UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TECHPRECISION CORPORATION
(Name of Small Business Issuer in Its Charter)
Delaware 3599 51-0539828
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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One Bella Drive, Westminster, Massachusetts 01473 (978) 874-0591
(Address and telephone number of Principal Executive Offices)
One Bella Drive, Westminster, Massachusetts 01473
(Address of principal place of business)
Mr. James G. Reindl, Chief Executive Officer
Techprecision Corporation
One Bella Drive
Westminster, Massachusetts 01473
Telephone: (978) 874-0591
Fax: (978) 874-2748
(Name, address and telephone number of agent for service)
Please send a copy of all communications to:
Asher S. Levitsky P.C.
Sichenzia Ross Friedman Ference LLP
1965 Avenue of the Americas
New York, NY 10018
Telephone: (212) 981-6767
Fax: (212) 930-9725
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. |_|
CALCULATION OF REGISTRATION FEE
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate offering Amount of
securities to be registered registered per unit (1) price(1) registration fee
--------------------------- ------------ ---------------- ------------------ ----------------
Common Stock, par value
$.0001 per share(2) 9,181,527 $1.50 $13,772.290.50 $1,473.64
Common Stock, par value
$.0001 per share (3) 11,220,000 $1.50 16,830,000.00 1,800.81
$3,274.45
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* Of which $1,093.84 has been paid.
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as amended. The 9,181,527 shares represent 100,000 outstanding shares of common stock and 9,081,527 shares of common stock issuable upon conversion of the series A convertible preferred stock. The 11,220,000 are shares of common stock issuable upon exercise of common stock purchase warrants, and the proposed maximum offering price is equal to the average exercise price of the warrants.
(2) Represents 100,000 outstanding shares of common stock and 9,081,527 shares of common stock issuable upon conversion of the series A convertible preferred stock. (3) Represents 11,220,000 shares of common stock issuable upon exercise of warrants.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST , 2006
PROSPECTUS
20,401,527 Shares
TECHPRECISION CORPORATION
Common Stock
As of the date of this prospectus, there is no trading market in our common stock, and we cannot assure you that a trading market will develop.
The selling stockholders may offer and sell from time to time up to an aggregate of 20,401,527 shares of our common stock that they have acquired or may acquire from us, including shares that they may acquire upon conversion of series A preferred stock and exercise of warrants.
We will not receive any proceeds from the sale by the selling stockholders of their shares of common stock other than the exercise price of the outstanding warrants if and when the warrants are exercised. We will pay the cost of the preparation of this prospectus, which is estimated at $ ,000.
Investing in shares of our common stock involves a high degree of risk. You should purchase our common stock only if you can afford to lose your entire investment. See "Risk Factors," which begins on page 7.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The selling stockholders have not engaged any underwriter in connection with the sale of their shares of common stock. Because there is no trading market in our common stock as of the date of this prospectus, the selling stockholders will sell shares at prices ranging from $.75 to $1.50 per share until a public market develops for the common stock. Once a public market develops for the common stock, the selling stockholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices or in transaction that are not in the public market.
The date of this Prospectus is _________, 2006
You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless when the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, our common stock in any jurisdiction in which the offer or sale is not permitted.
TABLE OF CONTENTS
Page
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Prospectus Summary 3
Risk Factors 6
Forward-Looking Statements 13
Use of Proceeds 14
Selling Stockholders 14
Plan of Distribution 17
Market for Common Stock and Stockholder Matters 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations 20
Business 27
Management 30
Principal Stockholders 33
Certain Relationships and Related Transactions 35
Description of Capital Stock 37
Experts 40
Legal Matters 40
How to Get More Information 40
Financial Statements F-1
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PROSPECTUS SUMMARY
This summary does not contain all of the information that is important to you. You should read the entire prospectus, including the Risk Factors and our consolidated financial statements and related notes appearing elsewhere in this prospectus before making an investment decision.
Our Business
We produce large metal fabrications and perform precision machining operations for large military, commercial, nuclear, shipbuilding, industrial, aerospace and alternative energy applications. Our principal services are metal fabrications, machining and engineering. Each of our contracts covers a specific product. We produce products for our customers, but do not distribute such products on the open market. We render our services under "build to print" contracts with our clients. However, we also help our customers to analyze and develop their projects for constructability by providing research and development services which are included in our charges to our customers.
We are one of a small number of large precision metal fabrication companies located in the United States. However, only a few others produce products in all industry sectors that we service. In recent years, the capital goods market experienced a slow-down due to the industry over-build of product in the late 1990's. Additional contributions to the industry slow-down resulted from the events of September 11, 2001. However, based on recent project inquiries, recent projects awarded and current customer demands for our services, we believe the market has rebounded.
Although we provide manufacturing services to large governmental programs, we usually do not work directly for agencies of the United States government. Rather, we perform our services for large governmental contractors and large utility companies.
About Us
We are a Delaware corporation, organized in 2005 under the name Lounsberry Holdings II, Inc. Our name was changed to Techprecision Corporation on March 6, 2006. On February 24, 2006, we acquired all of the issued and outstanding capital stock of Ranor, Inc., a Delaware corporation, and, since February 24, 2006, our sole business has been the business of Ranor. Prior to the acquisition of Ranor, Lounsberry was not engaged in any business activity and was considered a blank check company. There was no relationship between Ranor and Lounsberry prior to the negotiation with Capital Markets Advisory Group, LLC. In December 2005, Lounsberry, through its counsel, was introduced to counsel for Ranor Acquisition LLC, which had an agreement with Ranor pursuant to which it would acquire all of the issued and outstanding stock of Ranor. It was a condition to the preferred stock purchase agreement that the investment would be made in a company that was a reporting company under the Securities Exchange Act of 1934, as amended. The parties agreed on a price of $200,000, which included the satisfaction of all of Lounsberry's debt of $39,661, which was due to Capital Markets.
Our acquisition of Ranor is accounted for as a reverse acquisition. The accounting rules for reverse acquisitions require that beginning with the date of the merger, February 24, 2006, our balance sheet includes the assets and liabilities of Ranor and our equity accounts were recapitalized to reflect the net equity of Ranor. In addition, our historical operating results will be the operating results of Ranor.
Ranor, together with its predecessor, which was also named Ranor, has been in business since 1956. Ranor's predecessor was sold by its founders in 1999 to Standard Automotive Corporation through its subsidiary Critical Components Corporation. From June 1999 until August 2002, Ranor's predecessor was operated by Critical Components. In December 2001, Standard filed for protection under the Bankruptcy Code, and Ranor's predecessor operated under Chapter 11 until on or about the quarter ended June 30, 2002. Subsequently, all Standard's holdings were sold. In 2002, Ranor acquired the assets of its predecessor from the bankruptcy estate. Ranor is a Delaware corporation, founded in May 2002 under the name Rbran Acquisition, Inc. and changed its name to Ranor, Inc. in August 2002.
The stock purchase agreement between Ranor Acquisition LLC and the former Ranor stockholders was negotiated during the spring and summer of 2005, and the agreement was executed on August 17, 2005. As part of the transactions relating to the purchase of the Ranor stock, on February 24, 2006, Ranor Acquistion assigned the stock purchase agreement to us and we completed the acquisition of the Ranor stock. At the time of the acquisition, we were still known as Lounsberry.
The purchase price for the stock of Ranor was $9,250,000 plus an amount equal to Ranor's cash position in excess of $250,000, which was $813,000, less a closing adjustment of $54,000, less the principal and interest on notes held by Ranor's preferred stockholders, which were paid at closing. We also used $240,000 of Ranor's remaining cash as part of the amount due to the former Ranor stockholders/noteholders. These payments were made by Ranor, which reduced Ranor's cash balance to $10,000. We paid a total of $10,063,000 to pay the notes to the former Ranor stockholders, as well as the purchase price for the shares of preferred stock and common stock. Of this amount, $8,000,000 was paid on account of the principal of the notes and $975,000 on account of interest on the notes. We also deposited $925,000 as an escrow reserve for any potential liability that the sellers may have for breaches of their representations and warranties. The total amount allocated to the capital stock was $163,000, of which $10,000 was paid to the stockholders and $153,000 was applied to the stockholder's expenses. Any money paid to the former Ranor stockholders from the escrow will be allocated to purchase price of the preferred stock.
In connection with the acquisition of Ranor, on February 24, 2006:
o We entered into a preferred stock purchase agreement with Barron Partners LP, pursuant to which we sold to Barron Partners, for $2,200,000, 7,719,250 shares of series A preferred stock, and five-year warrants to purchase an aggregate of 5,600,000 shares of common stock at $.57 per share and 5,600,000 shares of commons stock at $.855 per share. The series A preferred stock was initially convertible into 7,719,250 shares of common stock, subject to adjustment. Because our EBITDA for the year ended March 31, 2006 was less than $.04613 per share, (i) the conversion price of the series A preferred stock reduced from $.285 to $.24225, a 15% reduction, with the result that the series A convertible preferred stock became convertible into 9,081,527 shares of common stock, and (ii) the exercise prices of the warrants were reduced by 15% -- from $.57 to $.4845 and from $.855 to $.7268, with no adjustment in the number of shares issuable upon exercise of the warrant.
o The conversion rate of the series A preferred stock and the exercise prices of the warrants are subject to further adjustment if our EBITDA per share, on a fully-diluted basis, is less than $.08568 per share for the year ended March 31, 2007, based on the percentage shortfall from $.08568 per share, up to a maximum reduction of 15%. The adjustment could result in an increase in the maximum number of shares of common stock being issued upon conversion of the series A preferred stock from 9,081,527 to 10,684,150 shares of common stock and a further reduction in the exercise price of the warrants from $.4845 to $.4118 and from $.7268 to $.6177 per share.
o We purchased 928,000 shares of common stock form Capital Markets Advisory Group, LLC, which was then our principal stockholder, for $160,339 and paid $39,661 of debt to Capital Markets, using the proceeds from the sale of the preferred stock. The control person for Capital Markets is Steven Hicks.
o We issued 7,697,000 shares of common stock to the members of Ranor Acquisition LLC, which was the party to an August 17, 2005 agreement to purchase the stock of Ranor, for which Ranor Acquisition advanced funds on our behalf and assigned its rights under the Ranor stock purchase agreement, and we assumed Ranor Acquisition's obligations under that agreement.
o We sold 1,700,000 shares of common stock to an investor for $500,000.
o Ranor entered into a loan and security agreement with Sovereign Bank pursuant to which Ranor borrowed $4.0 million, for which Ranor issued its term note, and Sovereign provided Ranor with a $1.0 million revolving credit arrangement.
o Ranor sold its real estate to WM Realty Management, LLC for $3.0 million, and Ranor leased the real property on which its facilities are located from WM Realty Management pursuant to a net lease. WM Realty Management is an affiliate of the Company.
Our executive offices are located at One Bella Drive, Westminster, MA 01473, telephone (978) 874-0591. Ranor's website is www.ranor.com. Information on Ranor's website or any other website is not part of this prospectus.
References in this prospectus to "we," "us," "our" and similar words refer to Techprecision Corporation and its subsidiary, Ranor, unless the context indicates otherwise, and, prior to the effectiveness of the reverse acquisition, these terms refer to Ranor.
Issuance of Securities to the Selling Stockholders
The selling stockholders acquired their shares in private placements in 2005 and 2006.
In connection with our organization in February 2005, we issued 1,000,000 shares of common stock to Capital Markets and 20,000 shares of common stock to Mark Allen for nominal consideration. In February 2006, in connection with the reverse acquisition, we purchased 928,000 shares from Capital Markets for $160,339 and paid $39,661 of debt to Capital Markets.
In December 2005, we issued 8,000 shares of common stock for $2,000.
In February 2006, we sold to Barron Partners, for $2,200,000, 7,719,250 shares of series A preferred stock and warrants to purchase an aggregate of 11,220,000 shares of common stock. The series A preferred stock is convertible into 9,081,527 shares of common stock.
We are registering the 100,000 outstanding shares of common stock held by selling stockholders, 9,081,527 shares of common stock which are issuable upon conversion of the series A preferred stock, and 11,220,000 shares of common stock issuable upon exercise of warrants.
THE OFFERING
Common Stock Offered: The selling stockholders are offering a
total of 20,401,527 shares of common
stock, of which 100,000 shares are
outstanding, 9,081,527 shares are
issuable upon conversion of the series A
preferred stock and 11,220,000 shares are
issuable upon exercise of warrants
Limitation on Issuance of Common
Stock: The holders of the series A preferred
stock and the holders of the warrants
cannot convert their shares of series A
preferred stock or exercise their
warrants to the extent that such
conversion and exercise would result in
the holders and their affiliates owning
more than 4.9% of our outstanding common
stock.
Outstanding Shares of Common Stock: 10,054,000 shares(1, 2)
Common Stock to be Outstanding After 30,355,527 shares(1)
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Exercise of Investor Warrants:
Use of Proceeds: We will receive no proceeds from the
sale of any shares by the selling
stockholders. In the event that any
selling stockholders exercise their
warrants, we would receive the exercise
price. If all warrants are exercised, we
would receive approximately $6.8
million, all of which, if and when
received, would be used for working
capital and other corporate purposes.
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(1) Does not include a total of 1,000,000 shares are reserved for options, stock grants or other equity-based incentives under our 2006 long-term incentive plan.
(2) Does not include the shares of common stock issuable upon conversion of the series A preferred stock or exercise of warrants held by the selling stockholders.
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share information)
The following information relating to March 31, 2006 and the years ended March 31, 2006 and, 2005 and June 30, 2006 and the three months ended June 30, 2006 and 2006 has been derived from our financial statements which appear elsewhere in this prospectus.
Statement of Operations Information:
Three Months Ended June 30, Year Ended March 31,
--------------------------- --------------------
2006 2005 2006 2005
------ ------ ------- -------
Net sales $4,199 $5,417 $20,266 $14,269
Gross profit 789 4,504 2,634 1,638
Income (loss) from operations 108 409 726 (27)
Interest expense, net (183) (280) 1,098 1,113
(Loss) income before income taxes (75) 131 (385) (1,140)
Net loss (75) 128 (428) (1,144)
Net loss per share of common stock,
(basic and diluted) $ (.01) $ .02 $ (.05) $ (.14)
Weighted average shares of common
stock outstanding (basic and diluted) 9,991 8,089 8,270 8,089
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Balance Sheet Information:
June 30, 2006 March 31, 2006
------------- --------------
Working capital (deficiency) $ (35) $ 91
Total assets 8,532 8,668
Total long-term debt 3,298 3,442
Total liabilities 9,348 9,416
Accumulated deficit (4,215) (3,917)
Stockholders' deficiency (816) (748)
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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 RELATING TO OUR BUSINESS
Because we may require additional financing for our operations, our failure to obtain necessary financing may impair our operations.
At June 30, 2006, we had deficiency in working capital of approximately $35,000. The only funding available to us, other than our cash flow from operations, is $1.0 million revolving credit line with a bank. We cannot assure you that this facility will be sufficient to provide us with the funds necessary to enable us to perform our obligations under our contracts. Our failure to obtain any required financing could impair our ability to both serve our existing clients base and develop new clients and could result in both a decrease in revenue and an increase in our loss.
To the extent that we require financing, the absence of a public market for our common stock, the terms of our recent private placement and the number of outstanding warrants and the exercise price and other terms on which we may issue common stock upon exercise of the warrants, it may be difficult for us to raise additional equity capital if required for our present business or for any planned expansion. We cannot assure you that we will be able to get additional financing on any terms, and, if we are able to raise funds, it may be necessary for us to sell our securities at a price which is at a significant discount from the market price and on other terms which may be disadvantageous to us. In connection with any such financing, we may be required to provide registration rights to the investors and pay damages to the investor in the event that the registration statement is not filed or declared effective by specified dates. The price and terms of any financing which would be available to us could result in both the issuance of a significant number of shares and significant downward pressure on our stock price and could result in a reduction of the conversion ratio of the series A preferred stock and exercise price of the warrants held by the Barron Partners. Further, since Barron Partners has a right of first refusal with respect to future financings, this right may affect our ability to obtain financing from other sources.
Our losses are continuing, and we may not be able to operate profitably.
We have shown losses for the quarter ended June 30, 2006 and the years ended March 31, 2006 and 2005, and we cannot assure you that we will be able to operate profitably. Further, as a result of the reverse acquisition and our status as a reporting company, our ongoing expenses have increased significantly. Our failure to generate sufficient revenue, to reduce expenses or to obtain financing to cover our increased level of expenses could impair our ability to continue in business.
Because all of our services are performed pursuant to special order contracts, we have no continuing source of revenue.
We do not have long-term contracts with almost all of our customers, and major contracts with a small number of customers account for a significant percentage of our revenue. We must bid each contract separately, and when we complete a contract, there is generally no continuing source of revenue under that contract. As a result, we cannot assure you that we have a continuing stream of revenue. Our failure to generate new business on an ongoing basis would materially impair our ability to operate profitably. Because a significant portion of our revenue is derived from services rendered from the defense, aerospace, nuclear, industrial and related industries, our operating results may suffer from conditions affecting these industries, including any budgeting, economic or other trends that have the effect of reducing the requirements for our services, including changes in federal budgeting which may reduce the budget of those agencies that either engage us directly or affect the contracts of private sector clients for whom we perform services as subcontractors under prime contracts with government agencies.
Because of our dependence on a limited number of customers, our failure to generate major contracts from a small number of customers may impair our ability to operate profitably.
We have in the past been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. For the quarter ended June 30, 2006, our two largest customers accounted for approximately 38% of our revenue, and each of these customer accounted for less than 10% of revenue during the year ended March 31, 2006. For the year ended March 31, 2006, our two largest customers accounted for approximately 28% of our revenue, and each of these customers accounted for less than 10% of our revenue in the fiscal year ended March 31, 2005. To the extent that we are unable to generate major orders from customers, we may have difficulty operating profitably.
Because our customers include major defense contractors, our size and financial condition may place us at a competitive disadvantage in seeking business.
There are a large number of domestic and foreign companies, some of which are considerably larger and better capitalized than we are, with which we compete for business. Foreign companies may have lower manufacturing costs than we have, which may give them a competitive advantage. Since much of our contracts are generated from a request for proposal (RFP) by a prime contractor under a government contract, to the extent that a competitor is able to design the specifications, that competitor may have a competitive advantage. We may also be at a competitive disadvantage to the extent that competitors have existing relationships with the prime contractor. Since our customers include major defense customers, our failure to satisfy potential customers as to our financial health may prevent us from obtaining business. The 2002 bankruptcy of Ranor's predecessor has resulted in lost business in past years.
Because our contracts are generally awarded through a competitive bidding process, we cannot be assured of obtaining business.
Our contracts are usually awarded through a competitive bidding process which entails risks not present in other circumstances. We may spend substantial sums analyzing and preparing a bid and not be awarded a contract. Furthermore, we may not be given the opportunity to comment on the proposed terms of the bid, and it is possible that a bid may be tailored to meet the specifications of a competitor. Our failure to receive contracts on which we bid could significantly impair our ability to continue in business.
Because our revenue is generated pursuant to contracts that are limited to specific projects, our operating results in future periods may vary from quarter to quarter, and, as a result, we may fail to meet the expectations of our investors and analysts, which may cause our stock price to fluctuate or decline.
Because our business is based upon manufacturing products pursuant to purchase orders, we need to generate new business on a continuing basis. To the extent that we do not have new contracts in place when we complete our work pursuant to existing contracts, our revenue may decline until and unless we generate revenue from new contracts. Furthermore, changes in contracts also affect our quarterly results. Our revenue in the quarter ended June 30, 2006 was affected by the termination of one contract after the delivery of the initial unit and a delay in delivery under a second contract as a result of a change in the customer's drawings. These changes resulted in a decline in revenue from the first quarter of the prior year and a loss for the quarter. As a result, our revenue and operating results have fluctuated from quarter to quarter significantly in the past, and such fluctuations may continue in the future. A substantial portion of our operating expenses is related to personnel costs, depreciation and rent which cannot be adjusted quickly and, therefore, cannot be easily reduced in response to lower revenue levels or changes in client requirements. Due to these factors and the other risks discussed in this prospectus, you should not rely on period-to-period comparisons of our results of operations as an indication of future performance. These factors could cause the market price of our stock to fluctuate substantially.
Our failure to meet our customers' requirement could result in decreased revenue, increased costs and negative publicity.
Our products require the precision manufacturing of products to very exacting specifications which are required in the industries to which we market our services. Our failure to meet these specifications could result in both cost overruns on a particular contract and a loss of our reputation, which would significantly impair our ability to generate contracts.
As a government subcontractor we are subject to government procurement regulations.
