
BARRON
PARTNERS LP and
the
Equity Investors Named Herein
DATED
July
20,
2006
SECURITIES
PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (the “
Agreement
”)
is
made and entered into as of the 20
th
day of
July, 2006 between
Jordan
1 Holdings Company,
a
Delaware corporation (the “
Company
”)
and
Barron
Partners LP,
a
Delaware limited partnership (“
Barron
”),
and
the other investors named in Schedule A to this Agreement (the “
Equity
Investors
”),
Barron and the Equity Investors being collectively referred to as the
“
Investors
”
and
each, individually, an “
Investor
.
”
RECITALS
WHEREAS
,
the
Barron
wish
to
purchase from the Company, upon the terms and subject to the conditions of
this
Agreement, for the that portion of the Purchase Price as hereinafter defined
as
is set forth after Barron’s name on Schedule A to this Agreement, (a) the
Company’s promissory note (the “
Note
”)
in the
principal amount of one million dollars ($1,000,000), (b) four million seven
hundred twenty two thousand two hundred twenty two
(4,722,222)
shares of the Company’s Series A Convertible Preferred Stock, par value $.001
per share (“
Series
A Preferred Stock
”),
with
each shares of Series A Preferred Stock being convertible into three (3) shares
of
the
Company’s common stock, par value $.001 per shares (“
Common
Stock
”),
and (c)
Common Stock Purchase Warrants (the “
Warrants
”)
to
purchase
up to nine million six hundred twenty four thousand three hundred sixty nine
(9,624,369) shares of Common Stock, at an exercise price of thirty five cents
($.35) per share, and nine million six hundred twenty four thousand three
hundred sixty nine (9,624,369) shares of Common Stock at an exercise price
of
sixty cents ($.60) per share. The Note, shares of Series A Preferred Stock,
Warrants and shares of Common Stock issuable upon exercise or conversion of
the
Note, the Series A Preferred Stock and the Warrants issuable to the Investors
pursuant to this Agreement are referred to collectively as the “
Securities
.”
The
Note
and the Series A Preferred Stock will be convertible into shares of the Common
Stock in the manner set forth in the Note and in the Certificate of Designation,
as hereinafter defined
;
and
WHEREAS
,
each of
the Equity Investors, severally,
wishes
to
purchase from the Company, upon the terms and subject to the conditions of
this
Agreement, for the that portion of the Purchase Price as hereinafter defined
as
is set forth after such Equity Investor’s name on Schedule A to this Agreement,
that portion of (a) five hundred fifty five thousand five hundred fifty six
(555,556)
shares
of
Series A Preferred Stock, and (b) Warrants to
purchase
up to nine hundred sixteen thousand six hundred thirty one (916,631) shares
of
Common Stock at an exercise price of thirty five cents ($.35) per share, and
nine hundred sixteen thousand six hundred thirty one (916,631) shares of Common
Stock at an exercise price of sixty cents ($.60) per share as is set forth
after
such Equity Investor’s name on said Schedule A;
WHEREAS,
pursuant
to a separate agreement, but as part of the transaction whereby the Investors
are purchasing the Securities, (i) the holders of all of the issued and
outstanding common stock of Delaware Fastener Acquisition Corp., a Delaware
corporation (“DFAC”), in exchange for five million three hundred sixty two
thousand (5,362,000) shares of Common Stock, representing shares of Common
Stock
and shares of the Company’s Series B Convertible Preferred Stock, par value
$.001 per share (“
Series
B Preferred Stock
”)
pursuant to a stock exchange agreement (the “Exchange Agreement”) by and among
such stockholders and the Company, (ii) DFAC is acquiring assets of
Freundlich
Supply Company, Inc., a New York corporation (“
Freundlich
”)
pursuant to an asset purchase agreement (the “
Asset
Purchase Agreement
”)
dated
May 24, 2006, by and among Freundlich, Michael Freundlich and DFAC, and (iii)
the Company is purchasing from a principal stockholder of the Company a total
of
twenty nine million (29,000,000) shares of Common Stock (without giving effect
to the Reverse Split) for a purchase price not to exceed five hundred fifty
thousand dollars ($550,000) plus four hundred thousand (400,000) shares of
Common Stock (after giving effect to the Reverse Split, as hereinafter defined)
pursuant to an agreement between such stockholder and the Company (the
“
Jordan
Agreement
”)
;
and
SECURITIES
PURCHASE AGREEMENT
WHEREAS
,
the
parties intend to memorialize the purchase and sale of the
Securities.
NOW,
THEREFORE
,
in
consideration of the mutual covenants and premises contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
ARTICLE
I
INCORPORATION
BY REFERENCE AND DEFINITIONS
1.1.
|
Incorporation
by Reference
.
The foregoing recitals and the Exhibits and Schedules attached hereto
and
referred to herein, are hereby acknowledged to be true and accurate,
and
are incorporated herein by this
reference.
|
1.2.
|
Supersedes
Other Agreements
.
This Agreement, to the extent that it is inconsistent with any other
instrument or understanding among the parties, shall supersede such
instrument or understanding to the fullest extent permitted by law.
A copy
of this Agreement shall be filed at the Company’s principal
office.
|
1.3.
|
Certain
Definitions
.
For purposes of this Agreement, the following capitalized terms shall
have
the following meanings (all capitalized terms used in this Agreement
that
are not defined in this Article 1 shall have the meanings set forth
elsewhere in this Agreement):
|
1.3.1.
“
4.9%
Limitation
”
has
the
meaning set forth in Section 2.1.2 of this Agreement.
1.3.2.
“
1933
Act
”
means
the Securities Act of 1933, as amended.
1.3.3.
“
1934
Act
”
means
the Securities Exchange Act of 1934, as amended.
1.3.4.
“
Affiliate
”
means
a
Person or Persons directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Person(s) in
question. The term “control,” as used in the immediately preceding sentence,
means, with respect to a Person that is a corporation, the right to the
exercise, directly or indirectly, of more than 50% of the voting rights
attributable to the shares of such controlled corporation and, with respect
to a
Person that is not a corporation, the possession, directly or indirectly, of
the
power to direct or cause the direction of the management or policies of such
controlled Person.
1.3.5.
“
Articles
”
means
the certificate of incorporation of the Company, as the same may be amended
from
time to time.
1.3.6.
“
Bylaws
”
means
the
bylaws of the Company, as the same may be amended from time to
time.
1.3.7.
“
Certificate
of Designation
”
means
the certificate of the rights, preferences and privileges, subject to the
limitations, with respect to the Series A Preferred Stock. The Certificate
of
Designation shall be in substantially the form of
Exhibit
B
to this
Agreement.
SECURITIES
PURCHASE AGREEMENT
1.3.8.
“
Closing
”
means
the
consummation of the transactions contemplated by this Agreement and the Exchange
of Securities, all of which transactions shall be consummated contemporaneously
with the Closing.
1.3.9.
“
Closing
Date
”
means
the date on which the Closing occurs, which be not later than July 20,
2006.
1.3.10.
“
Common
Stock
”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.001 per share. All references to numbers of shares of Common Stock
assume a one-for-150 reverse split.
1.3.11.
“
Company’s
Governing Documents
”
means
the Articles and Bylaws.
1.3.12.
“
Convertible
Securities
”
means
the Note and the Series A Preferred Stock.
1.3.13.
“
Delaware
Law
”
means
the Delaware General Corporation Law, as amended.
1.3.14.
“
EBITDA
”
means
consolidated earnings before interest, taxes, depreciation and amortization,
determined in accordance with U.S. GAAP.
1.3.15.
“
Escrow
Agreement
”
means
the Escrow Agreement among the Company, the Investors and Sichenzia Ross
Friedman Ference LLP, as Escrow Agent, attached hereto as
Exhibit
C
it being
acknowledged that the Escrow Agent is counsel for the Company.
1.3.16.
“
Equity
Purchase Price
”
means
four million seven hundred fifty thousand dollars ($4,750,000).
1.3.17.
“
Exchange
of Securities
”
means
the issuance of shares of Common Stock and Series B Preferred Stock in exchange
for the outstanding securities of DFAC pursuant to the Exchange
Agreement.
1.3.18.
“
Exempt
Issuance
”
means
the issuance of (a) shares of Common Stock or options to employees, officers,
directors of and consultants (other than consultants whose services relate
to
the raising of funds) of the Company pursuant to the Company’s 2006 long-term
incentive plan, which is reflected on Schedule 4.3.1 to this Agreement, and
any
other stock or option plan that was or may be adopted by a majority of
independent members of the Board of Directors of the Company or a majority
of
the members of a committee of independent directors established for such
purpose, (b) securities upon the exercise of or conversion of any securities
issued hereunder and pursuant to the Registration Rights Agreement, the Note,
the Warrants and the Certificate of Designation and any other options, warrants
or convertible securities which are outstanding on after completion of the
Closing and the effectiveness of the Exchange of Securities, and (c) securities
issued pursuant to acquisitions, licensing agreements, or other strategic
transactions, provided any such issuance shall only be to a Person which is,
itself or through its subsidiaries, an operating company in a business which
the
Company’s board of directors believes is beneficial to the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.
SECURITIES
PURCHASE AGREEMENT
1.3.19.
“
GAAP
”
means
United States generally accepted accounting principles consistently
applied.
1.3.20.
“
Material
Adverse Effect
”
means
any adverse effect on the business, operations, properties or financial
condition of the Company that is material and adverse to the Company and its
subsidiaries, including Freundlich, taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company or any subsidiary to perform any of its material
obligations under this Agreement or the Registration Rights Agreement or to
perform its obligations under any other material agreement.
1.3.21.
“
Net
Income
”
means
net
income
determined in accordance with GAAP plus (a) any charges relating to the
transaction contemplated by this Agreement and the Registration Rights
Agreement, and (b) any other non-recurring items, including the issuance of
warrants which are not issued under a stock option or other equity-based
incentive plan
.
1.3.22.
“
Person
”
means
an individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
1.3.23.
“
Pre-Tax
Income
”
means
income
before income taxes determined in accordance with GAAP plus (a) any charges
relating to the transaction contemplated by this Agreement and the Registration
Rights Agreement, and (b) any other non-recurring items, including the issuance
of warrants which are not issued under a stock option or other equity-based
incentive plan
.
1.3.24.
“
Purchase
Price
”
means
the
five million seven hundred fifty thousand dollars ($5,750
,000
)
to be
paid by the Investors to the Company for the Securities.
1.3.25.
“
Registration
Rights Agreement
”
means
the registration rights agreement between the Investors and the Company in
substantially the form of
Exhibit
D
to this
Agreement.
1.3.26.
“
Registration
Statement
”
means
the registration statement under the 1933 Act to be filed with the Securities
and Exchange Commission for the registration of the Shares pursuant to the
Registration Rights Agreement.
1.3.27.
“
Restated
Certificate
”
means
the Restated Certificate of incorporation of the Company in substantially the
form of
Exhibit
E
to this
Agreement.
1.3.28.
“
Restricted
Stockholders
”
shall
have the meaning set forth in Section 6.16 of this Agreement.
1.3.29.
“
Securities
”
means
the Note, the shares of Series A Preferred Stock, the Warrants and the
Shares.
SECURITIES
PURCHASE AGREEMENT
1.3.30.
“
SEC
”
means
the Securities and Exchange Commission.
1.3.31.
“
SEC
Documents
”
means,
at any given time, the Company’s latest Form 10-K or Form 10-KSB and all Forms
10-Q or 10-QSB and 8-K and all proxy statements or information statements filed
between the date the Form 10-K or Form 10-KSB was filed and the date as to
which
a determination is being made until such time as the Company no longer has
an
obligation to maintain the effectiveness of a Registration Statement as set
forth in the Registration Rights Agreement.
1.3.32.
“
Series
A Preferred Stock
”
means
the shares of Series A Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.
1.3.33.
“
Series
B Certificate
”
shall
mean the certificate of designation for the Series B Preferred Stock which
shall
be in substantially the form of Exhibit F to this Agreement.
1.3.34.
“
Series
B Preferred Stock
”
means
the shares of Series B Preferred Stock issuable as part of the Exchange of
Shares and having the rights, preferences and privileges and subject to the
limitations set forth in the Series B Certificate.
1.3.35.
“
Shares
”
means,
collectively, the shares of Common Stock issued or issuable (i) upon conversion
of the Notes or the Series A Preferred Stock or (ii) upon exercise of the
Warrants.
1.3.36.
“
Subsequent
Financing
”
means
any offer and sale of shares of the Company’s preferred stock, par value $.001
per share, or debt that, in either case, is initially convertible into shares
of
Common Stock or otherwise senior or superior to the Series A Preferred
Stock.
1.3.37.
“
Transaction
Documents
”
means
this Agreement, all Schedules and Exhibits attached hereto, the Certificate
of
Designation, the Note, the Warrants, the Registration Rights Agreement and
all
other documents and instruments to be executed and delivered by the parties
in
order to consummate the transactions contemplated hereby.
1.3.38.
“
Warrants
”
means
the Common Stock Purchase Warrants in substantially the form of
Exhibit
G-1 and G-2
to this
Agreement.
1.3.39.
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
SECURITIES
PURCHASE AGREEMENT
ARTICLE
II
SALE
AND PURCHASE OF SECURITIES
2.1.
|
Sale
of Securities
.
|
2.1.1.
Upon
the
terms and subject to the conditions set forth herein, and in accordance with
applicable law, the Company
agrees
to
sell to the Investors, and the each Investor severally agrees to purchase from
the Company, on the Closing Date the Securities as set forth after such
Investor’s name on Schedule A to this Agreement for that portion of the Purchase
Price as is set forth on said Schedule A. The Purchase Price shall be paid
by
the Investors, severally, to the Company on the Closing Date by a wire
transfer
of the
Purchase Price into escrow to be held by the escrow agent pursuant to the terms
of the Escrow Agreement. The Company shall cause the Securities to be issued
to
the Investors upon the release of the Purchase Price to the Company by the
escrow agent pursuant to the terms of the Escrow Agreement.
2.1.2.
Notwithstanding
any other provision of this Agreement, except as expressly provided in the
Note,
the Certificate of Designation or the Warrants, no Investor shall be entitled
to
convert the Notes or the Series A Preferred Stock
into
shares of Common Stock or to exercise the Warrants to the extent that such
conversion or exercise would result in beneficial ownership by such Investor
and
its Affiliates of more than 4.9% of the then outstanding number of shares of
Common Stock on such date. For the purposes of this Agreement beneficial
ownership shall be determined in accordance with Section 13(d) of the 1934
Act,
and Regulation 13d-3 thereunder. The limitation set forth in this Section 2.1.3
is referred to as the “
4.9%
Limitation
.”
2.2.
|
Purchase
Price
.
The Purchase Price payable by each Investor shall be delivered by
such
Investor in the form of wire transfers in United States dollars from
the
Investor to the escrow agent pursuant to the Escrow Agreement on
the
Closing Date.
|
2.3.
|
Acquisition
of
Freundlich
.
The
Company
shall have acquired
all of the outstanding capital stock of DFAC, which shall have acquired
the assets to be acquired by it pursuant to the Asset Purchase
Agreement.
N
o
Person shall have any right, title or interest in, or any right or
option
to acquire, any shares of any class of capital stock of DFAC
.
|
ARTICLE
III
CLOSING
DATE AND DELIVERIES AT CLOSING
3.1.
|
Closing
Date
.
The
Closing of the transactions contemplated by this Agreement
shall be held
at the offices of counsel for the Company, at 11:00 A.M. local
time, on
the Closing Date or on such other date and time and at such
other place as
may be mutually agreed by the parties, including Closing by
facsimile with
originals to
follow.
|
3.2.
|
Deliveries
by the Company
.
In
addition to and without limiting any other provision of this Agreement,
the Company agrees to deliver, or cause to be delivered, to the escrow
agent under the Escrow Agreement, the following:
|
(a)
At
or
prior to Closing, an executed Agreement with all exhibits and schedules attached
hereto.
SECURITIES
PURCHASE AGREEMENT
(b)
At
the
Closing, the executed Note in the names of Barron.
(c)
At
the
Closing, a stock certificate for the shares of Series A Preferred Stock in
the
names of the Investors.
(d)
At
the
Closing, executed Warrants in the names of the Investors.
(e)
The
executed Registration Rights Agreement.
(f)
Certifications
in form and substance acceptable to the Company and the Investors from any
and
all brokers or agents involved in the transactions contemplated hereby as to
the
amount of commission or compensation payable to such broker or agent as a result
of the consummation of the transactions contemplated hereby and from the Company
or Investors, as appropriate, to the effect that reasonable reserves for any
other commissions or compensation that may be claimed by any broker or agent
have been set aside.
(g)
Evidence
of approval of the board of directors of the Company of (i) the Transaction
Documents and the transactions contemplated hereby and (ii) the Restated
Certificate, which shall be subject to stockholder approval.
(h)
Evidence
of the agreement of the holders of not less than a majority of the share of
Common Stock outstanding after the Exchange of Securities to approve the
Restated Certificate
.
(i)
Evidence
that the Company has elected Robert Moyer as chief executive officer and Chris
Phillips as chief financial officer.
(j)
Evidence
that the Company has entered into a consulting agreement with Alex Katz pursuant
to which he received annual compensation of $180,000 per annum, subject to
an
annual cost of living adjustment. Any bonus or stock options, stock grants
or
other equity-based incentives will be determined by a compensation committee
comprised of independent directors.
(k)
Evidence
that the Company has complied with the provisions of Sections 6.10 and 6.11
of
this Agreement on or prior to the Closing Date or that it has taken steps to
enable to comply with such provisions within the time frames provided
therein.
(l)
Evidence
that the Certificate of Designation and the Series B Certificate have been
filed
with the Secretary of State of the State of Delaware.
(m)
Evidence
that (i) Richard Henri Kreger has advanced
$119,325.39
(the “
Advanced
Amount
”)
relating to the transactions contemplated by this Agreement, the Purchase
Agreement, the Exchange Agreement and the Jordan Agreement, and (ii) the
obligations of the Company and/or DFAC with respect to such advances have been
cancelled.
SECURITIES
PURCHASE AGREEMENT
(n)
Good
standing certificates of the Company issued by the Secretary of State of
Delaware.
(o)
An
opinion from the
Company’s
special
counsel
concerning the Transaction Documents
and the
transactions contemplated hereby in form and substance reasonably acceptable
to
Investors.
(p)
The
executed Escrow Agreement.
(q)
Copies
of
all executive employment agreements, all past and present financing
documentation or other documentation where stock could potentially be issued
or
issued as payment, all past and present litigation documents and historical
financials, not previously provided to Investors.
(r)
Such
other documents or certificates as shall be reasonably requested by Barron
on
behalf of the Investor.
3.3.
|
Deliveries
by Investors
.
In
addition to and without limiting any other provision of this Agreement,
the Investor agrees to deliver, or cause to be delivered, to the
escrow
agent under the Escrow Agreement, the following:
|
(a)
A
deposit
in the amount of the Purchase Price, net of the Advanced Amount;
(b)
The
executed Agreement with all Exhibits and Schedules attached hereto;
(c)
The
executed Registration Rights Agreement;
(d)
The
executed Escrow Agreement; and
(e)
Such
other documents or certificates as shall be reasonably requested by the Company
or its counsel.
In
the
event any document (other than the Note, the shares of Series A Preferred Stock
and the Warrants) provided to the other party in Sections 3.2 and 3.3 herein
are
provided by facsimile, the party shall forward an original document to the
other
party within seven (7) business days.
3.4.
|
Further
Assurances
.
The Company and the Investors shall, upon request, on or after the
Closing
Date, cooperate with each other (specifically, the Company shall
cooperate
with the Investors, and the Investors shall cooperate with the Company)
by
furnishing any additional information, executing and delivering any
additional documents and/or other instruments and doing any and all
such
things as may be reasonably required by the parties or their counsel
to
consummate or otherwise implement the transactions contemplated by
this
Agreement.
|
3.5.
|
Waiver
.
The Investors may waive any of the requirements of Section 3.2 of
this
Agreement or any of its rights under the Escrow Agreement, and the
Company
at its discretion may waive any of its rights of Section 3.3 of this
Agreement or any of its rights under the Escrow
Agreement.
|
SECURITIES
PURCHASE AGREEMENT
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investors as of the date hereof and
as of
Closing (which warranties and representations shall survive the Closing
regardless of what examinations, inspections, audits and other investigations
the Investors have heretofore made or may hereinafter make with respect to
such
warranties and representations) as follows:
4.1.
|
Organization
and Qualification
.
|
4.1.1.
The
Company
and DFAC are corporations duly organized, validly existing and in good standing
under the laws of the State
of
Delaware
,
and
each of the Company and DFAC has the requisite corporate power and authority
to
own, lease and
operate
its properties and to carry on its business as it is now being conducted and
is
duly qualified to do business in any other jurisdiction by virtue of the nature
of the businesses conducted by it or the ownership or leasing of its properties,
except where the failure to be so qualified will not, when taken together with
all other such failures, have a Material Adverse Effect on the business,
operations, properties, assets, financial condition or results of operation
of
the Company and its subsidiaries taken as a whole.
4.1.2.
DFAC
is
wholly-owned by the Company, and no person has any right, title or interest
in
any equity, debt or other securities of any kind of DFAC.
4.2.
|
Governing
Documents
.
The complete and correct copies of the Company’s Governing Documents, as
in effect on the Closing Date, has been delivered to the
Investors.
|
4.3.1.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and as adjusted to reflect issuances pursuant to the Exchange of
Securities and as contemplated by this Agreement is set forth in Schedule 4.3.1
to this Agreement. Schedule 4.3.1 contains all shares and derivatives currently
and potentially outstanding. The Company hereby represents that any and all
shares and current potentially dilutive events have been included in Schedule
4.3.1, including shares issuable pursuant to employment agreements, acquisition,
consulting agreements, debts, payments, financing or business relationships
that
could be paid in equity, derivatives or resulting in additional equity
issuances.
4.3.2.
All
outstanding shares of capital stock have been duly authorized and are validly
issued, and are fully paid and non-assessable and free from preemptive rights.
All shares of capital stock described above to be issued have been duly
authorized and when issued, will be validly issued, fully paid and
non-assessable and free from preemptive rights.
4.3.3.
Except
pursuant to this Agreement and as set forth in Schedule 4.3.1 hereto, and as
set
forth in the Company’s SEC Documents, filed with the SEC, as of the date hereof
and as of the Closing Date, there are no outstanding options, warrants, rights
to subscribe for, calls or commitments of any character whatsoever relating
to,
or securities or rights convertible into or exchangeable for, shares of any
class of capital stock of the Company, or agreements, understandings or
arrangements to which the Company is a party, or by which the Company is or
may
be bound, to issue additional shares of its capital stock or options, warrants,
scrip or rights to subscribe for, calls or commitment of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, any shares of any class of its capital stock. The Company agrees to inform
the Investors in writing of any additional warrants or convertible securities
granted prior to the Closing Date.
SECURITIES
PURCHASE AGREEMENT
4.3.4.
The
Company on the Closing Date (i) will have full right, power, and authority
to
sell the Securities to the Investors, free and clear of all liens, charges,
claims, options, pledges, restrictions, and encumbrances whatsoever; and (ii)
upon conversion of the Note and the Series A Preferred Stock or exercise of
the
Warrants, the Investors will acquire title to the Shares issuable upon such
conversion or exercise, free and clear of all liens, charges, claims, options,
pledges, restrictions, and encumbrances whatsoever, except as otherwise provided
in this Agreement and except for any of the foregoing which results from actions
or omissions on the part of the Investors.
4.4.1.
The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, the Note, the Series A Preferred Stock and the Warrants, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this
Agreement by the Company and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company is necessary to authorize
this
Agreement or to consummate the transactions contemplated hereby except as
disclosed in this Agreement; provided, however, that stockholder approval is
required for the Company to adopt the Restated Certificate. This Agreement
has
been duly executed and delivered by the Company and constitutes the legal,
valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms
;
provided, however, that no representation is made with respect to the ability
of
the Investor to convert the Note or the Series A Preferred Stock or to exercise
the Warrant, following the filing of the Restated Certificate, if and to the
extent that the Conversion Price of the Note or the Series A Preferred Stock,
as
defined in the Notes or the Certificate of Designation, or the number of Shares
issuable upon exercise of the Warrants would result in the issuance of a number
of shares of Common Stock which is greater than the amount by which the
authorized Common Stock exceeds the sum of the outstanding Common Stock and
the
shares of Common Stock reserved for issuance pursuant to outstanding agreements
and outstanding options, warrants, rights, convertible securities and other
securities upon the exercise or conversion of which or pursuant to the terms
of
which additional shares of Common Stock may be issuable (the foregoing proviso
being referred to as the “
Authorized
Stock Proviso
”).
4.4.2.
The
Company’s
board of directors has adopted the Restated Certificate and the Certificate
of
Designation, subject to stockholder approval of the Restated Certificate, as
required by the Delaware Law. T
he
holders of shares of Common Stock issued pursuant to the Exchange of Securities
have agreed to execute a consent of stockholders approving the Restated
Certificate
,
which
consent shall be given and become effective twenty (20) days after the filing
of
a definitive information statement pursuant to Section 14(c) of the 1934 Act.
The Company will file an information statement with the SEC as soon as practical
after the Closing Date, but not later than sixty (60) days after the Closing
Date.
SECURITIES
PURCHASE AGREEMENT
4.4.3.
The
Shares will be, when issued upon the conversion of the Note and the Series
A
Preferred Stock and upon exercise of the Warrants, duly and validly authorized
and issued, fully paid and non-assessable and not issued in violation of any
preemptive rights or rights of first refusal, subject to the filing of the
Restated Certificate.
4.4.4.
Upon
the
filing with the shares of Series A Preferred Stock are duly and validly
authorized and issued, fully paid and non-assessable
and not
issued in violation of any preemptive rights or rights of first
refusal
.
4.5.
|
No
Conflict; Required Filings and Consents
.
The execution and delivery of this Agreement by the Company does
not, and
the performance by the Company of its obligations hereunder will
not: (i)
conflict with or violate the Company’s or DFAC’s Governing
Documents
;
(ii
)
conflict with, breach or violate any federal, state, foreign or local
law,
statute, ordinance, rule, regulation, order, judgment or decree
(collectively, “
Laws
”)
in effect as of the date of this Agreement and applicable to the
Company
or
DFAC
;
or (iii) result in any breach of, constitute a default (or an event
that
with notice or lapse of time or both would become a default) under,
give
to any other entity any right of termination, amendment, acceleration
or
cancellation of, require payment under, or result in the creation
of a
lien or encumbrance on any of the properties or assets of the Company
or
DFAC
pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
the
Company
or
DFAC
is
a party or by the Company or DFAC
or
any
of
their
respective
properties or assets is bound other than violations, conflicts, breaches,
defaults, terminations, accelerations, creations of liens, or incumbency
that would not, in the aggregate, have a Material Adverse
Effect
except to the extent that stockholder approval may be required as
a result
of the Authorized Stock Proviso, in which event, the Company will
seek
stockholder approval to an increase in the authorized Common Stock
sufficient to enable the Company to be in compliance with this Section
4.5.
|
4.6.
|
Report
and Financial Statements
.
|
4.6.1.
The
Company has delivered to the Investors
the
audited balance sheet of Freundlich as of December 31, 2005 and the audited
statements of operations, stockholders equity and cash flows for the years
ended
December 31, 2005 and 2004, and the unaudited balance sheet as of March 31,
2006
and unaudited statements of operations and cash flows for the three months
ended
March 31, 2006 and 2005 and stockholders’ equity for the three months ended
March 31
,
2006,
in each cash including notes to the financial statements (collectively, the
“Financial Statements”). Each of the balance sheets contained in such Financial
Statements (including the related notes and schedules thereto) fairly presented
the financial position of Freundlich, as of its date, and each of the statements
of operations, stockholders’ equity and cash flows in such Financial Statements
(including any related notes and schedules thereto) fairly presents, the results
of operations, changes in stockholders’ equity and changes in cash flows, as the
case may be, of Freundlich, for the periods to which they relate, in each case
in accordance with GAAP, except in each case as may be noted therein, subject
to
normal year-end audit adjustments in the case of unaudited statements. The
books
and records of Freundlich have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions
.
Kempisty
and Company, CPA, PC, who audited the audited financial statements, is
independent within the meaning of the regulations of the SEC.
SECURITIES
PURCHASE AGREEMENT
4.6.2.
Kempisty
and Company, CPA, PC has not issued any management letter in connection with
its
audit of Freundlich’s audited Financial Statements for 2005 and 2004 if such
firm issued a management letter.
4.7.
|
Compliance
with Applicable Laws
.
The Company is not in violation of, or, to the knowledge of the Company,
is under investigation with respect to or has been given notice or
has
been charged with the violation of any Laws, except for violations
which
individually or in the aggregate do not have a Material Adverse Effect.
|
4.8.
|
Brokers
.
No broker, finder or investment banker is entitled to any brokerage,
finder’s or other fee or Commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on
behalf of the Company.
|
4.9.1.
The
Investors acknowledge that the Company is a publicly held company and has made
available to the Investors true and complete copies of any requested SEC
Documents. The Company has registered its Common Stock pursuant to Section
12(g)
of the 1934 Act. The Company has not provided to the Investors any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed.