We must comply with complex procurement laws and regulations, including the provisions of the procurement regulations that provide for renegotiation and termination for the convenience of the government. Since we are not a prime contractor, any termination or modification of the prime contract may result in a change in our contract with the prime contractor.
Our business may be impacted in the event of a default by an affiliate under a mortgage relating to the real property leased by us.
In connection with the reverse acquisition, we sold our real estate to WM Realty Management LLC, an affiliated entity which is a special purpose entity formed to purchase and obtain financing for our real property. The purchase of the real property was financed by a six-month mortgage given to a non-affiliated third party. The mortgage note was initially due in August 2006 and was extended until September 1, 2006 with the right to extend for up to two additional one-month periods. Any default by the affiliated entity under its mortgage, including its failure to replace the current lender prior to the maturity date, could result in an increase in our rental as well as a foreclosure under the mortgage. Any foreclosure of the mortgage could impair our ability to obtain bank financing and could adversely affect our business and our credit. Further, since the affiliated entity's operations are included in our consolidated financial statements, any default by the affiliate would be reflected as a default in our financial statements even though we do not control the affiliate.
We may not be able to continue to grow through acquisitions.
An important part of our growth strategy is to expand our business and to acquire other businesses, which may or may not be related to our current businesses. 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. To the extent that we require cash, we may have to borrow the funds or sell equity securities. The issuance of equity, if available, 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 prospectus, we do not have any agreement or understanding, either formal or informal, as to any acquisition.
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:
o the difficulty of integrating acquired products, services or operations;
o the potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
o the difficulty of incorporating acquired rights or products into our existing business;
o difficulties in disposing of the excess or idle facilities of an acquired company or business and expenses in maintaining such facilities;
o difficulties in maintaining uniform standards, controls, procedures and policies;
o the potential impairment of relationships with employees and customers as a result of any integration of new management personnel;
o 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;
o the effect of any government regulations which relate to the business acquired;
o 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.
Risks Related to our Common Stock and the Market for our Common Stock.
The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.
Our certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors has and in the future may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any new series of preferred stock and the certificate of designation relating to the series A preferred stock restricts our ability to issue additional series of preferred stock, we may issue such shares in the future. Without the consent of the holders of 75% of the outstanding shares of series A preferred stock, we may not alter or change adversely the rights of the holders of the series A preferred stock or increase the number of authorized shares of series A preferred stock, create a class of stock which is senior to or on a parity with the series A preferred stock, amend our certificate of incorporation in breach of these provisions or agree to any of the foregoing.
The issuance of shares through our stock compensation and incentive plans may dilute the value of existing stockholders.
We may use stock options, stock grants and other equity-based incentives, to provide motivation and compensation to our officers, employees and key independent consultants. The award of any such incentives will result in an immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price.
Shares may be issued pursuant to our stock plans which may affect the market price of our common stock.
We may issue stock upon the exercise of options or pursuant to stock grants covering a total of 1,000,000 shares of common stock pursuant to our 2006 long-term incentive plan. We also intend to issue 133,000 shares of restricted stock to certain key employees. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our stock.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market as a result of Sarbanes-Oxley require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than necessary, we have not yet adopted all of these measures. We are not in compliance with requirements relating to the distribution of annual and interim reports, the holding of stockholders meetings and solicitation of proxies for such meeting and requirements for stockholder approval for certain corporate actions, including the issuance of common stock. Thus, there is no restriction on our issuing common stock or preferred stock without the consent of the holders of our common stock. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
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 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. Although we are not aware of anything that would impact our ability to maintain effective internal controls, we have not obtained an independent audit of our internal controls, and, as a result, we are not aware of any deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls requirements of Sarbanes Oxley, we may incur significant expenses in having our internal controls audited and in implementing any changes which are required.
Because of our cash requirements and restrictions in our preferred stock purchase agreement, we may be unable to pay dividends.
In view of the cash requirements of our business, we expect to use any cash flow generated by our business to finance our operations and growth. Further, we are prohibited from paying dividends on our common stock while the series A preferred stock is outstanding.
Because there is no public market for our common stock, you may have difficulty selling common stock that you own.
Although we are registered pursuant to the Securities Exchange Act of 1934, we have approximately 55 stockholders and there is no public market for our common stock. None of the presently outstanding shares of common stock may be sold except pursuant to an effective registration statement. We have filed a registration statement to enable our stockholders to sell their shares. Neither the filing nor the effectiveness of the registration statement will assure a public market for our common stock. Accordingly we cannot assure you that there will be any public market for our common stock.
Because we may be subject to the "penny stock" rules, you may have difficulty in selling our common stock.
If a public market develops for our common stock and if our stock price is less than $5.00 per share, our stock would 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. 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:
o Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
o Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
o "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
o Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
o 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 laws 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, we may not have the benefit of this safe harbor protection in the event of any claim that the material provided by us, including this prospectus, 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.
Our stock price may be affected by our failure to meet projections and estimates of earnings developed either by us or by independent securities analysts.
Although we do not make projections relating to our future operating results, our operating results may fall below the expectations of securities analysts and investors. In this event, the market price of our common stock would likely be materially adversely affected.
We may be required to pay liquidated damages because the registration statement of which this prospectus is a part was not declared effective in a timely manner and if we do not maintain a board consisting of a majority of independent directors.
The registration rights agreement which we executed in connection with the February 2006 private placement required us to file a registration statement by April 25, 2006 and to have the registration statement declared effective by the SEC by August 23, 2006. If we fail to meet either deadline, we are required to issue 2,540 shares of series A preferred stock to the investors for each day that we fail to meet either of the scheduled date or if we fail to keep the registration statement effective thereafter up to a maximum of 1,400,000 shares. Although we filed the initial registration on time, we cannot give any assurance that the registration statement will be declared effective by August 23, 2006.
The purchase agreement relating to the February 2006 private placement requires us to maintain a board of directors on which a majority of directors are independent directors and an audit committee composed solely of independent directors and the compensation committee with have a majority of independent directors. Although we presently meet these requirements, our failure to continue to meet these requirements could result in our payment of liquidated damages that could be payable in cash or by the issuance of additional shares of series A preferred stock, as the investors shall determine. Our maximum liability under this provision is $396,000.
Because the holder of our warrants have cashless exercise rights, we may not receive proceeds from the exercise of the outstanding warrants if the underlying shares are not registered.
The holders of our warrants have cashless exercise rights, which provide them with the ability to receive common stock with a value equal to the appreciation in the stock price over the exercise price of the warrants being exercised. This right is not exercisable during the first six months that the warrant is outstanding and thereafter if the underlying shares are subject to an effective registration statement. The six month period ends on August 24, 2006, and, if the registration statement of which this prospectus is a part is not declared effective by August 24, 2006, the holders have the cashless registration rights until the effective date of the registration statement and thereafter if the warrants are not subject to a current and effective registration statement. To the extent that the holders of the warrants exercise this right, we will not receive proceeds from such exercise.
The issuance and sale of the registered common stock could result in a change of control.
If we issue all of the 20,301,427 shares issuable upon conversion of the series A preferred stock and exercise of the warrants, the 20,401,527 shares of common stock offered by the selling stockholders would constitute approximately 67% of our then outstanding common stock. The percentage would increase to the extent that we are required to issue any additional shares of common stock become upon conversion of the series A preferred stock pursuant to the anti-dilution and adjustment provisions. Any sale of all or a significant percentage of those shares to a person or group could result in a change of control.
FORWARD-LOOKING STATEMENTS
Statements in this prospectus may be "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our ability to generate business on an on-going business, to receive contract awards from the competitive bidding process, maintain standards to enable us to manufacture products to exacting specifications, enter new markets for our services, market and customer acceptance, our ability to raise any financing which we may require for our operations, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling stockholders of their common stock. If the selling stockholders exercise any warrants, we will receive the amount of the exercise price. The maximum total exercise price is approximately $6.8 million, which we would receive only if all of the warrants were exercised at their present exercise prices of $.485 per share as to warrants to purchase 5,610,000 shares and $.727 per share as to warrants to purchase 5,610,000 shares. Any proceeds which we receive from the exercise of the warrants would be used for working capital and general corporate purposes. In the event that we do not reach the required level of EBITDA per share for the year ended March 31, 2007, the exercise prices of the warrants would be reduced by up to 15%, and the total proceeds which we would receive upon exercise of all of the warrants could be reduced by as much as approximately $1.0 million. We cannot assure you that any of the warrants will be exercised.
Further, the warrants include cashless exercise provisions which, if exercised, would result in the issuance of shares of common stock equal to the value the appreciation of the warrants without payment of any cash consideration. These rights are only exercisable after six months from the date of issuance (February 24, 2006) and only if the underlying shares are not subject to an effective registration statement.
There are presently outstanding 10,054,000 shares of common stock. If all of the shares of series A preferred stock are converted and all of the warrants are exercised, there will be 30,355,527 shares of common stock outstanding, resulting in significant dilution to our stockholders.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the number of shares of common stock owned beneficially by the selling stockholders as of August 15, 2006, the number of shares of our common stock that may be offered by the selling stockholders pursuant to this prospectus, the number of shares owned by the selling stockholders after completion of the offering. No selling stockholder will own any shares of our outstanding common stock upon completion of the offering. The table and the other information contained under the captions "Selling Stockholders" and "Plan of Distribution" has been prepared based upon information furnished to us by or on behalf of the selling stockholders.
Shares Beneficially Shares Being
Name Owned Sold
---- ------------------- ------------
Barron Partners, LP(1) 20,301,527 20,301,527
Capital Markets Advisory Group, LLC(2) 72,000 72,000
Mark Allen 20,000 20,000
Nelson Broms 200 200
Pearl Broms 200 200
CFO Managed Fund I, LLC(3) 200 200
Jeffrey Hicks 200 200
Anna Crawford 200 200
Christopher Toppin 200 200
James McKeever 200 200
Antonio A. Yenidjeian 200 200
Stephen Hieber 200 200
Susan Isley 200 200
Gina Pacific 200 200
Joanne Leftwich 200 200
Emilia P. Cantelio 200 200
Mary Ellen Schloth 200 200
Brenda Garzi 200 200
Joseph Garzi 200 200
Gabrielle Guttman 200 200
Brittany Moss 200 200
Jennifer Rasmussen 200 200
Brooke Rodgerson 200 200
John Rodgerson 200 200
Erika Magnussen 200 200
Zoe Hicks 200 200
Ellen Hicks 200 200
Carol Hicks 200 200
Bradley Hicks 200 200
Mary Hicks 200 200
Taylor Hicks 200 200
Jonathan Hicks 200 200
Lori Cipot 200 200
Tonya Toriari 200 200
Sarah Licata 200 200
Debra Case 200 200
Claire Byl 200 200
Kendall Byl 200 200
Tracy Byl 200 200
Michael Byl(4) 200 200
Jean McKeever 200 200
Larry Ditkoff 200 200
Henry Sargent 200 200
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(1) Mr. Andrew B. Worden, president of the general partner of Barron Partners, has sole voting and dispositive power over the shares beneficially owned by Barron Partners.
(2) Mr. Stephen Hicks has sole voting and dispositive power over the shares beneficially owned by Capital Markets. Although Capital Markets is not a broker-dealer, it is an affiliate of a broker dealer in that Mr. Hicks has a voting and dispositive control of securities owned by Capital Markets and Southridge Investment Group, LLC, a broker-dealer.
(3) Mr. William Schloth has sole voting and dispositive power over the shares beneficially owned by CFO Managed Fund I LLC.
(4) Mr. Byl is president of Southridge Investment Group, LLC, a broker-dealer.
None of the selling stockholders has, or within the past three years has had, any position, office or material relationship with us or any of our predecessors or affiliates, except as follows: In connection with our organization in February 2005, we issued 1,000,000 shares of common stock to Capital Markets for $100.00 and 20,000 shares of common stock to Mark Allen for $2.00. In February 2006, in connection with the reverse acquisition, we purchased 928,000 shares of common stock from Capital Markets for $160,339 and paid $39,661 of debt to Capital Markets. Mr. Allen was president and director of Lounsberry from its organization until the reverse acquisition in February 2006.
The selling stockholders acquired their shares in private placements in 2005 and 2006.
On February 24, 2006, we entered into a preferred stock purchase agreement with Barron Partners LP, pursuant to which we sold to Barron Partners, for $2,200,000, 7,719,250 shares of series A preferred stock, and five-year warrants to purchase an aggregate of 5,600,000 shares of common stock at $.57 per share and 5,600,000 shares of commons stock at $.855 per share. The series A preferred stock was initially convertible into 7,719,250 shares of common stock, subject to adjustment. Because our EBITDA for the year ended March 31, 2006 was less than $.04613 per share, (i) the conversion price of the series A preferred stock reduced from $.285 to $.24225, a 15% reduction, with the result that the series A convertible preferred stock became convertible into 9,081,527 shares of common stock, and (ii) the exercise prices of the warrants were reduced by 15% -- from $.57 to $.4845 and from $.855 to $.7268.
The conversion rate of the series A preferred stock and the exercise prices of the warrants are subject to further adjustment if our EBITDA per share, on a fully-diluted basis, is less than $.08568 per share for the year ended March 31, 2007, based on the percentage shortfall from $.08568 per share, up to a maximum reduction of 15%. The adjustment could result in an increase in the maximum number of shares of common stock being issued upon conversion of the series A preferred stock from 9,081,527 to 10,684,150 shares of common stock and a further reduction in the exercise price of the warrants from $.4845 to $.4118 and from $.7268 to $.6177 per share.
The shares of common stock being offered by Barron Partners represent the shares of common stock issuable upon conversion of the series A preferred stock and warrants that were issued in the February 2006 private placement.
The purchase agreement, the certificate of designation relating to the series A preferred stock and the warrants all provide that the preferred stock cannot be converted and the warrant cannot be exercised to the extent that the number of shares of common stock held by the selling stockholder and his affiliates after such conversion or exercise would exceed 4.9% of the outstanding common stock. Beneficial ownership is determined in the manner provided in Section 13(d) of the Securities Exchange Act of 1934 and Regulation 13d-3 of the SEC thereunder. This provision, which cannot be modified, limits the ability of the holders of the series A preferred stock and warrants to convert their shares of series A preferred stock and exercise their warrants. Based on our outstanding common stock on April 20, 2006, Barron Partners would not be able to convert series A preferred stock or exercise warrants for more than 378,234 shares of common stock. As the number of shares of common stock increases, whether upon conversion of series A preferred stock, exercise of warrants or for any other reason, the number of shares which could be issued under this limitation will increase. In the event that any holder of the series A preferred stock or the warrants issued in the February 2006 private placement transfers shares of series A preferred stock or warrants, the transferee, if it is not an affiliate of the transferor, would be subject to a separate 4.9% limitation.
Pursuant to the preferred stock purchase agreement relating to the issuance of the series A preferred stock and warrants in the February 2006 private placement:
o We and Barron Partners entered into a registration rights agreement pursuant to which we agreed to file, within 60 days after the closing, the registration statement of which this prospectus is a part, and have the registration statement declared effective within 120 days thereafter, which is August 24, 2006. We will be required to issue 2,540 shares of series A preferred stock for each day of the delay in filing or and each date after the required effective date up to a maximum of 1.4 million shares of series A preferred stock. Barron Partners has agreed to conditionally waive any liquidated damages that accrue through October 31, 2006, if either (a) the real estate which is owned by a related party and the related mortgage liability but which are required to be reflected as our assets and liability under generally accepted accounting principles is removed from our books by October 31, 2006, or (b) if, by October 31, 2006, we receive and exercise an option to purchase the real estate for $3.2 million plus out-of-pocket costs incurred in refinancing the mortgage. See "Certain Relationships and Related Transactions." Since the registration statement did not become effective by August 24, 2006, unless one of the conditions is met, we will be required to issue additional shares of Series A Preferred Stock as liquidated damages.
o The investors have the right to participate in any future financing.
o We are required to maintain a majority of independent directors and independent audit and compensation committees.
o With certain limited exceptions, if we issue stock at a purchase price or warrants or convertible securities at an exercise or conversion price which is less than the conversion price of the series A preferred stock or the exercise price of the warrants, the conversion price and exercise price will be reduced to such lower price.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions or by gift. These sales may be made at fixed or negotiated prices. Our common stock is not presently traded on any market, and none of our outstanding shares may be sold except pursuant to a registration statement. As a result, it will be necessary for the selling stockholders to sell a portion of their shares if a market is to be created. The selling stockholders cannot predict the extent to which a market will develop or, if a market develops, what the price of our common stock will be. Because there is no trading market in our common stock as of the date of this prospectus, the selling stockholders will sell shares at prices ranging from $.75 to $1.50 per share until a public market develops for the common stock. Once a public market develops for the common stock, the selling stockholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices. Subject to the foregoing, the selling stockholders may use any one or more of the following methods when selling or otherwise transferring shares:
o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
o block trades in which a broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o sales to a broker-dealer as principal and the resale by the broker-dealer of the shares for its account;
o an exchange distribution in accordance with the rules of the applicable exchange;
o privately negotiated transactions, including gifts;
o covering short sales made after the date of this prospectus.
o pursuant to an arrangement or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method of sale permitted pursuant to applicable: law.
Barron Partners may also sell shares issuable upon conversion of the series A preferred stock pursuant to Rule 144 or Rule 144A under the Securities Act, if available, rather than pursuant to this prospectus, commencing February 24, 2007.
The SEC has taken the position that any shares that are acquired from a shell company that is not engaged in any business activities cannot be sold pursuant to Rule 144 or 144A and can only be sold pursuant to a registration statement. Since the selling stockholders, other than Barron Partners, acquired their shares at a time that we were a so-called blank-check shell corporation, they are unable to sell their shares pursuant to Rule 144 or 144A and must sell their shares pursuant to this prospectus.
Because of the limitation whereby Barron Partners cannot hold more than 4.9% of our stock, there is a limit on the number of shares that Barron Partners may sell at any time.
See "Selling Stockholders" for information concerning the restriction on the right of the holders of the series A preferred stock and certain of the warrants to convert the shares of series A preferred stock and to exercise warrants if such conversion or exercise would result in the holder and his or its affiliates beneficially owning more than 4.9% of our common stock.
Broker-dealers engaged by the selling stockholders may arrange for other brokers dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
A selling stockholder may from time to time pledge or grant a security interest in some or all of the shares or common stock or warrant owned by them and, if the selling stockholder defaults in the performance of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling stockholders may, after the date of this prospectus, also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge their common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. In the event of a transfer by a selling stockholder of the series A preferred stock, warrants or the common stock issuable upon conversion or transfer the series A preferred stock or warrants other than a transfer pursuant to this prospectus or Rule 144 of the SEC, we may be required to amend or supplement this prospectus in order to name the transferee as a selling stockholder.
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.
Because the selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. Federal securities laws, including Regulation M, may restrict the timing of purchases and sales of our common stock by the selling stockholders and any other persons who are involved in the distribution of the shares of common stock pursuant to this prospectus.
If any broker-dealers act as underwriters in connection with the sale by the selling stockholder of their shares, it will be necessary for us to update this prospectus to provide information relating to such broker-dealers. In this connection, it will be necessary for us to file a supplement or a post-effective amendment to reflect, among other things, the identity of the broker-dealers acting as underwriters and the terms of the underwriting.
We are required to pay all fees and expenses incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no market for our common stock
As of July 31, 2006, we had approximately 55 record holders of our common stock.
We have not paid dividends on our common stock, and the terms of certificate of designation relating to the creation of the series A preferred stock prohibit us from paying dividends. We plan to retain future earnings, if any, for use in our business. We do not anticipate paying dividends on our common stock in the foreseeable future.
As of July 31, 2006, we had the following shares of common stock reserved for issuance:
o 9,081,527 shares issuable upon conversion of the series A preferred stock.
o 11,220,000 shares issuable upon exercise of the warrants issued to Barron Partners.
o 1,000,000 shares issuable upon exercise of stock options or other equity-based incentives pursuant to our 2006 long-term incentive plan, which is subject to stockholder approval. We intend to file a registration statement on Form S-8 with respect to the shares of common stock issuable pursuant to this plan.
o 13,000 shares to be issued as restricted stock grants to key employees.
No shares of common stock are presently saleable pursuant to Rule 144 and no shares of common stock may be sold pursuant to Rule 144 prior to February 24, 2007.
The agreement pursuant to which we issued 7,997,000 shares of common stock, as described in "Certain Relationships and Related Transactions," provides that these stockholders may not sell these shares for a period of twelve months following the closing. Thereafter, none of these stockholders shall sell more than 10% of his or her shares in the public market in the twelve-month period following the expiration of the lock-up period or more than an additional 10% of his shares during the following twelve-month period. Commencing January 31, 2007, the holders have demand and piggyback registration rights. The Company is not subject to any liquidated damages in the event that Company fails to satisfy its obligations to register the shares.