4.9.2.
The
Company’s
audited
balance sheet as of December 31, 2005 and the audited statements of operations,
stockholders equity and cash flows for the years ended December 31, 2005 and
2004, and the unaudited balance sheet as of March 31, 2006 and unaudited
statements of operations and cash flows for the three months ended March 31,
2006 and 2005 and stockholders’ equity for the three months ended March 31,
2006, in each cash including notes to the financial statements (collectively,
the “Company Financial Statements”) are included in the SEC Reports. Each of the
balance sheets contained in the Company Financial Statements (including the
related notes and schedules thereto) fairly presents the financial position
of
the Company, as of its date, and each of the statements of operations,
stockholders’ equity and cash flows in the Company’s Financial Statements
(including any related notes and schedules thereto) fairly presents the results
of operations, changes in stockholders’ equity and changes in cash flows, as the
case may be, of the Company, for the periods to which they relate, in each
case
in accordance with GAAP, except in each case as may be noted therein, subject
to
normal year-end audit adjustments in the case of unaudited statements. The
books
and records of the Company have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
Goff
Backa Alfera & Company, LLC
,
who
audited the audited Company Financial Statements, is independent within the
meaning of the regulations of the SEC.
SECURITIES
PURCHASE AGREEMENT
4.10.
|
Litigation
.
To the knowledge of the Company, no litigation, claim, or other proceeding
before any court or governmental agency is pending or to the knowledge
of
the Company, threatened against the Company, DFAC or Freundlich,
the
prosecution or outcome of which, if adversely determined, is likely
to
have a Material Adverse Effect.
|
4.11.
|
Exemption
from Registration
.
Subject to the accuracy of the Investors’ representations in Article V,
except as required pursuant to the Registration Rights Agreement,
the sale
of the Securities by the Company to the Investors will not require
registration under the 1933 Act. When validly converted in accordance
with
the terms of the Series A Preferred Stock, and upon exercise of the
Warrants in accordance with their terms, the Shares underlying the
Series
A Preferred Stock and the Warrants will be duly and validly issued,
fully
paid, and non-assessable. The Company is issuing the Notes, the Initial
Shares and, upon conversion of the Notes, the Series A Preferred
Stock,
and the Warrants in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under
Regulation D as promulgated by the SEC under the 1933 Act, and/or
Section
4(2) of the 1933 Act; provided, however, that certain filings and
registrations may be required under state securities “blue sky” laws
depending upon the residency of the
Investors.
|
4.12.
|
No
General Solicitation or Advertising in Regard to this
Transaction
.
Neither the Company nor any of its Affiliates nor, to the knowledge
of the
Company, any Person acting on its or their behalf (i) has conducted
or
will conduct any general solicitation (as that term is used in Rule
502(c)
of Regulation D as promulgated by the SEC under the 1933 Act) or
general
advertising with respect to the sale of the Series A Preferred Stock
or
Warrants, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would
require
registration of the Series A Preferred Stock or Warrants, under the
1933
Act, except as required herein.
|
4.13.
|
No
Material Adverse Effect
.
Since December 31, 2005, no event or circumstance resulting in a
Material
Adverse Effect has occurred or exists with respect to the Company,
DFAC or
Freundlich
.
To the knowledge of the Company, no material supplier or customer
has
given notice, oral or written, that it intends to cease or reduce
the
volume of its business with Freundlich from
historical levels.
|
4.14.
|
Material
Non-Public Information
.
The Company has not disclosed to any Investor any material non-public
information that (i) if disclosed, would reasonably be expected to
have a
material effect on the price of the Common Stock or (ii) according
to
applicable law, rule or regulation, should have been disclosed publicly
by
the Company prior to the date hereof but which has not been so disclosed;
provided, however, that the Company has disclosed to the Investors
matters
relating to the Company’s acquisition of DFAC and DFAC’s acquisition of
Freundlich
.
|
SECURITIES
PURCHASE AGREEMENT
4.15.
|
Internal
Controls And
Procedures
.
To the
knowledge
of the Company, Freundlich maintains books and records and internal
accounting controls which provide reasonable assurance that (a) all
transactions to which Freundlich is a party or by which its properties
are
bound have been executed with management’s authorization; (ii) the
recorded accounting of Freundlich’s assets is compared with existing
assets at regular intervals; (iii) access to Freundlich’s assets is
permitted only in accordance with management’s authorization; and (iv) all
transactions to which Freundlich is a party or by which its properties
are
bound are recorded as necessary to permit preparation of the financial
statements of the Company in accordance with
standards
of the Public Company Accounting Oversight Board; it being understood
that
neither the Company nor Freundlich has
conducted an internal controls audit and that no such audit has been
required under applicable law.
|
4.16.
|
Full
Disclosure
.
No representation or warranty made by
the
Company
in
this Agreement and no certificate or document furnished or to be
furnished
to the Investors pursuant to this Agreement contains or will contain
any
untrue statement of a material fact, or omits or will omit to state
a
material fact necessary to make the statements contained herein or
therein, taken as a whole, not
misleading.
|
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE INVESTOR
The
Investors, severally, represent and warrant to the Company that:
5.1.
|
Organization
and Standing of the Investor
.
|
5.1.1.
Such
Investor was not formed for the purpose of investing solely in the Securities.
Such Investor has the requisite power and authority to enter into and perform
this Agreement and to purchase the securities being sold to it hereunder. The
execution, delivery and performance of this Agreement by such Investor and
the
consummation by such Investor of the transactions contemplated hereby have
been
duly authorized by all necessary partnership action where
appropriate.
5.1.2.
The
state
in which any offer to purchase Preferred Stock hereunder was made or accepted
by
such Investor is the state shown as such Investor’s address.
5.2.
|
Authorization
and Power
.
This Agreement and the Registration Rights Agreement have been duly
executed and delivered by such Investor and at the Closing shall
constitute valid and binding obligations of such Investor enforceable
against such Investor in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership
or
similar laws relating to, or affecting generally the enforcement
of,
creditors’ rights and remedies or by other equitable principles of general
application.
|
5.3.
|
No
Conflicts
.
The execution, delivery and performance of this Agreement and the
consummation by such Investor of the transactions contemplated hereby
or
relating hereto do not and will not (i) result in a violation of
such
Investor’s charter documents or bylaws where appropriate or (ii) conflict
with, or constitute a default (or an event which with notice or lapse
of
time or both would become a default) under, or give to others any
rights
of termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which such Investor is a party, or result
in a
violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Investor
or
its properties (except for such conflicts, defaults and violations
as
would not, individually or in the aggregate, have a Material Adverse
Effect on such Investor). The Investor is not required to obtain
any
consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute,
deliver
or perform any of such Investor’s obligations under this Agreement or to
purchase the securities from the Company in accordance with the terms
hereof, provided that for purposes of the representation made in
this
sentence, such Investor is assuming and relying upon the accuracy
of the
relevant representations and agreements of the Company
herein.
|
SECURITIES
PURCHASE AGREEMENT
5.4.
|
Financial
Risks
.
Such Investor acknowledges that such Investor is able to bear the
financial risks associated with an investment in the securities being
purchased by such Investor from the Company and that it has been
given
full access to such records of the Company and the subsidiaries and
to the
officers of the Company and the subsidiaries as it has deemed necessary
or
appropriate to conduct its due diligence investigation. The Investor
is
capable of evaluating the risks and merits of an investment in the
securities being purchased by such Investor from the Company by virtue
of
its experience as an investor and its knowledge, experience, and
sophistication in financial and business matters and such Investor
is
capable of bearing the entire loss of its investment in the securities
being purchased by such Investor from the
Company.
|
5.5.
|
Accredited
Investor
.
The Investor is (i) an “accredited investor” as that term is defined in
Rule 501 of Regulation D promulgated under the 1933 Act by reason
of Rule
501(a)(3) and (6), (ii) experienced in making investments of the
kind
described in this Agreement and the related documents, (iii) able,
by
reason of the business and financial experience of its officers (if
an
entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or
selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv)
able to
afford the entire loss of its investment in the securities being
purchased
by such Investor from the Company. The Investor is acquiring the
Securities for investment and not with a view to the sale or distribution
thereof and understands that such Securities are restricted securities,
as
defined in the 1933 Act, and may not be sold or otherwise distributed
except pursuant to an effective registration statement or an exemption
from the registration requirements of the 1933 Act and that the
certificates for such securities shares and Warrants will bear an
investment legend.
|
5.6.
|
Brokers
.
No broker, finder or investment banker is entitled to any brokerage,
finder’s or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on
behalf of such Investor.
|
5.7.
|
Knowledge
of Company
.
The Investor and its advisors, if any, have been, upon request, furnished
with all materials relating to the business, finances and operations
of
the Company and materials relating to the offer and sale of the securities
being purchased by such Investor from the Company. The Investor and
its
advisors, if any, have been afforded the opportunity to ask questions
of
the Company and have received complete and satisfactory answers to
any
such inquiries
.
|
SECURITIES
PURCHASE AGREEMENT
5.8.
|
Risk
Factors
.
The Investor understands that the investment by such Investor in
the
Securities being purchased by such Investor from the Company involves
a
high degree of risk. The Investor understands that no United States
federal or state agency or any other government or governmental agency
has
passed on or made any recommendation or endorsement of the securities
being purchased by such Investor from the Company. The Investor warrants
that it is able to bear the complete loss of its investment in the
securities being purchased by it from the Company. In acquiring the
Securities, such Investor is not relying upon any projections of
the
future financial condition, results of operations or cash flows relating
to the Company.
The Investor acknowledges and agrees that (a) it has had the opportunity
to obtain, and it has reviewed and discussed with the Company, to
the
extent that it deems necessary, information concerning the Company,
including risks relating to the Company, Freundlich and their respective
financial statements, and that (b) in entering into and performing
this
Agreement, such Investor has not relied on any oral representations
made
by the Company or any of its agents, representatives or
advisors.
|
5.9.
|
Full
Disclosure
.
No representation or warranty made by such Investor in this Agreement
and
no certificate or document furnished or to be furnished to the Company
pursuant to this Agreement contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not
misleading. Except as set forth or referred to in this Agreement,
(a) such
Investor does not have any agreement or understanding with any person
relating to acquiring, holding, voting or disposing of any equity
securities of the Company, and (b) during the past five years there
has
not occurred any event listed in Item 401(f) of Regulation S-K or
any
investigation relating to any such event with respect to such Investor
or
any of its managing partners.
|
ARTICLE
VI
COVENANTS
OF THE COMPANY
6.1.
|
Registration
Rights
.
The Company shall cause the Registration Rights Agreement to remain
in
full force and effect and shall comply in all material respects with
the
terms thereof.
|
6.2.
|
Reservation
of Common Stock
.
As of the date hereof, the Company has, subject to the filing of
the
Restated Certificate, reserved and the Company shall continue to
reserve
and keep available at all times, free of preemptive rights, shares
of
Common Stock for the purpose of enabling the Company to issue the
Shares
underlying the Notes or the Series A Preferred Stock, as the case
may be,
and the Warrants
;
provided, however, that if, as a result of the Authorized Stock Proviso,
there are not sufficient shares reserved as required in this Section
6.2,
the Company shall, within thirty (30) days after the Company becomes
aware
of such deficiency, prepare and file with the Commission a proxy
statement
pursuant to which the Company will seek stockholder approval for
an
increase in the authorized Common Stock sufficient to enable the
Company
to be in compliance with this Section 6.2. Each Investor agrees to
vote in
favor of such proposal.
|
SECURITIES
PURCHASE AGREEMENT
6.3.
|
Compliance
with Laws
.
The Company hereby agrees to comply in all material respects with
the
Company’s reporting, filing and other obligations under the federal
securities laws.
|
6.4.
|
1934
Act Registration
.
The Company will use its best efforts to comply in all respects with
its
reporting and filing obligations under the 1934 Act, and will not
take any
action or file any document (whether or not permitted by the 1934
Act or
the rules thereunder) to terminate or suspend any such registration
or to
terminate or suspend its reporting and filing obligations under the
1934
until the Investors have disposed of all of their
Shares.
|
6.5.
|
Corporate
Existence; Conflicting Agreements
.
The Company will take all steps necessary to preserve and continue
the
corporate existence of the Company. The Company shall not enter into
any
agreement, the terms of which agreement would restrict or impair
the right
or ability of the Company to perform any of its obligations under
this
Agreement or any of the other agreements attached as exhibits
hereto.
|
6.6.
|
Series
A Preferred Stock
.
Until the earliest of (a) three years from the Closing or (b) such
date as
the Investors shall have converted the Note and the Series A Preferred
Stock into not less than 90% of the Shares and sold the Shares or
(c) such
date as the Investor shall have transferred the Note or the Series
A
Preferred Stock which are convertible into an aggregate of not less
than
90% of the Shares issuable upon such conversion of all of the Note
and
Series A Preferred Stock, the Company will not issue any preferred
stock
of with the exception of Series A Preferred Stock issued to the Investor
as provided in this Agreement and the Registration Rights Agreement
and
the Series B Preferred Stock held by the former DFAC stockholders,
which
shares will be automatically converted upon filing of the Restated
Certificate.
|
6.7.
|
Convertible
Debt
.
On or prior to the Closing Date, the Company will cause to be cancelled
all convertible debt in the Company. Until the earliest of (a) three
years
from the Closing or (b) such date as the Investor shall have converted
the
Note and the Series A Preferred Stock into not less than 90% of the
Shares
issuable upon conversion of all of the Note and Series A Preferred
Stock
and sold the underlying Shares or (c) such date as the Investor shall
have
transferred the Notes or the Series A Preferred Stock which are
convertible into an aggregate of not less than 90% of the Shares
issuable
upon such conversion of all of the Note and Series A Preferred Stock,
the
Company will not issue any convertible debt.
|
6.8.
|
Debt
Limitation
.
The Company agrees that, for two years after Closing, neither it
nor its
consolidated subsidiaries, shall permit outstanding indebtedness,
based on
the principal amount outstanding at the end of a calendar quarter,
to be
more than two times the sum of the EBITDA from continuing operations
over
the four quarters ending on such date. Indebtedness shall include
any
liabilities or obligations which, under GAAP, are reflected as
indebtedness on the Company’s consolidated balance
sheet.
|
SECURITIES
PURCHASE AGREEMENT
6.9.
|
Reset
Equity Deals
.
On or prior to the Closing Date, the Company will cause to be cancelled
any and all reset features related to any shares outstanding that
could
result in additional shares being issued. For a period of three years
from
the Closing the Company will not enter into any transactions that
have any
reset features that could result in additional shares being issued.
For
purposes of this Section 6.9, a reset provision for a convertible
security
or derivative security shall mean a provision (a) whereby the issuance
of
securities at a lower price or having a lower conversion or exercise
price
will result in the conversion or exercise price of the security being
reduced to the lower price or lower conversion or exercise price
or more
shares being issued, as the case may be, or (b) which provide that
the
conversion or exercise price is based on the market price at the
time of
conversion or exercise or (c) any other device which results in an
adjustment to the exercise price or conversion price of the securities
other than stock dividends, stock splits, stock distributions, combination
of shares, reverse splits, and other recapitalizations, as long as
they
effect all stockholders
appropriately.
|
6.10.
|
Independent
Directors
.
|
6.10.1.
The
Company shall have caused the appointment of the majority of the board of
directors to be independent directors, as defined by the
rules
of
the Nasdaq Stock Market, not later than thirty (30) days after the Closing
Date.
6.10.2.
If,
at
any time subsequent to the expiration of thirty (30) days after the Closing
Date
until the earlier of (a) three years from the Closing or (b) such date as the
Investors shall have converted not less than 90% of the Notes and Series A
Preferred Stock (based on the number
of
Shares
issuable upon such conversion of all of the Note and Series A Preferred
Stock)
and sold
the underlying Shares or (c) such date as the Investors shall have transferred
not less than 90% of the Note and Series A Preferred Stock (based on the number
of
Shares
issuable upon such conversion of all of the Note and Series A Preferred
Stock
Convertible Securities), the board of directors shall not be composed of a
majority of independent directors:
6.10.2.1.
for a
reason other than for an Excused Reason, the Company shall have 60 days to
take
such steps as are necessary so that a majority of the Company’s directors are
independent directors, and
6.10.2.2.
for an
Excused Reason, the Company shall have 75 days from the date that the Company
becomes aware of the event (or the last event if there are more than one such
event) giving rise to the Excused Reason, to take such steps as are necessary
so
that a majority of the Company’s directors are independent
directors.
6.10.3.
The
term
“
Excused
Reason
”
shall
mean the death or resignation of an independent director or the occurrence
of an
event whereby an independent director ceases to be independent.
6.10.4.
If,
during the period referred to in Section 6.10.2 of this Agreement, the Company
shall have failed to have a board of directors composed of a majority of
independent directors after the date by which such situation was to have been
cured pursuant to Section 6.10.2.1 or Section 6.10.2.2 of this Agreement,
whichever shall apply, the Company shall pay to the Investors, as liquidated
damages and not as a penalty, an amount equal to fifteen percent (15%) per
annum
of the Purchase Price of the then outstanding shares of Series A Preferred
Stock
or principal amount of the Notes, as the case may be, payable monthly in cash
or
Series A Preferred Stock at the option of the Investors, based on the number
of
days that such condition exists beyond the applicable grace period; provided,
however, that if the Restated Certificate shall not have been filed, the Company
may issue a Note in lieu of shares of Series A Preferred Stock pursuant to
this
Section 6.10 and Section 6.11 of this Agreement. The parties agree that the
only
damages payable for a violation of such provisions shall be such liquidated
damages. Nothing shall preclude the Investors from pursuing or obtaining
specific performance or other equitable relief with respect to this Agreement.
The parties hereto agree that the liquidated damages provided for in this
Section 6.10.4 constitute a reasonable estimate of the damages that may be
incurred by the Investors by reason of the failure of the Company to have a
majority of directors as independent directors.
SECURITIES
PURCHASE AGREEMENT
6.10.5.
In
no
event shall the total payments made pursuant to this Section 6.10 and Section
6.11, whether in cash or Series A Preferred Stock exceed in the aggregate
fifteen percent (15%) of the Purchase Price of the shares of Series A Preferred
Stock or principal amount of the Notes, as the case may be, that are outstanding
as of the date on which a computation is being made.
6.11.
|
Independent
Directors on Audit and Compensation Committees
.
No later than thirty (30) days after the Closing Date, the Company
will
have an audit committee comprised solely of not less than three
independent directors and a compensation committee comprised of not
less
than three directors, a majority of whom are independent directors.
If at
any time subsequent to the expiration of such thirty (30) day period,
independent directors do not comprise all of the members of the audit
committee and a majority of the members of the compensation committee
within the grace periods provided in Section 6.10, the Company shall
pay
to the Investors, as liquidated damages and not as a penalty, an
amount
equal to fifteen percent (15%) per annum of the Equity Purchase Price
of
the then outstanding Series A Preferred Stock or principal amount
of the
Notes, as the case may be, payable monthly in cash or Series A Preferred
Stock at the option of the Investors, such payment shall be based
on the
number of days that such condition exists. The parties agree that
the only
damages payable for a violation of the terms of this Agreement with
respect to which liquidated damages are expressly provided shall
be such
liquidated damages. Nothing shall preclude the Investors from pursuing
other remedies or obtaining specific performance or other equitable
relief
with respect to this Agreement. Notwithstanding the foregoing, no
liquidated damages shall be payable pursuant to this Section 6.11
during
any period for which liquidated damages are payable pursuant to Section
6.10.
|
6.12.
|
Use
of Proceeds
.
The Company will use
the
net
proceeds
from the sale of the Notes, the Initial Shares and the Warrants (excluding
amounts paid by the Company for legal and administrative fees
and
other expenses of the transaction) for
provide funds for the purchase of assets of Freundlich and for working
capital.
|
6.13.
|
Right
of First Refusal
|
SECURITIES
PURCHASE AGREEMENT
6.13.1.
In
the
event that the Company seeks to raise additional funds through a private
placement of its securities (a “
Proposed
Financing
”),
other
than Exempt Issuances, each Investor shall have the right to participate in
any
subsequent funding by the Company of the offering price on a pro rata basis,
based on the percentage that (a) the number of such Investor’s Shares, without
regard to the 4.9% Limitation, bears to (b) the total number of shares of Common
Stock outstanding plus the number of Shares issuable upon conversion of the
Notes or Series A Preferred Stock, as the case may be, and any other series
of
convertible preferred stock or debt securities, without regard to the 4.9%
Limitations any other limitations on exercise such other convertible preferred
stock or debt securities. This Section 6.13 shall apply to each such offering
based on the total purchase price of the securities being offered by the
Company.
6.13.2.
The
terms
on which the Investors shall purchase securities pursuant to Proposed Financing
shall be the same as such securities are purchased by other investors. The
Company shall give the Investors the opportunity to participate in the offering
by giving the Investors not less than ten (10) days notice setting forth the
terms of the Proposed Financing. In the event that the terms of the Proposed
Financing are changed in a manner which is more favorable to the potential
investor, the Company shall provide the Investors, at the same time as the
notice is provided to the other potential investors, with a new ten (10) day
notice setting forth the revised terms that are provided to the other potential
investors.
6.13.3.
In
the
event that the Investors does not exercise its right to participate in the
Proposed Financing within the time limits set forth in Section 6.13.2 of this
Agreement, the Company may sell the securities in the Proposed Financing at
a
price and on terms which are no more favorable to the investors than the terms
provided to the Investors. If the Company subsequently changes the price or
terms so that the price is more favorable to the investors or so the terms
are
more favorable to the investors, the Company shall provide the Investors with
the opportunity to purchase the securities on the revised terms in the manner
set forth in
Section
6.13.2
of this
Agreement.
6.14.
|
Price
Adjustment
.
From the date hereof until such time as the Investors holds no Securities,
except for Exempt Issuances, as to which this
Section
6.14
does not apply
or
for issuances for which an adjustment has already been made pursuant
to
this Section 6.14
,
the Note and the Certificate of Designation shall provide that if
the
Company sells or issues of Common Stock at a price, or warrants,
options,
convertible
debt or equity securities with a exercise price per share or exercise
price per share which is less than the Conversion Price then in effect
(such lower sales price, conversion or exercise price, as the case
may be,
being referred to as the “Lower Price”), the Conversion Price in effect
from and after the date of such transaction shall be reduced to the
Lower
Price. For purpose of determining the exercise price of warrants
issued by
the Company, the price, if the purchaser of the warrants paid separate
consideration for the warrants, the price paid per share for the
warrants
shall be added to the exercise price per share of the warrants in
determining the consideration received by the Company with respect
to the
warrants. A similar provision shall be included in the Warrants;
provided,
however, that the adjustment for the Warrants with exercise prices
of
$0.60 per share shall have a formula
reduction.
|
SECURITIES
PURCHASE AGREEMENT
6.15.
|
Price
Adjustments Based on Pre-Tax
Income
Per Share
.
|
6.15.1.
The
Note
and the Certificate of Designation shall contain the following provisions,
and
similar provisions shall be included in the Warrants.
6.15.2.
In
the
event the Company’s consolidated Pre-Tax Income for the year ended December 31,
2006 is less than $
.034
per
share on a fully-diluted basis, then the Conversion Price shall be reduced
by
the percentage shortfall, up to a maximum of 35%. Thus, if Pre-Tax Income for
the year ended December 31, 2006 is $
.0289
per
share on a fully-diluted basis, the Conversion Price shall be reduced by 15%.
Such reduction shall be made at the time the Company files its Form 10-KSB
for
the year ended December 31, 2006, and shall apply to the Note and all shares
of
the Series A Preferred Stock, as the case may be, which are outstanding on
the
date the Form 10-KSB is filed, or, if not filed on time, on the date that filing
was required.
6.15.3.
In
the
event the Company’s consolidated Pre-Tax Income for the year ended December 31,
2007 is less than $.051 per share on a fully-diluted basis, then the Conversion
Price then in effect shall be reduced by the percentage shortfall, up to a
maximum of 35%. Thus, if Pre-Tax Income for the year ended December 31, 2007
is
$.04335 per share on a fully-diluted basis, the Conversion Price shall be
reduced by 15%. Such reduction shall be made at the time the Company files
its
Form 10-KSB for the year ended December 31, 2007, and shall apply to the Note
and all shares of the Series A Preferred Stock, as the case may be, which are
outstanding on the date the Form 10-KSB is filed, or, if not filed on time,
on
the date that filing was required.
6.15.4.
For
purpose of determining Pre-Tax Income Per Share on a fully-diluted basis, all
shares of Common Stock issuable upon conversion of convertible securities and
upon exercise of warrants and options shall be deemed to be outstanding,
regardless of whether (i) such shares are treated as outstanding for determining
diluted earnings per share under GAAP, (ii) such securities are “in the money,”
or (iii) such shares may be issued as a result of the 4.9%
Limitation.
6.16.
|
Insider
Selling
.
No Restricted Stockholder can sell any shares of Common Stock in
the
public market during the eighteen (18) month period following the
Closing
Date; provided, however, that after twelve (12) months from the Closing
Date, Alex Katz shall not be deemed to be a Restricted Stockholder
as long
as he is not an officer or director. Any shares owned by a limited
liability company which is wholly-owned or controlled by Alex Katz
shall
be treated as shares owned by Alex Katz and subject to the same
restrictions as Alex Katz. Restricted Stockholders shall include
all
persons who are officers and directors of the Company and all stockholders
who hold shares of Common Stock as a result of the Exchange of Shares.
The
restriction contained in this Section 6.16 shall apply to any transferee,
including any legatee or distribute. Andrew Barron Worden and the
Investors shall not be considered Restricted Stockholders; provided,
that
any Investor who would be considered a Restricted Stockholder but
for his
being an Investor shall be a Restricted Stockholder only with respect
to
his shares of Common Stock which were not acquired in his capacity
as an
Investor pursuant to this Agreement. The restrictions in this Section
6.16
shall not apply to shares issued pursuant to a stock option or long-term
incentive plans which may be approved by the Compensation Committee
provided that such committee is comprised of a majority of independent
directors.
|
SECURITIES
PURCHASE AGREEMENT
6.17.
|
Employment
and Consulting Contracts
.
For three years after the Closing, the Company must have a unanimous
approval from the Compensation Committee of the Board of Directors
having
reached a conclusion that any awards other than salary are reasonable
for
any officer, director or consultants whose compensation is more than
$100,000 per annum. This Section 6.17 does not apply to attorneys,
accountants and other persons who provide professional services to
the
Company.
|
6.18.
|
Subsequent
Equity Sales
.
From the date hereof until such time as the Investors hold no more
than 5%
of the Shares (determined as if the Note and the Series A Preferred
Stock
were fully converted and the Warrants fully exercised), the Company
shall
be prohibited from effecting or entering into an agreement to effect
any
Subsequent Financing involving a “
Variable
Rate Transaction
”
or an “
MFN
Transaction
”
(each as defined below). The term “
Variable
Rate Transaction
”
shall mean a transaction in which the Company issues or sells (i)
any debt
or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares
of
Common Stock either (A) at a conversion, exercise or exchange rate
or
other price that is based upon and/or varies with the trading prices
of or
quotations for the shares of Common Stock at any time after the initial
issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some
future
date after the initial issuance of such debt or equity security or
upon
the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common
Stock.
The term “
MFN
Transaction”
shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related
transactions which grants to an investor the right to receive additional
shares based upon future transactions of the Company on terms which
are
more favorable to the Investors than the terms initially provided
to the
investor in its initial securities purchase agreement with the Company.
The Investors shall be entitled to obtain injunctive relief against
the
Company to preclude any such issuance, which remedy shall be in addition
to any right to collect damages. Notwithstanding the foregoing, this
Section 6.18 shall not apply in respect of an Exempt Issuance, except
that
no Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
|
6.19.
|
Approval
of Restated Certificate
.
The Company shall adopt the Restated Certificate and the file the
Restated
Certificate not later than one hundred twenty (120) days from the
Closing
Date. As provided in the Restated Certificate, the Restated Certificate
will effect a one-for-150 reverse split of the Common Stock. Until
the
Restated Certificate is filed with the Secretary of State of the
State of
Delaware, the certificates for the Common Stock issued to the DFAC
stockholders shall be held in escrow with Sichenzia Ross Friedman
Ference
LLP along with stock powers endorsed in blank; provided, however,
that the
stockholders shall have the right to vote such shares. If the Restated
Certificate shall not be filed with the Secretary of State of the
State of
Delaware by the close of business on the required filing date, which
shall
be the one hundred twentieth (120
th
)
day after the date of this Agreement, or, if such one hundred twentieth
(120
th
)
day is not a day on which the Secretary of State of the State of
Delaware
accepts filings, then on the next day on which such filing are accepted,
the Company shall pay to the Investors, as liquidated damages and
not as a
penalty, an amount equal to five percent (5%) of the Purchase Price
paid
by such Investor. Such payment will become immediately due and payable,
without further demand by the Investors, on the close of business
on
required filing date.
|
SECURITIES
PURCHASE AGREEMENT
6.20.
|
Stock
Splits
.
All forward and reverse stock splits shall affect all equity and
derivative holders proportionately.
|
6.21.
|
Continuation
in Aerospace Business
.
During the three year period commencing on the date of this Agreement,
or
until such earlier date as all of the Investors shall no longer own
20% of
the Shares initially issuable to such Investor, (a) the Company will
continue to derive not less than 70% of its consolidated revenue
from
sales to the aerospace industries, and (b) any acquisitions will
be of
companies that sell products to the aerospace industries such that,
following completion of the acquisitions, this representation and
warranty
contained in clause (a) of this Section 6.21 will continue to be
true and
correct. For the purpose of determining whether an Investor owns
20% of
the Shares initially issuable to such Investor, the Investor shall
be
deemed to own the Shares which are issuable upon conversion of the
Note
and Series A Preferred Stock or upon exercise of Warrants purchased
by the
Investor pursuant to this
Agreement.
|
6.22.
|
Payment
of Due Diligence Expenses
.
At Closing the Escrow Agent shall disperse to the Barron Fifty Thousand
Dollars ($50,000.00) for due diligence, legal and any other expenses
which
the Investors may incur in connection with this
Agreement.
|
ARTICLE
VII
COVENANTS
OF THE INVESTORS
7.1.
|
Compliance
with Law
.
Each Investor covenants that its trading activities with respect
to shares
of the Company’s Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules
and
regulations of any public market on which the Company’s Common Stock is
listed.
|
7.2.
|
Transfer
Restrictions
.
Each Investor acknowledges that (a) the Note, the Series A Preferred
Stock
and Warrants and the Shares have not been registered under the 1933
Act,
and may not be transferred unless (i) they are subject to a current
and
effective registration statement under the 1933 Act, or (ii) the
Investor
shall have delivered to the Company an opinion of counsel, which
counsel
and opinion shall be reasonably satisfactory to the Company, to the
effect
that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; and (b) any sale
of the
Securities made in reliance on Rule 144 promulgated under the 1933
Act may
be made only in accordance with the terms of said Rule, to the extent
that
such Rule is applicable.
|
7.3.
|
Restrictive
Legend
.
Each Investor acknowledges and agrees that the Securities and the
Shares
shall bear a restrictive legend and a stop-transfer order may be
placed
against transfer of any such Securities except that the requirement
for a
restrictive legend shall not apply to Shares sold pursuant to a current
and effective registration statement or a sale pursuant Rule 144
or any
successor rule.
|
SECURITIES
PURCHASE AGREEMENT
7.4.
|
Restated
Certificate
.
Each Investor hereby agrees to vote any shares of capital stock that
the
Investor may
own
directly or beneficially, for the adoption of the Restated Certificate.
|
7.5.
|
Limitation
on Amendment
.
No Investor shall take any action to modify the 4.9% Limitation in
this
Agreement, the Notes, the Certificate of Designation or the
Warrants.
|
ARTICLE
VIII
CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS
The
obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:
8.1.
|
No
Termination
.
This Agreement shall not have been terminated pursuant to Article
X
hereof.
|
8.2.
|
Representations
True and Correct
.
The representations and warranties of the Investors contained in
this
Agreement shall be true and correct in all material respects on and
as of
the Closing Date with the same force and effect as if made on as
of the
Closing Date.
|
8.3.
|
Compliance
with Covenants
.
The Investors shall have performed and complied in all material respects
with all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing
Date.
|
8.4.
|
No
Adverse Proceedings
.
On the Closing Date, no action or proceeding shall be pending by
any
public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the
consummation of this Agreement or the transactions contemplated hereby
or
to recover any damages or obtain other relief as a result of the
transactions proposed hereby.
|
ARTICLE
IX
CONDITIONS
PRECEDENT TO INVESTORS’ OBLIGATIONS
The
obligation of the Investors to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date unless
specified otherwise, of the following conditions:
9.1.
|
No
Termination
.
This Agreement shall not have been terminated pursuant to Article
X
hereof.
|
9.2.
|
Representations
True and Correct
.
The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and
as of
the Closing Date with the same force and effect as if made on as
of the
Closing Date.
|
SECURITIES
PURCHASE AGREEMENT
9.3.
|
Compliance
with Covenants
.
The Company shall have performed and complied in all material respects
with all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing
Date.
|
9.4.
|
No
Adverse Proceedings
.
On the Closing Date, no action or proceeding shall be pending by
any
public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the
consummation of this Agreement or the transactions contemplated hereby
or
to recover any damages or obtain other relief as a result of the
transactions proposed hereby.
|
9.5.
|
Exchange
of Securities Completed
.
The Exchange of Securities shall have been completed on or prior
to the
Closing Date, and the Company shall be the sole equity owner of DFAC
and
DFAC shall have acquired the assets of Freundlich pursuant to the
Asset
Purchase Agreement..
|
ARTICLE
X
TERMINATION,
AMENDMENT AND WAIVER
10.1.
|
Termination
.
This Agreement may be terminated at any time prior to the Closing
Date
|
10.1.1.
by
mutual
written consent of the Investors and the Company;
10.1.2.
by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of the Investors set forth in this Agreement, or by the
Investors upon a material breach of any representation, warranty, covenant
or
agreement on the part of the Company set forth in this Agreement, or by either
party if (a) the representations or warranties of the other party, taken
together, shall fail to be true and correct in all material respects or (b)
if
the conditions to closing set forth in Article VIII or Article IX of this
Agreement shall not be satisfied, and such breach or failure shall, if capable
of cure, not have been cured within five (5) business days after receipt by
the
party in breach of a notice from the non-breaching party setting forth in detail
the nature of such breach.
10.2.
|
Effect
of Termination
.
Except as otherwise provided herein, in the event of the termination
of
this Agreement pursuant to Section 10.1 hereof, there shall be no
liability on the part of the Company or the Investors or any of their
respective officers, directors, agents or other representatives and
all
rights and obligations of any party hereto shall
cease.
|
10.3.
|
Amendment
.
This Agreement may be amended by the parties hereto any time prior
to the
Closing Date by an instrument in writing signed by the parties
hereto
;
provided, however that the 4.9% Limitation may not be amended or
waived.
|
10.4.
|
Waiver
.
At any time prior to the Closing Date, the Company or the Investors,
as
appropriate, may: (a) extend the time for the performance of any
of the
obligations or other acts of other party or; (b) waive any inaccuracies
in
the representations and warranties contained herein or in any document
delivered pursuant hereto which have been made to it or them; or
(c) waive
compliance with any of the agreements or conditions contained herein
for
its or their benefit other than the 4.9% Limitation which may not
be
waived. Any such extension or waiver shall be valid only if set forth
in
an instrument in writing signed by the party or parties to be bound
hereby.
|
SECURITIES
PURCHASE AGREEMENT
ARTICLE
XI
GENERAL
PROVISIONS
11.1.
|
Transaction
Costs
.
Except as otherwise provided herein, each of the parties shall pay
all of
his or its costs and expenses (including attorney fees and other
legal
costs and expenses and accountants’ fees and other accounting costs and
expenses) incurred by that party in
connection
with this Agreement; provided, the Company shall pay the Investors
for its
expenses as provided in Section
6.22.
|
11.2.
|
Indemnification
.
Each Investor, singly and not jointly, agrees to indemnify, defend
and
hold the Company (following the Closing Date) and its officers and
directors harmless against and in respect of any and all claims,
demands,
losses, costs, expenses, obligations, liabilities or damages, including
interest, penalties and reasonable attorney’s fees, that it shall incur or
suffer, which arise out of or result from any breach of this Agreement
by
such Investor or failure by such Investor to perform with respect
to the
representations, warranties or covenants contained in this Agreement
or in
any exhibit or other instrument furnished or to be furnished under
this
Agreement. The Company agrees to indemnify, defend and hold the Investors
(following the Closing Date) harmless against and in respect of any
and
all claims, demands, losses, costs, expenses, obligations, liabilities
or
damages, including interest, penalties and reasonable attorney’s fees,
that it shall incur or suffer, which arise out of, result from or
relate
to any breach of this Agreement or failure by the Company to perform
with
respect to the representations, warranties or covenants contained
in this
Agreement or in any exhibit or other instrument furnished or to be
furnished under this Agreement. In no event shall the Company or
the
Investors be entitled to recover consequential or punitive damages
resulting from a breach or violation of this Agreement nor shall
any party
have any liability hereunder in the event of gross negligence or
willful
misconduct of the indemnified party. In the event of the failure
of the
Company to issue the Securities in violation of the provisions of
this
Agreement and the Registration Rights Agreement, the Investors, as
their
sole remedy, shall be entitled to pursue a remedy of specific performance
upon tender into the Court an amount equal to the Purchase Price
hereunder. The indemnification by the Investors shall be limited
to
$50,000.00. This Section 11.2 shall not relate to indemnification
under
the Registration Rights Agreement.
|
11.3.
|
Headings
.
The headings contained in this Agreement are for reference purposes
only
and shall not affect in any way the meaning or interpretation of
this
Agreement.
|
11.4.
|
Entire
Agreement
.
This Agreement (together with the Schedule, Exhibits and documents
referred to herein) constitute the entire agreement of the parties
and
supersede all prior agreements and undertakings, both written and
oral,
between the parties, or any of them, with respect to the subject
matter
hereof.
|
SECURITIES
PURCHASE AGREEMENT
11.5.
|
Notices
.
All notices and other communications hereunder shall be in writing
and
shall be deemed to have been given (i) on the date they are delivered
if
delivered in person; (ii) on the date initially received if delivered
by
facsimile transmission or e-mail provided that any notice by facsimile
or
e-mail shall only be effective if receipt is acknowledged by the
recipient; or (iv) on the on the date of delivery as shown on the
return
receipt, if mailed by registered or certified mail, return receipt
requested with postage and other fees prepaid as
follows:
|
If
to
the
Company:
Jordan
1
Holdings Company
2200
Arthur Kill Road
Staten
Island, NY 10309
Attention:
Robert Moyer, CEO
Facsimile:
e-mail:
With
a
copy to
:
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Attention:
Darrin Ocasio, Esq.
Facsimile
No.: (212) 930-9725
e-mail:
dmocasio@srff.com
If
to
the Investors
:
at
their
respective addresses set forth in Schedule A
11.6.
|
Severability
.
If any term or other provision of this Agreement is invalid, illegal
or
incapable of being enforced by any rule of law or public policy,
all other
conditions and provisions of this Agreement shall nevertheless remain
in
full force and effect so long as the economic or legal substance
of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any such term
or other
provision is invalid, illegal or incapable of being enforced, the
parties
hereto shall negotiate in good faith to modify this Agreement so
as to
effect the original intent of the parties as closely as possible
in an
acceptable manner to the end that the transactions contemplated hereby
are
fulfilled to the extent possible.
|
11.7.
|
Binding
Effect
.
All the terms and provisions of this Agreement whether so expressed
or
not, shall be binding upon, inure to the benefit of, and be enforceable
by
the parties and their respective administrators, executors, legal
representatives, heirs, successors and assignees.
|
SECURITIES
PURCHASE AGREEMENT
11.8.
|
Preparation
of Agreement
.
This Agreement shall not be construed more strongly against any party
regardless of who is responsible for its preparation. The parties
acknowledge each contributed and is equally responsible for its
preparation.
In
resolving any dispute regarding, or construing any provision in,
this
Agreement, there shall be no presumption made or inference drawn
because
of the drafting history of the Agreement, or because of the inclusion
of a
provision not contained in a prior draft or the deletion or modification
of a provision contained in a prior
draft.
|
11.9.
|
Governing
Law
.
This Agreement shall be governed by, and construed in accordance
with, the
laws of the State of New York, without giving effect to applicable
principles of conflicts of law.
|
11.10.
|
Jurisdiction
.
If any action is brought among the parties with respect to this Agreement
or otherwise, by way of a claim or counterclaim, the parties agree
that in
any such action, and on all issues, the parties irrevocably waive
their
right to a trial by jury. Exclusive jurisdiction and venue for any
such
action shall be the federal and state courts situated in the City,
County
and State of New York. In the event suit or action is brought by
any party
under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled
to
reasonable attorneys fees to be fixed by the arbitrator, trial court,
and/or appellate court if such party prevails on substantially all
issues
in dispute.
|
11.11.
|
Preparation
and Filing of SEC filings
.
The Investors shall reasonably assist and cooperate with the Company
in
the preparation of all filings with the SEC after the Closing Date
due
after the Closing Date.
|
11.12.
|
Further
Assurances, Cooperation
.
Each party shall, upon reasonable request by the other party, execute
and
deliver any additional documents necessary or desirable to complete
the
transactions herein pursuant to and in the manner contemplated by
this
Agreement. The parties hereto agree to cooperate and use their respective
best efforts to consummate the transactions contemplated by this
Agreement.
|
11.13.
|
Survival
.
The representations, warranties, covenants and agreements made herein
shall survive the Closing of the transaction contemplated hereby.
|
11.14.
|
Third
Parties
.
Except as disclosed in this Agreement, nothing in this Agreement,
whether
express or implied, is intended to confer any rights or remedies
under or
by reason of this Agreement on any persons other than the parties
hereto
and their respective administrators, executors, legal representatives,
heirs, successors and assignees. Nothing in this Agreement is intended
to
relieve or discharge the obligation or liability of any third persons
to
any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party
to
this Agreement.
|
11.15.
|
Failure
or Indulgence Not Waiver; Remedies Cumulative
.
No failure or delay on the part of any party hereto in the exercise
of any
right hereunder shall impair such right or be construed to be a waiver
of,
or acquiescence in, any breach of any representation, warranty, covenant
or agreement herein, nor shall any single or partial exercise of
any such
right preclude other or further exercise thereof or of any other
right.
All rights and remedies existing under this Agreement are cumulative
to,
and not exclusive of, any rights or remedies otherwise
available.
|
SECURITIES
PURCHASE AGREEMENT
11.16.
|
Counterparts
.
This Agreement may be executed in one or more counterparts, and by
the
different parties hereto in separate counterparts, each of which
when
executed shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement. A facsimile
transmission of this signed Agreement shall be legal and binding
on the
party who delivered the Agreement by facsimile transmission; provided,
that such party shall promptly deliver the signed Agreement by overnight
courier services.
|
[SIGNATURES
ON FOLLOWING PAGE]
SECURITIES
PURCHASE AGREEMENT
IN
WITNESS WHEREOF
,
the
Investors and the Company have as of the date first written above executed
this
Agreement.
THE
COMPANY:
JORDAN
1 HOLDINGS COMPANY
By:
Robert
P. Moyer
Name:
Robert P. Moyer
Title:
Chief Executive Officer
INVESTORS:
BARRON
PARTNERS LP
By:
Barron Capital Advisors, LLC, its General Partner
By:
/s/
Andrew Barron Worden
Andrew
Barron Worden
President
730
Fifth
Avenue, 9th Floor
New
York
NY 10019
/s/
Richard Henri Kreger
Richard
Henri Kreger
Schedule
A
NAME
AND ADDRESS
|
AMOUNT
OF
INVESTMENT
|
PRINCIPAL
OF
NOTE
|
SHARES
OF SERIES A
PREFERRED
STOCK/SHARES
OF
COMMON
STOCK
ISSUABLE
UPON
CONVERSION**
|
NUMBER
OF
SHARES
UNDERLYING
“A”
AND
“B”
WARRANTS
|
|
|
|
|
|
Barron
Partners LP
730
Fifth Avenue
25
th
Floor
New
York, New York 10019
Attn:
Andrew Barron Worden
e-mail:
abw@barronpartners.com
mcj@barronpartners.com
|
$5,250,000
|
$1,000,000
|
4,722,222/
14,166,666
|
9,624,369/
9,624,369
|
|
|
|
|
|
Richard
Henri Kreger
255
Huguenot Street
Apt.
1618
New
Rochelle, New York 10801
e-mail:
rkreger@midtownpartners.com
|
500,000*
|
-0-
|
555,556/
1,666,668
|
916,631/
916,631
|
*
of which $
119,325.39
has
been
paid on behalf of the Company, leaving a remaining balance of
$380,674.61.
**
Each
share of Series A Preferred Stock is initially convertible into three shares
of
Common Stock.
Exhibit
E
Restated
Certificate
RESTATED
CERTIFICATE OF INCORPORATION
OF
Precision
Aerospace Components, Inc.
Precision
Aerospace Components, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the “Corporation”), does
hereby certify:
1.
The
Certificate of Incorporation of the Corporation was filed with the Secretary
of
State on December 28, 2005 under the name Jordan 1 Holdings
Company.
2.
The
name
of the Corporation was changed to Precision Aerospace Components, Inc. by a
Certificate of Ownership and Merger of Precision Aerospace Components, Inc.
into
Jordan 1 Holdings Company which was filed with the Secretary of State on July
,
2006.
3.
The
Certificate of Incorporation of the Corporation is hereby amended and restated
to read as follows:
FIRST:
The name of the Corporation is Precision Aerospace Components, Inc. (the
“Corporation”).
SECOND:
The address of its registered office in the State of Delaware is 2711
Centerville Road, Suite 400, Wilmington, Delaware, 19808. The name of its
registered agent at such address is Corporation Service Company.
THIRD:
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH:
(a)
The
total
number of shares of capital stock which this Corporation is authorized to issue
is one hundred million (100,000,000) shares, of which:
(i)
ten
million (10,000,000) shares shall be designated as Preferred Stock, and shall
have a par value of $.001 per share;
(ii)
ninety
million (90,000,000) shares shall be designated as Common Stock, and shall
have
a par value of $.001 per share; and
(b)
The
Board
of Directors is expressly authorized at any time, and from time to time, to
provide for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, or without voting powers and with
such
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors and as are not stated and expressed in this
Certificate of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(i)
the
designation of such series;
(ii)
the
dividend rate of such series, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such dividends shall bear
to
the dividends payable on any other class or classes or of any other series
of
capital stock, whether such dividends shall be cumulative or noncumulative,
and
whether such dividends may be paid in shares of any class or series of capital
stock or other securities of the Corporation;
(iii)
whether
the shares of such series shall be subject to redemption by the Corporation,
and, if made subject to such redemption, the times, prices and other terms
and
conditions of such redemption;
(iv)
the
terms
and amount of any sinking fund provided for the purchase or redemption of the
shares of such series;
(v)
whether
or not the shares of such series shall be convertible into or exchangeable
for
shares of any other class or classes or series of capital stock or other
securities of the Corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustment and other terms and conditions
of
such conversion or exchange;
(vi)
the
extent, if any, to which the holders of the shares of such series shall be
entitled to vote, as a class or otherwise, with respect to the election of
the
directors or otherwise, and the number of votes to which the holder of each
share of such series shall be entitled;
(vii)
the
restrictions, if any, on the issue or reissue of any additional shares or series
of Preferred Stock; and
(viii)
the
rights of the holders of the shares of such series upon the dissolution of,
or
upon the distribution of assets of, the Corporation.
(c)
No
holder
of any stock of the Corporation of any class or series now or hereafter
authorized, shall, as such holder, be entitled as of right to purchase or
subscribe for any shares of stock of the Corporation of any class or any series
now or hereafter authorized, or any securities convertible into or exchangeable
for any such shares, or any warrants, options, rights or other instruments
evidencing rights to subscribe for, or purchase, any such shares, whether such
shares, securities, warrants, options, rights or other instruments be unissued
or issued and thereafter acquired by the Corporation.
FIFTH:
Election of directors need not be by ballot unless the By-laws of the
Corporation shall so provide.
SIXTH:
A
director of the Corporation shall not be personally liable to the Corporation
or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director’s duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not
in good faith or which involve intentional misconduct or a knowing violation
of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
SEVENTH:
(a)
Right
to Indemnification
.
Each
person who was or is made a party or is threatened to be made a party to or
is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter, a “proceeding”), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the Corporation or is or was serving at
the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred
or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee
or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Paragraph (b)
of
this Article SEVENTH, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated
by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred
in
this Article SEVENTH shall be a contract right and shall include the right
to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by
a
director or officer in his or her capacity as a director of officer (and not
in
any other capacity in which service was or is rendered by such person while
a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such
director or officer, to repay all amounts so advanced if it shall ultimately
be
determined that such director or officer is not entitled to be indemnified
under
this Article SEVENTH or otherwise. The Corporation may, by action of its Board
of Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors
and
officers.
(b)
Right
of Claimant to Bring Suit
.
If a
claim under Paragraph (a) of this Article SEVENTH is not paid in full by the
Corporation within thirty (30) days after a written claim has been received
by
the Corporation, the claimant may at any time thereafter bring suit against
the
Corporation to recover the unpaid amount of the claim, and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
of
prosecuting such claim. It shall be a defense to any such action (other than
an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant
has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification
of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the claimant has
not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard
or
conduct.
(c)
Non-Exclusivity
of Rights
.
The
right to indemnification and the payment of expenses incurred in defending
a
proceeding in advance of its final disposition conferred in this Article SEVENTH
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
(d)
Insurance
.
The
Corporation may maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
EIGHTH:
In furtherance and not in limitation of the powers conferred upon the Board
of
Directors by law, the Board of Directors shall have power to make, adopt, alter,
amend or repeal from time to time By-laws of the Corporation, subject to the
right of the stockholders entitled to vote with respect thereto to alter and
repeal By-laws made by the Board of Directors and subject to the provisions
of
any By-law limiting the right of the Board of Directors to make certain
modifications to the By-laws.
4.
Upon
the
filing of this Restated Certificate of Incorporation:
(a)
Each
share of Common Stock outstanding on the date this Restated Certificate of
Incorporation is filed with the Secretary of State shall automatically become
and be converted into one one hundred fiftieth (1/150) of a share of Common
Stock (the “Reverse Split”). The par value of the Common Stock shall not be
affected by the Reverse Split. No fractional shares shall be issued as a result
of the Reverse Split. The Corporation shall pay, with respect to fractional
shares, the value of such fractional shares based on the last reported trading
price on the principal stock exchange or market on which the Common Stock is
traded on the trading day preceding the effective date of the Reverse Split,
or
there is no trading of such date, the average of the closing bid prices on
such
date.
(b)
Each
of
the presently outstanding shares of Series B Convertible Preferred Stock, par
value $.001 per share (“Series B Preferred Stock”), will, in accordance with the
provisions of the Certificate of Designation creating the Series B Preferred
Stock, automatically, without any action on the part of the holder, become
and
be converted into two shares of Common Stock (determined after giving effect
to
the Reverse Split), and the shares of Series B Preferred Stock so converted
shall have the status of authorized but unissued shares of Preferred Stock,
without designation as to series until such stock is once more designated as
part of a particular series by the Corporation’s Board of
Directors.
5.
Set
forth
as Exhibit A to this Restated Certificate of Incorporation is a Statement of
Designations setting forth the rights, preferences, privileges and limitations
of a series of Preferred Stock consisting of seven million one hundred thousand
(7,100,000) shares and designated as the Series A Convertible Preferred
Stock.
6.
This
Restated Certificate of Incorporation has been duly adopted in accordance with
the provisions of Sections 242 and 245 of the General Corporation Law of
Delaware.
7.
The
capital of the Corporation will not be reduced under or by reason of any
amendment herein certified.
IN
WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by
its
president this __th day of _______, 2006.
s/________________________________
Name:
Title:
REGISTRATION
RIGHTS AGREEMENT
THIS
REGISTRATION RIGHTS AGREEMENT (the “
Agreement
”)
is
made and entered into as of 20
th
day of
July, 2006, by and among
Jordan 1 Holdings Company,
a
Delaware corporation (the “
Company
”),
and
Barron Partners L.P., a Delaware limited partnership
(“
Barron
”),
and
Richard
Henri Kreger
(collectively,
with Barron, the “
Investors
”
and
each, individually, an “
Investor
”).
Unless
defined otherwise, capitalized terms herein shall have the identical meaning
as
in the Preferred Stock Purchase Agreement, of even date herewith (the
“
Purchase
Agreement
”),
by
and among the Company and the Investors.
PRELIMINARY
STATEMENT
WHEREAS
,
pursuant to the Purchase Agreement, the Investors are purchasing shares of
Series A Preferred Stock and Warrants, and Barron is purchasing the Note which
entitle the Investors to receive Shares of the Company upon conversion or
exercise thereof; and
WHEREAS
,
the
ability of the Investors to sell their Shares of Common Stock is subject to
certain restrictions under the 1933 Act; and
WHEREAS
,
as a
condition to purchase of Note, Series A Preferred Stock and Warrants pursuant
to
the Purchase Agreement, the Company has agreed to provide the Investors with
a
mechanism that will permit such Investors, subject to a market stand-off
agreement, to sell the Shares in the future.
NOW,
THEREFORE
,
in
consideration of the premises and of the mutual covenants and agreements, and
subject to the terms and conditions herein contained, the parties hereto hereby
agree as follows:
ARTICLE
I
INCORPORATION
BY REFERENCE, SUPERSEDER
1.1.
Incorporation
by Reference
.
The
foregoing recitals are hereby acknowledged to be true and accurate, and are
incorporated herein by this reference.
1.2.
Supersedes
Other Understandings
.
This
Agreement, to the extent that it is inconsistent with any other instrument
or
understanding among the parties governing the affairs of the Company, shall
supersede such instrument or understanding to the fullest extent permitted
by
law. A copy of this Agreement shall be filed at the Company’s principal
office.
ARTICLE
II
DEMAND
REGISTRATION RIGHTS
2.1.
Registrable
Securities
.
The
term “Registrable Securities” shall means and include the Shares of the Company
issuable upon conversion of the Note, the Series A Preferred Stock and the
Warrants issued pursuant to the Purchase Agreement. As to any particular
Registrable Securities, such securities will cease to be Registrable Securities
when (a) they have been effectively registered under the 1933 Act and disposed
of in accordance with the registration statement covering them, (b) they are
or
may be freely traded without registration pursuant to Rule 144 under the 1933
Act (or any similar provisions that are then in effect), or (c) they have been
otherwise transferred and new certificates for them not bearing a restrictive
legend have been issued by the Company and the Company shall not have “stop
transfer” instructions against them. “
Shares
”
shall
mean, collectively, the shares of Common Stock of the Company issuable upon
conversion of the Note and the Series A Preferred Stock and upon exercise of
the
Warrants.
2.2.
Registration
of Registrable Securities
.
The
Company shall prepare and file within sixty (60) days following the date hereof
(the “
Filing
Date
”)
a
registration statement (the “
Registration
Statement
”)
covering the sale of such number of shares of the Registrable Securities as
the
Investors shall elect by written notice to the Company, and absent such
election, covering the sale of all of the Registrable Securities. The Company
shall use its best efforts to cause the Registration Statement to be declared
effective by the SEC on the first to occur of (i) 120 days following the Filing
Date with respect to the Registration Statement, (ii) ten (10) days following
the receipt of a “No Review” or similar letter from the SEC or (iii) the third
(3rd) business day following the day the Company receives notice from the SEC
that the SEC has determined that the Registration Statement eligible to be
declared effective without further comments by the SEC (the “
Required
Effectiveness Date
”).
Nothing contained herein shall be deemed to limit the number of Registrable
Securities to be registered by the Company hereunder. As a result, if the
Registration Statement does not relate to the maximum number of Registrable
Securities acquired by (or potentially acquirable by) the holders of the Note,
Series A Preferreed Stock or Warrants issued to the Investors pursuant to the
Purchase Agreement, other than as a result of the election by the holder thereof
not to have Shares included in the Registration Statement, the Company shall
be
required to promptly file a separate registration statement (utilizing Rule
462
promulgated under the 1933 Act, if applicable) relating to such Registrable
Securities which then remain unregistered. The provisions of this Agreement
shall relate to any such separate registration statement as if it were an
amendment to the Registration Statement.
2.3.
Demand
Registration
.
Subject
to the limitations of Section 2.2, at any time and from time to time, the
Investors may request the registration under the 1933 Act of all or part of
the
Registrable Securities then outstanding (a “
Demand
Registration
”).
Subject to the conditions of Section 3, the Company shall use its commercially
reasonable best efforts to file such registration statement under the 1933
Act
as promptly as practicable after the date any such request is received by the
Company and to cause such registration statement to be declared effective.
The
Company shall notify the Investors promptly when any such registration statement
has been declared effective. If more than eighty percent (80%) of the Shares
issuable under the Purchase Agreement have been registered or sold, the
Company’s obligations under this Article II shall terminate.
2.4.
Registration
Statement Form
.
Registrations under Section 2.2 and Section 2.3 shall be on the appropriate
registration form of the SEC as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in the Registration Statement; provided, however, such intended method
of disposition shall not include an underwritten offering of the Registrable
Securities.
2.5.
Expenses
.
The
Company will pay all Registration Expenses in connection with any registration
required by under Sections 2.2 and Section 2.3 herein. Registration Expenses
shall mean all expenses incident to the Company’s performance of or compliance
with its obligations under this Agreement, including, without limitation, all
registration, filing, listing, stock exchange and NASD fees, all fees and
expenses of complying with state securities or blue sky laws (including fees,
disbursements and other charges of counsel for the underwriters only in
connection with blue sky filings), all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees, disbursements and other
charges of counsel for the Company and of its independent public accountants,
including the expenses incurred in connection with “cold comfort” letters
required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by the issuer of securities,
but
excluding from the definition of Expenses underwriting and discounts and
brokerage commissions and applicable transfer taxes, if any, or legal and other
expenses incurred by any sellers, which discounts, commissions, transfer taxes
and legal and other expenses shall be borne by the seller or sellers of
Registrable Securities in all cases.