Pursuant to a subscription agreement, we sold 1,700,000 shares of common stock to an accredited investor for $500,000 on February 24, 2007. Commencing January 31, 2007, the investor has demand and piggyback registration rights. The Company is not subject to any liquidated damages in the event that Company fails to satisfy its obligations to register the shares.
Equity Compensation Plan Information
The following table summarizes the equity compensation plans under which our securities may be issued as of July 31, 2006.
Number of securities to be Weighted-average Number of securities
issued upon exercise of exercise price of remaining available for
outstanding options and outstanding options and future issuance under
Plan Category warrants warrants equity compensation plans
------------- -------------------------- ----------------------- -------------------------
Equity compensation plans approved by -0- -- --
security holders
Equity compensation plan not approved by 150,000 $.285 863,000
security holders
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The 2006 long-term incentive plan was approved by the board of directors, subject to stockholder approval, and the outstanding options are subject to stockholder approval of the plan. The plan has not yet been submitted to the stockholders for their approval.
See "Selling Stockholders" for information relating to the sale of unregistered securities during the year ended December 31, 2005.
On February 24, 2006, we entered into an agreement with Capital Markets, which was then our principal stockholder, pursuant to which we purchased 928,000 shares of common stock from Capital Markets for $160,339, and paid $39,661 of debt to Capital Markets, using the proceeds from the sale of series A preferred stock. The purchase was made contemporaneously with the acquisition of Ranor.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of the results of our operations and financial condition should be read in conjunction with our financial statements and the related notes, which appear elsewhere in this prospectus. The following discussion includes predictive statements. For a discussion of important factors that could cause actual results to differ from results discussed in the predictive statements, see "Forward Looking Statements."
Overview
We operate in one distinct business - fabrication, precision machining and engineering of metal products up to 100 tons. Most of the products are fabricated from raw metal plate or forgings. Materials used in the manufacturing of our products are either supplied by our customers or acquired from raw material suppliers we have worked with for many years. Our clients are generally in industries associated with the nuclear, aerospace, commercial and defense industries and national laboratories. Payment terms associated with each project often include progress payments and occasionally include deposits. Generally, payment terms are 30 to 45 days from the invoice date. Some of the work we perform for our customers is a part of government appropriation packages, and therefore, subject to the Miller Act, requiring the prime contractors (our customers) to pay all subcontractors under contracted purchase agreements first.
These products are manufactured for our clients under build-to-print agreements. Work is performed by our personnel under firm contracted purchase orders, for each project undertaken at the facility. Our work is contracted under terms that require down payments for the acquisition of materials. Additionally, depending on the length of a given project, some contracts require progress payments based on major milestones of work completed.
Ranor, together with its predecessor, has been in business since 1956. Ranor's predecessor was sold by its founders in 1999 to Standard Automotive Corporation through its subsidiary Critical Components Corporation. From June 1999 until August 2002, Ranor's predecessor, which was also named Ranor, was operated by Critical Components. In December 2001, Standard filed for protection under the Bankruptcy Code and Ranor's predecessor operated under Chapter 11 until on or about the quarter ended June 30, 2002. Subsequently, all Standard's holdings were sold. In 2002, Ranor acquired the assets of its predecessor from the bankruptcy estate. As a result of the bankruptcy of Standard's subsidiary, customers were initially reluctant to use our services. In recent years, as both the market for our services has improved and we demonstrated to our customers that we have both the financial and manufacturing ability to meet their specifications and time requirements, we have been able to improve both our revenue and our gross margin, although not necessarily on a quarter to quarter basis.
In recent years, the capital goods market experienced a slow down due to both the industry over-build of product in the late 1990's and the events of September 11, 2001. As noted in the preceding paragraph, the development of our business was further affected by the bankruptcy of Standard. However, based on recent project inquiries, recent projects awarded and current customer demands for our services, we believe the market has rebounded and that we are finding increased acceptance of our services.
A significant portion of our revenue is generated by a small number of customers who differ from period to period as we complete work on projects or commence new projects for other customers. In the quarter ended June 30, 2006, two customers accounted for approximately 38% of our revenue. year ended March 31, 2006, two customers accounted for approximately 28% of our revenue. The two largest customers for the quarter ended June 30, 2006 were not 10% customers for the year ended March 31, 2006, and the two largest customers for the year ended March 31, 2006 were not 10% customers for the year ended March 31, 2005. Our contracts generally result from negotiation and from bids made pursuant to a request for proposal. Our ability to receive contract awards is dependent upon the contracting party's perception of such factors as our ability to perform on time, our history of performance and our financial condition. We believe that there is an increasing demand for our services and we see that demand increasing at least in the near term, notwithstanding the decline in revenue from the quarter ended June 30, 2005 to the quarter ended June 30, 2006.
Because our revenues are derived from the sale of goods manufactured pursuant to a contract, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. The products that we produce are generally for one or a limited number of units, and once we complete our work on a contract, we generally do not receive subsequent orders for the same product. We receive contracts both by negotiation and through bids. When we bid for a contract, we may not receive the contract award. Thus, there may be a time lag between our completion of one contract and commencement of work on another contract. During this period, we will continue to incur our overhead expense but with lower revenue. Furthermore, changes in the scope of a contract may impact the revenue we receive under the contract and the allocation of manpower. During the quarter ended June 30, 2006, we suffered a decline in revenue as a result of changes in the scope and timing of two contracts. On one contract, the scope of the work was affected by a partial termination of the contract resulting from design problems by the customer that were discovered after the delivery of the first unit of product. On the second contract the customer delayed the project to make changes in the final drawing relating to the products being manufactured and there were delays in our receipt of raw materials supplied by the customer. We expect to recognize revenue from this project in a subject quarter of the current fiscal year. We have received a subsequent order for this project following the customer's revision of the design.
Although we provide manufacturing services for large governmental programs, we usually do not work directly for agencies of the United States government. Rather, we perform our services for large governmental contractors and large utility companies. However, our business is dependent in part on the continuation of governmental programs which require the services we provide.
We lease our facilities from WM Realty Management LLC, which is an affiliated entity, to whom we sold the real property in February 2006. Because WM Realty Management is an affiliated entity and our lease with WM Realty Management is the sole source of funding for WM Realty Management, under generally accepted accounting principles, the real estate is treated as being owned by us and WM Realty Management's mortgage obligations are treated as our obligations. See "Variable Interest Entity." Our financial condition, principally our working capital, is affected by the terms of WM Realty Management's mortgage. WM Realty Management financed its purchase of the property with a six-month mortgage, which initially matured on August 1, 2006. WM Realty Management has obtained a one-month extension and the right to two additional one-month extensions. Since the mortgage obligation is a short-term liability of $3,200,000 at June 30, 2006 and $3,300,000 at March 31, 2006, our working capital is affected by this mortgage, even though we have no financial obligation under the mortgage, our only obligation being our lease obligations. As a result, we had a deficiency in working capital of $35,063 at June 30, 2006. We have been advised by WM Realty Management that it is seeking to replace its current mortgage with long-term financing. To the extent that WM Realty Management is successful in obtaining long-term financing, our working capital will improve.
Critical Accounting Policies
The preparation of the Company's financial statements conform to the generally accepted accounting principles in the United States and requires our management to make assumptions, estimates and judgments that effect the amounts reported in the financial statements, including all notes thereto, and related disclosures of commitments and contingencies, if any. We rely on historical experience and other assumptions we believe to be reasonable in making our estimates. Actual financial results of the operations could differ materially from such estimates. There have been no significant changes in the assumptions, estimates and judgments used in the preparation of our audited 2006 financial statements from the assumptions, estimates and judgments used in the preparation of our 2005 audited financial statements.
Revenue Recognition and Costs Incurred
We derive revenues from (i) the fabrication of large metal components for our customers; (ii) the precision machining of such large metal components, including incidental engineering services, and (iii) the installation of such components at the customers' locations when the scope of a given project requires such installations.
Revenue and costs are recognized on the units of delivery method. This method recognizes as revenue the contract price of units of the product delivered during each period and the costs allocable to the delivered units as the cost of earned revenue. Costs allocable to undelivered units are reported in the balance sheet as inventory. Amounts in excess of agreed upon contract price for customer directed changes, constructive changes, customer delays or other causes of additional contract costs are recognized in contract value if it is probable that a claim for such amounts will result in additional revenue and the amounts can be reasonably estimated. Revisions in cost and profit estimates are reflected in the period in which the facts requiring the revision become known and are estimable.
Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined and are reflected as reductions of the carrying value of the costs incurred on uncompleted contracts. Costs incurred on uncompleted contracts consist of labor, overhead, and materials. Work in process is stated at the lower of cost or market and reflect accrued losses, if required, on uncompleted contracts.
Variable Interest Entity
We have has consolidated a variable interest entity that entered into a sale and leaseback contract with us to conform to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). We have also adopted the revision to FIN 46, FIN 46R, which clarified certain provisions of the original interpretation and exempted certain entities from its requirements.
Income Taxes
Our fiscal year ends on March 31st. We provide for federal and state income taxes currently payable, as well as those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable and or settled. The effect of the change in the tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income taxes to the amount that is more likely than not to be realized. As of March 31, 2005, we had net operating loss carry-forwards approximating $3,470,000. Pursuant to Section 382 of the Internal Revenue Code, utilization of these losses may be limited in the event of a change in control, as defined in the Treasury Regulations. The change in ownership resulting from our acquisition of Ranor will limit our ability to use the loss carryforwards.
Reverse Acquisition
On February 24, 2006, we acquired all of the capital stock of Ranor in a transaction which is accounted for as a reverse acquisition, with Ranor being treated as the acquiring company for accounting purposes and the transaction being treated as a recapitalization. As a result, the costs of the acquisition are charged to capital. The results of operations and cash flow relating to periods prior to February 24, 2006 reflect the results of operations and cash flows of Ranor.
Non-GAAP Information
We refer to EBITDA, which is a non-GAAP performance measure, because our agreement with Barron Partners uses EBITDA as a measure for determining whether there is an adjustment in the conversion price of the series A preferred stock or the exercise price of the warrants. EBITDA is determined by adding to net income the amount deducted for interest, taxes, depreciation and amortization. The following table shows the relationship between net income and EBITDA for the years ended March 31, 2006 and 2005 (dollars in thousands).
Three Months Ended Year ended
June 30, March 31,
------------------ --------------------
2006 2005 2006 2005
---- ---- ------ ------
Net (loss) (75) 128 (428) (1,144)
Plus interest (net) 183 280 1,098 1,113
Plus taxes -- 3 42 4
Plus depreciation and amortization 256 103 472 408
EBITDA 364 514 1,184 381
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New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of Accounting Research Bulletin ("ARB") No. 43, Chapter 4." The amendments made by Statement 151 clarify that, abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during the fiscal years beginning after June 15, 2005.
In December 2004, The FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). The amendments made by SFAS 153 as based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset should be based on the recorded amount of the asset relinquished. Opinion 29 provided for an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The Board believes that exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carry over basis. By focusing the exception on exchanges that lack commercial substance, the Board believes this Statement produces financial reporting that more faithfully represents the economics of the transaction. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provision of this statement shall be applied prospectively.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment." Statement 123R will provide investors and other users of financial statements with more complete financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement 123R covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans. Statement 123R replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities that are small business issuers will be required to apply Statement 123R as of the first interim or annual reporting period of the first fiscal year that begins after December 15, 2005. Prior to the reverse acquisition, we did not grant any options or equity-based incentives. To the extent that we grant such options or other equity-based incentives, the value thereof will be included as a general and administrative expense.
We expect that the adoption of the foregoing new statements will not have a significant impact on our financial statements.
Results of operations
The following table sets forth information from our statements of operations for the three months ended June 30, 2006 and 2005 and the year ended March 31, 2006 and 2005, in dollars and as a percentage of revenue (dollars in thousands):
(Dollars in thousands)
-----------------------------------------------------------------------
Three Months Ended June 30, Year Ended March 31,
--------------------------------- -----------------------------------
2006 2005 2006 2005
--------------- --------------- ---------------- ----------------
Net sales $4,199 100.00% $5,417 100.00% $20,266 100.00% $14,270 100.00%
Cost of sales 3,410 81.20% 4,504 83.10% 17,633 87.00% 12,632 88.52%
Gross Profit 789 18.78% 913 16.86% 2,634 13.00% 1,634 11.48%
Selling, general and
administrative 681 16.22% 505 9.32% 1,905 9.41% 1,665 11.67%
Income (loss) from
operations 108 2.56% 409 7.54% 726 3.58% (27) -0.19%
Interest Expense (183) -4.36% (280) -5.17% (1,108) 5.47% (1,121) -7.86%
Other income (loss) -- .01% 3 0.06% (4) 0.02% 8 0.06%
Loss before income taxes (75) -1.80% 131 2.42% (386) -1.90% (1,140) -7.99%
Provision for income
taxes -- .00% 3 0.06% 42 0.21% 4 0.03%
Net loss (75) -1.80% 128 2.37% (428) -2.11% (1,144) -8.02%
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Three Months Ended June 30, 2006 and 2005
Sales in the quarter ended June 30, 2006 decreased $1,218,308, or 29%, to $4,198,530, compared to $5,416,838 for the quarter ended June 30, 2005. This decrease in sales reflected changes in two contracts. In one contract, after the delivery of the initial product, the customer discovered problems resulting from the design of the product by the customer. As a result, the customer postponed the project until the product was redesigned. The impact of this termination was a $903,000 loss in revenue for the quarter, which represents the revenue which we would have recognized if we had delivered the units of product which had been scheduled for the quarter. Another customer delayed a project in order to revise its drawing for the final phase of the project. In addition, the project required raw materials from the customer, and these materials were supplied late. The impact of this delay was $434,000 loss in revenue for the quarter, which we expect to recognize in a subsequent quarter.
Our cost of sales for the quarter ended June 30, 2006 decreased $1,093,681, to $3,410,005, a decrease of 32%, from $4,503,686 for quarter ended June 30, 2005. This decrease was greater than the decrease in sales, resulting in an improvement in the gross margin from 16.86% to 18.78%. In the quarter ended June 30, 2005, we carried more employees than we required under our then current contracts. We have reduced our staff, which has enabled us to operate more efficiently.
Selling, administrative and other expenses for quarter ended June 30, 2006 were $680,926, compared to $504,639 for quarter ended June 30, 2005, an increase of $176,287, or 26%. Significant components of selling, general and other expenses for June 30, 2006 include $265,542 of salaries and related payroll taxes, $31,871 of travel and entertainment expenses and $99,908 for legal and accounting fees, compared with $366,137 of salaries and related payroll taxes, $21,581 of travel and entertainment expenses and $68,432 for legal and accounting fees for quarter ended June 30, 2005. Amortization expenses for quarter ended June 30, 2006 were $150,477. The expenses relate to the current liability for the mortgage on the real estate on which our facilities are located. We did not incur any amortization expenses in the quarter ended June 30, 2006.
Interest expense for the quarter ended June 30, 2006 was $183,239 compared to $280,300 for the quarter ended June 30, 2005. The decrease in interest expense reflects a decrease in debt as a result of the payment of debt to related parties, which was paid on February 24, 2006. The outstanding debt to the related parties was approximately $8,000,000 throughout fiscal 2005 and during fiscal 2006 through February 24, 2006. At June 30, 2006, our debt was $7,075,119, including the $3,200,000 mortgage debt of WM Realty Management.
As a result of the foregoing, our net loss for the quarter ended June 30, 2006 period was $75,428, or $.05 per share (basic and diluted), as compared to net income of $128,127, or $.02 per share (basic and diluted), for quarter ended June 30, 2005.
Years Ended March 31, 2006 and 2005
Sales in the year ended March 31, 2006 ("fiscal 2006") increased $5,996,420, or 42%, to $20,266,402, compared to $14,269,982 for the year ended March 31, 2005 ("fiscal 2005"). This increase reflected both an improvement in the market for our services following a downturn in this market in response to the events of September 11, 2001 and a continued acceptance of us as a supplier following the bankruptcy of Standard Automotive.
Our cost of sales for the fiscal 2006 increased $5,000,936, to $17,632,576, an increase of 40%, from $12,631,640 for fiscal 2005. This increase was less than the increase in sales, resulting in an improvement in the gross margin from 11.4% to 13%. The increase resulted from more efficient operations. In fiscal 2005, we were not able to utilize our manufacturing personnel efficiently. We were staffed to manufacture more products than we had orders but retained the skilled workforce and had them work on indirect projects. As a result of our better utilization of our manufacturing personnel in fiscal 2006, our indirect labor, as a percentage of sales, decreased from 13.1% to 10.3%.
Selling, administrative and other expenses for fiscal 2006 were $1,907,746, compared to $1,664,848 for fiscal 2005, an increase of $242,898, or 15%. Significant components of selling, general and other expenses for fiscal 2006 include $1,402,059 of salaries and related payroll taxes, $64,099 of travel and entertainment expenses and $79,787 for legal and accounting fees, compared with $1,203,273 of salaries and related payroll taxes, $32,748 of travel and entertainment expenses and $61,607 for legal and accounting fees for fiscal 2005.
Interest expense during fiscal 2006 was $1,107,902 compared to $1,121,487 for fiscal 2005. The decrease in interest expense reflects a decrease in debt as a result of the payment of debt to related parties, which was paid on February 24, 2006. The outstanding debt to the related parties was approximately $8,000,000 throughout fiscal 2005 and during fiscal 2006 through February 24, 2006. The interest charge for fiscal 2006 includes interest of $222,944 payable on debt to the former preferred stockholders which was cancelled in connection with the reverse acquisition. At March 31, 2006, our debt was $7,319,401.
As a result of the foregoing, our net loss for fiscal 2006 period was $428,148, or $.05 per share (basic and diluted), as compared to a loss of $1,143,800, or $.14 per share (basic and diluted), for fiscal 2005.
Liquidity and Capital Resources
At June 30, 2006, we had a deficiency in working capital of $35,063, as compared with working capital of $91,264 at March 31, 2006. Our cash position was $679,845 at June 30, 2006 and $676,553 at July 31, 2006. Our working capital reflects a $3,200,000 current liability representing the mortgage debt by WM Realty Management LLC under its mortgage. This mortgage was initially due on August 1, 2006, and WM Realty Management has obtained a one-month extension with the right to two additional one-month extensions. Pursuant to FASB Interpretation No. 46, we are required to include the real property that we sold to WM Realty Management at our historical cost and record the liability as a current liability on our balance sheet. We understand that WM Realty Management is seeking to refinance the mortgage. If the mortgage is refinanced pursuant to a long-term mortgage, the long-term portion of the mortgage will be treated as a long-term liability which will result in an improvement in our working capital.
On February 2006, in connection with the reverse acquisition, the purchase price we paid was $9.25 million plus an amount equal to Ranor's cash position in excess of $250,000, which was $813,000, less a closing adjustment of $54,000, less the principal and interest on notes held by Ranor's preferred stockholders, which was paid at closing. We also used $240,000 of Ranor's remaining cash as part of the amount due to the former stockholders/noteholders. These payments were made by Ranor, which reduced its cash balance to $10,000. We paid a total of $10,063,000 to pay the notes to the former Ranor stockholders, as well as the purchase price for the shares of preferred stock and common stock. Of this amount, $8,000,000 was paid on account of the principal of the notes and $975,000 on account of interest on the notes. We also deposited $925,000 as an escrow reserve for any potential liability that the sellers may have for breach of their representation and warranties. The total amount allocated to the capital stock was $163,000, of which $10,000 was paid to the stockholders and $153,000 was applied to the stockholder's expenses. In addition, any money paid to the stockholders from the escrow will be allocated to purchase price of the preferred stock.
We financed the payments to the former Ranor stockholders and note holders, together with our closing costs, from the following sources:
o $2,200,000 from the sale of series A preferred stock and warrants to Barron Partners, pursuant to a securities purchase agreement.
o $500,000 from the sale of common stock to an investor pursuant to a subscription agreement.
o $4,000,000 from a bank loan.
o $3,000,000 from the sale of real estate to WM Realty Management, an affiliated party, which financed its purchase with a $3,300,000 mortgage loan.
o $1,053,000 from Ranor's cash balance on the closing date.
Although we incurred $4,000,000 in bank debt and, pursuant to FIN 46, the $3,200,000 in mortgage debt which is owed by a related party special purpose entity, the former debt to the related parties in the amount of approximately $10,000,000 was settled for payments totaling $8,975,000 of which $8,000,000 was principal and $975,500 was interest. In addition, interest of $222,944 to the former stockholders was cancelled. The cancellation is reflected as a credit to capital in excess of par value. The outstanding debt prior to the reverse acquisition included $2,000,000 of mandatory redeemable preferred stock which was reflected as debt at March 31, 2005.
The loan and security agreement with Sovereign Bank, pursuant to which we borrowed $4,000,000 on a term loan basis and have a $1,000,000 revolving credit facility, requires Ranor to maintain a ratio of earnings available for fixed charges to fixed charges of at least 1.2 to 1, commencing June 30, 2006, and an interest coverage ratio of at least 2:1. The interest coverage ratio is the ratio of earnings before interest and taxes to current interest payments. The agreement also limits our capital expenditures to $500,000 per year. The note is payable in 28 quarterly installments of $142,847. The note bears interest at 9% per annum through December 31, 2010 and at prime plus 1 1/2% thereafter. The revolving note bears interest at prime plus 1 1/2%. At March 31, 2006 and June 30, 2006, there were no borrowings under the revolving note. At June 30, 2006 the principal balance due on our term loan to Sovereign Bank was$3,857,119.
The securities purchase agreement pursuant to which we sold the series A preferred stock and warrants to Barron Partners provides that, for two years after the closing, which is the period ending February 24, 2008, we will not incur indebtedness equal to more than three times EBITDA for the preceding four quarters. The agreement also gives Barron Partners a right of first refusal on future equity financings, which may affect our ability to raise funds from other sources if the need arises.
For the quarter ended June 30, 2006, we had cash flow from operations of $450,952, which is an improvement from the year ended March 31, 2006, in which we had negative cash flow from operations of $650,767. We attribute this improvement to our ability to operate more efficiently, which is reflected in our improved gross margin in the quarter ended June 30, 2006 notwithstanding a decline in revenue. However, as a result of the reverse acquisition, we have additional expenses resulting from being a public company and we pay annual compensation of $200,000 pursuant to a management agreement with Techprecision. Offsetting these cost increases is the elimination of compensation that was paid to the former stockholders of Ranor.
In the normal course of our business, we require funds to enable us to complete our contracts. We generally receive customer progress payments to purchase raw materials required for the contract, and fund our operations from working capital. Contemporaneously with the reverse acquisition, we entered into an agreement with Sovereign Bank pursuant to which we borrowed $4,000,000 on a term loan basis, and we obtained a $1,000,000 revolving credit facility. We used the net proceeds from the $4,000,000 term loan to pay a portion of our obligations to the former Ranor stockholders under the Ranor stock purchase agreement.
While we believe that the $1,000,000 revolving credit facility, which remained unused as of June 30, 2006, and our cash flow from our operations should be sufficient to enable us to satisfy our cash requirements at least through the end of fiscal 2007, it is possible that we may require additional funds. In the event that we make an acquisition, we may require additional financing for the acquisition. However, we do not have any current plans for any acquisition, and we cannot give any assurance that we will make any acquisition. We have no commitment from any party for additional funds; however, the terms of our agreement with Barron Partners, particularly Barron Partners' right of first refusal, may impair our ability to raise capital in the equity markets.
BUSINESS
We produce large metal fabrications and perform precision machining operations for large military, commercial, nuclear, shipbuilding, industrial, aerospace and alternative energy applications. Our principal services are large metal fabrications, machining and engineering. Each of our contracts covers a specific product. We fabricate nuclear grade steel casks, canisters and housings for the transportation and storage of radioactive materials; we produce large fabrications for Navy aircraft carriers, submarines and commercial vessels, and we manufactures pulp and paper machinery, gas turbine power generation equipment, oil refinery and utilities equipment and alternative energy products. We are one of two companies currently capable of machining one-piece aluminum domes to exact close tolerance specifications. We do not mass-produce any products or distribute such products on the open market.
We perform most of our service pursuant to "build to print" contracts, which means that we must manufacture products in accordance with very exacting specification. These contracts are generally awarded in a bidding process. Because of the nature of the products that we manufacture, there is a very low tolerance for error. We will also help our clients to develop their projects by providing engineering along with research and development services.
Products
All of our products are built pursuant to contracts. Because we have lifting capacity up to 100 tons, we have the ability to manufacture very large products that must be fabricated in a single piece. Because of the nature of our facility we can manufacture a wide range of products, and we do not have any typical products that we sell. The following are examples of recent manufacturing contracts and show the range of products that we have produced.
We manufactured, tested and installed a target chamber mirror structure installation for a national laboratory customer. This installation is used in the quest to understand nuclear fusion.
We produced the full-scale prototype of the first direct drive main propulsion engine that was selected for use on the DDX destroyer for one of our industrial customers.
We have been the sole source for a major defense contractor for the manufacture of housings for the defense contractor's sonar system. This system is currently being retro-fitted onto the Navy's fleet of nuclear submarines.
We presently provide fabricating and machining services to a division of another major defense contractor. We produce primary shield tank heads, sonar system pods and fairings, and a variety of other components.
One of our customers provides a complete nuclear waste storage system to commercial nuclear power plants. We manufacture lifting equipment for this company to use in the storage system.
Another customer is currently involved in a variety of commercial nuclear reactor repair and overhaul projects. We manufactured several components needed to support this work.
For a customer that manufactures machinery used to build solar panels for power generation, we manufacture critical components for this machinery.
Another customer manufactures machinery that produces plastic sheets which have a range of possible uses from garbage bags to covers for landfill projects. We fabricate components, and we machine large die sets for these machines.
Source of Supply
Our operations are partly dependent on the availability of raw materials. Since we manufacture products for our customers in accordance with their specific requirements, the raw materials we require vary from contract to contract. We have multi-year relationships with a number of our suppliers, but we do not have any long-term supply contracts with any suppliers. Rather, we purchase our raw materials pursuant to purchase orders that we place with our suppliers, based on the specific requirements for our contracts. We undertake projects that are metal fabrications and machining of various traditional and special alloys such as inconel, titanium and high tensile strength steels, and the customer frequently provides us with the raw material. We have worked with a number of different metal suppliers over the years to obtain these materials. Although some materials (due to their alloy compositions) require long lead times to obtain, we have never experienced a shortage of any of these materials.
Environmental Compliance
As a manufacturer, we are subject to compliance with federal, state and local environmental laws and regulations that involve the use, disposal and cleanup of substances regulated by those laws and we are subject to periodic inspections. In May 2004, we were requested to undertake a response and remedial action to cleanup environmental issues discovered during an onsite inspection by the Commonwealth of Massachusetts Office of Environmental Affairs. We signed a consent order in October 2004, paid a fine of $7,800 and proceeded to correct the deficiencies. The cost of environmental compliance was $86,975 for the year ended March 31, 2006 and $3,562 for the year ended March 31, 2005. In addition, we need to construct a shed to store scrap materials in order to protect the surrounding soil from any seepage. We estimate the cost of this construction at approximately $100,000.
In connection with the reverse acquisition, the former stockholders of Ranor made representations concerning, among other matters, Ranor's compliance with environmental law and regulations, and agreed to indemnify us for breaches of representations under the agreement. The agreement provides for a $925,000 escrow reserve to cover any damages that we may sustain as a result of breaches of the representations and warranties.
Marketing
A significant portion of our contracts result from the competitive bidding process, which are frequently limited to pre-qualified bidders. Most of our sales inquiries are from existing customers. We have a marketing team of six, including a sales manager and five technical personnel which markets our services as well as our qualifications to both existing and potential customers through personal contacts and trade shows. We also engage an independent sales representative.
Principal Customers
We do not have long-term contracts with any customer, and major contracts with a small number of customers account for a significant percentage of our revenue. Our customers include many of the major domestic defense and aerospace companies. Because our services are rendered pursuant to separate contracts for separate projects, our customer list changes significantly from year to year. Two different customers accounted for more than 10% of our revenue in each of the years ending March 31, 2006 and March 31, 2005. Our two largest customers for the year ended March 31, 2006 were a national laboratory, from which we recognized revenue of approximately $3.0 million (14.6% of revenue), and a defense contractor, from which we recognized revenue of approximately $2.6 million (12.9%). For the year ended March 31, 2005, we recognized revenue of approximately $2.7 million (18.8%) from a nuclear customer and approximately $1.6 million (11.0%) from a commercial customer.
Competition
We face competition from a number of domestic and foreign manufacturers. No one company dominates the industry, although many of our competitors are larger, better known and have greater resources then we. Since many of our contracts are awarded through a bidding process, our ability to win an award is dependent upon a number of factors, including the price and our ability to manufacture the products in accordance with specifications and the customer's time requirements, for which our reputation as a quality manufacturer is crucial. For certain products, being a domestic manufacturer may be a factor. For other products, we may be undercut by foreign manufacturers who have a lower cost of production. If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor's products. In such event, we would be at a disadvantage in seeking to obtain that contract.
Government Regulations
Although we do not have any contracts with government agencies, some of our manufacturing services are provided as a subcontractor to a government contractor. As a result, we are subject to government procurement and acquisition regulations. Under these regulations, the government has the right of termination for the convenience of the government and certain renegotiation rights as well as a right of inspection. Some of the work we perform for our customers are part of government appropriation packages, and therefore, subject to the Miller Act, requiring the prime contractors (our customers) to pay all subcontractors under contracted purchase agreements first. Because of the nature and use of our products, we are subject to compliance with quality assurance programs, which are a condition for our bidding on government contracts and subcontracts. We believe we are in compliance with these programs.
Intellectual Property Rights
We have no patent rights. In the course of our business we develop proprietary know-how for use in the manufacturing process. Although we have non-disclosure policies, we cannot assure you that we will be able to protect our intellectual property rights. We do not believe that our business requires patent or similar protection. Because of the nature of our business as a contract manufacturer, we do not believe that lack of ownership of intellectual property will adversely affect our operations.
Research and Development
In the course of our business we do not incur any significant research and development expenses. To the extent that our services for a customer include product design or development, the customer pays for such services.
Personnel
We currently employ 130 employees, of which 19 are administrative, eight are engineering and approximately 103 are manufacturing personnel. All of our employees are full time. None of our employees is represented by a labor union, and we believe that our employee relations are good.
Legal Proceedings.
We are not a defendant in any material legal proceedings.
Property.
We lease from WM Realty Management, LLC, which is an affiliated company, an approximately 136,000-square foot office and manufacturing facility at One Bella Drive, Westminster, Massachusetts 01473, pursuant to a 15-year lease that expires February 28, 2021, at an annual rental of $438,000, subject to annual escalations based upon increases in the cost of living index. The lease provides for two five-year extension and a purchase option at appraised value. We sold the real estate to WM Realty Management contemporaneously with the reverse acquisition for $3.0 million. In connection with WM Realty Management's financing of the real estate, we agreed to an increase in the rental in the event of a default by WM Realty Management under its current mortgage.
MANAGEMENT
The following table sets forth certain information concerning our directors and executive officers.
Directors and Executive Officers
Name Age Position
---- --- --------
James G. Reindl 47 Chairman and chief executive officer
Mary Desmond 42 Chief financial officer and secretary
Stanley A. Youtt 59 Director and chief executive officer of Ranor
Michael R. Holly(1) 60 Director
Larry Steinbrueck(1) 54 Director
Louis A. Winoski(1) 48 Director
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(1) Member of the audit and compensation committees.
James G. Reindl has been a director, chairman and chief executive officer since February 2006. Mr. Reindl is president of Techprecision, LLC, a company that was formed in 2002 to acquire, manage and develop smaller to mid-sized companies in the aerospace, military and precision manufacturing industry sectors. Techprecision, LLC has a management agreement with us, and Mr. Reindl devotes substantially all of his business time and attention to our business. From February 1999 until February 2002, Mr. Reindl was president and chief executive officer of Critical Components, an aerospace subsidiary of Standard Automotive. In March 2002, in connection with its bankruptcy filing, Standard Automotive included Critical Components as part of its bankruptcy petition. During that period, Ranor's predecessor was a wholly-owned subsidiary of Critical Components. Mr. Reindl received his Bachelor of Science degree in mechanical aerospace engineering from the University of Delaware.
Mary Desmond has been our chief financial officer since February 2006, and she has been the chief financial officer of Ranor since 1998. Ms. Desmond obtained her Bachelor of Science degree in accounting from Franklin Pierce College and she received her Masters of Business (MBA) from Fitchburg State College.
Stanley A. Youtt has been a director since February 2006, and he has been chief executive officer of Ranor since 2000. Mr. Youtt received a Bachelor of Science degree in naval architecture and marine engineering from the University of Michigan and Masters Degree in civil engineering (applied mechanics) from the University of Connecticut.
Michael Holly has been a director since February 2006. Since 2004, Mr. Holly has been a private investor and consultant. From 1996 until 2004, Mr. Holly was managing director of Safeguard International Fund, L.P., a private equity fund of which Mr. Holly is a founding partner. Mr. Holly has a Bachelor of Science degree in economics from Mount St. Mary's College.
Larry Steinbrueck has been a director since February 2006. Since 1991, Mr. Steinbrueck has been president of MidWest Capital Group, an investment banking firm. Mr. Steinbrueck has a Bachelor of Science degree in business and a Masters in Business Administration from the University of Missouri.
Louis A. Winoski has been a director since February 2006. Since January 2006, Mr. Winoski has been chief operating officer of GCT Garner Inc., an aerospace engineering and design services company. Mr. Winoski is also managing partner of Homeric Partners, LLC, a management consulting business. Mr. Winoski has a Bachelor of Science degree in industrial and systems management engineering from Pennsylvania State University.
Our directors are elected for a term of one year.
Board Committees
The board of directors has two committees, the audit committee and the compensation committee. Michael Holly, Larry Steinbrueck and Louis Winoski, each of whom is an independent director, are the members of both committees. Mr. Holly is the audit committee financial expert and chairman of the audit committee, and Mr. Winoski is chairman of the compensation committee.
Compensation
SUMMARY COMPENSATION TABLE
Set forth below is information for the fiscal year ended March 31, 2006 and 2005 for our and Ranor's chief executive officers and for Ranor's other executive officers whose salary for the year ended March 31, 2006 was at least $100,000.
Other
Name and Position Year Salary Compensation
----------------- ---- -------- ------------
James G. Reindl, chief executive officer 2006 -0- $7,500
Stanley A. Youtt, chief executive officer 2006 $198,016 -0-
or Ranor 2005 198,016 -0-
William Rose, vice president of Ranor 2006 153,085 -0-
Jeffrey Lippincott, secretary of Ranor 2006 138,577 -0-
2005 150,000 -0-
Daniel Justicz, treasurer of Ranor 2006 135,577 -0-
2005 150,000 -0-
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Mr. Rose, Mr. Lippincott and Mr. Justicz are former stockholders of Ranor and are no longer employed by us.
Mr. Reindl became our chief executive officer on February 24, 2006. Mr. Reindl is a member of Techprecision LLC, and he received his compensation through our management agreement with Techprecision LLC. The amount shown as "Other Compensation" for Mr. Reindl reflects the amount of the payments under the management agreement that were allocated to him by Techprecision LLC for the year ended March 31, 2006. Our total payments to Techprecision LLC pursuant to the management agreement during the year ended March 31, 2006 were $16,667.
Except for an employment agreement with Mr. Youtt, we have no agreement with any of the officers named in the summary compensation table.
Employment Agreement
In February 2006, Ranor entered into an employment agreement with Stanley
A. Youtt pursuant to which he would serve as our chief executive officer for a
term of three year term ending on February 28, 2009. Pursuant to the agreement,
we pay Mr. Youtt salary at the annual rate of $200,000. Mr. Youtt is also
eligible for performance bonuses based on financial performance criteria set by
the board. In the event that we terminate Mr. Youtt's employment without cause,
we are required to make a lump-sum payment to him equal to his base compensation
for the balance of the term and to provide the insurance coverage that we would
provide if he remained employed.
Management Agreement
Pursuant to a management agreement with Techprecision LLC, we engaged
Techprecision LLC to manage our business through March 31, 2009. The agreement
provides that we pay Techprecision LLC an annual management fee of $200,000 and
a performance bonus based on criteria determined by the compensation committee.
Mr. James G. Reindl is president and Mr. Andrew A. Levy is chairman of
Techprecision LLC, and they and Martin M. Daube are the members of Techprecision
LLC. The agreement provides that Techprecision LLC will provide the services of
Mr. Reindl at chairman, Mr. Levy for marketing support and analysis of long-term
contracts and Mr. Daube for marketing support. None of the members of
Techprecision LLC receive any additional compensation from us, and the annual
fee and any performance bonus which may be awarded is allocated among the three
members.
Directors' Compensation
We did not pay our director any cash compensation during the year ended March 31, 2006. Commencing with the year ending March 31, 2007, we pay our independent directors a fee of $2,000 per meeting. In addition, our 2006 long-term incentive plan provides for the grant of non-qualified options to purchase 50,000 shares, exercisable in installments, to each newly elected independent director and annual grants of options to purchase 5,000 shares of common stock commencing with the third with year of service as a director, as described under "Management - 2006 Long-Term Incentive Plan."
2006 Long-Term Incentive Plan
In February 2006, we adopted, and in July 2006 we amended, subject to
stockholder approval, the 2006 long-term incentive plan covering 1,000,000
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. As initially adopted, each newly elected
independent director received at the time of his 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. Pursuant to the amendment to the plan, the number of shares
subject to the initial option grant was increased to 50,000 shares, with the
option being exercisable as to 30,000 shares in July 2006 and as to 10,000
shares in each of February 2007 and 2008. In addition, the plan provides for the
annual grant of an option to purchase 5,000 shares of common stock on July 1st
of each year, commencing July 1, 2009. For each independent director who is
elected after July 31, 2006, the director will receive an option to purchase
50,000 shares at an exercise price equal to the fair market value on the date of
his or her election. The option will vest as to 30,000 shares six months from
the date of grant and as 10,000 shares on each of the first and second
anniversaries of the date of grant. These directors will receive an annual grant
of an option to purchase 5,000 shares of common stock on the July 1st coincident
with or following the third anniversary of the date of his or her first
election. Pursuant to the plan, we granted non-qualified stock options to our
three independent directors - Michael Holly, Larry Steinbrueck and Louis Winoski
- at an exercise price of $.285 per share, which was determined to be the fair
market value on the date of grant. The options are subject to stockholder
approval of the 2006 Plan.
Options intended to be incentive stock options must be granted at an exercise price per share which is not less than the fair market value of the common stock on the date of grant and may have a term which is not longer than ten years. If the option holder holds 10% of our common stock, the exercise price must be at least 110% of the fair market value on the date of grant and the term of the option cannot exceed five years.
Option holders do not recognize taxable income upon the grant of such either incentive or non-qualified stock options. When employees exercise incentive stock options, they will not recognize taxable income upon exercise of the option, although the difference between the exercise price and the fair market value of the common stock on the date of exercise is included in income for purposes of computing their alternative minimum tax liability, if any. If certain holding period requirements are met, their gain or loss on a subsequent sale of the stock will be taxed at capital gain rates. Generally, long-term capital gains rates will apply to their full gain at the time of the sale of the stock, provided that they do not dispose of the stock made within two years from the date of grant of the option or within one year after your acquisition of such stock, and the option is exercised while they are employed by us or within three months of the termination of their employment or one year in the event of death or disability, as defined in the Internal Revenue Code.
In general, upon the exercise of a non-qualified option, the option holder will recognize ordinary income in an amount equal to the difference between the exercise price of the option and the fair market value of the shares on the date they exercise the option. Subject to certain limitations, we may deduct that amount an expense for federal income tax purposes. In general, when the holders of shares issued on exercise of a nonqualified stock option sell their shares, any profit or loss is short-term or long-term capital gain or loss, depending upon the holding period for the shares and their basis in the shares will be the fair market value on the date of exercise.
As of July 27, 2006, there were outstanding options to purchase 150,000 shares which were issued to our independent directors pursuant to provision of the 2006 Plan that provide for the automatic grant of options to independent directors. No options were granted to any of the individuals named in the summary compensation table.
PRINCIPAL STOCKHOLDERS
The following table provides information as to shares of common stock beneficially owned as of July 31, 2006 by:
o each director;
o each officer named in the summary compensation table;
o each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock; and
o all directors and officers as a group. James G. Reindl 2,945,300 29.6% One Bella Drive Westminster, MA 01473 Andrew A. Levy 2,925,300 29.3% 46 Baldwin Farms North Greenwich, CT 06831 Howard Weingrow 1,850,000 18.6% 805 Third Avenue New York, NY 10022 Stanoff Corporation 1,700,000 17.1% 805 Third Avenue New York, NY 10022 Stanley A. Youtt 796,000 8.0% One Bella Drive Westminster, MA 01473 Martin M. Daube 671,400 6.7% 20 West 64th Street New York, NY 10023 Larry Steinbrueck 204,000 2.0% Michael Holly 85,000 * Mary Desmond 10,000 * Louis A. Winoski -0- -0- All officers and directors as a group 4,040,300 40.5% (five individuals owning stock) |
* Less than 1%
Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his name. Each person is deemed to own beneficially shares of common stock which are issuable upon exercise or warrants or options or upon conversion of convertible securities if they are exercisable or convertible within 60 days of June 30, 2006. Since the options held granted pursuant to the 2006 long-term incentive plan are subject to stockholder approval of the plan, they are not deemed to be beneficially owned by the holders as of July 31, 2006.