2.6.
Effective
Registration Statement
.
A
registration requested pursuant to Sections 2.2 and Section 2.3 shall not be
deemed to have been effected, other than for an Excused Reason, as hereinafter
defined, (i) unless a registration statement with respect thereto has become
effective, provided that a registration which does not become effective after
the Company filed a registration statement with respect thereto solely by reason
of the refusal to proceed of any holder of Registrable Securities (other than
a
refusal to proceed based upon the advice of counsel in the form of a letter
signed by such counsel and provided to the Company relating to a disclosure
matter unrelated to such holder) shall be deemed to have been effected by the
Company, (ii) if, after it has become effective, such registration becomes
subject to any stop order, injunction or other order or extraordinary
requirement of the SEC or other governmental agency or court for any reason
and
such stop order or other action continues in effect for five trading days or
(iii) if, after it has become effective, such registration ceases to be
effective for more than the allowable Black-Out Periods, as hereinafter defined.
An Excused Reason shall include, without limitation, acts of God, closure of
the
SEC.
2.7.
Plan
o
f
Distribution
.
The
Company hereby agrees that the Registration Statement shall include a plan
of
distribution section reasonably acceptable to the Investors; provided, however,
such plan of distribution section shall be modified by the Company so as to
not
provide for the disposition of the Registrable Securities on the basis of an
underwritten offering.
2.8.
Liquidated
Damages
.
(i)
In
the
event (a) the Company does not file the Registration Statement covering the
Registrable Securities by the Filing Date as required by Section 2.2 herein,
or
(b) the Registration Statement filed pursuant to Section 2.2 herein is not
declared effective by the Required Effectiveness Date as provided in said
Section 2.2, or (c) if the Registrable Securities are registered pursuant to
an
effective Registration Statement and such Registration Statement or other
Registration Statement(s) demanded by Investors including the Registrable
Securities is not effective in the period from the Required Effective Date
through two years following the date hereof other than for a Black-out Period,
the Company shall, for each such day (x) after the Filing Date that the Company
shall not have filed the Registration Statement, (y) after the Required
Effectiveness Date that the Registration Statement shall not have been declared
effective, or (z) during which the Registration Statement is not effective
as
required by clause (c) of this Section 2.8(i), issue to the Investors, as
liquidated damages and not as a penalty, 2,100 shares of Series A Preferred
Stock for any such day (based on a 365 day working calendar year), such issuance
shall be made no later than the tenth business day of the calendar month next
succeeding the month in which such day occurs; provided, however, that if the
Registration Statement does not cover, or registration has not been requested
for, the Registrable Securities issuable upon conversion of all of the shares
of
Series A Preferred Stock that were issued by the Company, the liquidated damages
per day shall be the percentage of 2,100 shares that the number of Registrable
Securities then subject to, or proposed to be include in, the Registration
Statement bears to the total number Registrable Securities issued or issuable
upon conversion of all of the Series A Preferred Stock that were initially
issued to the Investors. However, in no event shall the Company be required
to
pay any liquidated damages under this Section 2.8 in an amount exceeding 750,000
shares of Series A Preferred Stock in the aggregate (as adjusted pursuant to
the
terms of the Certificate of Designation).
(ii)
Notwithstanding
the provisions of Section 2.8(i):
(a)
In
the
event that the Company shall fail to file the Registration Statement by the
Filing Date but the Registration Statement shall have been declared effective
by
the Required Effectiveness Date, then no liquidated damages shall be payable
with respect to the failure to file by the Filing Date. The Company may defer
the issuance of any such shares of Series A Preferred Stock until the first
date
after the Required Effectiveness Date that the Company is required to pay
liquidated damages pursuant to Section 2.8(i).
(b)
Any
liquidated damages payable as a result of the failure to file the Registration
Statement by the Filing Date shall be credited against liquidated damages
payable as a result of the failure of the Registration Statement to be declared
effective by the Required Effectiveness Date.
(c)
No
fractional shares shall be issued. Any fractional shares which would otherwise
be issued on any date on which Series A Preferred Stock is to be issued pursuant
to Section 2.8(i) of this Agreement, shall be carried forward; provided,
however, that if, at the expiration of the period during which liquidated
damages is payable there remains a fractional shall which has not been applied
to liquidated damages, the Company shall have no further obligation to issue
such fractional share.
(iii)
In
no
event shall the Company be required to pay any liquidated damages in the event
that the failure of the registration statement to be declared effective on
the
Required Effective Date results in whole or in part from either (a) the failure
of any Investor to provide information satisfactory to the SEC relating to
the
Investor and its proposed method of sale or any other information concerning
the
Investor that is required to be included in the registration statement or (b)
any delays resulting from questions raised by the SEC or any other regulatory
agency, market or exchange concerning the Investors or the affiliates of any
of
the Investors.
(iv)
The
parties hereto agree that the liquidated damages provided for in this Section
2.8 constitute a reasonable estimate of the damages that may be incurred by
the
Investors by reason of the failure of the Registration Statement(s) to be filed
or declared effective in accordance with the provisions hereof.
(v)
The
obligation of the Company terminates when the Investors no longer hold more
than
ten percent (10%) of the Registrable Securities, based on the number of
Registrable Securities initially issuable pursuant to the Purchase Agreement
and
any shares issued due to adjustments in these transaction documents and the
Warrants.
ARTICLE
III
INCIDENTAL
REGISTRATION RIGHTS
3.1.
Right
To Include (“Piggy-Back”) Registrable Securities
.
Provided that the Registrable Securities have not been registered, if at any
time after the date hereof but before the second anniversary of the date hereof,
the Company proposes to register any of its securities under the 1933 Act (other
than by a registration in connection with an acquisition in a manner which
would
not permit registration of Registrable Securities for sale to the public, on
Form S-8, or any successor form thereto, on Form S-4, or any successor form
thereto and other than pursuant to Section 2), on an underwritten basis (either
best-efforts or firm-commitment), then, the Company will each such time give
prompt written notice to all holders of Registrable Securities of its intention
to do so and of such holders of Registrable Securities’ rights under this
Section 3.1. Upon the written request of any such holders of Registrable
Securities made within ten (10) days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of
by
such holders of Registrable Securities and the intended method of disposition
thereof), the Company will, subject to the terms of this Agreement, use its
commercially reasonable best efforts to effect the registration under the 1933
Act of the Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of
such Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the securities
which the Company proposes to register, provided that if, at any time after
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to register
or to delay registration of such securities, the Company may, at its election,
give written notice of such determination to each holders of Registrable
Securities and, thereupon, (i) in the case of a determination not to register,
shall be relieved of this obligation to register any Registrable Securities
in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however,
to
the rights of any holder or holders of Registrable Securities entitled to do
so
to request that such registration be effected as a registration under Section
2,
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities, for the same period as the
delay in registering such other securities. No registration effected under
this
Section 3.1 shall relieve the Company of its obligation to effect any
registration upon request under Section 2 except to the extent that any
Registrable Securities are registered pursuant to such registration statement.
The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section
3.1.
3.2.
Priority
In Incidental Registrations
.
If the
managing underwriter of the underwritten offering contemplated by this Section
3
shall inform the Company and holders of the Registrable Securities requesting
such registration by letter of its belief that the number of securities
requested to be included in such registration exceeds the number which can
be
sold in such offering, then the Company will include in such registration,
to
the extent of the number which the Company is so advised can be sold in such
offering, (i) first securities proposed by the Company to be sold for its own
account, and (ii) second to holders of securities having demand registration
rights and exercising such rights in connection with such registration
statement, (iii) third Registrable Securities and securities of other selling
security holders (including Insiders, as defined in the Purchase Agreement)
who
requested to be included in such registration on a pari passu
basis.
ARTICLE
IV
REGISTRATION
PROCEDURES
4.1.
Registration
Procedures
.
If and
whenever the Company is required to effect the registration of any Registrable
Securities under the 1933 Act as provided in Section 2.2 and, as applicable,
2.3, the Company shall, as expeditiously as possible:
(i)
prepare
and file with the SEC the Registration Statement, or amendments thereto, to
effect such registration (including such audited financial statements as may
be
required by the 1933 Act or the rules and regulations promulgated thereunder)
and thereafter use its commercially reasonable best efforts to cause such
registration statement to be declared effective by the SEC, as soon as
practicable, but in any event no later than the Required Effectiveness Date
(with respect to a registration pursuant to Section 2.2); provided, however,
that before filing such registration statement or any amendments thereto, the
Company will furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of all such
documents proposed to be filed;
(ii)
with
respect to any registration statement pursuant to Section 2.2 or Section 2.3,
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective and to comply with
the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities covered by such registration statement until the earlier to occur
of
thirty six (36) months after the date of this Agreement (subject to the right
of
the Company to suspend the effectiveness thereof for not more than 15
consecutive Trading Days or an aggregate of 20 Trading Days during each year
(each a “
Black-Out
Period
”))
or
such time as all of the securities which are the subject of such registration
statement cease to be Registrable Securities (such period, in each case, the
“
Registration
Maintenance Period
”).
The
Company must notify the Investors within twenty four (24) hours prior to any
Black-Out Period;
(iii)
furnish
to each holder of Registrable Securities covered by such registration statement
such number of conformed copies of such registration statement and of each
such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other
prospectus filed under Rule 424 under the 1933 Act, in conformity with the
requirements of the 1933 Act, and such other documents, as such holder of
Registrable Securities and underwriter, if any, may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities
owned by such holder of Registrable Securities;
(iv)
use
its
commercially reasonable best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other U.S. federal or state securities laws or U.S. state blue sky laws
as
any U.S. holder of Registrable Securities thereof shall reasonably request,
to
keep such registrations or qualifications in effect for so long as such
registration statement remains in effect, and take any other action which may
be
reasonably necessary to enable such holder of Registrable Securities to
consummate the disposition in such jurisdictions of the securities owned by
such
holder of Registrable Securities, except that the Company shall not for any
such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v)
use
its
commercially reasonable best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the U.S.
holder of Registrable Securities thereof to consummate the disposition of such
Registrable Securities;
(vi)
furnish
to each holder of Registrable Securities a signed counterpart, addressed to
such
holder of Registrable Securities, and the underwriters, if any, of an opinion
of
counsel for the Company, dated the effective date of such registration statement
(or, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), such opinion
to
be in the form filed as Exhibit 5 to the registration statement,
and
(vii)
notify
the Investors and their counsel promptly and confirm such advice in writing
promptly after the Company has knowledge thereof:
(a)
when
the
Registration Statement, the prospectus or any prospectus supplement related
thereto or post-effective amendment to the Registration Statement has been
filed, and, with respect to the Registration Statement or any post-effective
amendment thereto, when the same has become effective;
(b)
of
any
request by the SEC for amendments or supplements to the Registration Statement
or the prospectus or for additional information;
(c)
of
the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings by any Person for
that purpose; and
(d)
of
the
receipt by the Company of any notification with respect to the suspension of
the
qualification of any Registrable Securities for sale under the securities or
blue sky laws of any jurisdiction or the initiation or threat of any proceeding
for such purpose;
(viii)
notify
each holder of Registrable Securities covered by such registration statement,
at
any time when a prospectus relating thereto is required to be delivered under
the 1933 Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as
then
in effect, includes an untrue statement of a material fact or omits to state
any
material facts required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and
at
the request of any such holder of Registrable Securities promptly prepare and
furnish to such holder of Registrable Securities a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(ix)
use
its
commercially reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(x)
otherwise
use its commercially reasonable best efforts to comply with all applicable
rules
and regulations of the SEC, and make available to its security holders, as
soon
as reasonably practicable, an earnings statement covering the period of at
least
twelve months, but not more than eighteen months, beginning with the first
full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the 1933
Act
and Rule 158 thereunder;
(xi)
enter
into such agreements and take such other actions as the Investors shall
reasonably request in writing (at the expense of the requesting or benefiting
Investors) in order to expedite or facilitate the disposition of such
Registrable Securities; and
(xii)
use
its
commercially reasonable best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of the
Registrable Securities are then listed.
The
Company may require each holder of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such holder of Registrable Securities and the distribution of such securities
as
the Company may from time to time reasonably request in writing,
including
(a)
furnish
the information as to any shares of Common Stock or other securities of the
Company owned by the holder, the holder’s proposed plan of distribution, any
relationship between the holder and the Company and any other information which
the Company reasonably requests in connection with the preparation of the
registration statement and update such information immediately upon the
occurrence of any events or condition which make the information concerning
the
Seller inaccurate in any material respect;
(b)
not
sell
any Registrable Securities pursuant to the registration statement except in
the
manner set forth in the Registration Statement;
(c)
comply
with the prospectus delivery requirements and the provisions of Regulation
M of
the SEC pursuant to the 1933 Act to the extent that such regulation is
applicable to the holder;
(d)
not
sell
or otherwise transfer or distribute any Registrable Securities if the holder
possesses any material nonpublic information concerning the
Company.
4.2.
The
Company will not file any registration statement pursuant to Section 2.2 or
Section 2.3, or amendment thereto or any prospectus or any supplement thereto
to
which the Investors shall reasonably object, provided that the Company may
file
such documents in a form required by law or upon the advice of its
counsel.
4.3.
The
Company represents and warrants to each holder of Registrable Securities that
it
has obtained all necessary waivers, consents and authorizations necessary to
execute this Agreement and consummate the transactions contemplated hereby
other
than such waivers, consents and/or authorizations specifically contemplated
by
the Purchase Agreement.
4.4.
Each
holder of Registrable Securities agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in subdivision
(viii) of Section 4.1, such Holder will forthwith discontinue such holder of
Registrable Securities’ disposition of Registrable Securities pursuant to the
Registration Statement relating to such Registrable Securities until such holder
of Registrable Securities’ receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (viii) of Section 4.1 and, if so directed
by the Company, will deliver to the Company (at the Company’s expense) all
copies, other than permanent file copies, then in such Holder’s possession of
the prospectus relating to such Registrable Securities current at the time
of
receipt of such notice.
ARTICLE
V
UNDERWRITTEN
OFFERINGS
5.1.
Incidental
Underwritten Offerings
.
If the
Company at any time proposes to register any of its securities under the 1933
Act as contemplated by Section 3.1 and such securities are to be distributed
by
or through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in Section 3.1 and subject to
the
provisions of Section 3.2, use its commercially reasonable best efforts to
arrange for such underwriters to include all the Registrable Securities to
be
offered and sold by such holder among the securities to be distributed by such
underwriters. In no event shall any Investors be deemed an underwriter for
purposes of this Agreement. This Article V shall not apply to any Registrable
Securities theretofore registered pursuant to Article II of this
Agreement.
5.2.
Participation
In Underwritten Offerings
.
No
holder of Registrable Securities may participate in any underwritten offering
under Section 3.1 unless such holder of Registrable Securities (i) agrees to
sell such Person’s securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
holders of a majority of Registrable Securities to be included in such
underwritten offering and (ii) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents (other than powers
of
attorney) required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, no underwriting agreement (or other agreement
in
connection with such offering) shall require any holder of Registrable
Securities to make a representation or warranty to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder of Registrable Securities expressly for
use in the related registration statement or representations, warranties or
agreements regarding such holder of Registrable Securities, such holder’s
Registrable Securities and such holder’s intended method of distribution and any
other representation required by law.
5.3.
Preparation;
Reasonable Investigation
.
In
connection with the preparation and filing of each registration statement under
the 1933 Act pursuant to this Agreement, the Company will give the holders
of
Registrable Securities registered under such registration statement, and their
respective counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein
or
filed with the SEC, and each amendment thereof or supplement thereto, and will
give each of them such access to its books and records and such opportunities
to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders’ and such underwriters’ respective
counsel, to conduct a reasonable investigation within the meaning of the 1933
Act.
ARTICLE
VI
INDEMNIFICATION
6.1.
Indemnification
by the Company
.
In the
event of any registration of any securities of the Company under the 1933 Act,
the Company will, and hereby does agree to indemnify and hold harmless the
holder of any Registrable Securities covered by such registration statement,
its
directors and officers, each other Person who participates as an underwriter
in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the 1933
Act
against any losses, claims, damages or liabilities, joint or several, to which
such holder or any such director or officer or underwriter or controlling person
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced
or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission
or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Company
will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred
by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability,
(or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof
and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the 1933 Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person’s failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
1933 Act to the Person asserting the existence of an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus or an amendment
or
supplement thereto. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any
such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such holder.
6.2.
Indemnification
by the Investors
.
The
Company may require, as a condition to including any Registrable Securities
in
any registration statement filed pursuant to this Agreement, that the Company
shall have received an undertaking satisfactory to it from the prospective
holder of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 6.1) the Company,
each director of the Company, each officer of the Company and each other Person,
if any, who controls the Company within the meaning of the 1933 Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was
made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such holder of Registrable
Securities specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such Investors. The indemnification by the
Investors
shall be
limited to Fifty Thousand ($50,000) Dollars.
6.3.
Notices
Of Claims, Etc
.
Promptly after receipt by an indemnified party of notice of the commencement
of
any action or proceeding involving a claim referred to in Sections 6.1 and
Section 6.2, such indemnified party will, if claim in respect thereof is to
be
made against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party
of
its obligations under Sections 6.1 and Section 6.2, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
In
case any such action is brought against an indemnified party, unless in such
reasonable judgment
of
counsel to the indemnified party,
a
conflict of interest
,
as
hereinafter defined,
between
such indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof
the
giving by the claimant or plaintiff to such indemnified party of a release
from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment or enter into any
settlement of any such action the defense of which has been assumed by an
indemnifying party without the consent of such indemnifying party
.
If the
defendants in any action covered by this Section 6.3 include both the
indemnified party and the indemnifying party and counsel for the indemnified
party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to
the
indemnifying party or if the interests of the indemnified party reasonably
may
be deemed to conflict with the interests of the indemnifying party
(collectively, a “conflict of interest”), the indemnified parties, as a group,
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party. Such counsel
shall be selected by the holders of a majority of the shares of Common Stock
having an indemnity claim against the Company, whether pursuant to this
Agreement or any other agreements which provide such or similar
indemnity.
6.4.
Other
Indemnification
.
Indemnification similar to that specified in Sections 6.1 and Section 6.2 (with
appropriate modifications) shall be given by the Company and each holder of
Registrable Securities (but only if and to the extent required pursuant to
the
terms herein) with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority, other than the 1933 Act.
6.5.
Indemnification
Payments
.
The
indemnification required by Sections 6.1 and Section 6.2 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
6.6.
Contribution
.
(i)
If
the
indemnification provided for in Sections 6.1 and Section 6.2 is unavailable
to
an indemnified party in respect of any expense, loss, claim, damage or liability
referred to therein, then each indemnifying party, in lieu of indemnifying
such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such expense, loss, claim, damage or liability
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the holder of Registrable Securities
or underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the holder of Registrable
Securities or underwriter, as the case may be, on the other in connection with
the statements or omissions which resulted in such expense, loss, damage or
liability, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the holder of Registrable
Securities or underwriter, as the case may be, on the other in connection with
the distribution of the Registrable Securities shall be deemed to be in the
same
proportion as the total net proceeds received by the Company from the initial
sale of the Registrable Securities by the Company to the purchasers bear to
the
gain, if any, realized by all selling holders participating in such offering
or
the underwriting discounts and commissions received by the underwriter, as
the
case may be. The relative fault of the Company on the one hand and of the holder
of Registrable Securities or underwriter, as the case may be, on the other
shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the Company, by the holder of Registrable Securities
or by the underwriter and the parties’ relative intent, knowledge, access to
information supplied by the Company, by the holder of Registrable Securities
or
by the underwriter and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
provided that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to
such
indemnified party by reason of the provisions contained herein, and in no event
shall the obligation of any indemnifying party to contribute under this Section
6.6 exceed the amount that such indemnifying party would have been obligated
to
pay by way of indemnification if the indemnification provided for hereunder
had
been available under the circumstances.
(ii)
The
Company and the holders of Registrable Securities agree that it would not be
just and equitable if contribution pursuant to this Section 6.6 were determined
by pro rata allocation (even if the holders of Registrable Securities and any
underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth herein, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
(iii)
Notwithstanding
the provisions of this Section 6.6, no holder of Registrable Securities or
underwriter shall be required to contribute any amount in excess of the amount
by which (i) in the case of any such holder, the net proceeds received by such
holder from the sale of Registrable Securities in the applicable Registration
Statement or (ii) in the case of an underwriter, the total price at which the
Registrable Securities purchased by it and distributed to the public were
offered to the public exceeds, in any such case, the amount of any damages
that
such holder or underwriter has otherwise been required to pay by reason of
such
untrue or alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE
VII
RULE
144
7.1.
Rule
144
.
The
Company shall use its commercially reasonable efforts to file in a timely manner
the reports required to be filed by the Company under the 1933 Act and the
1934
Act (including but not limited to the reports under Sections 13 and 15(d) of
the
Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the SEC
under the 1933 Act) and the rules and regulations adopted by the SEC thereunder
(or, if the Company is not required to file such reports, will, upon the request
of any holder of Registrable Securities, make publicly available other
information) and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to
time
to enable such holder to sell Registrable Securities without registration under
the 1933 Act within the limitation of the exemptions provided by (a) Rule 144
under the 1933 Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any
holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with the requirements of this
Section 7.1.
ARTICLE
VIII
MISCELLANEOUS
8.1.
Amendments
And Waivers
.
This
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of fifty-one percent (51%) or more
of
the sum of the shares of (i) Registrable Securities issued at such time, plus
(ii) Registrable Securities issuable upon exercise or conversion of the
Securities then constituting derivative securities (if such Securities were
not
fully exercised or converted in full as of the date such consent if sought
without regard to the 4.9% Limitation, as defined in the Purchase Agreement).
Each holder of any Registrable Securities at the time or thereafter outstanding
shall be bound by any consent authorized by this Section 8.1, whether or not
such Registrable Securities shall have been marked to indicate such
consent.
8.2.
Nominees
For Beneficial Owners
.
In the
event that any Registrable Securities are held by a nominee for the beneficial
owner thereof, the beneficial owner thereof shall be treated as the holder
of
such Registrable Securities for purposes of any request or other action by
any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of shares of Registrable Securities
held by a holder or holders of Registrable Securities contemplated by this
Agreement. The Company may require assurances reasonably satisfactory to it
of
such owner’s beneficial ownership or such Registrable Securities.
8.3.
Notices
.
Except
as
otherwise provided in this Agreement, all notices, requests and other
communications to any Person provided for hereunder shall be in writing and
shall be given to such Person (a) in the case of a party hereto other than
the
Company, addressed to such party in the manner set forth in the Purchase
Agreement or at such other address as such party shall have furnished to the
Company in writing, or (b) in the case of any other holder of Registrable
Securities, at the address that such holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company, or (c) in the case
of
the Company, at the address set forth on the signature page hereto, to the
attention of its President, or at such other address, or to the attention of
such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) upon receipt after such communication
is deposited in the mail with first class postage prepaid, addressed as
aforesaid or (ii) if given by any other means (including, without limitation,
by
fax or air courier), when delivered at the address specified above, provided
that any such notice, request or communication shall not be effective until
received, and provided, further, that notice by fax shall not be deemed received
unless receipt is acknowledged.
8.4.
Assignment
.
This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit
of
and enforceable by any subsequent holder of any Registrable Securities. Each
of
the Holders of the Registrable Securities agrees, by accepting any portion
of
the Registrable Securities after the date hereof, to the provisions of this
Agreement including, without limitation, appointment of a representative (the
“Investors’ Representative”) to act on behalf of such Holder pursuant to the
terms hereof which such actions shall be made in the good faith discretion
of
the Investors’ Representative and be binding on all persons for all
purposes.
8.5.
Descriptive
Headings
.
The
descriptive headings of the several sections and paragraphs of this Agreement
are inserted for reference only and shall not limit or otherwise affect the
meaning hereof.
8.6.
Governing
Law
.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law.
8.7.
Jurisdiction
.
If any
action is brought among the parties with respect to this Agreement or otherwise,
by way of a claim or counterclaim, the parties agree that in any such action,
and on all issues, the parties irrevocably waive their right to a trial by
jury.
Exclusive jurisdiction and venue for any such action shall be the State or
Federal Courts serving the City, County and State of New York. In the event
suit
or action is brought by any party under this Agreement to enforce any of its
terms, or in any appeal therefrom, it is agreed that the prevailing party shall
be entitled to reasonable attorneys fees to be fixed by the arbitrator, trial
court, and/or appellate court if such party prevails on substantially all
disputed matters.
8.8.
Entire
Agreement
.
This
Agreement, together with the Purchase Agreement, embodies the entire agreement
and understanding between the Company and each other party hereto relating
to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
8.9.
Severability
.
If any
provision of this Agreement, or the application of such provisions to any Person
or circumstance, shall be held invalid, the remainder of this Agreement, or
the
application of such provision to Persons or circumstances other than those
to
which it is held invalid, shall not be affected thereby.
8.10.
Binding
Effect
.
All the
terms and provisions of this Agreement whether so expressed or not, shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective administrators, executors, legal representatives, heirs,
successors and assignees.
8.11.
Preparation
of Agreement
.
This
Agreement shall not be construed more strongly against any party regardless
of
who is responsible for its preparation. The parties acknowledge each contributed
and is equally responsible for its preparation.
8.12.
Failure
or Indulgence Not Waiver; Remedies Cumulative
.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall nay single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and
remedies existing under this Agreement are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
8.13.
Counterparts
.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, but all of which taken together shall constitute
one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
IN
WITNESS WHEREOF
,
the
Investors and the Company have as of the date first written above executed
this
Agreement.
JORDAN
1 HOLDINGS COMPANY
By:
/s/
Robert P. Moyer
Name:
Robert P. Moyer
Title:
Chief
Executive Officer
INVESTORS
BARRON
PARTNERS LP
By:
Barron Capital Advisors, LLC, its General Partners
By:
/s/
Andrew Barron Worden
Andrew
Barron Worden
President
730
Fifth
Avenue, 25th Floor
New
York
NY 10019
/s/
Richard Henri Kreger
Richard
Henri Kreger
430
East
86
th
Street
New
York,
NY 10028
NEITHER
THIS NOTE NOR THE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK OR COMMON
STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE HAS BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
$1,000,000
|
|
New
York, New York
July
20, 2006
|
JORDAN
1 HOLDINGS COMPANY
CONVERTIBLE
NOTE DUE JULY 20, 2011
FOR
VALUE
RECEIVED, Jordan 1 Holdings Company, a Delaware corporation (the “Company”),
hereby promises to pay to the order of Barron Partners LP or registered assigns
(the “Holder”), the principal amount of one million dollars ($1,000,000) on July
20, 2011 (“Maturity Date”). Interest, on the outstanding principal balance shall
be paid monthly on the fifteenth (15
th
)
day of
each month, commencing August 15, 2006 at the rate of (i) three percent (3%)
per
annum until December 2, 2006, (ii) twelve percent per annum (12%) from December
3, 2006 until January 30, 2007 and (iii) fourteen percent (14%) per annum
thereafter. Interest shall be computed on the basis of a 360-day year, using
the
number of days actually elapsed. This Note is issued pursuant to a securities
purchase agreement (the “Purchase Agreement”) between the Company and Barron
Partners LP and the equity investors named therein.
Article
1.
Covenants
of the Company
(a)
Restated
Certificate of Incorporation
.
The
Company has obtained the consent of the holders of a majority of its outstanding
shares of common stock, par value $.0001 per share, such consent to become
effective twenty (20) days after the Company shall have filed a definitive
information statement pursuant to Regulation 14C of the Securities and Exchange
Commission (the “Commission”) pursuant to the Securities Exchange Act of 1934,
as amended. The Company shall, not later than one hundred twenty (120) days
from
the issuance of this Note, file the Restated Certificate, as defined in the
Agreement, with the Secretary of State of the State of Delaware. In order to
file the Restated Certificate as required by this Section 1(a), the Company
shall promptly (i) prepare and file an information statement with the Commission
pursuant to said Regulation 14C with respect to the Restate Certificate and
such
other matters as the Company shall reasonably determine and (ii) shall use
its
commercially reasonable efforts to obtain the approval of the Commission to
file
a definitive information statement.
(b)
Fundamental
Transaction
.
The
Company shall not enter into any agreement with respect to any Fundamental
Transaction, or consummate any Fundamental Transaction without the approval
of
the Holder.
Article
2.
Events
of Default; Acceleration
(a)
Events
of Default Defined
.