The shares owned by Andrew A. Levy represent 2,675,300 shares of common stock owned by him and 250,000 shares of common stock owned by Redstone Capital Corporation, of which Mr. Levy is president and he and his wife are the sole stockholders.
Howard Weingrow, as president of Stanoff Corporation, has voting and dispositive control over the shares owned by Stanoff Corporation. Because Mr. Weingrow has voting and dispositive control over the shares owned by Stanoff, the shares owned by Stanoff are deemed to be beneficially owned by Mr. Weingrow. Thus, the number of shares beneficially owned by Mr. Weingrow includes the 1,700,000 shares owned by Stanoff Corporation and the 150,000 shares owned by Mr. Weingrow individually.
Barron Partners owns 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 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Levy, Mr. Reindl and Mr. Daube may be deemed to be our founders. Transactions between us and Mr. Levy, Mr. Reindl and Mr. Daube are described below.
On February 24, 2006, we acquired the stock of Ranor pursuant to a stock purchase agreement dated as of August 17, 2005 among Ranor Acquisition LLC, Ranor and its stockholders. In connection with the acquisition of Ranor pursuant to the Ranor Agreement:
o We entered into a preferred stock purchase agreement with Barron Partners,
pursuant to which Barron Partners invested $2,200,000 for which we issued
7,719,250 shares of a newly-created series of preferred stock, designated
as the series A preferred stock, and warrants to purchase an aggregate of
5,610,000 shares of common stock at an exercise price of $.57 per share
and 5,610,000 shares of common stock at an exercise price of $.855 per
shares. The series A preferred stock were initially convertible into
7,719,250 shares of common stock, subject to adjustment. Because our
EBITDA for the year ended March 31, 2006 was less than $.04613 per share,
(i) the conversion price of the series A preferred stock reduced by
15%adjusted from $.285 to $.24225, with the result that the series A
convertible preferred stock is convertible into 9,081,527 shares of common
stock, and (ii) the exercise prices of the warrants were reduced by 15% --
from $.57 to $.4245 and from $.855 to $.7268. The conversion rate of the
series A preferred stock and the exercise prices of the warrants are
subject to further adjustment if the Company's EBITDA per share, on a
fully-diluted basis, is less than $.08568 per share for the year ended
March 31, 2007, based on the percentage shortfall from $.08568 per share,
up to a maximum reduction of 15%. The adjustment could result in an
increase in the maximum number of shares of common stock being issued upon
conversion of the series A preferred stock from 9,081,527 to 10,684,150
shares of common stock and a further reduction in the exercise price of
the warrants from $.4845 to $.4118 and from $.7268 to $.6177 per share.
o We purchased 928,000 shares of common stock from Capital Markets Advisory Group, which was then our principal stockholder, for $160,339, using the proceeds from the sale of the series A preferred stock and warrants. Prior to the reverse acquisition, Capital Markets made advances to Lounsberry to cover its expenses in the amount of $39,661. These advances were paid in connection with the reverse acquisition from the proceeds of the sales of the series A preferred stock and warrants. No other party related to Lounsberry received any other compensation in connection with the reverse acquisition.
o Pursuant to an agreement with Ranor Acquisition and its members, Ranor Acquisition assigned its obligations under the Ranor Agreement to us and we assumed the obligations of Ranor Acquisition under the Ranor Agreement and we issued 7,997,000 shares of common stock to the following stockholders.
Name No. Shares
----- ----------
James G. Reindl 3,095,300
Andrew A. Levy 2,825,300
Redstone Capital Corporation 250,000
Stanley Youtt 796,000
Martin Daube 741,400
Larry Steinbrueck 204,000
Michael Holly 85,000
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Total 7,997,000
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Each of the individuals named in the foregoing table was a member of Ranor Acquisition and received shares in that capacity in consideration of the assignment by Ranor Acquisition of its rights under the Ranor Agreement. Mr. Levy is president of Redstone Capital Corporation and all of the stock of Redstone is owned by Mr. Levy and his wife. There is no other relationship between the parties listed above, although Mr. Reindl, Mr. Levy and Mr. Daube are the sole members of Techprecision LLC, which has a management agreement with us. See "Management - Management Agreement."
o We sold 1,700,000 shares of common stock to Stanoff Corporation for $500,000.
o Ranor sold the real property on which its facilities are located to WM Realty Management for $3.0 million. WM Realty Management is a special purpose entity which was created in order to acquire the real estate. WM Realty Management is beneficially owned by Newvision Westminster LLC, of which Andrew A. Levy, a principal stockholder and a member of Techprecision LLC, is the manager and a 69% beneficial owner. Mr. James G. Reindl, our chairman, chief executive officer and a director, is a 10% beneficial owner of Newvision. Larry Steinbrueck and Michael Holly, who are directors, are beneficial owners of 1.2% and 0.5%, respectively, of Newvision. Mr. Reindl is transferring his interest in Newvision Westminster to Newvision Westminster, contingent upon the release of his personal guarantee upon the proposed refinancing. Other principal stockholders who are members of Newvision are Stanoff Corporation (10%) and Martin Daube (7.8%). The property that we sold includes the real estate on which our facilities are located and three potential residential lots, which are presently vacant. We lease the real estate on which our facilities are located (and not the potential residential lots) pursuant to a net lease at a current annual rental of $438,000, subject to escalation. See "Business-Property" for information relating to this lease. Although we believe that the terms of the sale and the lease are fair to us, the purchase price is less than the appraised value of the property and the terms of neither the sale nor the lease were negotiated at arms length. The property was appraised on October 31, 2005 at $4,750,000. The purchase price was based largely upon the maximum amount that WM Realty Management could borrow and reflected the fact that the use of the real estate as a manufacturing facility would not be considered the best use of the property. We sold the property to provide a portion of the funds that were due I connection with the acquisition of Ranor. Further, mortgagee required individual guarantees by Mr. Levy and Mr. Reindl, as members of WM Realty Management.
In connection with the mortgage on the real estate, Mr. Levy and Mr. Reindl gave the mortgagee their personal limited guarantee and an environmental guaranty. The limited guaranty is triggered by certain defaults by WM Realty Management under its mortgage.
The WM Realty Management mortgage bears interest at 11% per annum and provides for monthly payments of principal in the amount of $25,000. The outstanding balance of $3,200,000 was due on August 1, 2006. Expenses of obtaining the mortgage were $192,455 and are being amortized over the stated term of the mortgage, which is a period of approximately five months. In August 2006, WM Realty Management obtained a one-month extension and the right to extend the maturity date for two one-month periods. The interest rate for the extension is 11.5% per annum plus .75% of the principal balance for each month's extension. Amortization remains at $25,000 per month. WM Realty is seeking to find a long-term lender.
In connection with the mortgage, we paid certain of WM Realty Management's legal and closing costs of approximately $226,808, which WM Realty Management agreed to pay upon refinancing its mortgage, net of rent arrearages of $43,018. The obligations of WM Realty Management under its mortgage matured on August 1, 2006. WM Realty Management has obtained an extension of the maturity date and is negotiating with a new lender to refinance the property.
Prior to the completion of the reverse acquisition, Techprecision LLC advanced us $120,000 for expenses relating to the reverse acquisition. We reimbursed Techprecision LLC for these expenses in February 2006.
Mr. Stanley A. Youtt was a common stockholder of Ranor. Pursuant to the Ranor Agreement, he, along with the other former Ranor stockholders, sold his Ranor stock to us. Since the consideration paid was used to pay debt and the preference on the preferred stockholders, the total amount paid, net of allocable expenses, to Mr. Youtt was $700.
No finders' fee was paid by us in connection with the acquisition of Ranor or related equity and debt financing, although WM Realty Management paid a brokerage commission of $49,500 in connection with the mortgage.
Prior to the reverse acquisition, we, then known as Lounsberry, were not engaged in any business activities. Our business was funds by advances made by Capital Markets, which was then our largest stockholder. As of the closing of the reverse acquisition, Capital Markets had advanced a total of $39,661, which was paid contemporaneously with the closing of the reverse acquisition. In addition, we purchased 928,000 shares of common stock from Capital Markets for $160,339, with the result that the total payments to Capital Markets was $200,000..
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 90,000,000 shares of common stock, par value $.0001 per share, and 10,000,000 shares of preferred stock, par value $.0001 per share. As of August 15, 2006, we had we 10,009,000 shares of common stock and 7,719,250 shares of series A preferred stock outstanding.
The following summary of certain provisions of our common stock, preferred stock, certificate of incorporation and by-laws is not intended to be complete. It is qualified by reference to the provisions of our certificate of incorporation and by-laws.
Common Stock
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Pursuant to the certificate of designation relating to the series A preferred stock, we are prohibited from paying dividends on our common stock while the preferred stock is outstanding. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred 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 certificate of designation for the series A preferred stock provides that:
o Each share of series A preferred stock was initially convertible into one share of common stock, subject to adjustment.
o If, during the period ending February 24, 2009, we issue common stock at a price, or options, warrants or other convertible securities with a conversion or exercise price less than the conversion price (presently $.24225), with certain specified exceptions, the number of shares issuable upon conversion of one share of series A preferred stock is adjusted to reflect a conversion price equal to the lower price.
Because our fully-diluted EBITDA per share, as defined in the agreement, for the year ended March 31, 2006, were less than $.04613 per share, the conversion rate was adjusted to approximately 1.18 shares of common stock for each share of series A preferred stock with the result that each share of series A preferred stock is now convertible into 9,081,527 shares of common stock. The conversion rate is subject to further adjustment if our EBITDA is less than $.08568 per share for the year ended March 31, 2007.
No dividends are payable with respect to the series A preferred stock.
While the series A preferred stock is outstanding, we may not pay dividends on or redeem shares of common stock.
Upon any voluntary or involuntary liquidation, dissolution or winding-up, the holders of the series A preferred stock are entitled to a preference of $.285 per share before any distributions or payments may be made with respect to the common stock or any other class or series of capital stock which is junior to the series A preferred stock upon voluntary or involuntary liquidation, dissolution or winding-up.
The holders of the series A preferred stock have no voting rights. However, so long as any shares of series A preferred stock are outstanding, we shall not, without the affirmative approval of the holders of 75% of the outstanding shares of 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, (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 our 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 may not convert the series A preferred stock to the extent that such conversion would result in the holders owning more than 4.9% of our outstanding common stock. This limitation may not be amended or waived; provided, that the limitation does not supply with respect to a change of control. The shares of series A preferred stock are automatically converted upon a change of control, as defined in the certificate of designation.
Pursuant to the preferred stock purchase agreement, our board of directors approved, and authorized the submission to stockholders at the next annual or special meeting, an amendment to our certificate of incorporation to add the following provision:
"The terms and conditions of any rights, options and warrants approved by the Board of Directors may provide that any or all of such terms and conditions may not be waived or amended or may be waived or amended only with the consent of the holders of a designated percentage of a designated class or classes of capital stock of the Corporation (or a designated group or groups of holders within such class or classes, including but not limited to disinterested holders), and the applicable terms and conditions of any such rights, options or warrants so conditioned may not be waived or amended or may not be waived or amended absent such consent."
Delaware Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the Delaware General Corporation Law statute. Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15% or more of the corporation's voting stock.
Our certificate of incorporation contains certain provisions permitted under Delaware General Corporation Law relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances where such liability may not be eliminated under applicable law. Further, our certificate of incorporation contains provisions to indemnify our directors and officers to the fullest extent permitted by Delaware General Corporation Law.
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 said Act and is, therefore, unenforceable.
Penny-Stock Rules
The SEC has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions, and is not listed on the a registered stock exchange or the Nasdaq Stock Market (although the $5.00 per share requirement may apply to Nasdaq listed securities) or has net tangible assets in excess of $2,000,000, if the issuer has been in continuous operation for at least three years, or $5,000,000, if the issuer has been in continuous operation for less than three years; or has average revenue of at least $6,000,000 for the last three years.
As a result, our common stock may be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our securities and may affect your ability to sell our securities in the secondary market and the price at which you can sell our common stock.
According to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:
o Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
o Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
o "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
o Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
o 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 losses to investors.
Purchasers of penny stocks may have certain legal remedies available to them in the event the obligations of the broker-dealer from whom the penny stock was purchased violates or fails to comply with the above obligations or in the event that other state or federal securities laws are violated in connection with the purchase and sale of such securities. Such rights include the right to rescind the purchase of such securities and recover the purchase price paid for them.
Because our stock is a "penny stock" we do not have the safe harbor protection under federal securities laws with respect to forward-looking statement.
EXPERTS
The financial statements of Ranor at March 31, 2005 and for the two years in the period then ended, included in this prospectus to the extent and for the periods indicated in its report, have been audited by Bloom & Co., LLP, independent registered public accountants, and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report.
The financial statements of Techprecision Corporation (formerly Lounsberry Holdings II, Inc.), at December 31, 2005 and for the period February 10, 2005 (inception) to December 31, 2005, included in this prospectus to the extent and for the periods indicated in its report, have been audited by Bloom & Co., LLP, independent registered public accountants, and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report.
LEGAL MATTERS
The validity of the shares of common stock offered through this prospectus will be passed on by Sichenzia Ross Friedman Ference LLP.
HOW TO GET MORE INFORMATION
We file annual, quarter and periodic reports, proxy statements and other information with the Securities and Exchange Commission using the Commission's EDGAR system. You may inspect these documents and copy information from them at the Commission's offices at public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov.
We have filed a registration statement with the Commission relating to the offering of the shares. The registration statement contains information which is not included in this prospectus. You may inspect or copy the registration statement at the Commission's public reference facilities or its website.
You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information that is different.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Accounting Firm F-2 Consolidated Balance Sheet at March 31, 2006 F-3 Consolidated Statement of Operations for the years ended March 31, 2006 and 2005 F-4 Consolidated Statements of Stockholders' Deficit for the years ended March 31, 2006 and 2005 F-5 Consolidated Statements of Cash Flows for the years ended March 31, 2006 and 2005 F-6 Notes to Consolidated Financial Statements F-8 Consolidated Balance sheet at June 30, 2006 (unaudited) F-24 Consolidated Statement of Operations for the three months ended June 30, 2006 and 2005 (Unaudited) F-25 Consolidated Statements of Stockholders' Deficit for the three months ended June 30, 2006 and 2005 (Unaudited) F-26 Consolidated Statements of Cash Flows for the three months ended June 30, 2006 and 2005 (Unaudited) F-27 Notes to Consolidated Financial Statements F-29 |
BLOOM & CO, LLP . 50 CLINTON STREET, SUITE 502 . HEMPSTEAD . NEW YORK 11550. TEL : 516 - 486-5900 CERTIFIED PUBLIC ACCOUNTANTS FAX : 516 - 486-5476 STEVEN BLOOM, CPA MEMBER OF FREDERICK PAUKER, CPA AMERICAN INSTITUTE OF SIROUSSE TABRIZTCHI, Ph.D. CPA CERTIFIED PUBLIC ACCOUNTANTS |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of
Techprecision Corporation
We have audited the accompanying consolidated balance sheets of Techprecision Corporation as of March 31, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years 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.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Techprecision Corporation as of March 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/Bloom and Company LLP Hempstead, New York July 26, 2006 |
TECHPRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31,
---------------------------
2006 2005
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 492,801 $ 1,226,030
Restricted cash-indemnification obligation escrow 950,000 --
Accounts receivable, less allowance for doubtful
accounts of $25,000 and March 31, 2006 and 2005 2,481,619 1,810,664
Other receivables 25,665 29,561
Costs incurred on uncompleted contracts,
net of allowance for loss and progress billings 1,306,589 1,991,643
Inventories- raw materials 214,148 86,703
Prepaid expenses 386,475 116,910
Deferred loan costs, net 207,402 --
------------ ------------
Total current assets 6,064,699 5,261,511
Property, plant and equipment, net 2,556,994 2,870,347
Other assets deferred loan cost, net 46,127 --
------------ ------------
Total Assets $ 8,667,820 $ 8,131,858
============ ============
CURRENT LIABILITIES
Accounts payable $ 691,054 $ 928,170
Accrued expenses 561,848 890,163
Due to prior shareholders under escrow obligation 843,600
Current maturity of long-term debt 576,934 5,506
Mortgage payable 3,300,000
------------ ------------
Total current liabilities 5,973,436 1,823,839
LONG-TERM DEBT
Mandatory redeemable preferred stock -- 2,000,000
Notes payable- noncurrent 3,442,467 8,019,422
STOCKHOLDERS' DEFICIT
Preferred stock- par value .0001 per share, 10,000,000 shares authorized,
of which 9,000,000 are designated as Series A Preferred Stock, with
7,719,250 shares issued and outstanding at March 31, 2006 2,150,000
Common stock -par value .0001 authorized 90,000,000, and
9,967,000 and 8,089,000 issued and outstanding
on March 31, 2006 and 2005, respectively. 997 350
Paid in capital 1,240,821
Accumulated deficit (4,139,901) (3,711,753)
------------ ------------
Total Stockholders' (Deficit) Equity (748,083) (3,711,403)
------------ ------------
$ 8,667,820 $ 8,131,858
============ ============
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31,
--------------------------
2006 2005
----------- ------------
Net sales $20,266,402 $ 14,269,982
Cost of sales 17,632,576 12,631,640
----------- ------------
Gross profit 2,633,826 1,638,342
Selling, general and administrative 1,907,746 1,664,848
----------- ------------
Income/(loss) from operations 726,080 (26,506)
----------- ------------
Other income (expenses)
Interest expense (1,107,902) (1,121,487)
Interest income 10,135 8,285
Loss on disposition of fixed assets (14,273)
----------- ------------
(1,112,040) (1,113,202)
----------- ------------
Loss before income taxes (385,960) (1,139,708)
Provision for income taxes (42,188) (4,092)
----------- ------------
Net (loss) (428,148) (1,143,800)
=========== ============
Weighted average number of shares outstanding 8,270,156 8,089,000
----------- ------------
Net loss per common share (.05) (.14)
----------- ------------
|
The accompanying notes are an integral part of the financial statements.
(a) The weighted average number of shares for March 31, 2005 reflects the recapitalization of Ranor as of April 1, 2004.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED MARCH 31, 2006 AND 2005
Preferred Stock Common Stock
Warrants ---------------------- ------------------ Paid in Accumulated
Outstanding Shares Amount Shares Amount Capital Deficit Total
----------- --------- ---------- --------- ------ ---------- ----------- -----------
Balance, April 1, 2004 650,000 350,000 $ 350 $(2,567,953) $(2,567,603)
Recapitalization
Acquisition of
Ranor's shares (350,000) (350) (9,650) (10,000)
Sale of common
shares 1,020,000 102 39,661 39,763
Purchased and
retired shares (928,000) (93) (199,907) (200,000)
Sale of common
shares 7,997,000 800 114,200 115,000
Retirement of
preferred
shares and
warrants (650,000) 1,075,000 1,075,000
Cost of reverse
merger (627,139) (627,139)
Net loss for the year (1,143,800) (1,143,800)
---------- --------- ---------- --------- ----- ---------- ----------- -----------
Balance, March 31,
2005 8,089,000 $ 809 392,165 $(3,711,753) $ 3,318,779)
Sale of preferred
stock and
Warrants 11,220,000 7,719,250 $2,150,000 2,150,000
Sale of common stock 1,708,000 171 501,829 502,000
Issuance of shares of
common stock for
services 170,000 17 42,483 42,500
Contributed Capital 304,344 304,344
Loss for period (428,148) (428,148)
---------- --------- ---------- --------- ----- ---------- ----------- -----------
Balance, March 31,
2006 11,220,000 7,719,250 $2,150,000 9,967,000 $ 997 $1,240,821 $(4,139,901) $ (748,083)
========== ========= ========== ========= ===== ========== =========== ===========
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
-------------------------
2006 2005
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (428,148) $(1,143,800)
Noncash items included in net loss:
Depreciation and amortization 456,383 407,706
Shares issued for services 42,500 --
Changes in assets and liabilities:
Accounts receivable (667,059) 255,989
Inventory (127,445) (20,046)
Costs on uncompleted contracts 1,779,515 (880,977)
Prepaid expenses (269,565) (10,843)
Accounts payable and accrued expenses (565,431) 491,376
Customer deposits (1,094,461) --
Forgiveness of interest 222,944 --
----------- -----------
Net cash used in operating activities (650,767) (900,595)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property, plant and equipment (83,934) (65,888)
----------- -----------
Net cash used in investing activities (83,934) (65,888)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of preferred stock 2,150,000 --
Sale of common shares 656,763 --
Retirement of common shares (210,000) --
Payment of notes (8,005,527) (5,692)
Mortgage loan 3,300,000 --
Bank loan 4,000,000 --
Cost of financing (312,625) --
Cost of reorganization (627,139) --
----------- -----------
Net cash provided by (used in) financing activities 951,472 (5,692)
----------- -----------
Net increase (decrease) in cash and cash equivalents $ 216,771 $ (972,175)
CASH AND CASH EQUIVALENTS, beginning of period 1,226,030 2,198,205
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,442,801 $ 1,226,030
=========== ===========
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Years ended March 31,
---------------------
2006 2005
---------- --------
Supplemental Disclosures of Cash Flows Information
Cash paid during the year for:
Interest expense $747,764 $934,821
Income taxes $ 3,100 $ 1,181
|
SUPPLEMENTAL INFORMATION-NONCASH TRANSACTIONS:
1. On February 24, 2006 the Company issued 170,000 shares, valued at $.25 per share, to consultants for services rendered.
2. On February 24, 2006, as a part of restructuring the Company's financing, 2000 shares of redeemable preferred stock and 650,000 warrants' attached to them were retired and $925,000 was placed in an escrow account for the payment of contingent indemnification obligation costs. The balance of the escrow funds, after the payment of all indemnification obligation costs, if any, is to be paid to the previous preferred shareholders. The Company reduced the cost of the redeemable preferred stock and warrants by $2,000,000, increased the additional paid in capital by $1,075,000 and recorded a liability of $925,000 that was placed in escrow.
3. To date, the amount of environmental remediation costs have been determined to be $81,400. Consequently, the amount of indemnification due to previous shareholders for escrow obligation was reduced and the additional paid in capital was increased by $81,400. The former stockholders have the right to dispute the claim and there is no assurance that the Company will recover such amount, if anything.
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
Techprecision Corporation ("Techprecision") is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to Techprecision Corporation on March 6, 2008. Techprecision is the parent company of Ranor, Inc. ("Ranor"), a Delaware corporation. Ranor is a Delaware corporation, founded in May 2002 under the name Rbran Acquisition, Inc. and changed its name to Ranor, Inc. in August 2002.
Ranor has been in business since 1956, and was sold by its founders in 1999 to Critical Components Corporation, a subsidiary of Standard Automotive Corporation. From June 1999 until August 2002, Ranor was operated by Critical Components Corporation. In December 2001, Standard filed for protection under the Bankruptcy Code and operated under Chapter 11 until on or about the quarter ended June 30, 2002. Subsequently, all Standard's holdings were sold. In 2003, Ranor, then known as Rbran Acquisition, Inc., acquired the Ranor assets from the bankruptcy estate.
Techprecision and Ranor are collectively referred to as the "Company."
On February 24, 2006, Techprecision acquired all stock of Ranor in a transaction which is accounted for as a reverse acquisition, with Ranor being treated as the acquiring company for accounting purposes and the transaction being treated as a recapitalization. As a result, the costs of the acquisition are charged to capital. See Note 2. The financial statements for periods prior to February 24, 2006 reflect the financial position, results of operations and cash flows of Ranor. Techprecision changed its fiscal year to the fiscal year ended March 31, which was the fiscal year of Ranor prior to the reverse acquisition.
The accompanying consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiary as well as a special purpose entity. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.
Fair Values of Financial Instruments
Cash and cash equivalents. Holdings of highly liquid investments with maturities of three months or less, when purchased, are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair values. The amount of federally insured cash deposits was $100,000 as of March 31, 2006 and March 31, 2005. The carrying amount of trade accounts receivable, accounts payable, prepaid and accrued expenses, and notes payable, as presented in the balance sheet, approximates fair value.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts receivable
Trade accounts receivable are stated at the amount Ranor expects to collect. Ranor maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of Ranor's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, Ranor provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after Ranor has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Current earnings are also charged with an allowance for sales returns based on historical experience. There were no bad debt expenses for the years ended March 31, 2006 and 2005.
Inventories-work in process.
Inventories consist of raw materials and work in progress which includes labor and factory overhead and are stated at the lower of cost or market. Cost is determined principally by the first-in, first-out method for materials inventory.
Notes Payable
The Company accounts for all note liabilities that are due and payable in one year as short-term liabilities.
Long-lived Assets
Property, plant and equipment- these assets are recorded at cost less depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterments and large renewals, which extend the life of the asset, are capitalized whereas maintenance and repairs and small renewals are expensed, as incurred. The estimated useful lives are: machinery and equipment, 7-15 years; buildings, up to 30 years; and leasehold improvements, 10-20 years.
Leases
Operating leases are charged to operations as paid. Capital leases are capitalized and depreciated over the term of the lease. A lease is considered a capital lease if there is a favorable buy out clause that would be an inducement for us to own the asset.
Earnings per share (loss)
Loss per share was computed by dividing the net loss by the number of weighted average shares outstanding for the year of the loss. The outstanding convertible preferred shares of 7,719,250 and warrants of 11,220,000 were not considered for a fully diluted calculation because a loss is considered anti-dilutive.
Revenue Recognition and Costs Incurred
Revenue and costs are recognized on the units of delivery method. This method recognizes as revenue the contract price of units of the product delivered during each period and the costs allocable to the delivered units as the cost of earned revenue. When the sales agreements provide for separate billing of engineering services, the revenues for those services are recognized when the services are completed. Costs allocable to undelivered units are reported in the balance sheet as costs incurred on uncompleted contracts. Amounts in excess of agreed upon contract price for customer directed changes, constructive changes, customer delays or other causes of additional contract costs are recognized in contract value if it is probable that a claim for such amounts will result in additional revenue and the amounts can be reasonably estimated. Revisions in cost and profit estimates are reflected in the period in which the facts requiring the revision become known and are estimable.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition and Costs Incurred (Continued)
Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined and are reflected as reductions of the carrying value of the costs incurred on uncompleted contracts. Costs incurred on uncompleted contracts consist of labor, overhead, and materials. Work in process is stated at the lower of cost or market and reflect accrued losses, if required, on uncompleted contracts.
Advertising expenses
Advertising costs are charged to operations when incurred. Advertising expenses were $18,210 in 2006 and $14,060 in 2005.
Income taxes
The Company uses the asset and liability method of financial accounting and reporting for income taxes required by statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". Under FAS 109, deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes.
Temporary differences giving rise to deferred income taxes consist primarily of the reporting of losses on uncompleted contracts, the excess of depreciation for tax purposes over the amount for financial reporting purposes, and accrued expenses accounted for differently for financial reporting and tax purposes, and net operating loss carryforwards.
Variable Interest Entity
The Company has consolidated a variable interest entity that entered into a sale and leaseback contract with the Company to conform to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). The Company has also adopted the revision to FIN 46, FIN 46R, which clarified certain provisions of the original interpretation and exempted certain entities from its requirements.
Mandatory Redeemable Preferred Stock
The FASB has issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 requires that certain freestanding financial instruments be reported as liabilities in the balance sheet. Depending on the type of financial instrument, it will be accounted for at either fair value or the present value of future cash flows determined at each balance sheet date with the change in that value reported as interest expense in the income statement. Prior to the application of Statement No. 150, either those financial instruments were not required to be recognized, or if recognized were reported in the balance sheet as equity and changes in the value of those instruments were normally not recognized in net earnings.
In the year ended March 31, 2005, the Company adopted the Statement No. 150 and reclassified the carrying value of the redeemable preferred stock from stockholders' deficiency to a long-term liability. The effect of the reclassification was to increase stockholders' deficiency and increaseliabilities.
Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections-a replacement of the APB Opinion No. 20 and FASB Statement No. 3". SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle, retrospective application of previous periods financial statements of changes in accounting principle, unless it is impractical to determine either the period specific effect of the cumulative effect of the change. The statement applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instances that the pronouncement does not include specific transition provisions. SFAS No. 154 does not currently have an effect on the Company's financial statements.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143". FIN 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 does not currently have an effect on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2005), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires that all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition.
The Company is required to adopt SFAS 123R in the three months ending March 31, 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used in valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. Upon adoption, the Company may choose from two transition methods: the modified-prospective transition approach or the modified-retroactive transition approach. Under the modified-prospective transition approach the Company would be required to recognize compensation cost for awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required. Under the modified-retrospective transition method, the Company would be required to restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma disclosure under SFAS No. 123. Under this method, the Company would be permitted to apply this presentation to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The Company would also be required to follow the same guidelines as in the modified-prospective transition method for awards granted subsequent to adoption and those that were granted and not yet vested.
The Company is currently evaluating the requirements of SFAS 123R and its impact on our results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R.
In December 2004, the FASB issued Staff Position ("FSP") No. 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP 109-2"). This position provides guidance under FASB Statement No. 109 ("SFAS 109"), "Accounting for Income Taxes", with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on enterprises' income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An Amendment of ARB Opinion No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company has considered SFAS 151 and has determined that this pronouncement will not materially impact its consolidated results of operations.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. REVERSE ACQUISITION
In connection with the reverse acquisition, on February 24, 2006:
o Techprecision entered into a preferred stock purchase agreement with Barron Partners LP, pursuant to which it sold to Barron Partners, for $2,200,000, 7,719,250 shares of series A preferred stock, and five-year warrants to purchase an aggregate of 11,220,000 shares of common stock. The series A preferred stock was initially convertible into 7,719,250 shares of common stock, subject to adjustment. Because the Company did not achieve earnings before interest, taxes, depreciation and amortization (EBITDA) of $.04613 per share for the year ended March 31, 2006 on a fully-diluted basis, as defined, the conversion rate was adjusted and the series A preferred stock became convertible into 9,081,527 shares of common stock. The warrants were initially exercisable at an average exercise price of $.7125. As a result of the Company's failure to meet the EBITDA target for the year ended March 31, 2006, the average exercise price decreased by 15% to $.6056 per share. The conversion rate of the series A preferred stock and the exercise price of the warrants are subject to further adjustment if the Company's EBITDA per share, on a fully-diluted basis, is less than $.08568 per share for the year ended March 31, 2007.
o During the period from inception in February 2005 through the completion of the reverse acquisition on February 24, 2006, Capital Markets had advanced $39,661 to Techprecision (Lounsberry) to pay its expenses. On February 24, 2006, Techprecision paid $200,000 to Capital Markets to repurchase and cancel 928,000 shares of common stock and to reimburse $39,661 of advances.
o The Company issued 7,697,000 shares of common stock to the members of Ranor Acquisition LLC, which was a party to an August 17, 2005 agreement to purchase the stock of Ranor (the "Ranor Agreement"), for which Ranor Acquisition advanced funds on our behalf and assigned its rights under the Ranor stock purchase agreement. The Company assumed Ranor Acquisition's obligations to purchase the Ranor capital stock pursuant to that agreement.
o The Company sold 1,700,000 shares of common stock to an investor for $500,000.
o Ranor entered into a loan and security agreement with Sovereign Bank pursuant to which Ranor borrowed $4.0 million, by issuing its term note, and in addition Sovereign provided Ranor with a $1.0 million revolving credit arrangement.
o Ranor sold its real estate to WM Realty Management, LLC for $3.0 million, and Ranor leased the real property on which its facilities are located from WM Realty Management, LLC pursuant to a net lease. WM Realty Management, LLC is an affiliate of the Company which is a variable interest entity. As a result, the financial statements do not reflect the sale of the real estate, but do show the $3,300,000 mortgage obligation, which is due in August 2006, as a current liability of the Company.
o Ranor used the net proceeds of the Sovereign Bank loan, as discussed below, the net proceeds from the sale of the real estate, $240,000 of available cash and a portion of the proceeds from the sale of the preferred stock to pay principal ($8,000,000) and interest ($975,500) on notes to Ranor's then principal stockholders. Although the payment was less than the principal and interest due on the note, the note holders released Ranor from any further obligation under the notes.
o The Company placed $925,000 of the purchase price into escrow. The escrow was to be the sole source of the former Ranor stockholders' liability for breach of the representations and warranties under the Ranor Agreement.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. REVERSE ACQUISITION Continued)
The payments were made from the following funds:
1. Sale of Ranor's land and building. The property and building held by Ranor was sold to WM Realty Management, LLC for $3 million. To pay the purchase price WM Realty Management, LLC simultaneously placed a $3.3 million 11% mortgage on the property. The mortgage is due on August 1, 2006. WM Realty Management, LLC is owned by the controlling persons of Techprecision and was formed for the specific purpose of purchasing and financing the property. Costs associated with this mortgage financing were $265,943. WM Realty Management, LLC was considered a special purpose entity and was consolidated into Techprecision.
2. Bank Loan. Ranor, Inc. borrowed $4,000,000 from Sovereign Bank, for which it issued its 72 month term note with quarterly principal payments of $142,857 plus interest. The interest on the term loan remains at 9% through December 31, 2010 and will be at prime plus 1.5% thereafter. The bank also extended a line of credit of $1 million which was unused at March 31, 2006. The revolving note bears interest at prime plus 1.5%. The term loan is and the line credit as utilized will be secured by all assets of Ranor. The costs of the transaction were $46,682.
3. Capital contribution. Techprecision sold for a purchase price of $2,200,000, 7,719,250 shares of series A preferred stock and warrants to purchase 11,220,000 shares of common stock. In connection with this sale, Techprecision paid Barron Partners a due diligence fee of $50,000 Techprecision has an obligation to register the shares of common stock issuable upon conversion of the series A preferred stock and the warrants, pursuant to the Securities Act of 1933. If Techprecision fails to register such shares as required by the agreement, it is required to issue 2,540 shares of series A preferred stock for each day that Techprecision is late. Techprecision filed the registration statement on time. However, it will be required to issue the shares if the registration statement is not declared effective when required or if, having been declared effective, ceases to be current and effective, with certain limited exceptions. In addition, if a majority of Techprecision's directors are not independent directors or the audit and compensation committees are not comprised of a majority of independent directors, beyond a grace period, Techprecision would be required to pay liquidated damages for each day that this requirement is not met at the rate of 12% per annum, with a maximum of 18%, of Barron's investment.
4. Techprecision also sold 1,700,000 common shares for $500,000 at $.29 per share and issued 170,000 shares for services at $.25 per share.
Description of Business
The Company produces large metal fabrications and perform precision machining operations for large military, commercial, nuclear, aerospace, shipbuilding and industrial customers. Its principal services are large metal fabrications, machining and engineering. Each of the Company's contracts covers a specific product. The Company does not mass-produce any products or distribute such products on the open market. The Company renders our services under "build to print" contracts with contractors. However, the Company also helps its customers to analyze and develop their projects for constructability by providing engineering and research and development services, for which it bills its customers.
Although the Company provides manufacturing services to large governmental programs, the Company usually does not work directly for agencies of the United States government. Rather, the Company performs its services for large governmental contractors and large utility companies.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
As of March 31, 2006 and 2005 property, plant and equipment consisted of the following:
2006 2005
---------- ----------
Land $ 110,113 $ 110,113
Building and improvements 1,290,072 1,223,054
Machinery equipment, furniture and fixtures 2,609,698 2,592,782
---------- ----------
4,009,883 3,925,949
Less: accumulated depreciation 1,452,889 1,055,602
---------- ----------
$2,556,994 $2,870,347
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|
Depreciation expense for the years ended March 31, 2006 and 2005 were $412,988 and $407,707, respectively. Land and buildings (which are owned by WM Realty Management, LLC- a consolidated entity under Fin 46 R) are collateral for the $3,300,000 Mortgage Loan and other fixed assets of the Company together with its other personal properties, are collateral for the Sovereign Bank $4,000,000 secured loan and line of credit.
NOTE 4. COSTS INCURRED ON UNCOMPLETED CONTRACTS
The Company recognizes revenues based upon the units-of-delivery method (see Note 1).
Contracts in process consisted of the following at March 31:
2006 2005
----------- -----------
Costs incurred on uncompleted contracts,
net of allowance for loss 2,889,650 4,669,165
Less: Advance billings and deposits (1,583,061) (2,677,522)
----------- -----------
$ 1,306,589 $ 1,991,643
=========== ===========
|
On March 31, 2006 and 2005, $86,141 and $26,436 of allowance for losses on uncompleted contracts were recognized, respectively. All inventories are collateral for Sovereign Bank loan and constitute a part of the computation of the maximum loan amount under the agreement.
NOTE 5. PREPAID EXPENSES
As of March 31, 2006 and 2005, the prepaid expenses included the following:
2006 2005
--------- --------
Insurance $173,152 $ 99,619
Interest 122,001 --
Mortgage payment 36,500 --
Real estate taxes 34,921 11,269
Mortgage servicing fee 3,529 --
Equipment maintenance 6,022 6,022
Quality control audit fees 10,350 --
-------- --------
Total $386,475 $116,910
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|
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6. DEFERRED CHARGES
Deferred charges represent the capitalization of costs incurred in connection with obtaining the bank loan and building mortgage. These costs are being amortized over the term of the related debt obligation, 5 months to 72 months. Amortization charged to operations in 2006 and 2005 were $59,096 and $-0-, respectively. As of March 31, deferred charges were as follows:
2006 2005
-------- ----
Deferred costs expiring in one year or less:
Deferred mortgage costs $265,943
Less: accumulated amortization (58,541) --
-------- ----
$207,402 $-0-
======== ====
Deferred costs expiring after one year:
Deferred loan costs $ 46,852
Accumulated amortization (655) --
-------- ----
$ 46,127 $-0-
======== ====
|
NOTE 7. LONG-TERM DEBT
The following debt obligations, outstanding on March 31:
2006 2005
---------- -----------
1. Long-term debt paid off on February 24, 2006 :
o Preferred Stock - 2,000 shares, $.001 par value, authorized,
issued and outstanding 2,000 and redeemable on August 7, 2012. -- $ 2,000,000
o Green Mountain Partners III, L.P. - Unsecured note payable -
with semi-annual interest installments at 14%, due in February
and August. Principal payments of $800,000 due annually
commencing on August 7, 2006 through August 7, 2011, and
$1,600,000 balance due on August 7, 2012. The note was subject
to various covenants including a restriction on the incurrence
of additional debt or commitments. -- 6,400,000
o Phoenix Life Insurance Company -Unsecured note payable- with
semi-annual interest installments at 14%, due in February and
August. Principal payments of $200,000 due annually commencing
on August 7, 2006 through August 2011, and $400,000 balance due
on August 7, 2012. The note was subject to various covenants
including a restriction on the incurrence of additional debt. -- 1,600,000
2. Long-term debt issued on February 24, 2006 :
o Sovereign Bank-Secured Term note payable- 72 month 9% variable
term note with quarterly principal payments of $142,857 plus
interest. Final payment due on March 1, 2013. $4,000,000 --
3. Automobile Loan
o Ford Motor Credit Company-Note payable secured by a vehicle -
payable in monthly installments of $552 including interest of
4.9%, commencing July 20, 2003 through June 20, 2009. 19,401 24,928
---------- -----------
4,019,401 10,024,928
Principal payments due within one year 576,934 5,506
---------- -----------
Principal payments due after one year $3,442,467 $10,019,422
========== ===========
|
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7. LONG-TERM DEBT (Continued)
On February 24, 2006, Ranor entered into a loan and security agreement with Sovereign Bank, West Hartford, Ct. as part of the agreement the bank has granted the Company a term loan of $4,000,000 and extended the Company a line of credit of $1,000,000, initial interest at 9%. The interest on the line of credit is variable. At March 31, 2006 the amount due on the line of credit was zero.
The note is subject to various covenants that include the following: the loan collateral comprises all personal property of the Company, including cash, accounts receivable, inventories, equipment, financial and intangible assets owned when the loan is contracted or acquired thereafter; the amount of loan outstanding at all times is limited to a borrowing base amount of the Company's qualified accounts receivable and inventory; there are prepayment penalties of 3%, 2% and 1% of the unrepaid principal, in the first, second and third years following the issuance date, respectively. There is no prepayment penalty thereafter; the Company is prohibited from issuing any additional equity interest (except to existing holders), or redeem, retire, purchase or otherwise acquire for value any equity interests; unused credit line fee is 0.25% of the average unused credit line amount in previous month; earnings available to cover fixed charges are required not to be less than 120% of fixed charges for the quarter ending June 30, 2006 building to a rolling four (4) quarter basis, tested at the end of each fiscal quarter; interest coverage ratio is required to be not less than 2:1 as at the end of each fiscal quarter.