The
entire unpaid principal amount of this Note, together with interest thereon
shall, on written notice to the Company given by the holders of this Note,
forthwith become and be due and payable if any one or more the following events
(“Events of Default”) shall have occurred (for any reason whatsoever and whether
such happening shall be voluntary or involuntary or be affected or come about
by
operation of law pursuant to or in compliance with any judgment, decree, or
order of any court or any order, rule or regulation of any administrative or
governmental body) and be continuing. An Event of Default shall
occur:
(i)
if
failure shall be made in the payment of the principal or interest on the Note
when and as the same shall become due and such failure shall continue for a
period of ten (10) business days after such payment is due; or
(ii)
if
the
Company shall violate or breach any of the representations, warranties and
covenants contained in this Note or the Registration Rights Agreement and such
violation or breach shall continue for thirty (30) days after written notice
of
such breach shall been received by the Company from the Holder; or
(iii)
if
the
Company or any Significant Subsidiary (which term shall mean any subsidiary
of
the Company which would be considered a significant subsidiary, as defined
in
Rule 1-02 of Regulation S-X of the Commission pursuant to the Securities Act
of
1933, as amended, shall consent to the appointment of a receiver, trustee or
liquidator of itself or of a substantial part of its property, or shall admit
in
writing its inability to pay its debts generally as they become due, or shall
make a general assignment for the benefit of creditors, or shall file a
voluntary petition in bankruptcy, or an answer seeking reorganization in a
proceeding under any bankruptcy law (as now or hereafter in effect) or an answer
admitting the material allegations of a petition filed against the Company
or
any Significant Subsidiary, in any such proceeding, or shall by voluntary
petition, answer or consent, seek relief under the provisions of any other
now
existing or future bankruptcy or other similar law providing for the
reorganization or winding up of corporations, or an arrangement, composition,
extension or adjustment with its or their creditors, or shall, in a petition
in
bankruptcy filed against it or them be adjudicated a bankrupt, or the Company
or
any Significant Subsidiary or their directors or a majority of its stockholders
shall vote to dissolve or liquidate the Company or any Significant Subsidiary
other than a liquidation involving a transfer of assets from a Subsidiary to
the
Company or another Subsidiary; or
(iv)
if
an
involuntary petition shall be filed against the Company or any Significant
Subsidiary seeking relief against the Company or any Significant Subsidiary
under any now existing or future bankruptcy, insolvency or other similar law
providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their creditors,
and such petition shall not be vacated or set aside within ninety (90) days
from
the filing thereof; or
(v)
if
a
court of competent jurisdiction shall enter an order, judgment or decree
appointing, without consent of the Company or any Significant Subsidiary, a
receiver, trustee or liquidator of the Company or any Significant Subsidiary,
or
of all or any substantial part of the property of the Company or any Significant
Subsidiary, or approving a petition filed against the Company or any Significant
Subsidiary seeking a reorganization or arrangement of the Company or any
Significant Subsidiary under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any State thereof, or any
substantial part of the property of the Company or any Significant Subsidiary
shall be sequestered; and such order, judgment or decree shall not be vacated
or
set aside within ninety (90) days from the date of the entry thereof;
or
(vi)
if,
under
the provisions of any law for the relief or aid of debtors, any court of
competent jurisdiction shall assume custody or control of the Company or any
Significant Subsidiary or of all or any substantial part of the property of
the
Company or any Significant Subsidiary and such custody or control shall not
be
terminated within ninety (90) days from the date of assumption of such custody
or control.
(b)
Rights
of Note Holder
.
Nothing
in this Note shall be construed to modify, amend or limit in any way the right
of the holder of this Note to bring an action against the Company.
Article
3.
Conversion
(a)
Conversion
.
(i)
This
Note
shall be convertible in whole at any time and in part from time to time
commencing December 2, 2006 into such number of shares of Common Stock, as
is
determined by dividing the principal amount of this Note and accrued interest,
or such portion thereof as the holder seeks to convert, by the Conversion Price
then in effect, subject to the 4.9% Limitation, as defined in Section 3(f)
of
this Note. Upon such conversion, this Note and the Company’s obligations,
including the obligation to pay interest, under this Note, to the extent that
principal and interest on this Note is converted, shall terminate.
(ii)
Notwithstanding
any other provisions of this Note, the holder shall have no right to convert
this Note to the extent that the Company shall have paid principal and interest
on this Note or otherwise caused this Note to be paid, by 5:30 P.M., New York
City time on December 2, 2006. The holder shall have all of the conversion
rights set forth in this Article 3 with respect to any unpaid principal and
interest on this Note which shall not have been paid by the time set forth
in
the preceding sentence. Any partial payment shall be applied first to interest
and thereafter to principal.
(b)
Definitions
.
(i)
The
term
“Conversion Shares” shall mean the shares of Common Stock issuable upon
conversion of the Note.
(ii)
The
term
“Common Stock” shall have the meaning set forth in the Purchase
Agreement.
(c)
Conversion
Price
.
The
Conversion Price shall be thirty cents ($.30) per share, subject to adjustment
as hereinafter provided. Notwithstanding the foregoing, in the event that the
Restated Certificate shall not have been filed on the date that the holder
elects to convert this Note, the Conversion Price shall be two tenths of one
cent ($.002) per share.
(d)
Procedure
for Conversion
.
Holders
shall effect conversions by providing the Company with the form of conversion
notice attached hereto as
Annex
A
(a
“
Notice
of Conversion
”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of this Note, with this Note being duly endorsed in full
for transfer to the Company or with an applicable stock power duly executed
by
the Holder in the manner and form as deemed reasonable by the transfer agent
of
the Common Stock. Each Notice of Conversion shall specify the principal amount
of this Note to be converted, the principal amount of this Note outstanding
prior to the conversion at issue, the principal amount of this Note owned
subsequent to the conversion at issue, and the date on which such conversion
is
to be effected, which date may not be prior to the date the Holder delivers
such
Notice of Conversion and the Note to the Company by overnight delivery service
(the “
Conversion
Date
”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. The principal amount of this
Note
being converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued.
(e)
Automatic
Conversion Upon Change of Control
.
This
Note shall be automatically converted into Common Stock at the Conversion Price
upon the close of business on the business day immediately preceding the date
fixed for consummation of any transaction resulting in a Change of Control
of
the Company (an “Automatic Conversion Event”). A “Change in Control” means a
consolidation or merger of the Company with or into another company or entity
in
which the Company is not the surviving entity or the sale of all or
substantially all of the assets of the Company to another company or entity
not
controlled by the then existing stockholders of the Company in a transaction
or
series of transactions. The Company shall not be obligated to issue certificates
evidencing the Common Stock or other consideration issuable upon such conversion
unless this Note is either delivered to the Company or its transfer agent or
the
Holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by
it in connection therewith. Upon the conversion of this Note pursuant to this
Section 3(e), the Company shall promptly send written notice thereof, by hand
delivery or by overnight delivery, to the Holder at its address then shown
on
the records of the Company, which notice shall state that this Note must be
surrendered at the office of the Company (or of its transfer agent for the
Common Stock, if applicable).
(f)
Beneficial
Ownership Limitation
.
Except
as provided in Section 3(e) of this Note, which shall apply as stated therein
if
an Automatic Conversion Event shall occur, the Company shall not effect any
conversion of this Note, and the Holder shall not have the right to convert
any
portion of this Note to the extent that after giving effect to such conversion,
the Holder (together with the Holder’s affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in excess of 4.9% of
the
number of shares of the Common Stock outstanding immediately after giving effect
to such conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates
shall
include the number of shares of Common Stock issuable upon conversion of the
Note with respect to which the determination of such sentence is being made,
but
shall exclude the number of shares of Common Stock which would be issuable
upon
(A) conversion of the remaining, non-converted portion of this Note beneficially
owned by the Holder or any of its affiliates, so long as such portion of this
Note is not convertible within sixty (60) days from the date of such
determination, and (B) exercise or conversion of the unexercised or
non-converted portion of any other securities of the Company (including
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates, so long as such other securities of the Company are not exercisable
nor convertible within sixty (60) days from the date of such
determination. For purposes of this Section 3(f), in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the Company’s most recent quarterly reports, Form 10-Q, Form
10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case may be, as filed
with the Commission under the Exchange Act (B) a more recent public announcement
by the Company or (C) any other written notice by the Company or the Company’s
transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company
shall within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the
Note, by the Holder or its affiliates since the date as of which such number
of
outstanding shares of Common Stock was publicly reported by the Company.
Beneficial ownership shall be calculated in accordance with Section 13(d) of
the
Exchange Act. This Section 3(f) may be not be waived or amended. The limitation
set forth in this Section 3(f) is referred to as the “
4.9%
Limitation
.”
(g)
Mechanics
of Conversion
(i)
Delivery
of Certificate Upon Conversion
.
Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “
Share
Delivery Date
”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of this
Note, and (B) a bank check in the amount of accrued and unpaid dividends (if
the
Company has elected or is required to pay accrued dividends in cash). After
the
Effective Date, the Company shall, upon request of the Holder, deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Company or another
established clearing Company performing similar functions if the Company’s
transfer agent has the ability to deliver shares of Common Stock in such manner.
If in the case of any Notice of Conversion such certificate or certificates
are
not delivered to or as directed by the applicable Holder by the third Trading
Day after the Conversion Date, the Holder shall be entitled to elect by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the this Note to the Holder.
(ii)
Obligation
Absolute; Partial Liquidated Damages
.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or
any
violation or alleged violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
such
Conversion Shares. In the event a Holder shall elect to convert any or all
of
this Note, the Company may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason (other than the
inability of the Company to issue shares of Common Stock as a result of the
4.9%
Limitation) unless, an injunction from a court, on notice, restraining and
or
enjoining conversion of all or part of this Note shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder
in
the amount of 150% of the Conversion Value of the principal amount of the Note
outstanding (
i.e.
,
the
value of the shares of Common Stock issued upon conversion of such principal
amount of this Note) which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and
the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the Company
shall
issue Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. If the Company fails to deliver to the Holder such certificate
or
certificates pursuant to Section 3(g)(i) within two Trading Days of the Share
Delivery Date applicable to such conversion, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for each $5,000
of
Conversion Value of Note being converted, $50 per Trading Day (increasing to
$100 per Trading Day after three (3) Trading Days and increasing to $200 per
Trading Day six (6) Trading Days after such damages begin to accrue) for each
Trading Day after the Share Delivery Date until such certificates are delivered.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Company’s failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(iii)
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion
.
If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
Date the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating
to
such Share Delivery Date (a “
Buy-In
”),
then
the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion
at
issue multiplied by (2) the price at which the sell order giving rise to such
purchase obligation was executed. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted conversion of a portion of this Note with respect to which the
aggregate sale price giving rise to such purchase obligation is $10,000, under
clause (A) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Company. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to
the
terms hereof.
(iv)
Reservation
of Shares Issuable Upon Conversion
.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Note, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 3(h)) upon
the
conversion of this Note. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Conversion Shares Registration
Statement is then effective under the Securities Act, registered for public
sale
in accordance with such Conversion Shares Registration Statement.
(v)
Fractional
Shares
.
Upon a
conversion hereunder, the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after the Holder converts the full principal amount of this Note shall
be
dropped and eliminated.
(vi)
Transfer
Taxes
.
The
issuance of certificates for shares of the Common Stock on conversion of this
Note shall be made without charge to the Holders thereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Company shall not be required to pay
any
tax that may be payable in respect of any transfer involved in the issuance
and
delivery of any such certificate upon conversion in a name other than that
of
the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(vii)
Absolute
Obligation
.
Except
as expressly provided herein, no provision of this Note shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay
the
liquidated damages (if any) on, this Note at the time, place, and rate, and
in
the coin or currency, herein prescribed.
(h)
Certain
Adjustments
.
(i)
Stock
Dividends and Stock Splits
.
If the
Company, at any time while this Note is outstanding: (A) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Note), (B)
subdivide outstanding shares of Common Stock into a larger number of shares,
(C)
combine (including by way of reverse stock split) outstanding shares of Common
Stock into a smaller number of shares, or (D) issue by reclassification of
shares of the Common Stock any shares of capital stock of the Company, then
the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 3(h)(i) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
(ii)
Price
Adjustment
.
Until
such time as the Investors hold no Securities, except for (i) Exempt Issuances,
(ii) issuances covered by Sections 3(h)(i), 3(h)(iii) and 3(i) of this Note,
or
(iii) an issuance of Common Stock upon exercise or upon conversion of warrants,
options or other convertible securities for which an adjustment has already
been
made pursuant to this Section 3(h), as to all of which this Section 3(h)(ii)
does not apply, if the Company sells or issues Common Stock at a price, or
issues warrants, options, convertible debt or equity securities with a exercise
price per share or conversion price which is less than the Conversion Price
then
in effect (such lower sales price, conversion or exercise price, as the case
may
be, being referred to as the “Lower Price”), the Conversion Price in effect from
and after the date of such transaction shall be reduced to the Lower Price.
For
purpose of determining the exercise price of warrants issued by the Company,
the
price, if any, paid per share for the warrants shall be added to the exercise
price of the warrants.
(iii)
Conversion
Price Adjustment Based on Pre-Tax Income Per Share
.
(A)
In
the
event the Company’s consolidated Pre-Tax Income for the year ended December 31,
2006 is less than $.034 per share on a fully-diluted basis, then the Conversion
Price shall be reduced by the percentage shortfall, up to a maximum of 35%.
Thus, if Pre-Tax Income for the year ended December 31, 2006 is $.0289 per
share
on a fully-diluted basis, the Conversion Price shall be reduced by 15%. Such
reduction shall be made at the time the Company files its Form 10-KSB for the
year ended December 31, 2006, and shall apply to the Note and all shares of
the
Series A Preferred Stock, as the case may be, which are outstanding on the
date
the Form 10-KSB is filed, or, if not filed on time, on the date that filing
was
required.
(B)
In
the
event the Company’s consolidated Pre-Tax Income for the year ended December 31,
2007 is less than $.051 per share on a fully-diluted basis, then the Conversion
Price then in effect shall be reduced by the percentage shortfall, up to a
maximum of 35%. Thus, if Pre-Tax Income for the year ended December 31, 2007
is
$.04335 per share on a fully-diluted basis, the Conversion Price shall be
reduced by 15%. Such reduction shall be made at the time the Company files
its
Form 10-KSB for the year ended December 31, 2007, and shall apply to the Note
and all shares of the Series A Preferred Stock, as the case may be, which are
outstanding on the date the Form 10-KSB is filed, or, if not filed on time,
on
the date that filing was required.
(C)
For
purpose of determining Pre-Tax Income Per Share on a fully-diluted basis, all
shares of Common Stock issuable upon conversion of convertible securities and
upon exercise of warrants and options shall be deemed to be outstanding,
regardless of whether (i) such shares are treated as outstanding for determining
diluted earnings per share under GAAP, (ii) such securities are “in the money,”
or (iii) such shares may be issued as a result of the 4.9%
Limitation.
(i)
Pro
Rata Distributions
.
If the
Company, at any time while this Note is outstanding, shall distribute to all
holders of Common Stock (and not to Holders) evidences of its indebtedness
or
assets or rights or warrants to subscribe for or purchase any security, then
in
each such case the Conversion Price shall be determined by multiplying such
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors
in
good faith. In either case the adjustments shall be described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness
so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(j)
Calculations
.
All
calculations under Section 3(h) of this Note shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be. The number of shares
of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company or any of its subsidiaries. For
purposes of this Section 3(h), the number of shares of Common Stock deemed
to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares and shares owned by
subsidiaries, if any) actually issued and outstanding.
(k)
Notice
to Holders
.
(i)
Adjustment
to Conversion Price
.
Whenever the Conversion Price is adjusted pursuant to this Section 3, the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of
an
MFN Transaction (as defined in the Purchase Agreement).
(ii)
Notices
of Other Events
.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E)
the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of this Note, and shall cause to be
mailed
to
the Holders at their last addresses as they shall appear upon the
stock
books
of
the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating
(x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to become
effective or close, and the date as of which it is expected that holders of
the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided, that the failure to
mail
such notice or any defect therein or in the mailing thereof shall not affect
the
validity of the corporate action required to be specified in such
notice.
(l)
Exempt
Issuance
.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
(m)
Fundamental
Transaction
.
If, at
any time while this Note is outstanding, (A) the Company effects any merger
or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then upon any subsequent
conversion of this Note, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion absent
such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of
the Alternate Consideration. If holders of Common Stock are given any choice
as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Note following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall assume this Note.
Article
4.
Miscellaneous
(a)
Transferability
.
This
Note shall not be transferred except in a transaction exempt from registration
pursuant to the Securities Act and applicable state securities law. The Company
shall treat as the owner of this Note the person shown as the owner on its
books
and records.
(b)
Limited
Right of Prepayment
.
The
Company shall have the right to prepay this Note, in whole or in part at any
time, on not less than three days notice, on or prior to the 5:30 PM, New York
City time, on December 2, 2006. Thereafter, the Company shall have no right
to
prepay this Note.
(c)
WAIVER
OF TRIAL BY JURY
.
IN ANY
LEGAL PROCEEDING TO ENFORCE PAYMENT OF THIS NOTE, THE COMPANY WAIVES TRIAL
BY
JURY.
(d)
WAIVER
OF ANY RIGHT OF COUNTERCLAIM
.
EXCEPT
AS PROHIBITED BY LAW, THE COMPANY HEREBY WAIVES ANY RIGHT TO ASSERT ANY CLAIM
IT
MAY HAVE AGAINST THE HOLDER OF THIS NOTE BY WAY OF A COUNTERCLAIM (OTHER THAN
A
COMPULSORY COUNTERCLAIM) IN ANY ACTION ON THIS NOTE.
(e)
Usury
Saving Provision
.
All
payment obligations arising under this Note are subject to the express condition
that at no time shall the Company be obligated or required to pay interest
at a
rate which could subject the holder of this Note to either civil or criminal
liability as a result of being in excess of the maximum rate which the Company
is permitted by law to contract or agree to pay. If by the terms of this Note,
the Company is at any time required or obligated to pay interest at a rate
in
excess of such maximum rate, the applicable rate of interest shall be deemed
to
be immediately reduced to such maximum rate, and interest thus payable shall
be
computed at such maximum rate, and the portion of all prior interest payments
in
excess of such maximum rate shall be applied and shall be deemed to have been
payments in reduction of principal.
(f)
Notice
to Company
.
Notice
to the Company shall be given to the Company at its principal executive offices,
presently located at 2200 Arthur Kill Road, Staten Island, NY 10309, attention
of Mr. Robert Moyer, CEO, or to such other address or person as the Company
may,
from time to time, advise the holder of this Note, or to the holder of this
Note
at the address set forth on the Company’s records, with a copy to Darrin Ocasio,
Esq., Sichenzia Ross Friedman Ference LLP, 1065 Avenue of the Americas, New
York, New York 10018. Notice shall be given by hand delivery, certified or
registered mail, return receipt requested, overnight courier service which
provides evidence of delivery, or by telecopier if confirmation of receipt
is
given or of confirmation of transmission is sent as herein
provided.
(g)
Governing
Law
.
This
Note shall be governed by the laws of the State of New York applicable to
agreements executed and to be performed wholly within such state. The Company
hereby (i) consents to the exclusive jurisdiction of the United States District
Court for the Southern District of New York and Supreme Court of the State
of
New York in the County of New York in any action relating to or arising out
of
this Note, (ii) agrees that any process in any such action may be served upon
it
either (x) by certified or registered mail, return receipt requested, or by
an
overnight courier service which obtains evidence of delivery, with the same
full
force and effect as if personally served upon him in New York City or (y) any
other manner permitted by law, and (iii) waives any claim that the jurisdiction
of any such tribunal is not a convenient forum for any such action and any
defense of lack of in personam jurisdiction with respect thereto.
(h)
Expenses
.
In the
event that the Holder commences a legal proceeding in order to enforce its
rights under this Note, the Company shall pay all reasonable legal fees and
expenses incurred by the holder with respect thereto.
IN
WITNESS WHEREOF, the Company has executed this Note as of the date and year
first aforesaid.
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JORDAN
1 HOLDINGS
COMPANY
|
|
|
|
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By:
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/s/ Robert
P.
Moyer
|
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Name:
Robert P. Moyer
|
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Title: Chief
Executive Officer
|
NOTICE
OF
CONVERSION
[To
be
Signed Only Upon Conversion
of
Part
or All of Notes]
Jordan
1
Holdings Company
The
undersigned, the holder of the foregoing Note, hereby surrenders such Note
for
conversion into shares of Common Stock of Jordan 1 Holdings Company to the
extent of $ * unpaid principal amount
of due on such Note, and requests that the certificates for such shares be
issued in the name of
,
and
delivered to
,
whose
address
is
.
Dated:
(Signature)
(Signature
must conform in all respects to name of holder as specified on the face of
the
Note.)
*
Insert
here the unpaid principal amount of the Note (or, in the case of a partial
conversion,
the
portion thereof as to which the Note is being converted). In the case of a
partial conversion, a new Note will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Note, to or upon
the
order of the holder surrendering such Note.
NEITHER
THE
WARRANTS
REPRESENTED BY THIS CERTIFICATE
NOR
THE SHARES OF COMMON STOCK
HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“
1933
ACT
”
),
OR ANY STATE
SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT
,
OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO SUCH EXEMPTION
.
IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF
JULY
20,
2006
(THE “PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
THE PARTIES WITH RESPECT TO THIS WARRANT.
JORDAN
1 HOLDINGS COMPANY
COMMON
STOCK PURCHASE WARRANT “A”
Number
of Shares:
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Holder:
|
Original
Issue Date: July 20, 2006
Expiration
Date: July 20, 2011
Exercise
Price per Share: $.35
Jordan
1
Holdings Company, a Delaware corporation (the “
Company
”),
hereby certifies that, for value received,
_________,
or
registered assigns (the “
Warrant
Holder
”),
is
entitled, subject to the terms set forth below, to purchase from the Company
up
to
nine
million six hundred twenty four thousand three hundred sixty nine
(9,624,369)
shares
(as adjusted from time to time as provided in Section 7 of this Warrant, the
“
Warrant
Shares
”)
of
common stock, $.001 par value (the “
Common
Stock
”),
of
the Company at a price of thirty five cents ($.35) per Warrant Share (as
adjusted from time to time as provided in Section 7, the “
Exercise
Price
”),
at
any time and from time to time from and after the date thereof and through
and
including 5:00 p.m. New York City time on
July
20,
2011
(the
“Expiration Date”), and subject to the following terms and
conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose (the “
Warrant
Register
”),
in
the name of the record Warrant Holder hereof from time to time. The Company
may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to
the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.
2.
Investment
Representation
.
The
Warrant Holder by accepting this Warrant represents that the Warrant Holder
is
acquiring this Warrant for its own account or the account of an affiliate
that
is
an accredited investor which has been identified to and approved by (such
approval not to be unreasonably withheld or delayed)
for
investment purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this Warrant
or
the underlying Warrant Shares in violation of applicable securities laws. The
Warrant Holder acknowledges that the certificates representing any Warrant
Shares will bear a legend indicating that they have not been registered under
the
1933
Act
,
and may
not be sold by the Warrant Holder except pursuant to an effective registration
statement or pursuant to an exemption from registration requirements of the
1933
Act and in accordance with federal and state securities laws. If this Warrant
was acquired by the Warrant Holder pursuant to the exemption from the
registration requirements of the 1933 Act afforded by Regulation S thereunder,
the Warrant Holder acknowledges and covenants that this Warrant may not be
exercised by or on behalf of a Person during the one year distribution
compliance period (as defined in Regulation S) following the date hereof.
“
Person
”
means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3.
Validity
of Warrant and Issue of Shares
.
The
Company represents and warrants that this Warrant has been duly authorized
and
validly issued and warrants and agrees that all of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof
other
than those incurred by the Holder
.
The
Company further warrants and agrees that during the
Exercise
Period
,
the
Company will at all times have authorized and reserved a sufficient number
of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4.
Registration
of Transfers and Exchange of Warrants
.
(a)
Subject
to compliance with the
federal
and state securities laws
,
the
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 12. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “
New
Warrant
”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Warrant Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed
the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.
(b)
This
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
the
office of the Company specified in or pursuant to Section 9 for one or more
New
Warrants, evidencing in the aggregate the right to purchase the number of
Warrant Shares which may then be purchased hereunder. Any such New Warrant
will
be dated the date of such exchange.
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5.
|
Exercise
of Warrants
.
|
(a)
Upon
surrender of this Warrant with the Form of Election to Purchase attached hereto
duly completed and signed to the Company, at its address set forth in Section
12, and upon payment and delivery of the Exercise Price per Warrant Share
multiplied by the number of Warrant Shares that the Warrant Holder intends
to
purchase hereunder, in lawful money of the United States of America,
by
wire
transfer
or by
certified or official bank check or checks, to the Company, all as specified
by
the Warrant Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 7 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered
to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate (subject to the restrictions on transfer described
in the legend set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive legend as
required by the 1933 Act. Any person so designated by the Warrant Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
(b)
A
“Date
of Exercise” means the date on which the Company shall have received (i) this
Warrant (or any New Warrant, as applicable), with the Form of Election to
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Warrant Holder to be
purchased.
(c)
This
Warrant shall be exercisable at any time and from time to time
during
the Exercise Period
for such
number of Warrant Shares as is indicated in the attached Form of Election To
Purchase. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by
this Warrant.
(d)
(i)
Notwithstanding
anything contained herein to the contrary
,
but
subject to
Section
5(e) and
Section
6, the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “
Net
Number
”
of
shares of Common Stock determined according to the following formula (a
“
Cashless
Exercise
”):
Net
Number = (A x (B - C))/B
(ii)
For
purposes of the foregoing formula:
A=
the
total number shares with respect to which this Warrant is then being
exercised.
B=
the
last reported sale price (as reported by Bloomberg) of the Common Stock on
the
trading day immediately preceding the date of the Exercise Notice.
C=
the
Warrant Exercise Price then in effect at the time of such exercise.
(e)
The
holder of this Warrant
may
not
make
a
Cashless Exercise
(i)
during the twelve (12) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered
by
an
effective registration statement
.
6.
Maximum
Exercise
.
The
Warrant Holder shall not be entitled to exercise this
Warrant
on a Date of Exercise in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Warrant Holder and its affiliates on
the
Date
of Exercise
,
and
(ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being
made
on an
Date
of
Exercise
,
which
would result in beneficial ownership by the Warrant Holder and its affiliates
of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may be not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
7.
Adjustment
of Exercise Price and Number of Shares
.
The
character of the shares of stock or other securities at the time issuable upon
exercise of this Warrant and the Exercise Price therefore, are subject to
adjustment upon the occurrence of the following events, and all such adjustments
shall be cumulative:
(a)
Adjustment
for Stock Splits, Stock Dividends, Recapitalizations, Etc.
The
Exercise Price of this Warrant and the number of shares of Common Stock or
other
securities at the time issuable upon exercise of this Warrant shall be
appropriately adjusted to reflect any stock dividend, stock split,
stock
distribution,
combination
of shares
,
reverse
split
,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
(b)
Adjustment
for Reorganization, Consolidation, Merger, Etc.
In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a
“
Reorganization
”
),
then, in
each case, the holder of this Warrant, on exercise hereof at any time after
the
consummation or effective date of such Reorganization (the
“
Effective
Date
”
),
shall
receive, in lieu of the shares of stock or other securities at any time issuable
upon the exercise of the Warrant issuable on such exercise prior to the
Effective Date, the stock and other securities and property (including cash)
to
which such holder would have been entitled upon the Effective Date if such
holder had exercised this Warrant immediately prior thereto (all subject to
further adjustment as provided in this Warrant).
(c)
Certificate
as to Adjustments.
In case
of any adjustment or readjustment in the price or kind of securities issuable
on
the exercise of this Warrant, the Company will promptly give written notice
thereof to the holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based.
(d)
Sales
of Common Stock at less than the Exercise Price.
From
the
date hereof until such time as the holder of this warrant holds no Securities,
as defined in the Purchase Agreement, except for (i) Exempt Issuances, as
defined in the Purchase Agreement, (ii)
issuances
covered by Sections 7(a), 7(b) and 7(e) hereof or (iii) an issuance of Common
Stock upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7,
as to
all of which this Section 7(d) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or warrants, options, convertible debt
or equity securities with a exercise price per share or exercise price per
share
which is less than the Exercise Price then in effect (such lower sales price,
conversion or exercise price, as the case may be, being referred to as the
“Lower Price”), the Exercise Price in effect from and after the date of such
transaction shall be is reduced to the Lower Price. For purpose of determining
the exercise price of warrants, the price, if any, paid per share for the
warrants shall be added to the exercise price of the warrants.
(e)
Price
Adjustments
Based on Pre-Tax
Income
Per Share
.
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i.
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In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2006 is less than $.034 per share on a fully-diluted
basis,
then the Exercise Price shall be reduced by the percentage shortfall,
up
to a maximum of 35%. Thus, if Pre-Tax Income for the year ended December
31, 2006 is $.0289 per share on a fully-diluted basis, the Exercise
Price
shall be reduced by 15%. Such reduction shall be made at the time
the
Company files its Form 10-KSB for the year ended December 31, 2006,
and
shall apply to the Note and all shares of the Series A Preferred
Stock, as
the case may be, which are outstanding on the date the Form 10-KSB
is
filed, or, if not filed on time, on the date that filing was
required.
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ii.
|
In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2007 is less than $.051 per share on a fully-diluted
basis,
then the Exercise Price then in effect shall be reduced by the percentage
shortfall, up to a maximum of 35%. Thus, if Pre-Tax Income for the
year
ended December 31, 2007 is $.04335 per share on a fully-diluted basis,
the
Exercise Price shall be reduced by 15%. Such reduction shall be made
at
the time the Company files its Form 10-KSB for the year ended December
31,
2007, and shall apply to the Note and all shares of the Series A
Preferred
Stock, as the case may be, which are outstanding on the date the
Form
10-KSB is filed, or, if not filed on time, on the date that filing
was
required.
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iii.
|
For
purpose of determining Pre-Tax Income Per Share on a fully-diluted
basis,
all shares of Common Stock issuable upon conversion of convertible
securities and upon exercise of warrants and options shall be deemed
to be
outstanding, regardless of whether (i) such shares are treated as
outstanding for determining diluted earnings per share under GAAP,
(ii)
such securities are “in the money,” or (iii) such shares may be issued as
a result of the 4.9% Limitation.
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iv.
|
An
adjustment pursuant to Sections 7(d) or 7(e) of this Warrant shall
not
affect the number of shares of Common Stock issuable upon exercise
of this
Warrant.
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8.
Fractional
Shares
.
The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of
this
Warrant so presented. If any fraction of a Warrant Share would, except for
the
provisions of this Section 8, be issuable on the exercise of this Warrant,
the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9.
Sale
or Merger of the Company
.
Upon
a
Merger
Transaction
,
the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger
Transaction
.
For
purposes of this Warrant, the term “
Merger
Transaction
”
shall
mean a consolidation or merger of the Company
into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company
.
10.
Notice
of Intent to Sell or Merge the Company
.
The
Company will give Warrant Holder ten (10) business days notice before
any
Merger Transaction
.
11.
Issuance
of Substitute Warrant
.
In the
event of a merger, consolidation, recapitalization or reorganization of the
Company or a reclassification of Company shares of stock, which results in
an
adjustment to the number of shares subject to this Warrant and/or the Exercise
Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the
surrender of this Warrant to the Company.
However,
in the event that the Company does not issue a substitute warrant, the number
and class of Warrant Shares or other securities and the Exercise Price shall
be
adjusted as provided in this Warrant, and this Warrant shall relate the adjusted
number of Warrant Shares and Exercise Price.
12.
Notice
.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the
date
of
delivery
after it
is mailed by registered or certified mail, return receipt requested with postage
and other fees prepaid as follows:
If
to
the Company
:
With
a
copy to
:
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Attention:
Darrin Ocasio, Esq.
Facsimile
No.: (212) 930-9725
e-mail:
dmocasio
@srff.com
If
to
the Warrant Holder
:
at
the
address or telecopier number and to the attention of the person shown on the
Company’s warrant register.
13.
Miscellaneous.
(a)
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and permitted assigns. This Warrant may be amended
only by a writing signed by the Company and the Warrant Holder.
(b)
Nothing
in this Warrant shall be construed to give to any person or corporation other
than the Company and the Warrant Holder any legal or equitable right, remedy
or
cause of action under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrant Holder.
(c)
This
Warrant shall be governed by, construed and enforced in accordance with the
internal laws of the State of New York without regard to the principles of
conflicts of law thereof.
(d)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e)
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f)
The
Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holder are limited to those expressed in this
Warrant.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
the
authorized officer as of the date first above stated.
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Date:
July 20, 2006
|
JORDAN
1 HOLDINGS
COMPANY
|
|
|
|
Date:
|
By:
|
/s/ Robert
P.
Moyer
|
|
Robert
Moyer
,
Chief Executive Officer
|
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FORM
OF ELECTION TO PURCHASE
(To
be
executed by the Warrant Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To:
Jordan
1 Holdings Company:
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.001 par value, of Jordan 1 Holdings Company and
encloses the warrant and $____ for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check
or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
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(Please
print name and
address)
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(Please
insert Social Security or Tax
Identification Number)
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If
the
number of shares of Common Stock issuable upon this exercise shall not be all
of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
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(Please print name and
address)
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Dated:
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Name
of Warrant Holder:
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(Print)
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(By:)
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(Name:)
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(Title:)
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Signature
must conform in all respects to name of
Warrant
Holder as specified on the face of the
Warrant
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NEITHER
THE
WARRANTS
REPRESENTED BY THIS CERTIFICATE
NOR
THE SHARES OF COMMON STOCK
HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“
1933
ACT
”
),
OR ANY STATE
SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT
,
OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO SUCH EXEMPTION
.
IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF
JULY
20,
2006
(THE “PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
THE PARTIES WITH RESPECT TO THIS WARRANT.
JORDAN
1 HOLDINGS COMPANY
COMMON
STOCK PURCHASE WARRANT “B”
Number of Shares:
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Holder:
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Original
Issue Date: July 20, 2006
Expiration
Date: July 20, 2011
Exercise
Price per Share: $.60
Jordan
1
Holdings Company, a Delaware corporation (the “
Company
”),
hereby certifies that, for value received,
______,
or
registered assigns (the “
Warrant
Holder
”),
is
entitled, subject to the terms set forth below, to purchase from the Company
up
to
nine
million six hundred twenty four thousand three hundred sixty nine
(9,624,369)
shares
(as adjusted from time to time as provided in Section 7 of this Warrant, the
“
Warrant
Shares
”)
of
common stock, $.001 par value (the “
Common
Stock
”),
of
the Company at a price of sixty cents ($.60) per Warrant Share (as adjusted
from
time to time as provided in Section 7, the “
Exercise
Price
”),
at
any time and from time to time from and after the date thereof and through
and
including 5:00 p.m. New York City time on
July
20,
2011
(the
“Expiration Date”), and subject to the following terms and
conditions:
1.
Registration
of Warrant
.
The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose (the “
Warrant
Register
”),
in
the name of the record Warrant Holder hereof from time to time. The Company
may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to
the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.
2.
Investment
Representation
.
The
Warrant Holder by accepting this Warrant represents that the Warrant Holder
is
acquiring this Warrant for its own account or the account of an affiliate
that
is
an accredited investor which has been identified to and approved by (such
approval not to be unreasonably withheld or delayed)
for
investment purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this Warrant
or
the underlying Warrant Shares in violation of applicable securities laws. The
Warrant Holder acknowledges that the certificates representing any Warrant
Shares will bear a legend indicating that they have not been registered under
the
1933
Act
,
and may
not be sold by the Warrant Holder except pursuant to an effective registration
statement or pursuant to an exemption from registration requirements of the
1933
Act and in accordance with federal and state securities laws. If this Warrant
was acquired by the Warrant Holder pursuant to the exemption from the
registration requirements of the 1933 Act afforded by Regulation S thereunder,
the Warrant Holder acknowledges and covenants that this Warrant may not be
exercised by or on behalf of a Person during the one year distribution
compliance period (as defined in Regulation S) following the date hereof.
“
Person
”
means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3.
Validity
of Warrant and Issue of Shares
.
The
Company represents and warrants that this Warrant has been duly authorized
and
validly issued and warrants and agrees that all of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof
other
than those incurred by the Holder
.
The
Company further warrants and agrees that during the
Exercise
Period
,
the
Company will at all times have authorized and reserved a sufficient number
of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4.
Registration
of Transfers and Exchange of Warrants
.
(a)
Subject
to compliance with the
federal
and state securities laws
,
the
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 12. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “
New
Warrant
”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Warrant Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed
the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.
(b)
This
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
the
office of the Company specified in or pursuant to Section 9 for one or more
New
Warrants, evidencing in the aggregate the right to purchase the number of
Warrant Shares which may then be purchased hereunder. Any such New Warrant
will
be dated the date of such exchange.
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5.
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Exercise
of Warrants
.
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(a)
Upon
surrender of this Warrant with the Form of Election to Purchase attached hereto
duly completed and signed to the Company, at its address set forth in Section
12, and upon payment and delivery of the Exercise Price per Warrant Share
multiplied by the number of Warrant Shares that the Warrant Holder intends
to
purchase hereunder, in lawful money of the United States of America,
by
wire
transfer
or by
certified or official bank check or checks, to the Company, all as specified
by
the Warrant Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 7 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered
to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate (subject to the restrictions on transfer described
in the legend set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive legend as
required by the 1933 Act. Any person so designated by the Warrant Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
(b)
A
“Date
of Exercise” means the date on which the Company shall have received (i) this
Warrant (or any New Warrant, as applicable), with the Form of Election to
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Warrant Holder to be
purchased.
(c)
This
Warrant shall be exercisable at any time and from time to time
during
the Exercise Period
for such
number of Warrant Shares as is indicated in the attached Form of Election To
Purchase. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by
this Warrant.
(d)
(i)
Notwithstanding
anything contained herein to the contrary
,
but
subject to
Section
5(e) and
Section
6, the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “
Net
Number
”
of
shares of Common Stock determined according to the following formula (a
“
Cashless
Exercise
”):
Net
Number = (A x (B - C))/B
(ii)
For
purposes of the foregoing formula:
A=
the
total number shares with respect to which this Warrant is then being
exercised.
B=
the
last reported sale price (as reported by Bloomberg) of the Common Stock on
the
trading day immediately preceding the date of the Exercise Notice.
C=
the
Warrant Exercise Price then in effect at the time of such exercise.
(e)
The
holder of this Warrant
may
not
make
a
Cashless Exercise
(i)
during the twelve (12) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered
by
an
effective registration statement
.
6.
Maximum
Exercise
.
The
Warrant Holder shall not be entitled to exercise this
Warrant
on a Date of Exercise in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Warrant Holder and its affiliates on
the
Date
of Exercise
,
and
(ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being
made
on an
Date
of
Exercise
,
which
would result in beneficial ownership by the Warrant Holder and its affiliates
of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may be not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
7.
Adjustment
of Exercise Price and Number of Shares
.
The
character of the shares of stock or other securities at the time issuable upon
exercise of this Warrant and the Exercise Price therefore, are subject to
adjustment upon the occurrence of the following events, and all such adjustments
shall be cumulative:
(a)
Adjustment
for Stock Splits, Stock Dividends, Recapitalizations, Etc.
The
Exercise Price of this Warrant and the number of shares of Common Stock or
other
securities at the time issuable upon exercise of this Warrant shall be
appropriately adjusted to reflect any stock dividend, stock split,
stock
distribution,
combination
of shares
,
reverse
split
,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
(b)
Adjustment
for Reorganization, Consolidation, Merger, Etc.
In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a
“
Reorganization
”
),
then, in
each case, the holder of this Warrant, on exercise hereof at any time after
the
consummation or effective date of such Reorganization (the
“
Effective
Date
”
),
shall
receive, in lieu of the shares of stock or other securities at any time issuable
upon the exercise of the Warrant issuable on such exercise prior to the
Effective Date, the stock and other securities and property (including cash)
to
which such holder would have been entitled upon the Effective Date if such
holder had exercised this Warrant immediately prior thereto (all subject to
further adjustment as provided in this Warrant).
(c)
Certificate
as to Adjustments.
In case
of any adjustment or readjustment in the price or kind of securities issuable
on
the exercise of this Warrant, the Company will promptly give written notice
thereof to the holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based.
(d)
Sales
of Common Stock at less than the Exercise Price.
From
the
date hereof until such time as the holder of this Warrant holds no Securities,
as defined in the Purchase Agreement, except for (i) Exempt Issuances, as
defined in the Purchase Agreement, (ii)
issuances
covered by Sections 7(a), 7(b) and 7(e) hereof or (iii) an issuance of Common
Stock upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7,
as to
all of which this Section 7(d) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or warrants, options, convertible debt
or equity securities with a exercise price per share or exercise price per
share
which is less than the Exercise Price then in effect the Exercise Price shall
be
adjusted immediately thereafter so that it shall equal the price determined
by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received or receivable for the issuance of such additional shares
would purchase at the Exercise Price then in effect, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares (including the exercise or
conversion of all options, warrants and other convertible securities). Such
adjustment shall be made successively whenever such an issuance is made. An
adjustment pursuant to this Section 7(d) shall not result in any change in
the
number of shares of Common Stock issuable upon exercise of this
Warrant.
(e)
Price
Adjustments
Based on Pre-Tax
Income
Per Share
.
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i.
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In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2006 is less than $.034 per share on a fully-diluted
basis,
then the Exercise Price shall be reduced by the percentage shortfall,
up
to a maximum of 35%. Thus, if Pre-Tax Income for the year ended December
31, 2006 is $.0289 per share on a fully-diluted basis, the Exercise
Price
shall be reduced by 15%. Such reduction shall be made at the time
the
Company files its Form 10-KSB for the year ended December 31, 2006,
and
shall apply to the Note and all shares of the Series A Preferred
Stock, as
the case may be, which are outstanding on the date the Form 10-KSB
is
filed, or, if not filed on time, on the date that filing was
required.
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ii.
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In
the event the Company’s consolidated Pre-Tax Income for the year ended
December 31, 2007 is less than $.051 per share on a fully-diluted
basis,
then the Exercise Price then in effect shall be reduced by the percentage
shortfall, up to a maximum of 35%. Thus, if Pre-Tax Income for the
year
ended December 31, 2007 is $.04335 per share on a fully-diluted basis,
the
Exercise Price shall be reduced by 15%. Such reduction shall be made
at
the time the Company files its Form 10-KSB for the year ended December
31,
2007, and shall apply to the Note and all shares of the Series A
Preferred
Stock, as the case may be, which are outstanding on the date the
Form
10-KSB is filed, or, if not filed on time, on the date that filing
was
required.
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iii.
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For
purpose of determining Pre-Tax Income Per Share on a fully-diluted
basis,
all shares of Common Stock issuable upon conversion of convertible
securities and upon exercise of warrants and options shall be deemed
to be
outstanding, regardless of whether (i) such shares are treated as
outstanding for determining diluted earnings per share under GAAP,
(ii)
such securities are “in the money,” or (iii) such shares may be issued as
a result of the 4.9% Limitation.
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iv.
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An
adjustment pursuant to Sections 7(d) or 7(e) of this Warrant shall
not
affect the number of shares of Common Stock issuable upon exercise
of this
Warrant.
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8.
Fractional
Shares
.
The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of
this
Warrant so presented. If any fraction of a Warrant Share would, except for
the
provisions of this Section 8, be issuable on the exercise of this Warrant,
the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9.
Sale
or Merger of the Company
.
Upon
a
Merger
Transaction
,
the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger
Transaction
.
For
purposes of this Warrant, the term “
Merger
Transaction
”
shall
mean a consolidation or merger of the Company
into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company
.
10.
Notice
of Intent to Sell or Merge the Company
.
The
Company will give Warrant Holder ten (10) business days notice before
any
Merger Transaction
.
11.
Issuance
of Substitute Warrant
.
In the
event of a merger, consolidation, recapitalization or reorganization of the
Company or a reclassification of Company shares of stock, which results in
an
adjustment to the number of shares subject to this Warrant and/or the Exercise
Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the
surrender of this Warrant to the Company.
However,
in the event that the Company does not issue a substitute warrant, the number
and class of Warrant Shares or other securities and the Exercise Price shall
be
adjusted as provided in this Warrant, and this Warrant shall relate the adjusted
number of Warrant Shares and Exercise Price.
12.
Notice
.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the
date
of
delivery
after it
is mailed by registered or certified mail, return receipt requested with postage
and other fees prepaid as follows:
If
to
the Company
:
With
a
copy to
:
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
New York 10018
Attention:
Darrin Ocasio, Esq.
Facsimile
No.: (212) 930-
9725
e-mail:
dmocasio
@srff.com
If
to
the Warrant Holde
r:
at
the
address or telecopier number and to the attention of the person shown on the
Company’s warrant register.
13.
Miscellaneous.
(a)
This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and permitted assigns. This Warrant may be amended
only by a writing signed by the Company and the Warrant Holder.
(b)
Nothing
in this Warrant shall be construed to give to any person or corporation other
than the Company and the Warrant Holder any legal or equitable right, remedy
or
cause of action under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrant Holder.
(c)
This
Warrant shall be governed by, construed and enforced in accordance with the
internal laws of the State of New York without regard to the principles of
conflicts of law thereof.
(d)
The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e)
In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
(f)
The
Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holder are limited to those expressed in this
Warrant.
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
the
authorized officer as of the date first above stated.
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Date:
July 20, 2006
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JORDAN
1 HOLDINGS
COMPANY
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By:
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/s/ Robert
P.
Moyer
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Robert
Moyer
,
Chief Executive Officer
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FORM
OF ELECTION TO PURCHASE
(To
be
executed by the Warrant Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To:
Jordan
1 Holdings Company:
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.001 par value, of Jordan 1 Holdings Company and
encloses the warrant and $____ for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check
or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
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(Please
print name and
address)
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(Please
insert Social Security or Tax
Identification Number)
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If
the
number of shares of Common Stock issuable upon this exercise shall not be
all of
the shares of Common Stock which the undersigned is entitled to purchase
in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the
shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued
in the name of and delivered to:
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(Please print name and
address)
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Dated:
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Name
of Warrant Holder:
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(Print)
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(By:)
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(Name:)
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(Title:)
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Signature
must conform in all respects to name of
Warrant
Holder as specified on the face of the
Warrant
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Exhibit
A
ALEX
KATZ
CONSULTING
AGREEMENT
THIS
CONSULTING AGREEMENT
(this
“Agreement”), executed on this 20th day of July, 2006 (the “Effective Date”), by
and between Jordan 1 Holdings Company, a Delaware corporation (the “Company”),
and Alex Katz (“Consultant” or “Katz”).
WHEREAS,
Consultant wishes to provide services to the Company, and the Company wishes
to
engage Consultant in such capacity; and
WHEREAS,
the
parties believe it to be in their mutual interest to set forth in writing the
terms and conditions of Consultant’s services for the Company; and
WHEREAS,
this
Agreement shall govern the relationship between the parties from and after
the
date hereof.
NOW,
THEREFORE,
in
consideration of the foregoing, the parties agree as follows:
1.
Recitals
.
The
above recitals are true and correct and fully incorporate herein and form an
integral part of this Agreement.
2.
Engagement.
The
Company hereby retains Consultant and Consultant hereby agrees to act as a
consultant to the Company. Consultant shall perform such services for the
Company as may be assigned to him by the Company’s chief executive officer or
such other senior executive officer as shall be determined by the Company’s
board of directors from time to time (the “
Consulting
Services
”)
including, but not limited to, the services specified in Appendix A to this
agreement. The Consultant shall exercise his own reasonable judgment and employ
such means as he, in good faith, determines are reasonable in performing the
Consulting Services, and the Company will not exercise any control over the
methods or means employed by the Consultant in performing the Consulting
Services; provided, that Consultant shall comply with the Company’s code of
ethics and general policies. The Consulting Services shall be performed at
such
times and at such locations as Consultant shall determine. Consultant shall
provide the servies of Alex Katz (“Katz”).
3.
Independent
Contractor Status
.
It is
understood and agreed that in the performance of the Consulting Services by
the
Consultant hereunder, it is acting as an independent contractor and not in
any
way as an employee or agent of the Company. Neither Consultant nor any employee
of Consultant shall have any power to make any commitment on behalf of the
Company or to execute any document, instrument, letter or intent or any formal
or informal undertaking on behalf of the Company. The Consultant may be required
upon request of the Board, to submit to the Company written or oral reports
regarding his activities. Employees of the Consultant and others retained by
the
Consultant are not employees of the Company for purposes of worker’s
compensation, unemployment insurance, medical, disability and group life
insurance and they are not eligible to participate in any welfare, pension,
profit sharing or fringe benefit plan or arrangement of the Company. Consultant
shall maintain such workers compensation, disability and other insurance as
may
be required by law and shall, at the request of the Company, provide the Company
with evidence of such insurance.
4.
Term
.
This
Agreement shall commence on the Effective Date and shall expire on the fifth
(5
th
)
anniversary of the Effective Date (the “Term”); except, however:
A.
if
as of
one hundred fifty (150) days before the end of the Term neither the Company
nor
Consultant has given the other written notice that it has declined to renew
this
Agreement at the end of the Term, the Term (which includes any renewal period
pursuant to this clause (a) of Section 4) shall automatically renew on for
an
additional year (i.e., so that, absent 150 days’ prior written notice, the Term
shall automatically renew on a year-to-year basis) until the close of business
on the following anniversary of the Effective Date, and
B.
notwithstanding
anything herein to the contrary, the Term shall be subject to early termination
as provided in Section 12 hereof.
5.
Compensation
A.
Base
Compensation
.
For all
services rendered during the Term by Consultant to the Company, Consultant
shall
receive base compensation (“Base Compensation”) determined as follows: (i) until
the first anniversary of the Effective Date, the Base Compensation shall be
$180,000.00 per annum; and (ii) on each anniversary of the Effective Date,
the
Base Compensation for the ensuing year shall be increased in proportion to
the
increase in the Consumer Price Index All Items for All Urban Consumers New
York-Northern New Jersey-Long Island, NY-NJ-PA-CT with Base of (1982-1984=100)
published by the United States Department of Labor and Statistics (“CPI”) as
measured from the preceding anniversary of the Effective Date. For purposes
of
the preceding sentence, if the CPI is not published as of a given date, as
of
the most recent date on which such index has been published; however, if
publication of the CPI is discontinued, the parties hereto shall accept
comparable statistics on the cost of living for the New York, New York area
as
computed and published by an agency of the United States government, or if
no
such agency computes and publishes such statistics, by any regularly published
national financial periodical that does compute and publish such statistics.
In
addition, the Base Salary shall be reviewed periodically by the Company’s board
of directors (the “
Board
”)
and
shall be increased on a merit basis as determined by the Board. The Company
shall pay Consultant the Base Compensation in twenty-four (24) equal
semi-monthly payments, with such payments to be made on every 15
th
and
every 30
th
of the
month (except the second payment in the month of February shall be paid on
the
28
th
)
(each
such date on which payment is due, a “Payment Date”) throughout the Term,
starting with the first Payment Date after the Effective Date.
B.
Bonus
Payments and Additional Compensation
.
Throughout the Term, if Board of Directors shall determine that Consultant
shall
be entitled to any bonus compensation, options or other equity grants, such
determination shall be made by a compensation committee comprised of independent
directors of the Company.
6.
Facilities
.
Throughout the Term, Consultant shall be furnished with such facilities and
services as are adequate and sufficient for the performance of his duties.
Without limiting the generality of the foregoing, it is specifically agreed
that
Consultant shall determine his place of work, and Consultant shall not be
required to spend time at other locations with such frequency or for such
periods as would require, as a practical matter, Consultant to relocate his
principal residence.
7.
Benefits
.
The
Company agrees to provide Consultant with the following benefits:
A.
Benefits
.
Throughout
the Term, any person who generally performs services for the Company for more
than twenty (20) hours per week (exclusive of vacation, holiday, sick time
and
reasonable personal days) shall be entitled to participate in each “Benefit
Plan” (as defined below) on terms and conditions no less favorable to Consultant
than those that apply to any other officer or employee of the Company or any
direct or indirect subsidiary thereof. To the extent permitted by applicable
law
and the terms of any such Benefit Plan, the Company shall cause any waiting
or
non-eligibility period to be waived so that Consultant may participate as soon
as possible. For purposes hereof, “Benefit Plan” means any “employee benefit
plan” (as such term is defined in Section 3(3) of Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), whether or not the plan is subject
to ERISA) maintained, sponsored or contributed to by the Company or any of
its
“Control Affiliates” (as defined in Section 16(B)(v) hereof), including any
entity that would be considered an affiliate for purposes of any provision
of
ERISA. In addition, regardless of any health insurance or other Benefit Plan
that the Company may offer, the Company shall offer Consultant, at no cost
to
Consultant, full participation for Consultant and his family in Blue Cross/Blue
Shield Personal Choice - High Option with Drug Benefits; except, however, if
such health insurance plan is no longer provided in the marketplace, the Company
shall provide coverage for Consultant and his family under an alternate health
insurance plan that is no less favorable to Consultant in any respect. To the
extent that the terms of any Benefit Plan do not permit the Company to include
any employees of Consultant to participate in the Benefit Plan, the Company
will, to the extent practical, reimburse Consultant for the cost of providing
such benefits in an amount not exceeding the amount which the Company would
have
paid if the employees of Consulant who would be covered by the Benefit Plan
were
covered.
B.
Automobile
Allowance
.
Throughout
the Term, the Company shall provide Consultant with an automobile allowance
in
the amount of $1,000 per month for leasing, insuring, maintaining and repairing
an automobile of Consultant’s choice. In addition, the Consultant shall promptly
reimburse Consultant for all fuel expenses incurred by him in the performance
of
his duties to the Company upon presentation of receipts or other documentation
indicating the amount and business purposes of any such expenses.
8.
Reimbursement
of Attorneys’ Fees and Costs
.
On the
first Payment Date after the Effective Date, Consultant shall be entitled to
reimbursement for all attorneys’ fees and costs incurred by Consultant in
connection with negotiating and entering into this Agreement and related
matters. .
9.
Development
and Other Activity Expenses
.
The
Company recognizes that Consultant will have to incur certain out-of-pocket
expenses relating to his services and the Company’s business, and the Company
agrees to promptly reimburse Consultant for all reasonable expenses incurred
by
him in the performance of his duties to the Company upon presentation of a
voucher or documentation indicating the amount and business purposes of any
such
expenses in accordance with the Company’s expense reimbursement policies. These
expenses include, but are not limited to, travel, meals, entertainment,
etc.
10.
Indemnification;
Advancement of Expenses
.
A.
Indemnification
.
The
Company agrees to indemnify, defend and hold harmless Consultant from any and
all liabilities, obligations, judgments, awards, settlement payments,
deficiencies, penalties, fines, costs, expenses (including, without limitation,
attorneys’ and other professional fees and costs), losses and other damages of
any kind resulting from any “Covered Claim” (as defined below), except to the
extent expressly prohibited by applicable law. For purposes hereof, “Covered
Claim” means any suit, arbitration, action, audit, hearing, proceeding,
investigation or claim of any kind that may be asserted against or otherwise
involve (whether by subpoena, as a witness or otherwise) Consultant relating
in
any way to Consultant’s services or activities for or Consultant’s duties
(contractual, fiduciary or otherwise) to the Company or any shareholder thereof,
to any direct or indirect subsidiary of the Company, to any Benefit Plan or
participant thereof or to any other person or entity that Consultant may serve
at the request of the Company.
B.
Advancement
of Expenses
.
The
Company agrees to advance all costs and expenses (including, without limitation,
attorneys’ and other professional fees and costs) incurred by Consultant in
connection with any Covered Claim, except to the extent (i) prohibited by
applicable law or (ii) asserted as a direct claim by the Company based on
conduct by Consultant described in Sections 14(C)(i)-(iv) of this Agreement.
Without limiting the generality of the foregoing, if Consultant retains his
own
independent attorneys or other professionals in connection with any Covered
Claim, the Company shall pay all attorneys’ and other professional fees and
costs so incurred within thirty (30) days of a notice from Consultant informing
the Company of such fees and costs. Without limiting the generality of the
foregoing, the Company specifically agrees to advance all costs and expenses
(including, without limitation, attorneys’ and other professional fees and
costs) incurred by Consultant that would have been covered under a liability
insurance policy maintained by the Company but for application of a deductible
or other limit on the amount of coverage.
C.
Indemnification
and Similar Agreements
.
During
the Term, if the Company enters into any agreement with any of the Company’s
directors or officers providing exculpation, indemnification, defense, hold
harmless protection, advancement of expenses or any other similar rights or
protections, the Company shall enter into a similar agreement providing
Consultant with exculpation, indemnification, defense, hold harmless protection,
advancement of expenses and all other rights and protections that are no less
favorable to Consultant in any respect (such agreement with Consultant, an
“Indemnification Agreement”).
D.
Cumulative
Rights
.
All
rights and protections provided to Consultant under this Section 11, any further
agreement entered into pursuant to Section 11(D) hereof, under the
articles/certificate of incorporation or bylaws of the Company, at law, in
equity or otherwise shall be in addition to and cumulative with each
other.
11.
Office
and Support Staff
.
Throughout the Term, Consultant shall be entitled to an office of a size and
with furnishings and other appointments, and to secretarial and other
assistants, at least equal to those provided to any other management level
employee of the Company.
12.
Termination
.
A.
Grounds
.
The
Term shall terminate in the event of the death of Katz. In addition, the Company
shall have the right to terminate this Agreement only (i) in the case of Katz’
Disability, (ii) by Termination with Cause or (iii) Consultant may terminate
this Agreement hereunder pursuant to a Voluntary Termination, a Voluntary
Termination for Good Reason. For purposes of this Agreement, Disability,
Voluntary Termination, Voluntary Termination for Good Reason, and Termination
With Cause are defined in Section 13 of this Agreement.
B.
Notice
of Termination
.
Any
termination of the Term, other than upon death, shall be communicated by Notice
of Termination. For purposes of this Agreement, a “Notice of Termination” means
a written notice which (i) indicates the specific termination provision in
this
Agreement relied upon and the specific ground for termination; (ii) sets forth
in reasonable detail the facts and circumstances claimed to provided as a basis
for such termination; and (iii) the date of termination in accordance with
(C)
below. The failure of Consultant to set forth in the Notice of Termination
any
fact or circumstance which contributes to a showing of Good Reason shall not
waive any right of Consultant hereunder or preclude Consultant from asserting
such fact or circumstance in enforcing his rights hereunder.
C.
Date
of Termination
.
“Date
of Termination” means the date on which this Agreement terminates pursuant to
this Section 12, determined as follows:
(i)
This
Agreement may be terminated by either Consultant or the Company in the event
of
Katz’ Disability. The Date of Termination shall be the date of such
notice.
(ii)
If
Consultant’s services are terminated by reason of Katz’ Death, the Date of
Termination shall be the date of Katz’ death.
(iii)
If
this
Agreement is terminated by Consultant’s by reason of Voluntary Termination, the
Date of Termination shall be thirty (30) days from the date of the Notice of
Termination. In addition, if Consultant voluntarily refuses to provide
substantially all of the services described in Section 3 hereof for a period
of
four (4) consecutive weeks, Consultant shall be deemed to have terminated this
Agreement by Voluntary Termination, with the Date of Termination on the last
day
of such 4-week period. The Company may treat Consultant’s voluntary refusal to
provide services for four consecutive weeks as grounds for Termination With
Cause, by giving Consultant written notice of such grounds for termination,
in
which case Consultant shall have a period of thirty (30) days to cure such
cause
to the reasonable satisfaction of the Board, failing which this Agreement shall
be deemed terminated at the end of the such 30-day period. Notwithstanding
anything herein to the contrary, a voluntary refusal to provide services shall
not include any time absent due to: (a) illness, injury or any other physical
or
mental inability of Katz or a member of Katz’ immediate family, provided such
illness or injury is adequately substantiated at the reasonable request of
the
Company, (b) reasonable vacation or personal time taken without breach of this
Agreement or (c) any absence from service with written consent of the
Board.
(iv)
If
this
Agreement is terminated by reason of Voluntary Termination for Good Reason,
the
Date of Termination shall be the date of the Notice of Termination.
13.
Certain
Definitions
.
For the
purposes of this Agreement, the following terms shall have the following
definitions:
A.
“Disability”
means a physical or mental inability, confirmed by three (3) independent
licensed physicians, to perform substantially all of the services described
in
Section 3 hereof that continues for a period of one hundred twenty (120)
consecutive days.
B.
“Voluntary
Termination” means Consultant’s voluntary termination of this Agreement
hereunder for any reason, other than a Voluntary Termination With Good
Reason.
C.
“Termination
With Cause” means the termination of this Agreement by act of the Board at a
duly convened meeting, at which Consultant shall be entitled to be present
and
shall have a reasonable opportunity to present information it believes should
be
considered by the Board, for any of the following reasons, if
applicable:
(i)
Katz’
conviction of a crime involving some act of dishonesty or moral turpitude
(specifically excepting simple misdemeanors not involving acts of dishonesty
and
all traffic violations other the vehicular homicide);
(ii)
Katz’
theft, embezzlement, misappropriation of or intentional and malicious infliction
of damage to the Company’s property or business opportunity;
(iii)
Katz’
abuse of alcohol, drugs or other illegal or intoxicating substances as
determined by an independent medical physician; or
(iv)
Consultant’s
or Katz’ engaging in gross dereliction of duties, repeated refusal to perform
reasonably assigned duties appropriate for Consultant’s position, or repeated
violation of the Company’s reasonable written policies after written
warning.
(v)
Consultant’s
inability to provide the services of Katz other than as result of Katz’ death,
Disability or Voluntary Termination for Good Reason or as provided in Section
12(C)(iii).
D.
“Voluntary
Termination for Good Reason” means Consultant’s termination of this
Agreement
after the occurrence of any of the following:
(i)
any
failure of the Company to pay or provide Base Compensation, perquisites or
compensation of any kind as and when due under this Agreement;
(ii)
a
material reduction in any of the benefits or perquisites provided to Consultant
without Consultant’s consent, even if consistent with a reduction in the same
benefits and perquisites provided to all other officers of the
Company;
(iii)
any
imposition of a requirement on Consultant to perform services for a significant
portion of his time at a location other than (a) within a twenty-mile commuting
distance of Jenkintown, Pennsylvania, (b) New York City, New York or (c) a
location agreed to in writing by Consultant;
(iv)
assigning
to Consultant any duty that is illegal, unethical, demeaning or otherwise
inappropriate for a person performing high level activities for the
Company;
(v)
any
breach of Section 10 hereof (including, without limitation, any failure to
enter
into an Indemnification Agreement as required by Section 11(D) hereof), any
breach of an Indemnification Agreement or any amendment to the
articles/certificate of incorporation or bylaws of the Company which amendment
adversely affects any limitation on Consultant’s personal liability or
Consultant’s rights to indemnification, advancement of expenses or any similar
rights or protections;
(vi)
any
material breach of this Agreement by the Company committed intentionally or
knowingly;
(vii)
any
other
material breach by the Company of this Agreement that remains uncured for more
than, or is repeated after, thirty (30) days following receipt of written notice
thereof from Consultant
14.
Compensation
Upon Termination - Obligations of the Company Upon
Termination
.
A.
Death,
Disability or Voluntary Termination for Good Reason
.
If
Consultant’s service with the Company terminates as a result of Katz’ death,
Katz’ Disability or Voluntary Termination for Good Reason, the Company shall pay
Consultant all of the following:
(i)
Within
ninety (90) days following the Date of Termination, the Company shall pay
Consultant cash compensation in a lump sum equal to the difference obtaining
by
taking (a) Consultant’s then-current annual Base Compensation and subtracting
(b) the “Disability Proceeds” (as defined below) received from the end of the
120-day period referenced in Section 13(A) hereof through the date on which
payment is due under this Section 15(A)(i), where “Disability Proceeds” means
proceeds received by Consultant under any disability insurance policies paid
for
by the Company.
(ii)
On
the
first Payment Date on or after the Date of Termination, the Company shall pay
Consultant’s full Base Compensation up to the Date of Termination at the rate in
effect on the Date of Termination.
(iii)
Within
ninety (90) days following the Date of Termination, the Company shall pay
Consultant any compensation previously deferred by Consultant (together with
any
accrued interest thereon) and not yet paid by the Company.
(iv)
The
Company shall pay Consultant all other benefits, compensation or amounts owing
to, or earned or accrued by, or vested for the account of, Consultant under
any
policies, programs, arrangements of the Company or Benefit Plans, all in
accordance with the applicable terms of such policies, programs, arrangements
or
Benefits Plans. Anything in this Agreement to the contrary notwithstanding,
the
benefits to be provided to Consultant’s family upon his death shall be no less
favorable in any respect that such benefits to be provided by the Company to
any
other officer or employee under any policies, programs, arrangements or Benefit
Plans.
B.
Termination
With Cause or Voluntary Termination
.
If
Consultant shall suffer a Termination With Cause or terminate his services
hereunder by a Voluntary Termination, the Company shall pay or provide
Consultant all other benefits and compensation earned or accrued through the
Date of Termination. The Company shall pay the Base Compensation earned through
the Date of Termination on the First Payment Date on or after the Date of
Termination.
15.
Change
in Control
.
[Deleted]
16.
No
Mitigation; No Offset
.
In the
event of any termination of Consultant’s services, Consultant shall be under no
obligation to seek other work or otherwise mitigate damages or amounts payable
to him hereunder, and there shall be no offset against amounts due under this
Agreement (whether on account of any remuneration attributable to any subsequent
employment that Consultant may obtain or otherwise), it being agreed that the
Company’s obligation to make the payments pursuant to this Agreement and
otherwise to perform its obligations hereunder shall not be subject to or
affected by any set-off, counterclaim, recoupment, defense or other claim,
right
or action which the Company or any other person or entity may have against
Consultant or any third party. The Company agrees to pay, to fullest extent
permitted by law, all attorneys’ fees and costs which Consultant may reasonably
incur as a result of any contest by the Company or any third party of the
validity or enforceability of, or any liability under, this Agreement (including
as a result of any contest by Consultant regarding the amount of any payment
due
under this Agreement) provided Consultant prevails in the
litigation.
17.
Notices
.
All
notices required to be given under the Agreement shall be in writing, sent
certified mail, return receipt requested, postage prepaid, to the following
addresses:
A.
If
to
Consultant, then to:
Alex
Katz
P.O.
Box
2127
Jenkintown,
PA 19046
Tel:
(215) 882-3400
Fax:
885-6281
Email:
katza@comcast.net
with
a
copy to:
Curt
Golkow, Esq.
Fox
Rothschild, LLP
2000
Market Street, 10
th
Floor
Philadelphia,
PA 19103
Tel:
(215) 299-2747
Fax:
(215) 299-2150
Email:
cgolkow@foxrothschild.com
B.
If
to the
Company, then to:
Jordan
1
Holdings Company
Attention:
Robert P. Moyer
________________________
________________________
with
a
copy to:
Darrin
M.
Ocasio, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas
New
York,
NY 10018
Tel:
(212) 930-9700
Fax:
(212) 930-9725
E-mail:
dmocasio@srff.com
Each
party may change its or his address for receipt of notices under this Agreement
from time to time by giving written notice of such change in the manner provided
above.
18.
Governing
Law and Venue
.
The
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York. Venue for any action or suit brought hereunder or in
connection herewith, or relating hereto, shall lie with the federal and state
courts of competent jurisdiction located in New York County, New
York.
19.
Waiver
.
A
waiver of a party’s rights under this Agreement shall be effective only to the
extent set forth in a written instrument executed by the waiving party. No
waiver by a party of any misrepresentation or breach (whether intentional or
not), in any one or more instances and for any period of time, shall be deemed
or construed as a waiver of any prior or subsequent misrepresentation or breach
of the same or any other provision. No course of dealing or forbearance,
leniency, delay or other omission by a party to assert, exercise or enforce
any
right or remedy under this Agreement at any one or more times or for any periods
of time shall impair or otherwise affect any such right or remedy or any other
right or remedy, or be construed to be a waiver or acquiescence; nor shall
any
single or partial exercise of any right or remedy, or any abandonment or
discontinuance of steps to enforce such a right or remedy, preclude any further
exercise of the same or any other right or remedy, it being agreed that at
all
times each party shall have the right to insist upon and enforce strict
compliance with each and every provision of this Agreement.
20.
Binding
Effect and Assignment
.
Consultant acknowledges that his services are unique and personal. Accordingly,
Consultant may not assign his duties or obligations under this Agreement.
Consultant’s rights and obligations under this Agreement shall inure to the
benefit of and shall be binding upon Consultant’s their heirs, personal
representatives and successors and assigns. The Agreement shall be binding
upon
the Company’s successors and/or assigns.
21.
Costs
of Collection
.
If the
Company fails to make any payment as and when due under this Agreement or fails
to perform completely and timely any other obligation under this Agreement,
the
Company shall be liable, and shall reimburse Consultant upon receipt of written
demand, for any and all costs and expenses (including reasonable attorneys’ fees
and costs) incurred by Consultant in collecting amounts due or otherwise
incurred in enforcing Consultant’s rights under this Agreement.
22.
Entire
Understanding; Amendment
.
The
Agreement contains the entire understanding of the parties and supersedes any
and all previous agreements between the parties. This Agreement may be amended
or modified only by written agreement of both parties.
23.
Construction
.
The
terms “hereof,” “hereby,” “hereto” and “hereunder” mean, respective, of, by, to
and under this Agreement as a whole, and not merely to the provision in which
such term is used. The term “or” shall be construed to be inclusive and have the
meaning of “and/or”. The masculine form, wherever used herein, shall be
construed to include the feminine and the neuter, and vice versa, where
appropriate. The singular form, wherever used herein, shall be construed to
include the plural, and vice versa, where appropriate. The definitions in this
Agreement shall apply equally to both the singular and plural of the terms
defined. The term “include” (and correlative terms, such as “includes” and
“including”) shall not be construed as a term of limitation in any context but
shall be construed as if followed by the words “without limitation.” All
references herein to a particular statute, code, regulation or other provision
of applicable law shall include references to all amendments thereto and
legally-binding interpretations thereof and, in the case of the repeal thereof,
shall include any successor thereto enacted, promulgated or issued in
replacement thereof. The captions used in this Agreement are for the convenience
of reference only; they form no part of this Agreement and shall not limit
or
otherwise affect the interpretation of any provision herein. The parties hereto
and their respective counsel participated jointly in the preparation of this
Agreement, and each party has had the opportunity to review, comment upon and
redraft this Agreement; accordingly, no rule of construction shall apply against
or in favor of either party based on the role of such party or his or its
counsel in the drafting thereof.
25.
Counting
Days; Timing
.
In
computing the number of days for purposes hereof, all days shall be counted,
including Saturdays, Sundays and legal holidays in the State of New York;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or legal holiday, the final day shall be deemed to be the next day that
is not a Saturday, Sunday or legal holiday. Time is of the essence of every
provision of this Agreement.
IN
WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the
day and year first above written.
CONSULTANT:
/s/
Alex Katz
ALEX
KATZ
COMPANY:
JORDAN
1
HOLDINGS COMPANY
a
Delaware corporation
By:
/s/
Robert P. Moyer
Name:
Robert P. Moyer
Title:
CEO
JORDAN
1 HOLDINGS COMPANY
2006
Long-Term Incentive Plan
1.
Purpose;
Definitions.
The
purpose of the Jordan 1 Holdings Company 2006 Long-Term Incentive Plan (the
“Plan”) is to enable Jordan 1 Holdings Company (the “Company”) to attract,
retain and reward key employees of the Company and its Subsidiaries and
Affiliates, and others who provide services to the Company and its Subsidiaries
and Affiliates, and strengthen the mutuality of interests between such key
employees and such other persons and the Company’s stockholders, by offering
such key employees and such other persons incentives and/or other equity
interests or equity-based incentives in the Company, as well as
performance-based incentives payable in cash.
For
purposes of the Plan, the following terms shall be defined as set forth
below:
(a)
“Affiliate”
means any corporation, partnership, limited liability company, joint venture
or
other entity, other than the Company and its Subsidiaries, that is designated
by
the Board as a participating employer under the Plan, provided that the Company
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity or at least 20% of the ownership interests
in
such entity.
(b)
“Board”
means the Board of Directors of the Company.
(c)
“Book
Value” means, as of any given date, on a per share basis (i) the stockholders’
equity in the Company as of the last day of the immediately preceding fiscal
year as reflected in the Company’s consolidated balance sheet, subject to such
adjustments as the Committee shall specify at or after grant, divided by (ii)
the number of then outstanding shares of Stock as of such year-end date, as
adjusted by the Committee for subsequent events.
(d)
“Cause”
means a felony conviction of a participant, or the failure of a participant
to
contest prosecution for a felony, or a participant’s willful misconduct or
dishonesty, or breach of trust or other action by which the participant obtains
personal gain at the expense of or to the detriment of the Company or conduct
which results in civil or criminal liability or penalties, including penalties
pursuant to a consent decree, order or agreement, on the part of the Company;
provided, however, that if the participant has an Employment Agreement with
the
Company, a Subsidiary or Affiliate which includes a definition of “cause,” then
“cause” shall have the meaning as defined in such Employment
Agreement.
(e)
“Code”
means the Internal Revenue Code of 1986, as amended from time to time, and
any
successor thereto.
(f)
“Commission”
means the Securities and Exchange Commission or any successor
thereto.
(g)
“Committee”
means the Committee referred to in Section 2 of the Plan. If at any time no
Committee shall be in office, then the functions of the Committee specified
in
the Plan shall be exercised by the Board.
(h)
“Company”
means Jordan 1 Holdings Company, a Delaware corporation, or any successor
corporation.
(i)
“Deferred
Stock” means an award made pursuant to Section 8 of the Plan of the right to
receive Stock at the end of a specified deferral period.
(j)
“Disability”
means disability as determined under procedures established by the Committee
for
purposes of the Plan; provided that if the participant has an Employment
Agreement with the Company, a Subsidiary or Affiliate which includes a
definition of “disability,” then “disability” shall have the meaning as defined
in such Employment Agreement.
(k)
“Early
Retirement” means retirement, with the express consent for purposes of the Plan
of the Company at or before the time of such retirement, from active employment
with the Company and any Subsidiary or Affiliate pursuant to the early
retirement provisions of the applicable pension plan of such
entity.
(l)
“Employment
Agreement” shall mean an employment or consulting agreement or other agreement
pursuant to which the participant performs services for the Company or a
Subsidiary or Affiliate.
(m)
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, from time to time,
and any successor thereto.
(n)
“Fair
Market Value” means, as of any given date, the market price of the Stock as
determined by or in accordance with the policies established by the Committee
in
good faith; provided, that, in the case of an Incentive Stock Option, the Fair
Market Value shall be determined in accordance with the Code and the Treasury
regulations under the Code.
(o)
“Incentive
Stock Option” means any Stock Option intended to be and designated as an
“Incentive Stock Option” within the meaning of Section 422 of the
Code.
(p)
“Independent
Director” shall mean a “non-employee director” as set forth in Rule 16b-3 of the
Commission pursuant to the Exchange Act or any successor definition adopted
by
the Commission; provided that in the event that said rule (or successor rule)
shall not have such a definition, the term Independent Director shall mean
a
director of the Company who is not otherwise employed by the Company or any
Subsidiary or Affiliate; provided, however, an Independent Director shall also
be an independent director as determined by the rules or regulations of the
principal stock exchange or market on which the Stock is traded or, if the
Stock
is not listed or traded on such exchange, as defined under the rules of the
Nasdaq Stock Market.
(q)
“Non-Qualified
Stock Option” means any Stock Option that is not an Incentive Stock
Option.
(r)
“Normal
Retirement” means retirement from active employment with the Company and any
Subsidiary or Affiliate on or after age 65 or such other age as is designated
by
the Company, Subsidiary or Affiliate as the normal retirement age.
(s)
“Other
Stock-Based Award” means an award under Section 10 of the Plan that is valued in
whole or in part by reference to, or is otherwise based on, Stock.
(t)
“Plan”
means this Jordan 1 Holdings Company 2006 Long-Term Incentive Plan, as
hereinafter amended from time to time.
(u)
“Restricted
Stock” means an award of shares of Stock that is subject to restrictions under
Section 7 of the Plan.
(v)
“Retirement”
means Normal Retirement or Early Retirement.
(w)
“Stock”
means the common stock, par value $.001 per share, of the Company or any class
of common stock into which such common stock may hereafter be converted or
for
which such common stock may be exchanged pursuant to the Company’s certificate
of incorporation or as part of a recapitalization, reorganization or similar
transaction.
(x)
“Stock
Appreciation Right” means the right pursuant to an award granted under Section 6
of the Plan to surrender to the Company all (or a portion) of a Stock Option
in
exchange for an amount equal to the difference between (i) the Fair Market
Value, as of the date such award or Stock Option (or such portion thereof)
is
surrendered, of the shares of Stock covered by such Stock Option (or such
portion thereof), subject, where applicable, to the pricing provisions in
Section 6(b)(ii) of the Plan and (ii) the aggregate exercise price of such
Stock
Option or base price with respect to such award (or the portion thereof which
is
surrendered).
(y)
“Stock
Option” or “Option” means any option to purchase shares of Stock (including
Restricted Stock and Deferred Stock, if the Committee so determines) granted
pursuant to Section 5 of the Plan.
(z)
“Stock
Purchase Right” means the right to purchase Stock pursuant to Section 9 of the
Plan.
(aa)
“Subsidiary”
means any corporation or other business association, including a partnership
(other than the Company) in an unbroken chain of corporations or other business
associations beginning with the Company if each of the corporations or other
business associations (other than the last corporation in the unbroken chain)
owns equity interests (including stock or partnership interests) possessing
50%
or more of the total combined voting power of all classes of equity in one
of
the other corporations or other business associations in the chain. The Board
may elect to treat as a Subsidiary an entity in which the Company possesses
less
than 50% of the total combined voting power of all classes of equity if, under
generally accepted accounting principles, the Company may include the financial
statements of such entity as part of the Company’s consolidated financial
statements (other than as a minority interest or other single line
item).
In
addition, the terms “Change in Control,” “Potential Change in Control” and
“Change in Control Price” shall have meanings set forth, respectively, in
Sections 11(b), (c) and (d) of the Plan.
2.
Administration.
(a)
The
Plan
shall be administered by a Committee of not less than two directors all of
whom
shall be Independent Directors, who shall be appointed by the Board and who
shall serve at the pleasure of the Board. If and to the extent that no Committee
exists which has the authority to administer the Plan, the functions of the
Committee specified in the Plan shall be exercised by the Board.
(b)
The
Committee shall have full authority to grant, pursuant to the terms of the
Plan,
to officers and other persons eligible under Section 4 of the Plan, provided
that Independent Directors shall not be eligible for options or other benefits
pursuant to the Plan other than as provided in Sections 4(b) and 4(c) of the
Plan: Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred
Stock, Stock Purchase Rights and/or Other Stock-Based Awards. In particular,
the
Committee shall have the authority:
(i)
to
select
the officers and other eligible persons to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase Rights
and/or Other Stock-Based Awards may from time to time be granted pursuant to
the
Plan;
(ii)
to
determine whether and to what extent Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock,
Stock Purchase Rights and/or Other Stock-Based Awards, or any combination
thereof, are to be granted pursuant to the Plan, to one or more eligible
persons;
(iii)
to
determine the number of shares to be covered by each such award granted pursuant
to the Plan;
(iv)
to
determine the terms and conditions, not inconsistent with the terms of the
Plan,
of any award granted under the Plan, including, but not limited to, the share
price or exercise price and any restriction or limitation, or any vesting,
acceleration or waiver of forfeiture restrictions regarding any Stock Option
or
other award and/or the shares of Stock relating thereto, based in each case
on
such factors as the Committee shall, in its sole discretion,
determine;
(v)
to
determine whether, to what extent and under what circumstances a Stock Option
may be settled in cash, Restricted Stock and/or Deferred Stock under Section
5(b)(x) or (xi) of the Plan, as applicable, instead of Stock;
(vi)
to
determine whether, to what extent and under what circumstances Option grants
and/or other awards under the Plan and/or other cash awards made by the Company
are to be made, and operate, on a tandem basis with other awards under the
Plan
and/or cash awards made outside of the Plan in a manner whereby the exercise
of
one award precludes, in whole or in part, the exercise of another award, or
on
an additive basis;
(vii)
to
determine whether, to what extent and under what circumstances Stock and other
amounts payable with respect to an award under this Plan shall be deferred
either automatically or at the election of the participant, including any
provision for any determination or method of determination of the amount (if
any) deemed be earned on any deferred amount during any deferral
period;
(viii)
to
determine the terms and restrictions applicable to Stock Purchase Rights and
the
Stock purchased by exercising such Rights; and
(ix)
to
determine an aggregate number of awards and the type of awards to be granted
to
eligible persons employed or engaged by the Company and/or any specific
Subsidiary, Affiliate or division and grant to management the authority to
grant
such awards, provided that no awards to any person subject to the reporting
and
short-swing profit provisions of Section 16 of the Exchange Act may be granted
awards except by the Committee.
(c)
In
the
event that any officers or other participants have Employment Agreements with
the Company which provide for the grant of options to such participants, unless
the Committee or the Board otherwise determines, the options shall be treated
for all purposes as if they were granted pursuant to this Plan as long as there
is a sufficient number of shares available for grant pursuant to this Plan.
(d)
The
Committee shall have the authority to adopt, alter and repeal such rules,
guidelines and practices governing the Plan as it shall, from time to time,
deem
advisable; to interpret the terms and provisions of the Plan and any award
issued under the Plan and any agreements relating thereto, and otherwise to
supervise the administration of the Plan.
(e)
All
decisions made by the Committee pursuant to the provisions of the Plan shall
be
made in the Committee’s sole discretion and shall be final and binding on all
persons, including the Company and Plan participants.
(f)
All
share
information contained in this Plan reflects the one-for-one hundred and fifty
(150) reverse split (the “Reverse Split”) of the Company’s common stock which
was approved by the board of directors on July _, 2006.
(g)
No
options will be exerciseable under this plan until the Reverse Split has become
effective.
3.
Stock
Subject to Plan.
(a)
The
total
number of shares of Stock reserved and available for distribution under the
Plan
shall be eight hundred and seventy-five thousand (875,000) shares of Stock.
In
the event that awards are granted in tandem such that the exercise of one award
precludes the exercise of another award then, for the purpose of determining
the
number of shares of Stock as to which awards shall have been granted, the
maximum number of shares of Stock issuable pursuant to such tandem awards shall
be used.
(b)
Subject
to Section 6(b)(v) of the Plan, if any shares of Stock that have been optioned
cease to be subject to a Stock Option, or if any such shares of Stock that
are
subject to any Restricted Stock or Deferred Stock award, Stock Purchase Right
or
Other Stock-Based Award granted under the Plan are forfeited or any such award
otherwise terminates without a payment being made to the participant in the
form
of Stock, such shares shall again be available for distribution in connection
with future awards under the Plan.
(c)
In
the
event of any merger, reorganization, consolidation, recapitalization, stock
dividend, stock split, stock distribution, reverse split, combination of shares
or other change in corporate structure affecting the Stock, such substitution
or
adjustment shall be made in the aggregate number of shares reserved for issuance
under the Plan, in the base number of shares, in the number and option price
of
shares subject to outstanding Options granted under the Plan, in the number
and
purchase price of shares subject to outstanding Stock Purchase Rights under
the
Plan, and in the number of shares subject to other outstanding awards granted
under the Plan as may be determined to be appropriate by the Committee, in
its
sole discretion, provided that the number of shares subject to any award shall
always be a whole number, and provided that the treatment of such options and
rights shall be consistent with the nature of the event. Such adjusted option
price shall also be used to determine the amount payable by the Company upon
the
exercise of any Stock Appreciation Right associated with any Stock
Option.
4.
Eligibility.
(a)
Officers
and other key employees and directors of, and consultants and independent
contractors to, the Company and its Subsidiaries and Affiliates (but excluding,
except as to Sections 4(b) and 4(c) of the Plan, Independent Directors) who
are
responsible for or contribute to the management, growth and/or profitability
of
the business of the Company and/or its Subsidiaries and Affiliates are eligible
to be granted awards under the Plan.
(b)
On
each
July 1
st
of each
year, commencing in 2007, each person who is a Independent Director on such
date
shall automatically be granted a Non-Qualified Stock Option to purchase five
thousand (5,000) shares of Stock (or such lesser number of shares of Stock
as
remain available for grant at such date under the Plan, divided by the number
of
Independent Directors at such date). Such Stock Options shall be exercisable
at
a price per share equal to the greater of the Fair Market Value on the date
of
grant or the par value of one share of Stock. The Non-Qualified Stock Options
granted pursuant to this Section 4(b) and pursuant to Section 4(c) of the Plan
shall become exercisable cumulatively as to fifty percent (50%) of the shares
subject thereto six months from the date of grant and as to the remaining fifty
percent (50%), eighteen months from the date of grant, and shall expire on
the
earlier of (i) five years from the date of grant, or (ii) seven (7) months
from
the date such Independent Director ceases to be a director if such Independent
Director ceases to be a director other than as a result of his death or
Disability. The provisions of this Section 4(b) and said Section 4(c) may not
be
amended more than one (1) time in any six (6) month period other than to comply
with changes in the Code or the Employee Retirement Income Security Act
(“ERISA”) or the rules thereunder.
(c)
At
the
time an Independent Director is first elected to the Board, such person shall
automatically be granted a Non-Qualified Stock Option to purchase twenty five
thousand (25,000) shares of Stock (or such lesser number of shares of Stock
as
remain available for grant at such date under the Plan, divided by the number
of
Independent Directors who are elected as directors at such date). Such Stock
Options shall be exercisable at a price per share equal to the greater of the
Fair Market Value on the date of grant or the par value of one share of Stock.
5.
Stock
Options.
(a)
Administration
.
Stock
Options may be granted alone, in addition to or in tandem with other awards
granted under the Plan and/or cash awards made outside of the Plan. Any Stock
Option granted under the Plan shall be in such form as the Committee may from
time to time approve. Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified Stock Options. The Committee
shall have the authority to grant to any optionee Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in each case with
or without Stock Appreciation Rights).
(b)
Option
Grants
.
Options
granted under the Plan shall be subject to the following terms and conditions
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee, in its sole discretion, shall deem
desirable:
(i)
Option
Price
.
The
option price per share of Stock purchasable under a Stock Option shall be
determined by the Committee at the time of grant.
(ii)
Option
Term
.
The
term of each Stock Option shall be fixed by the Committee, but no Stock Option
shall be exercisable more than ten (10) years after the date the Option is
granted.
(iii)
Exercisability
.
Stock
Options shall be exercisable at such time or times and subject to such terms
and
conditions as shall be determined by the Committee at or after grant. If the
Committee provides, in its sole discretion, that any Stock Option is exercisable
only in installments, the Committee may waive such installment exercise
provisions at any time at or after grant in whole or in part, based on such
factors as the Committee shall, in its sole discretion, determine.
(iv)
Method
of Exercise
.
(A)
Subject
to whatever installment exercise provisions apply under Section 5(b)(iii) of
the
Plan, Stock Options may be exercised in whole or in part at any time during
the
option period, by giving written notice of exercise to the Company specifying
the number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by check, note or such other
instrument, securities or property as the Committee may accept. As and to the
extent determined by the Committee, in its sole discretion, at or after grant,
payments in full or in part may also be made in the form of Stock already owned
by the optionee or, in the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock or Deferred Stock subject to an award hereunder (based, in
each
case, on the Fair Market Value of the Stock on the date the option is exercised,
as determined by the Committee).
(B)
If
payment of the option exercise price of a Non-Qualified Stock Option is made
in
whole or in part in the form of Restricted Stock or Deferred Stock, the Stock
issuable upon such exercise (and any replacement shares relating thereto) shall
remain (or be) restricted or deferred, as the case may be, in accordance with
the original terms of the Restricted Stock award or Deferred Stock award in
question, and any additional Stock received upon the exercise shall be subject
to the same forfeiture restrictions or deferral limitations, unless otherwise
determined by the Committee, in its sole discretion, at or after
grant.
(C)
No
shares
of Stock shall be issued until full payment therefor has been received by the
Company. In the event of any exercise by note or other instrument, the shares
of
Stock shall not be issued until such note or other instrument shall have been
paid in full, and the exercising optionee shall have no rights as a stockholder
until such payment is made.
(D)
Subject
to Section 5(b)(iv)(C) of the Plan, an optionee shall generally have the rights
to dividends or other rights of a stockholder with respect to shares subject
to
the Option when the optionee has given written notice of exercise, has paid
in
full for such shares, and, if requested, has given the representation described
in Section 14(a) of the Plan.
(v)
Non-Transferability
of Options
.
No
Stock Option shall be transferable by the optionee otherwise than by will or
by
the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee’s lifetime, only by the optionee.
(vi)
Termination
by Death
.
Subject
to Section 5(b)(ix) of the Plan with respect to Incentive Stock Options, if
an
optionee’s employment by the Company and any Subsidiary or Affiliate terminates
by reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent such option was exercisable at the time of death or
on
such accelerated basis as the Committee may determine at or after grant (or
as
may be determined in accordance with procedures established by the Committee),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of one year (or such other period
as the Committee may specify at grant) from the date of such death or until
the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(vii)
Termination
by Reason of Disability or Retirement
.
Subject
to Section 5(b)(ix) of the Plan with respect to Incentive Stock Options, if
an
optionee’s employment by the Company and any Subsidiary or Affiliate terminates
by reason of a Disability or Normal or Early Retirement, any Stock Option held
by such optionee may thereafter be exercised by the optionee, to the extent
it
was exercisable at the time of termination or on such accelerated basis as
the
Committee may determine at or after grant (or as may be determined in accordance
with procedures established by the Committee), for a period of one year (or
such
other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however, that, if
the
optionee dies within such one-year period (or such other period as the Committee
shall specify at grant), any unexercised Stock Option held by such optionee
shall thereafter be exercisable to the extent to which it was exercisable at
the
time of death for a period of one year from the date of such death or until
the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Disability
or
Normal or Early Retirement, if an Incentive Stock Option is exercised after
the
expiration of the exercise periods that apply for purposes of Section 422 of
the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(viii)
Other
Termination
.
Unless
otherwise determined by the Committee (or pursuant to procedures established
by
the Committee) at or after grant, if an optionee’s employment by the Company and
any Subsidiary or Affiliate terminates for any reason other than death,
Disability or Normal or Early Retirement, the Stock Option shall thereupon
terminate; provided, however, that if the optionee is involuntarily terminated
by the Company or any Subsidiary or Affiliate without Cause, including a
termination resulting from the Subsidiary, Affiliate or division in which the
optionee is employed or engaged, ceasing, for any reason, to be a Subsidiary,
Affiliate or division of the Company, such Stock Option may be exercised, to
the
extent otherwise exercisable on the date of termination, for a period of three
months (or seven months in the case of a person subject to the reporting and
short-swing profit provisions of Section 16 of the Exchange Act) from the date
of such termination or until the expiration of the stated term of such Stock
Option, whichever is shorter.
(ix)
Incentive
Stock Options.
(A)
Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall
any
discretion or authority granted under the Plan be so exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the consent
of
the optionee(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
(B)
To
the
extent required for “incentive stock option” status under Section 422(d) of the
Code (taking into account applicable Treasury regulations and pronouncements),
the Plan shall be deemed to provide that the aggregate Fair Market Value
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the optionee
during any calendar year under the Plan and/or any other stock option plan
of
the Company or any Subsidiary or parent corporation (within the meaning of
Section 425 of the Code) shall not exceed $100,000. If Section 422 is hereafter
amended to delete the requirement now in Section 422(d) that the plan text
expressly provide for the $100,000 limitation set forth in Section 422(d),
then
this Section 5(b)(ix)(B) shall no longer be operative and the Committee may
accelerate the dates on which the incentive stock option may be
exercised.
(C)
To
the
extent permitted under Section 422 of the Code or the applicable regulations
thereunder or any applicable Internal Revenue Service
pronouncement:
(I)
If
(x) a
participant’s employment is terminated by reason of death, Disability or
Retirement and (y) the portion of any Incentive Stock Option that is otherwise
exercisable during the post-termination period specified under Sections 5(b)(vi)
and (vii) of the Plan, applied without regard to the $100,000 limitation
contained in Section 422(d) of the Code, is greater than the portion of such
option that is immediately exercisable as an “incentive stock option” during
such post-termination period under Section 422, such excess shall be treated
as
a Non-Qualified Stock Option; and
(II)
if
the
exercise of an Incentive Stock Option is accelerated by reason of a Change
in
Control, any portion of such option that is not exercisable as an Incentive
Stock Option by reason of the $100,000 limitation contained in Section 422(d)
of
the Code shall be treated as a Non-Qualified Stock Option.
(x)
Buyout
Provisions
.
The
Committee may at any time offer to buy out for a payment in cash, Stock,
Deferred Stock or Restricted Stock an option previously granted, based on such
terms and conditions as the Committee shall establish and communicate to the
optionee at the time that such offer is made.
(xi)
Settlement
Provisions
.
If the
option agreement so provides at grant or is amended after grant and prior to
exercise to so provide (with the optionee’s consent), the Committee may require
that all or part of the shares to be issued with respect to the spread value
of
an exercised Option take the form of Deferred or Restricted Stock which shall
be
valued on the date of exercise on the basis of the Fair Market Value (as
determined by the Committee) of such Deferred or Restricted Stock determined
without regard to the deferral limitations and/or forfeiture restrictions
involved.
6.
Stock
Appreciation Rights.
(a)
Grant
and Exercise
.
(i)
Stock
Appreciation Rights may be granted in conjunction with all or part of any Stock
Option granted under the Plan. In the case of a Non-Qualified Stock Option,
such
rights may be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, such rights may be granted
only at the time of the grant of such Stock Option.
(ii)
A
Stock
Appreciation Right or applicable portion thereof granted with respect to a
given
Stock Option shall terminate and no longer be exercisable upon the termination
or exercise of the related Stock Option, subject to such provisions as the
Committee may specify at grant where a Stock Appreciation Right is granted
with
respect to less than the full number of shares covered by a related Stock
Option.
(iii)
A
Stock
Appreciation Right may be exercised by an optionee, subject to Section 6(b)
of
the Plan, in accordance with the procedures established by the Committee for
such purpose. Upon such exercise, the optionee shall be entitled to receive
an
amount determined in the manner prescribed in said Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be exercisable
to the extent that the related Stock Appreciation Rights have been
exercised.
(b)
Terms
and Conditions
.
Stock
Appreciation Rights shall be subject to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time
to time by the Committee, including the following:
(i)
Stock
Appreciation Rights shall be exercisable only at such time or times and to
the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of this Section 6 and Section 5 of the Plan;
provided, however, that any Stock Appreciation Right granted to an optionee
subject to Section 16(b) of the Exchange Act subsequent to the grant of the
related Stock Option shall not be exercisable during the first six months of
its
term, except that this special limitation shall not apply in the event of death
or Disability of the optionee prior to the expiration of the six-month period.
The exercise of Stock Appreciation Rights held by optionees who are subject
to
Section 16(b) of the Exchange Act shall comply with Rule 16b-3 thereunder to
the
extent applicable.
(ii)
Upon
the
exercise of a Stock Appreciation Right, an optionee shall be entitled to receive
an amount in cash and/or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock over the option price per share
specified in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of payment. When payment
is
to be made in shares of Stock, the number of shares to be paid shall be
calculated on the basis of the Fair Market Value of the shares on the date
of
exercise. When payment is to be made in cash, such amount shall be based upon
the Fair Market Value of the Stock on the date of exercise, determined in a
manner not inconsistent with Section 16(b) of the Exchange Act and the rules
of
the Commission thereunder.
(iii)
Stock
Appreciation Rights shall be transferable only when and to the extent that
the
underlying Stock Option would be transferable under Section 5(b)(v) of the
Plan.
(iv)
Upon
the
exercise of a Stock Appreciation Right, the Stock Option or part thereof to
which such Stock Appreciation Right is related shall be deemed to have been
exercised only to the extent of the number of shares issued under the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
(v)
In
its
sole discretion, the Committee may grant Stock Appreciation Rights that become
exercisable only in the event of a Change in Control and/or a Potential Change
in Control, subject to such terms and conditions as the Committee may specify
at
grant; provided that any such Stock Appreciation Rights shall be settled solely
in cash.
(vi)
The
Committee, in its sole discretion, may also provide that, in the event of a
Change in Control and/or a Potential Change in Control, the amount to be paid
upon the exercise of a Stock Appreciation Right shall be based on the Change
in
Control Price, subject to such terms and conditions as the Committee may specify
at grant.
7.
Restricted
Stock.
(a)
Administration
.
Shares
of Restricted Stock may be issued either alone, in addition to or in tandem
with
other awards granted under the Plan and/or cash awards made outside of the
Plan.
The Committee shall determine the eligible persons to whom, and the time or
times at which, grants of Restricted Stock will be made, the number of shares
to
be awarded, the price (if any) to be paid by the recipient of Restricted Stock,
subject to Section 7(b) of the Plan, the time or times within which such awards
may be subject to forfeiture, and all other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the attainment
of
specified performance goals or such other factors as the Committee may, in
its
sole discretion, determine. The provisions of Restricted Stock awards need
not
be the same with respect to each recipient.
(b)
Awards
and Certificates
.
(i)
The
prospective recipient of a Restricted Stock award shall not have any rights
with
respect to such award unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and conditions
of
such award.
(ii)
The
purchase price for shares of Restricted Stock may be equal to or less than
their
par value and may be zero.
(iii)
Awards
of
Restricted Stock must be accepted within a period of 60 days (or such shorter
period as the Committee may specify at grant) after the award date, by executing
a Restricted Stock Award Agreement and paying the price, if any, required under
Section 7(b)(ii).
(iv)
Each
participant receiving a Restricted Stock award shall be issued a stock
certificate in respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
(v)
The
Committee shall require that (A) the stock certificates evidencing shares of
Restricted Stock be held in the custody of the Company until the restrictions
thereon shall have lapsed, and (B) as a condition of any Restricted Stock award,
the participant shall have delivered a stock power, endorsed in blank, relating
to the Restricted Stock covered by such award.
(c)
Restrictions
and Conditions
.
The
shares of Restricted Stock awarded pursuant to this Section 7 shall be subject
to the following restrictions and conditions:
(i)
Subject
to the provisions of the Plan and the award agreement, during a period set
by
the Committee commencing with the date of such award (the “Restriction Period”),
the participant shall not be permitted to sell, transfer, pledge or assign
shares of Restricted Stock awarded under the Plan. Within these limits, the
Committee, in its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions
in
whole or in part, based on service, performance and/or such other factors or
criteria as the Committee may determine, in its sole discretion.
(ii)
Except
as
provided in this Section 7(c)(ii) and Section 7(c)(i) of the Plan, the
participant shall have, with respect to the shares of Restricted Stock, all
of
the rights of a stockholder of the Company, including the right to vote the
shares and the right to receive any regular cash dividends paid out of current
earnings. The Committee, in its sole discretion, as determined at the time
of
award, may permit or require the payment of cash dividends to be deferred and,
if the Committee so determines, reinvested, subject to Section 14(e) of the
Plan, in additional Restricted Stock to the extent shares are available under
Section 3 of the Plan, or otherwise reinvested. Stock dividends, splits and
distributions issued with respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are subject to the same restrictions
and other terms and conditions that apply to the shares with respect to which
such dividends are issued, and the Committee may require the participant to
deliver an additional stock power covering the shares issuable pursuant to
such
stock dividend, split or distribution. Any other dividends or property
distributed with regard to Restricted Stock, other than regular dividends
payable and paid out of current earnings, shall be held by the Company subject
to the same restrictions as the Restricted Stock.
(iii)
Subject
to the applicable provisions of the award agreement and this Section 7, upon
termination of a participant’s employment or other services with the Company and
any Subsidiary or Affiliate for any reason during the Restriction Period, all
shares still subject to restriction will vest, or be forfeited, in accordance
with the terms and conditions established by the Committee at or after
grant.
(iv)
If
and
when the Restriction Period expires without a prior forfeiture of the Restricted
Stock subject to such Restriction Period, certificates for an appropriate number
of unrestricted shares, and other property held by the Company with respect
to
such Restricted Shares, shall be delivered to the participant
promptly.
(d)
Minimum
Value Provisions
.
In
order to better ensure that award payments actually reflect the performance
of
the Company and service of the participant, the Committee may provide, in its
sole discretion, for a tandem Stock Option or performance-based or other award
designed to guarantee a minimum value, payable in cash or Stock to the recipient
of a Restricted Stock award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
8.
Deferred
Stock.
(a)
Administration
.
Deferred Stock may be awarded either alone, in addition to or in tandem with
other awards granted under the Plan and/or cash awards made outside of the
Plan.
The Committee shall determine the eligible persons to whom and the time or
times
at which Deferred Stock shall be awarded, the number of shares of Deferred
Stock
to be awarded to any person, the duration of the period (the “Deferral Period”)
during which, and the conditions under which, receipt of the Stock will be
deferred, and the other terms and conditions of the award in addition to those
set forth in Section 8(b). The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals or such other factors
or criteria as the Committee shall, in its sole discretion, determine. The
provisions of Deferred Stock awards need not be the same with respect to each
recipient.
(b)
Terms
and Conditions
.
The
shares of Deferred Stock awarded pursuant to this Section 8 shall be subject
to
the following terms and conditions:
(i)
Subject
to the provisions of the Plan and the award agreement referred to in Section
8(b)(vi) of the Plan, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period. At
the
expiration of the Deferral Period (or the Elective Deferral Period referred
to
in Section 8(b)(v) of the Plan, where applicable), share certificates
representing the shares covered by the Deferred Stock award shall be delivered
to the participant or his legal representative.
(ii)
Unless
otherwise determined by the Committee at grant, amounts equal to any dividends
declared during the Deferral Period with respect to the number of shares covered
by a Deferred Stock award will be paid to the participant currently, or deferred
and deemed to be reinvested in additional Deferred Stock, or otherwise
reinvested, all as determined at or after the time of the award by the
Committee, in its sole discretion.
(iii)
Subject
to the provisions of the award agreement and this Section 8, upon termination
of
a participant’s employment with the Company and any Subsidiary or Affiliate for
any reason during the Deferral Period for a given award, the Deferred Stock
in
question will vest, or be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
(iv)
Based
on
service, performance and/or such other factors or criteria as the Committee
may
determine, the Committee may, at or after grant, accelerate the vesting of
all
or any part of any Deferred Stock award and/or waive the deferral limitations
for all or any part of such award.
(v)
A
participant may elect to further defer receipt of an award (or an installment
of
an award) for a specified period or until a specified event (the “Elective
Deferral Period”), subject in each case to the Committee’s approval and to such
terms as are determined by the Committee, all in its sole discretion. Subject
to
any exceptions adopted by the Committee, such election must generally be made
at
least twelve months prior to completion of the Deferral Period for such Deferred
Stock award (or such installment).
(vi)
Each
award shall be confirmed by, and subject to the terms of, a Deferred Stock
agreement executed by the Company and the participant.
(c)
Minimum
Value Provisions
.
In
order to better ensure that award payments actually reflect the performance
of
the Company and service of the participant, the Committee may provide, in its
sole discretion, for a tandem Stock Option or performance-based or other award
designed to guarantee a minimum value, payable in cash or Stock to the recipient
of a deferred stock award, subject to such performance, future service, deferral
and other terms and conditions as may be specified by the
Committee.
9.
Stock
Purchase Rights.
(a)
Awards
and Administration
.
The
Committee may grant eligible participants Stock Purchase Rights which shall
enable such participants to purchase Stock (including Deferred Stock and
Restricted Stock):
(i)
at
its
Fair Market Value on the date of grant;
(ii)
at
a
percentage of such Fair Market Value on such date, such percentage to be
determined by the Committee in its sole discretion;
(iii)
at
an
amount equal to Book Value on such date; or
(iv)
at
an
amount equal to the par value of such Stock on such date.
The
Committee shall also impose such deferral, forfeiture and/or other terms and
conditions as it shall determine, in its sole discretion, on such Stock Purchase
Rights or the exercise thereof. The terms of Stock Purchase Rights awards need
not be the same with respect to each participant. Each Stock Purchase Right
award shall be confirmed by, and be subject to the terms of, a Stock Purchase
Rights Agreement.
(b)
Exercisability
.
Stock
Purchase Rights shall generally be exercisable for such period after grant
as is
determined by the Committee not to exceed sixty (60) days. However, the
Committee may provide, in its sole discretion, that the Stock Purchase Rights
of
persons potentially subject to Section 16(b) of the Exchange Act shall not
become exercisable until six months and one day after the grant date, and shall
then be exercisable for ten trading days at the purchase price specified by
the
Committee in accordance with Section 9(a) of the Plan.
10.
Other
Stock-Based Awards.
(a)
Administration
.
(i)
Other
awards of Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Stock (“Other Stock-Based Awards”),
including, without limitation, performance shares, convertible preferred stock
(to the extent a series of preferred stock has been or may be created by, or
in
accordance with a procedure set forth in, the Company’s certificate of
incorporation), convertible debentures, warrants, exchangeable securities and
Stock awards or options valued by reference to Fair Market Value, Book Value
or
performance of the Company or any Subsidiary, Affiliate or division, may be
granted either alone or in addition to or in tandem with Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock or Stock Purchase Rights
granted under the Plan and/or cash awards made outside of the Plan.
(ii)
Subject
to the provisions of the Plan, the Committee shall have authority to determine
the persons to whom and the time or times at which such award shall be made,
the
number of shares of Stock to be awarded pursuant to such awards, and all other
conditions of the awards. The Committee may also provide for the grant of Stock
upon the completion of a specified performance period. The provisions of Other
Stock-Based Awards need not be the same with respect to each
recipient.
(b)
Terms
and Conditions
.
Other
Stock-Based Awards made pursuant to this Section 10 shall be subject to the
following terms and conditions:
(i)
Subject
to the provisions of the Plan and the award agreement referred to in Section
10(b)(v) of the Plan, shares of Stock subject to awards made under this Section
10 may not be sold, assigned, transferred, pledged or otherwise encumbered
prior
to the date on which the shares are issued, or, if later, the date on which
any
applicable restriction, performance or deferral period lapses.
(ii)
Subject
to the provisions of the Plan and the award agreement and unless otherwise
determined by the Committee at grant, the recipient of an award under this
Section 10 shall be entitled to receive, currently or on a deferred basis,
interest or dividends or interest or dividend equivalents with respect to the
number of shares covered by the award, as determined at the time of the award
by
the Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Stock
or
otherwise reinvested.
(iii)
Any
award
under Section 10 and any Stock covered by any such award shall vest or be
forfeited to the extent so provided in the award agreement, as determined by
the
Committee, in its sole discretion.
(iv)
In
the
event of the participant’s Retirement, Disability or death, or in cases of
special circumstances, the Committee may, in its sole discretion, waive in
whole
or in part any or all of the remaining limitations (if any) imposed with respect
to any or all of an award pursuant to this Section 10.
(v)
Each
award under this Section 10 shall be confirmed by, and subject to the terms
of,
an agreement or other instrument by the Company and by the
participant.
(vi)
Stock
(including securities convertible into Stock) issued on a bonus basis under
this
Section 10 may be issued for no cash consideration.
11.
Change
in Control Provisions.
(a)
Impact
of Event
.
In the
event of a “Change in Control,” as defined in Section 11(b) of the Plan, or a
“Potential Change in Control,” as defined in Section 11(c) of the Plan, except
to the extent otherwise determined by the Committee or the Board at or after
grant (subject to any right of approval expressly reserved by the Committee
or
the Board at the time of such determination), the following acceleration and
valuation provisions shall apply:
(i)
Any
Stock
Appreciation Rights outstanding for at least six months and any Stock Options
awarded under the Plan not previously exercisable and vested shall become fully
exercisable and vested and any Incentive Stock Options may, with the consent
of
the holders thereof, be treated as Non-Qualified Stock Options.
(ii)
The
restrictions and deferral limitations applicable to any Restricted Stock,
Deferred Stock, Stock Purchase rights and Other Stock-Based Awards, in each
case
to the extent not already vested under the Plan, shall lapse and such shares
and
awards shall be deemed fully vested.
(iii)
The
value
of all outstanding Stock Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Stock Purchase Rights and Other Stock-Based Awards, in each
case
to the extent vested (including such rights which shall have become vested
pursuant to Sections 11(a)(i) and (ii) of the Plan), shall be purchased by
the
Company (“cashout”) in a manner determined by the Committee, in its sole
discretion, on the basis of the “Change in Control Price” as defined in Section
11(d) of the Plan as of the date such Change in Control or such Potential Change
in Control is determined to have occurred or such other date as the Committee
may determine prior to the Change in Control, unless the Committee shall,
contemporaneously with or prior to any particular Change of Control or Potential
Change of Control, determine that this Section 11(a)(iii) shall not be
applicable to such Change in Control or Potential Change in
Control.
(b)
Definition
of “Change in Control.”
For
purposes of Section 11(a) of the Plan, a “Change in Control” means the happening
of any of the following after the completion of the acquisition of Plaza
Consulting Group, Inc., a Puerto Rico corporation (the “Acquisition Effective
Date”):
(i)
When
any
“person” (as defined in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d) and 14(d) of the Exchange Act, including a “group” as defined in
Section 13(d) of the Exchange Act, but excluding the Company and any Subsidiary
and any employee benefit plan sponsored or maintained by the Company or any
Subsidiary and any trustee of such plan acting as trustee) directly or
indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company’s then outstanding securities; provided, however, that a Change of
Control shall not arise if such acquisition is approved by the board of
directors or if the board of directors or the Committee determines that such
acquisition is not a Change of Control or if the board of directors authorizes
the issuance of the shares of Stock (or securities convertible into Stock or
upon the exercise of which shares of Stock may be issued) to such persons;
or
(ii)
When,
during any period of twenty-four consecutive months during the existence of
the
Plan, the individuals who, at the beginning of such period, constitute the
Board
(the “Incumbent Directors”) cease for any reason other than death, Disability or
Retirement to constitute at least a majority thereof, provided, however, that
a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of, or
with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24-month period) or by prior operation of this Section
11(b)(ii); provided, however, that all directors who are elected to the board
not later than six months after the Acquisition Effective Date shall be deemed
to be an Incumbent Director and shall be deemed to have satisfied the 24-month
requirement set forth in this Section 11(b)(ii); or
(iii)
The
occurrence of a transaction requiring stockholder approval for the acquisition
of the Company by an entity other than the Company or a Subsidiary through
purchase of assets, or by merger, or otherwise unless approved by a majority
of
Incumbent Directors.
(c)
Definition
of Potential Change in Control
.
For
purposes of Section 11(a) of the Plan, a “Potential Change in Control” means the
happening of any one of the following:
(i)
The
approval by stockholders of an agreement by the Company, the consummation of
which would result in a Change in Control of the Company as defined in Section
11(b) of the Plan; or
(ii)
The
acquisition of beneficial ownership, directly or indirectly, by any entity,
person or group (other than the Company or a Subsidiary or any Company employee
benefit plan or any trustee of such plan acting as such trustee) of securities
of the Company representing five percent or more of the combined voting power
of
the Company’s outstanding securities and the adoption by the Board of Directors
of a resolution to the effect that a Potential Change in Control of the Company
has occurred for purposes of the Plan.
(d)
Change
in Control Price
.
For
purposes of this Section 11, “Change in Control Price” means the highest price
per share paid in any transaction reported on the principal stock exchange
on
which the Stock is traded or the average of the highest bid and asked prices
as
reported by the principal stock exchange or market on which the Stock is traded,
or paid or offered in any bona fide transaction related to a Potential or actual
Change in Control of the Company at any time during the sixty-day period
immediately preceding the occurrence of the Change in Control (or, where
applicable, the occurrence of the Potential Change in Control event), in each
case as determined by the Committee except that, in the case of Incentive Stock
Options and Stock Appreciation Rights relating to Incentive Stock Options,
such
price shall be based only on transactions reported for the date on which the
optionee exercises such Stock Appreciation Rights, Incentive Stock Options
or,
where applicable, the date on which a cashout occurs under Section
11(a)(iii).
12.
Amendments
and Termination.
(a)
The
Board
may amend, alter, or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made which would impair the rights of an optionee
or
participant under a Stock Option, Stock Appreciation Right, Restricted or
Deferred Stock award, Stock Purchase Right or Other Stock-Based Award
theretofore granted, without the optionee’s or participant’s consent, and no
amendment will be made without approval of the stockholders if such amendment
requires stockholder approval under state law or if stockholder approval is
necessary in order that the Plan comply with Rule 16b-3 of the Commission under
the Exchange Act or any substitute or successor rule or if stockholder approval
is necessary in order to enable the grant pursuant to the Plan of options or
other awards intended to confer tax benefits upon the recipients
thereof.
(b)
The
Committee may amend the terms of any Stock Option or other award theretofore
granted, prospectively or retroactively, but no such amendment shall impair
the
rights or any holder without the holder’s consent. The Committee may also
substitute new Stock Options for previously granted Stock Options (on a one
for
one or other basis), including previously granted Stock Options having higher
option exercise prices.
(c)
Subject
to the provisions of Sections 12(a) and (b) of the Plan, the Board shall have
broad authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments,
and, in particular, without limiting in any way the generality of the foregoing,
to eliminate any provisions which are not required to included as a result
of
any amendment to Rule 16b-3 of the Commission pursuant to the Exchange
Act.
13.
Unfunded
Status of Plan.
The
Plan
is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a participant or
optionee by the Company, nothing contained in this Plan shall give any such
participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
under
this Plan; provided, however, that, unless the Committee otherwise determines
with the consent of the affected participant, the existence of such trusts
or
other arrangements shall be consistent with the “unfunded” status of the
Plan.
14.
General
Provisions.
(a)
The
Committee may require each person purchasing shares pursuant to a Stock Option
or other award under the Plan to represent to and agree with the Company in
writing that the optionee or participant is acquiring the shares without a
view
to distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates or shares of Stock or other securities delivered under the
Plan
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is
then
listed, and any applicable Federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b)
Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, subject to stockholder approval if such approval
is
required; and such arrangements may be either generally applicable or applicable
only in specific cases.
(c)
Neither
the adoption of the Plan nor the grant of any award pursuant to the Plan shall
confer upon any employee of the Company or any Subsidiary or Affiliate any
right
to continued employment with the Company or a Subsidiary or Affiliate, as the
case may be, nor shall it interfere in any way with the right of the Company
or
a Subsidiary or Affiliate to terminate the employment of any of its employees
at
any time.
(d)
No
later
than the date as of which an amount first becomes includible in the gross income
of the participant for Federal income tax purposes with respect to any award
under the Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any Federal, state,
or
local taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
may be settled with Stock, including Stock that is part of the award that gives
rise to the withholding requirement. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company and
its Subsidiaries or Affiliates shall, to the extent permitted by law, have
the
right to deduct any such taxes from any payment of any kind otherwise due to
the
participant.
(e)
The
actual or deemed reinvestment of dividends or dividend equivalents in additional
Restricted Stock (or in Deferred Stock or other types of Plan awards) at the
time of any dividend payment shall only be permissible if sufficient shares
of
Stock are available under Section 3 of the Plan for such reinvestment (taking
into account then outstanding Stock Options, Stock Purchase Rights and other
Plan awards).
15.
Effective
Date of Plan.
he
Plan
shall be effective as of the date the Plan is approved by the Board, subject
to
the approval of the Plan by a majority of the votes cast by the holders of
the
Company’s Stock at the next annual or special meeting of stockholders. Any
grants made under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall
be
conditioned on, and subject to, such approval of the Plan by such
stockholders.
16.
Term
of Plan.
Stock
Option, Stock Appreciation Right, Restricted Stock award, Deferred Stock award,
Stock Purchase Right or Other Stock-Based Award may be granted pursuant to
the
Plan, until ten (10) years from the date the Plan was approved by the Board,
unless the Plan shall be terminated by the Board, in its discretion, prior
to
such date, but awards granted prior to such termination may extend beyond that
date.