As of March 31, 2006, the maturities of long-term debt were as follows:
Years ending March 31, Amount
---------------------- ----------
2007 $ 576,934
2008 577,526
2009 577,832
2010 572,825
2011 571,428
Due after 2011 1,142,856
----------
Total $4,019,401
==========
|
NOTE 8. INCOME TAXES
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to the net income or loss from operations. The sources and tax effects of the differences are as follows:
March 31,
2006
---------
Income tax provision at statutory rate of 39% $(588,500)
Tax benefit before net operating loss carry forward 546,300
Net tax provision $ 42,200
=========
|
As of March 31, 2006 and 2005, the tax effect of temporary differences and net operating loss carry forward that give rise to the Company's deferred tax assets and liabilities are as follows:
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES (Continued)
2006 2005
--------- -----------
Deferred Tax Assets:
Current
Compensation accrual $ 73,000 $ 127,600
Bad debt allowance 9,800 9,800
Inventory allowance -- 26,900
Loss on uncompleted contracts 33,600 113,900
Net operating loss carry-forward -- 588,500
Non-Current
Net operating loss carry-forward 760,800 764,700
--------- -----------
Total deferred tax assets 877,200 1,631,400
Deferred Tax liabilities:
Non-Current
Depreciation 197,600 191,400
--------- -----------
Net deferred tax asset 679,600 1,440,000
Valuation allowance (679,600) (1,440,000)
--------- -----------
Net Deferred Tax Asset Balance $ -- $ --
========= ===========
|
At March 31, 2006 and 2005, the Company provided a full valuation allowance for its net deferred tax assets. The Company believes sufficient uncertainty exists regarding the realizability of the deferred tax assets. The net change in the valuation allowance during the years ended March 31, 2006 and 2005 was $(588,500) and $372,989, respectively. The sale and leaseback of the Company's land and building for $3,000,000 to a special purpose entity, WM Realty Management, LLC, resulted in a gain of 1,734,700. The reduction in the deferred tax asset of $588,500 represents the realized tax benefit of the loss carryforward.
As of March 31, 2006, the Company's U.S. federal net operating loss carryforward was approximately $1,950,800 for income tax purposes. If not utilized, the federal net operating loss carryforward will expire in 2025. Furthermore, because of over fifty percent changes in ownership, as a consequence of the reverse merger, as defined by Section 382 of the IRC, the amount of net operating loss carry forward used in any one year in the future is substantially limited.
NOTE 9. RESTRICTED CASH - INDEMNIFICATION OBLIGATION ESCROW
In May 2004, The Company was requested to undertake a response and remedial action to cleanup environmental issues discovered during an onsite inspection by the Commonwealth of Massachusetts Office of Environmental Affairs. The Company signed a consent order in October 2004, paid a fine of $7,800 and proceeded to correct the deficiencies.
The stock purchase agreement, pursuant to which the Company purchased the outstanding securities of Ranor, provided for the parties to establish an escrow account into which $925,000 of the purchase price of the securities was placed. If the sellers had breached any of their representations and warranties under the stock purchase agreement, the Company's sole recourse is against the escrow account. To the extent that there is no claim against the escrow by one year from the closing, the escrow account is paid to Ranor's former stockholders. The Company is entitled to recover from the escrow an amount equal to its damages sustained as a result of a breach by the selling stockholders of their representations and warranties. The Company has recorded an expense and a claim against the escrow account in the amount of $81,400. The claim is for the former stockholders' breach of their representations and warranties relating to environmental matters. The Company reflects the recovery of this amount on its March 31, 2006 balance sheet as a reduction in the amount due to the former stockholders and an increase in additional paid in capital.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 10. RELATED PARTY TRANSACTIONS
Management Fees
Until February 24, 2006, Ranor had to pay management fees totaling $200,000 per year to four shareholders under agreements that expire in August 2006.
On February 24, 2006 the prior management agreement was canceled any balance due was forgiven and the Company entered into a new management and consulting agreement with Techprecision Management, LLC a Company composed of shareholders of Techprecision. The Agreement ends on March 31, 2009.
During the Consulting Period, manager shall serve as a consultant to the Company and each of its existing and future Subsidiaries. The consultation will include assistance with the determination of the goals, general policies and direction of the Company and its subsidiaries, financings, manufacturing, sales, distribution and customer relations.
Manager's consulting fee will be initially set at $200,000 per annum, payable semi-monthly commencing March 1, 2006. In addition to the Management Fee, the manager shall be entitled to a performance bonus determined as follows; The compensation committee of the Board of Directors will set performance objectives for the fiscal year. If the performance objectives are attained or exceeded, the Company will pay the manager a performance bonus equal to two and one-half percent of the Company's cash flow from operations for the fiscal year. In the event that the Company makes an acquisition or dispose of a business segment during a fiscal year, the performance objectives may be revised by the compensation committee to reflect such transaction.
Loan from Related Parties
Ranor had long-term debt payable to Green Mountain Partners III, L.P. and Phoenix Life Insurance Company (see Note 7), which held the outstanding preferred stock, a portion of the common stock and common stock warrants. Interest expense charged to operations under this related party debt was $1,073,466 and $1,120,000 in 2006 and 2005, respectively. On February 24, 2006 Green Mountain and Phoenix forgave interest of $222,944 which was a capital contribution.
Sale and Lease Agreement and Intra-company Receivable
On February 24, 2006 WM Realty Management, LLC borrowed $3,300,000 to purchase from Ranor, Inc. its real property for $3,000,000 which was appraised on October 31, 2005 at $4,750,000 and leased the building an a part of the land to Ranor, Inc. Techprecision advanced $226,808 to pay closing costs and has a receivable of that amount from WM Realty Management, LLC. WM Realty Management, LLC was formed solely for this purpose; its partners are shareholders of Techprecision. The Company has considered WM Realty Management, LLC a special purpose entity as defined by FIN 46, and therefore has consolidated its operations into Techprecision.
The WM Realty Management, LLC mortgage bears interest at 11% that is paid monthly with principal of $25,000. The balance of $3,300,000 is due on August 1, 2006. Expenses of obtaining the mortgage were $192,455 and are being amortized over approximately a 5 month period.
NOTE 11. OPERATING LEASE
Ranor leases office equipment under operating lease agreements expiring through November 2008. Total rent expense charged to operations was $16,700 and $19,900 in the years ended March 31, 2006 and 2005, respectively.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 11. OPERATING LEASE (Continued)
Future minimum lease payments under noncancellable portions of the leases as of March 31, 2006, are as follows:
Years ending March 31, Amount
---------------------- -------
2006 $16,678
2007 16,678
2008 15,288
-------
Total minimum lease payments $48,644
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|
NOTE 12. SALE AND LEASE
On February 24, 2006 Ranor, Inc. entered into a sale and lease back arrangement with WM Realty Management, LLC, a special purpose entity. The sale of the building was for $3,000,000. The term of the Lease is for a period of fifteen years commencing on February 24, 2006. For the year ended March 31, 2006 rent expense paid by the Company was $36,500. This amount was eliminated in consolidation and the interest and depreciation were expensed.
The Company has an option to extend the term of the lease for two additional terms of five years, upon the same terms. The Minimum Rent payable for each option term will be the greater of (i) the minimum rent payable under the lease immediately prior to either the expiration date, or the expiration of the preceding option term, or (ii) the fair market rent for the leased premises. Minimum rental for the base year of the lease is $438,000. Effective as of January of each year subsequent to the base year, during the contract and any subsequent extension, a cost of living adjustment will be made to the minimum rental, based on the Consumer Price Index.
The Company has the option to repurchase the property at any time beginning after one year from the date of the agreement, at the appraised market value.
The minimum future lease payments are as follows:
Year Ended March 31 Amount
------------------- ----------
2007 $ 438,000
2008 438,000
2009 438,000
2010 438,000
2011-2015 2,190,000
2016-2021 2,190,000
2022 438,000
----------
Total $6,570,000
==========
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TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 13. PROFIT SHARING PLAN
Ranor has a 401(k) profit sharing plan that covers substantially all employees who have completed 90 days of service. Ranor retains the option to match employee contributions. There were no employer-matched contributions charged to operations in the years ended March 31, 2006 and 2005, respectively.
NOTE 14. CAPITAL STOCK
Preferred stock
On March 31, 2005, the Company had 2,000 shares of preferred stock outstanding. The preferred stock were classified as Series A and carried a mandatory redemption provision. Under the August 7, 2002 Stockholders Agreement, all unexercised warrants issued in conjunction with preferred stock expired and Ranor was required to redeem all the outstanding shares at $1,000, per share, on August 7, 2012. The preferred stock and related freestanding warrants on the shares that were puttable were classified as a liability in accordance with FASB statement 150. Ranor had the option to redeem any or all the shares prior to that date. The preferred shares carried no voting or dividend rights. The preferred shares carried a preference of $1,000 per share in the event of liquidation.
The stockholder agreements contained a provision whereby, effective August 2009, any preferred stockholder could have, upon written notice, require Ranor to repurchase their shares at a price as defined in that agreement. On February 24, 2006, all of the preferred stock and related warrants were acquired by Techprecision in connection with the reverse acquisition and were cancelled.
On February 24, 2006, Barron Partners LP purchased 7,719,250 shares of series A preferred stock, par value $0.0001 per share for $2,150,000, net of a $50,000 due diligence fee payable to Barron Partners. Initially, Series A Preferred Stock are convertible into common stock at a conversion rate of one share of Common Stock, for each share of Series A Preferred Stock. In addition, pursuant to the preferred stock purchase agreement, Techprecision issued to Barron Partners common stock purchase warrants to purchase up to 5,610,000 of Common Stock at $0.57 per share and 5,610,000 shares of Common Stock at $0.855 per share.
Because the Company did not attain EBITDA of $.04613 per share for the year ended March 31, 2006 on a fully-diluted basis, as defined, the conversion rate was adjusted (0.85 shares of preferred stock for one share of common stock, a reduction in rate of 15%) and the series A preferred stock became convertible into 9,081,527 shares of common stock. As a result of the Company's failure to meet the EBITDA target for the year ended March 31, 2006, the exercise price of the warrants decreased by 15%, from $.57 to $.4845 and from $.855 to $.7268 per share.
The conversion rate of the series A preferred stock and the exercise price of the warrants are subject to further adjustment if the Company's EBITDA per share, on a fully-diluted basis, is less than $.08568 per share for the year ended March 31, 2007, based on the percentage shortfall from $.08568 per share, from zero up to a maximum adjustment of 15%. The adjustment could result in an increase in the maximum number of shares of common stock being issued upon conversion of the series A preferred stock from 9,081,527 to 10,684,150 shares of common stock and a further reduction in the exercise price of the warrants from $.4845 to $.4118 and from $.7268 to $.6177 per share.
EBITDA per share is earnings from recurring operation before any charges relating to the transactions involved in February 24, 2006 agreement and any other non recurring items, including warrants, but excluding options or stock grants issued to management and key employee. The per share figures are computed on a fully-diluted basis. Fully diluted EBITDA is based on the number of outstanding shares of Common Stock plus all shares of Common Stock issuable upon conversion of all outstanding convertible securities and upon exercise of all outstanding warrants, options and rights, regardless of whether (i) such shares would be included in determining diluted earnings per share and (ii) such convertible securities are subject to a restriction or limitation on exercise. Thus, for purpose of determining fully-diluted Pre-Tax Income Per Share, the 4.9% limitation shall be disregarded. In determining the EBITDA any shares of Common Stock issuable as a result of an adjustment to the Conversion Prices will be excluded.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 14. CAPITAL STOCK (Continued)
Preferred stock (Continued)
The Investor or its affiliates will not be entitled to convert the Series A Preferred Stock into shares of Common Stock or exercise warrants to the extent that such conversion or exercise would result in beneficial ownership by the investor and its affiliates of more than 4.9% ("4.9% Limitation") of the then outstanding number of shares of Common Stock. The agreement provides that this provision cannot be amended.
The Company agreed not to issue any additional preferred stock until the earlier of (a) three years from the Closing or (b) the date that the Investor transfer and/or converts not less than 90% of the preferred shares and sells the underlying shares of common stock and for two years after Closing not to enter into any new borrowing of more than three times the sum of the earnings before interest, tax, depreciation and amortization (EBITDA) from recurring operations over the trailing four quarters.
The preferred shareholders have the right of first refusal in the event that the Company seeks to raise additional funds through a private placement of securities, other than exempt issuances. The percentage of shares that preferred shareholders may acquire is based on the ratio of shares held by the investor plus the number of shares issuable upon conversion of Series A Preferred Stock owned by the investor to the total of such shares.
No dividends are payable with respect to the Series A Preferred Stock and no dividends are payable on common stock while Series A Preferred Stock is outstanding. The Common stock shall not be redeemed while preferred stock is outstanding.
Upon any liquidation the Company is required to pay $.285 for each share of Series A Preferred Stock. The payment will be made before any payment to holders of any junior securities and after payment to holders of securities that are senior to the Series A Preferred Stock.
The Series A Preferred Shareholders do not have voting rights. However, the approval of the holders of 75% of the outstanding preferred shares is required to amend the certificate of incorporation, change the provisions of the preferred stock purchase agreement, to authorize additional Series A Preferred Shares in addition to the 9 million maximum authorized, or to authorize any class of stock that ranks senior with respect to voting rights, dividends or liquidations.
Stock warrants
At March 31, 2005, the Ranor preferred shareholders and debt holders had warrants to acquire 650,000 shares of common stock at a price of $.001 per share. The warrants were immediately exercisable and would have expired on August 7, 2012. The stockholder agreements contained a provision whereby, effective August 2009, any holders of stock warrants could have, upon written notice, require Ranor to repurchase the warrants or any shares issued under the warrant agreement at a price as defined in the agreement. At March 31, 2005, these warrants had no determinable value. The warrants carried repurchase provisions and 650,000 shares of common stock had been reserved for the issuance of these warrants. The warrants were cancelled on February 24, 2006.
On March 31, 2006 there were 11,220,000 warrants attached to convertible preferred shares. These warrants are exercisable, in part or full, at any time from February 24, 2006 to expiration time, February 24, 2011. The number of shares to be received upon exercise of the warrant is determined by multiplying the total number shares with respect to which this Warrant is then being exercised with the percentage difference between the last reported sales and exercise price of the stock. The exercise price is further adjusted considering the amount of EBITDA similar to the conversion price.
Common stock
Techprecision common shares, $.0001 par value, outstanding on March 31, 2006 were 9,967,000. During the recapitalization, 350,000 outstanding shares of Ranor were exchanged for 7,997,000 shares of Techprecision. Shares of Techprecision were sold or purchased, by Techprecision between $.25 and $.29 per share for the year ending March 31, 2006.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 15. 2006 LONG-TERM INCENTIVE PLAN
In February 2006 the directors adopted, subject to stockholder approval, the 2006 long-term incentive plan. The purpose of the Company's 2006 Long-Term Incentive Plan ("the Plan") is to attract, retain and reward officers and other key employees, directors, consultants and independent contractors of the Company. The Plan will be administered by a committee of the Company's independent directors. They will determine 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, of them, are to be granted pursuant to the Plan, to one or more eligible persons. The total number of shares of Stock reserved and available for distribution under the Plan is 1,000,000 shares of common stock.
Stock Options granted under the Plan may be of two types: (i) incentive stock options and (ii) non-qualified stock options. The option price, term and exercise conditions will be determined by the Committee at the time of grant. But no Stock Option will be exercisable more than ten (10) years after the date the Option is granted.
On July first of each year, commencing in 2007, each independent director will be granted a non-qualified stock option to purchase five thousand shares of stock (or such lesser number of shares of stock as remain available). The stock options will 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 will become exercisable cumulatively as to fifty percent of the shares subject six months from the date of grant and as to the remaining fifty percent eighteen months from the date of grant. The options will expire on the earlier of five years from the date of grant, or seven months from the date such independent director ceases to be a director.
The independent director, when first elected to the Board, will automatically receive a non-qualified stock option to purchase 25,000 shares of common stock (or such lesser number of shares of Stock as remains available). The Stock Options will 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.
NOTE 16. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Ranor maintains bank account balances, which, at times, may exceed insured limits. Ranor has not experienced any losses with these accounts. Management believes Ranor is not exposed to any significant credit risk on cash.
In 2006, Ranor sold a substantial portion of its products to two different customers in each of the last two years. Sales for the years ended March 31, 2006 and 2005, to these customers were approximately $3.0 million (15%), and $2.6 million (13%) in 2006 and approximately $2.7 million (19%), and $1.6 million (11%) in 2005. At March 31, 2006, amounts due from these customers, included in trade accounts receivable, were $519,667 and $38,777, respectively and at March 31, 2005 $286,696 and $248,604, respectively.
NOTE 17. CONTINGENT LIABILITIES
Officer employment contract
On February 24, 2006 the Company entered into a new employment agreement with Mr. Stanley Youtt to be chief executive officer of Ranor, Inc. (subsidiary company) until January 31, 2009. Mr. Youtt has been the chief executive officer for the past 3 years. As compensation for services and in consideration of his agreement not to compete the Company agreed to pay him an annual base salary of $200,000 that may be increased by the Board of Directors. The CEO is eligible for an annual cash performance bonus based upon the Company's financial performance as set forth in a resolution of the Board within the first three months of each year. CEO is eligible for any Stock Option Plan, as the Board shall in its sole discretion institute from time to time.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Warranties
Products are designed and inspected during the building process by customers before they leave the factory. Once the customer has signed off that he has inspected the final product then the Company no longer has any responsibility or warrants the functionality of that product. Because the Company does not warrant our products the Company has not set up a set up a reserve for product warranties.
Environmental Preservation- Subsequent Event
In the fiscal year ended March 31, 2007 the Company plans to construct a shed to store scrap materials and make a claim for construction costs under the escrow agreement, based on a breach of the seller's representations and warranties relating to environmental compliance. The purpose of the shed is to protect the surrounding soil from any seepage. The estimated cost of constructing the shed is approximately $100,000.
TECHPRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, MARCH 31,
2006 2006
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 679,845 $ 492,801
Restricted cash-indemnification obligation escrow 950,000 950,000
Accounts receivable, less allowance for doubtful
accounts of $25,000 at June 30 and March 31, 2006 and 2005 2,753,036 2,481,619
Other receivables 24,708 25,665
Costs incurred on uncompleted contracts,
net of allowance for loss and progress billings 1,108,463 1,306,589
Inventories-raw materials 221,297 214,148
Prepaid expenses 220,462 386,475
Deferred loan costs, net 56,825 207,402
----------- -----------
Total current assets 6,014,636 6,064,699
Property, plant and equipment, net 2,472,834 2,556,994
Other assets deferred loan cost, net 44,460 46,127
----------- -----------
Total assets $ 8,531,930 $ 8,667,820
=========== ===========
CURRENT LIABILITIES
Accounts payable $ 986,166 $ 691,054
Accrued expenses 442,999 561,848
Due to prior shareholders under escrow obligation 843,600 843,600
Current maturity of long-term debt 576,934 576,934
Mortgage payable 3,200,000 3,300,000
----------- -----------
Total current liabilities 6,049,699 5,973,436
LONG-TERM DEBT
Notes payable- noncurrent 3,298,185 3,442,467
STOCKHOLDERS' DEFICIT
Preferred stock-par value $.0001 per share, 10,000,000 shares authorized, of
which 9,000,000 are designated as Series A Preferred Stock, with 7,719,250
shares issued and outstanding at June 30 and March 31, 2006 2,150,000 2,150,000
Common stock - par value $.0001 authorized 90,000,000, 10,009,000 and 9,967,000 issued and
outstanding on June 30, and March 31, 2006, respectively. 1,002 997
Paid in capital 1,248,377 1,240,821
Accumulated deficit (4,215,333) (4,139,901)
----------- -----------
Total stockholders' deficit ( 815,954) (748,083)
----------- -----------
$ 8,531,930 $ 8,667,820
=========== ===========
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
---------------------------
2006 2005
---------- ------------
Net sales $4,198,530 $5,416,838
Cost of sales 3,410,005 4,503,686
---------- ----------
Gross profit 788,525 913,152
Selling, general and administrative 680,926 504,639
---------- ----------
Income (loss) from operations 107,599 408,513
---------- ----------
Other income (expenses)
Interest expense (183,239) (280,300)
Interest income 212 3,014
---------- ----------
(183,027) (277,286)
---------- ----------
Income (loss) before income taxes (75,428) 131,227
Provision for income taxes (3,100)
----------
Net Income (loss) $ (75,428) $ 128,127
========== ==========
Weighted average number of shares of common stock outstanding 9,991,462 8,089,000
Net income (loss) per share of common stock (.01) .02
========== ==========
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD APRIL 1, 2005 TO JUNE 30, 2006
(Unaudited)
Preferred Stock Common Stock
Warrants ---------------------- --------------------- Paid in Accumulated
Outstanding Shares Amount Shares Amount Capital Deficit Total
------------- --------- ---------- ---------- ------- ---------- ----------- -----------
April 1, 2005 8,089,000 $ 809 392,165 $(3,711,753) $(3,318,779)
Sale of preferred
stock and
warrants 11,220,000 7,719,250 $2,150,000 2,150,000
Sale of common
stock 1,708,000 171 501,829 502,000
Issuance of
shares of
common stock
for services 170,000 17 42,483 42,500
Contributed
capital 304,344 304,344
Loss for period (428,148) (428,148)
---------- --------- ---------- ---------- ------ ---------- ----------- -----------
Balance, March
31, 2006 11,220,000 7,719,250 $2,150,000 9,967,000 $ 997 $1,240,821 $(4,139,901) $ (748,083)
Shares issued for
employee
services 42,000 5 7,556 7,561
Loss for period (75,432) (75,432)
---------- --------- ---------- ---------- ------ ---------- ----------- -----------
Balance June 30,
2006 11,220,000 7,719,250 $2,150,000 10,009,000 $1,002 $1,248,377 $(4,215,333) $ (815,954)
========== ========= ========== ========== ====== ========== =========== ===========
|
The accompanying notes are an integral part of the financial statements.
ECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30,
----------------------------
2006 2005
----------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES
Net gain (loss) for the period $ (75,432) $ 128,127
Noncash items included in net loss:
Depreciation and amortization 256,030 103,081
Shares issued for services 7,561 --
Changes in assets and liabilities:
Accounts receivable (270,460) 1,973
Inventory (7,149) 11,805
Costs on uncompleted contracts 198,126 (304,138)
Prepaid expenses 166,013 25,650
Accounts payable and accrued expenses 176,263 (423,802)
---------- ----------
Net cash used in operating activities 450,952 (457,304)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property, plant and equipment (19,626) (62,547)
---------- ----------
Net cash used in investing activities (19,626) (62,547)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of notes (144,282) (1,356)
Payment of mortgage note (100,000) --
---------- ----------
Net cash provided by (used in) financing activities (244,282) (1,356)
---------- ----------
Net increase (decrease) in cash and cash equivalents 187,044 (521,207)
CASH AND CASH EQUIVALENTS, beginning of period 1,442,801 1,226,030
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $1,629,845 $ 704,823
========== ==========
|
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three months ended June 30,
----------------------------
2006 2005
-------- --------
Supplemental Disclosures of Cash Flows Information
Cash paid during the period for:
Interest expense $189,302 $186,972
======== ========
Income taxes 39,088 $ 3,100
======== ========
|
In the three month period ended June 30, 2006, the Company issued 42,000 shares to employees of the Company. The shares were valued at $.18 per share or $7,561. The 42,000 shares are part of a total grant of 126,000 shares which vest one-third immediately, and the remaining two-thirds in two annual installments. No officers or directors received any shares.
The accompanying notes are an integral part of the financial statements.
TECHPRECISION CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information necessary for a fair presentation of results of operation, financial position, and cash flows in conformity with accounting principles generally accepted in the U.S. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results Techprecision Corporation and its subsidiaries for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended March 31, 2006. Certain prior year amounts may have been reclassified to conform with the presentation used in 2006.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
FASB Interpretation No. 46R, Consolidation of Variable Interest Entities - An Interpretation of ARB51 The FASB finalized FIN 46R in December 2003. FIN 46R expands the scope of ARB51 and various EITFs and can require consolidation of legal structures, called Variable Interest Entities (VIEs). Companies with investments in Special Purpose Entities (SPEs) were required to implement FIN 46R in 2003; however, companies with VIEs were permitted to implement in the first quarter of 2004. We have a VIE, WM Realty Management, that we have determined will qualify for consolidation. We have consolidated this VIE for the period ended June 30, and March 31, 2006 and the most significant impact to our financial statements is to include the mortgage of $3.3 million and to eliminate the gain of $1.7 million and to show the land and building at the value on the books of Ranor prior to the sale.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4," which adopts wording from the International Account Standards Board's (IASB) LAS 2 "Inventories" in an effort to improve the comparability of cross-border financial reporting. The FASB and IASB both believe the standards have the same intent; however, an amendment to the wording was adopted to avoid inconsistent application. The new standard indicates that abnormal freight, handling costs, and wasted materials (spoilage) are required to be treated as current period charges rather than as a portion of inventory cost. Additionally, the standard clarifies that fixed production overhead should be allocated based on the normal capacity of a production facility. The Statement is effective beginning in fiscal year 2007. Adoption is not expected to have a material impact on our consolidated earning, financial position or cash flows.
In December 2004, the FASB issued FSP FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004." The FSP clarifies that the manufacturer's deduction provided for under the American Jobs Creation Act of 2004 (the Act) should be accounted for as a special deduction in accordance with SFAS No. 109, "Accounting for Income Taxes," and not as a tax rate reduction. The Qualified Production Activities Deduction will not impact our consolidated earnings, financial position or cash flows for fiscal year 2006 because the deduction is not available to us. We are currently evaluating the effect that this deduction will have in subsequent years.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employee. "SFAS 123R requires that all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in the fiscal year 2006. Under SFAS 123R, we must determine the appropriate fair value model to be used in valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. Upon adoption, we may choose from two transition methods: the modified-prospective transition approach or the modified-retroactive transition approach. Under the modified-prospective transition approach we would be required to recognize compensation cost for awards that were granted prior to, but not vested as of the date of adoption. Prior periods remain unchanged and pro forma disclosures previously required by SFAS No. 123 continue to be required. Under the modified -retrospective transition method we would be required to restate prior periods by recognizing compensation cost in the amounts previously reported in the pro forma disclosure under SFAS No. 123. Under this method, we would be permitted to apply this presentation to all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted. We would also be required to follow the same guidelines as in the modified-prospective transition method for awards granted subsequent to adoption and those that were granted and not yet vested. We are currently evaluating the requirements of SFAS 123R and its impact on our consolidated results of operations and earnings per share. We have not yet determined the method of adoption or the effect of adopting SFAS 123R, and it has not been determined whether the adoption will result in amounts similar to the current pro forma disclosures under SFAS 123.
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
As of June 30, 2006 and March 31, 2006 property, plant and equipment consisted of the following:
June 30, 2006 March 31, 2006
------------- --------------
Land $ 110,113 $ 110,113
Building and improvements 1,282,118 1,290,072
Machinery equipment, furniture and fixtures 2,637,278 2,609,698
----------- ------------
4,029,509 4,009,883
Less: accumulated depreciation 1,556,675 1,452,889
----------- ----------
$2,472,834 $2,556,994
=========== ==========
|
Depreciation expense for the three month periods ended June, 2006 and 2005 were $103,785 and $103,081, respectively. Land and buildings (which are owned by WM Realty Management, LLC- a consolidated entity under Fin 46 R) are collateral for the $3,300,000 mortgage loan. Other fixed assets (equipment) of the Company together with its other personal properties, are collateral for the Sovereign Bank $4,000,000 secured loan and line of credit.
NOTE 4. COSTS INCURRED ON UNCOMPLETED CONTRACTS
The Company recognizes revenues based upon the units-of-delivery method (see Note 1).
Contracts in process consisted of the following at June 30 and March 31:
June 30, 2006 March 31, 2006
------------- --------------
Costs incurred on uncompleted contracts, net of allowance for loss $ 3,446,711 $ 2,889,650
Less: Advance billings and deposits (2,116,951) (1,583,061)
----------- -----------
$ 1,329,760 $ 1,306,589
=========== ===========
|
All inventories are collateral for Sovereign Bank loan and constitute a part of the computation of the maximum loan amount under the agreement.
NOTE 5. DEFERRED CHARGES
Deferred charges represent the capitalization of costs incurred in connection with obtaining the bank loan and building mortgage. These costs are being amortized over the term of the related debt obligation, 5 months to 72 months. Amortization charged to operations in first quarter ended June 30, 2006 and 2005 were $152,314 and $-0-, respectively. As of June 30, deferred charges were as follows:
June 30, 2006 March 31, 2006
-------------- ---------------
Deferred costs expiring in one year or less:
Deferred mortgage costs $ 265,943 $265,943
Less:accumulated amortization (209,118) (58,541)
--------- --------
$ 56,825 $207,402
========= ========
Deferred costs expiring after one year:
Deferred loan costs $ 46,852 $ 46,852
Accumulated amortization (2,392) (655)
--------- --------
$ 44,460 $ 46,127
========= ========
|
NOTE 6. LONG-TERM DEBT
The following debt obligations, outstanding on June 30 and March 31, 2006:
June 30, 2006 March 31, 2006
------------- ---------------
Sovereign Bank- Secured Term note payable- 72 month 9% variable
term note with quarterly principal payments of $142,857 plus interest.
Final payment due on March 1, 2013. $3,857,143 $4,000,000
Automobile Loan -
monthly installments of $552 including interest of 4.9%, commencing July 20, 2003 through
June 20, 2009. 17,976 19,401
---------- ----------
3,875,119 4,019,401
Principal payments due within one year (576,934) (576,934)
---------- ----------
Principal payments due after one year $3,298,185 $3,442,467
========== ==========
|
NOTE 7. RESTRICTED CASH - INDEMNIFICATION OBLIGATION ESCROW
In May 2004, the Company was requested to undertake a response and remedial action to cleanup environmental issues discovered during an onsite inspection by the Commonwealth of Massachusetts Office of Environmental Affairs. The Company signed a consent order in October 2004, paid a fine of $7,800 and proceeded to correct the deficiencies.
The stock purchase agreement, pursuant to which the Company purchased the outstanding securities of Ranor, provided for the parties to establish an escrow account into which $925,000 of the purchase price of the securities was placed. If the sellers had breached any of their representations and warranties under the stock purchase agreement, the Company's sole recourse is against the escrow account. To the extent that there is no claim against the escrow by one year from the closing, the escrow account is paid to Ranor's former stockholders. The Company is entitled to recover from the escrow an amount equal to its damages sustained as a result of a breach by the selling stockholders of their representations and warranties. The Company has recorded an expense against the escrow account in the amount of $81,400. The claim is for the former stockholders' breach of their representations and warranties relating to environmental matters. The Company reflects the recovery of this amount on its March 31, 2006 and June 30, 2006 balance sheets as a reduction in the amount due to the former stockholders and an increase in additional paid in capital.
In the fiscal year ended March 31, 2007, the Company plans to construct a shed to store scrap materials and make a claim for construction costs under the escrow agreement, based on a breach of the seller's representations and warranties relating to environmental compliance. The purpose of the shed is to protect the surrounding soil from any seepage. The estimated cost of constructing the shed is approximately $100,000.
NOTE 8. RELATED PARTY TRANSACTIONS
Management Fees
Until February 24, 2006, Ranor had to pay management fees totaling $200,000 per year to four shareholders under agreements that expire in August 2006.
On February 24, 2006, the prior management agreement was canceled, any balance due was forgiven and the Company entered into a new management and consulting agreement with Techprecision, LLC, a limited liability company composed of stockholders of the Company. The Agreement ends on March 31, 2009. During the term of the agreement, Techprecision, LLC, is to serve as a consultant to the Company and each of its existing and future subsidiaries. The consultation will include assistance with the determination of the goals, general policies and direction of the Company and its subsidiaries, financings, manufacturing, sales, distribution and customer relations.
Techprecision, LLC's consulting fee will be initially set at $200,000 per annum, payable monthly in twelve equal installments, commencing March 1, 2006. In addition to the management fee, Techprecision, LLC the manager shall be entitled to a performance bonus determined as follows; the compensation committee of the Board of Directors will set performance objectives for the fiscal year. If the performance objectives are attained or exceeded, the Company will pay the Techprecision LLC's manager a performance bonus equal to two and one-half percent of the Company's cash flow from operations for the fiscal year. In the event that the Company makes an acquisition or disposes of a business segment during a fiscal year, the performance objectives may be revised by the compensation committee to reflect such transaction. The Company's chief executive officer, who is a member of Techprecision, LLC, receives a portion of the compensation paid to Techprecision, LLC, and he does not receive any compensation directly from the Company.
Sale and Lease Agreement and Intra-company Receivable
On February 24, 2006, WM Realty Management, LLC borrowed $3,300,000 to purchase from Ranor, Inc. its real property for $3,000,000 which was appraised on October 31, 2005 at $4,750,000 and leased the building and a major portion of the land to Ranor, Inc. The Company advanced $226,808 to pay closing costs and has a receivable of that amount from WM Realty Management, LLC. WM Realty Management, LLC was formed solely for this purpose; its partners are stockholders of the Company. The Company has considered WM Realty Management, LLC a variable interest entity as defined by FIN 46, and therefore has consolidated WM Realty Management, LLC's operations into the Company.
The WM Realty Management, LLC mortgage bears interest at 11% per annum and provides for monthly payments of principal in the amount of $25,000. The outstanding balance of $3,200,000 was due on August 1, 2006. Expenses of obtaining the mortgage were $192,455 and are being amortized over the stated term of the mortgage, which is a period of approximately five months. In August 2006, WM Realty obtained a one-month extension and the right to extend the maturity date for two one-month periods. The interest rate for the extension is 11.5% per annum plus .75% of the principal balance for each month's extension. Amortization remains at $25,000 per month. WM Realty is seeking to find a long-term lender.
NOTE 9. SALE AND LEASE
On February 24, 2006, Ranor, Inc. entered into a sale and leaseback arrangement with WM Realty Management, LLC, a special purpose entity. The sale of the building was for $3,000,000. The term of the lease is for a period of fifteen years commencing on February 24, 2006. For the three months ended June 30, 2006 rent expense paid by the Company was $109,500. This amount was eliminated in consolidation and the interest and depreciation were expensed.
The Company has an option to extend the term of the lease for two additional terms of five years, upon the same terms. The Minimum Rent payable for each option term will be the greater of (i) the minimum rent payable under the lease immediately prior to either the expiration date, or the expiration of the preceding option term, or (ii) the fair market rent for the leased premises. Minimum rental for the base year of the lease is $438,000. Effective as of January of each year subsequent to the base year, during the contract and any subsequent extension, a cost of living adjustment will be made to the minimum rental, based on the Consumer Price Index.
The Company has the option to repurchase the property at any time beginning after one year from the date of the agreement, at the appraised market value.
The minimum future lease payments are as follows:
Year Ended March 31 Amount
------------------- ----------
2007 $ 438,000
2008 438,000
2009 438,000
2010 438,000
2011-2015 2,190,000
2016-2021 2,190,000
2022 438,000
----------
Total $6,570,000
==========
|
NOTE 10. CAPITAL STOCK
Preferred stock
On February 24, 2006, Barron Partners LP purchased 7,719,250 shares of series A preferred stock, par value $0.0001 per share for $2,150,000, net of a $50,000 due diligence fee payable to Barron Partners. Initially, Series A Preferred Stock are convertible into common stock at a conversion rate of one share of Common Stock, for each share of Series A Preferred Stock. In addition, pursuant to the preferred stock purchase agreement, the Company issued to Barron Partners common stock purchase warrants to purchase up to 5,610,000 of common stock at $0.57 per share and 5,610,000 shares of common stock at $0.855 per share.
Because the Company did not attain EBITDA of $.04613 per share for the year ended March 31, 2006 on a fully-diluted basis, as defined, the conversion price was adjusted from $.285 to $.24225, a reduction of 15%, with the result that the series A preferred stock became convertible into 9,081,527 shares of common stock. As a result of the Company's failure to meet the EBITDA target for the year ended March 31, 2006, the exercise price of the warrants decreased by 15%, from $.57 to $.4845 and from $.855 to $.7268 per share.
The conversion rate of the series A preferred stock and the exercise price of the warrants are subject to further adjustment if the Company's EBITDA per share, on a fully-diluted basis, is less than $.08568 per share for the year ended March 31, 2007, based on the percentage shortfall from $.08568 per share, from zero up to a maximum adjustment of 15%. The adjustment could result in an increase in the maximum number of shares of common stock being issued upon conversion of the series A preferred stock from 9,081,527 to 10,684,150 shares of common stock and a further reduction in the exercise price of the warrants from $.4845 to $.4118 and from $.7268 to $.6177 per share.
EBITDA per share is defined in the preferred stock purchase agreement as earnings from recurring operations before any charges relating to the transactions involved in February 24, 2006 agreement and any other non recurring items, including warrants, but excluding options or stock grants issued to management and key employees. The per share figures are computed on a fully-diluted basis. Fully diluted EBITDA is based on the number of outstanding shares of Common stock plus all shares of Common stock issuable upon conversion of all outstanding convertible securities and upon exercise of all outstanding warrants, options and rights, regardless of whether (i) such shares would be included in determining diluted earnings per share and (ii) such convertible securities are subject to a restriction or limitation on exercise. Thus, for purpose of determining fully-diluted Pre-Tax Income Per Share, the 4.9% limitation (see paragraph below) shall be disregarded. In determining the EBITDA per share, any shares of Common stock issuable as a result of an adjustment to the conversion prices will be excluded.
The Investor or its affiliates will not be entitled to convert the Series A Preferred Stock into shares of Common stock or exercise warrants to the extent that such conversion or exercise would result in beneficial ownership by the investor and its affiliates of more than 4.9% ("4.9% Limitation") of the then outstanding number of shares of Common stock. The agreement provides that this provision cannot be amended.
The Company agreed not to issue any additional preferred stock until the earlier of (a) three years from the Closing or (b) the date that the Investor transfer and/or converts not less than 90% of the preferred shares and sells the underlying shares of common stock and for two years after Closing not to enter into any new borrowing of more than three times the sum of the earnings before interest, tax, depreciation and amortization (EBITDA) from recurring operations over the trailing four quarters.
The preferred shareholders have the right of first refusal in the event that the Company seeks to raise additional funds through a private placement of securities, other than exempt issuances. The percentage of shares that preferred shareholders may acquire is based on the ratio of shares held by the investor plus the number of shares issuable upon conversion of Series A Preferred Stock owned by the investor to the total of such shares.
No dividends are payable with respect to the Series A Preferred Stock and no dividends are payable on common stock while Series A Preferred Stock is outstanding. The Common stock shall not be redeemed while preferred stock is outstanding.
Upon any liquidation the Company is required to pay $.285 for each share of Series A Preferred Stock. The payment will be made before any payment to holders of any junior securities and after payment to holders of securities that are senior to the Series A Preferred Stock.
The Series A Preferred Shareholders do not have voting rights. However, the approval of the holders of 75% of the outstanding preferred shares is required to amend the certificate of incorporation, change the provisions of the preferred stock purchase agreement, to authorize additional Series A Preferred Shares in addition to the 9 million maximum authorized, or to authorize any class of stock that ranks senior with respect to voting rights, dividends or liquidations.
Stock warrants
On June 30, 2006 there were 11,220,000 warrants attached to convertible preferred shares. These warrants are exercisable, in part or full, at any time from February 24, 2006 to expiration time, February 24, 2011. The number of shares to be received upon exercise of the warrant is determined by multiplying the total number shares with respect to which this Warrant is then being exercised with the percentage difference between the last reported sales and exercise price of the stock. The exercise price is further adjusted considering the amount of EBITDA similar to the conversion price.
Common stock
At March 31, 2006, the Company had 9,967,000 shares of common stock, shares were $.0001 par value, outstanding. During the three months ended June 30, 2006, the Company granted 126,000 shares of common stock to employees as compensation for services. The vested shares were valued at $.18 per share. The employees' rights to the shares vested immediately as to 42,000 shares and they vest in installments as to the remaining shares.
NOTE 11. EARNINGS PER SHARE
We compute basic earnings per share ("basic EPS") by dividing net income by the weighted average number of shares of common stock outstanding for the reporting period. Diluted earnings per share ("diluted EPS") gives effects to all dilutive potential shares outstanding resulting from employee stock options during the period. The following table sets forth the computation of basic and diluted per share for the three-month periods ended June 30, 2006 and 2005.
Three months ended June 30,
---------------------------
2006 2005
---------- ----------
Net income (loss) $ (75,428) $ 128,127
Basic-weighted average shares outstanding 9,991,462 8,089,000
Effect of dilutive potential securities N/A N/A
Diluted- weighted average shares outstanding N/A N/A
Basic EPS $ (.01) $ .02
========== ==========
Diluted EPS N/A N/A
|
The assumed exercise of outstanding stock options and the conversion of preferred shares have been excluded from the calculations of loss per share as their effect is antidilutive.
Part II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
The Company's certificate of incorporation provide that the liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under Delaware law and provides for indemnification to the extent permitted by Delaware law.
The Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that 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 for any breach of the director's duty of loyalty to the corporation or its stockholders; acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; payments of unlawful dividends or unlawful stock repurchases or redemptions, or any transaction from which the director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses including attorneys' fees, judgments, fines and amounts paid in settlement in connection with various actions, suits or proceedings, whether civil, criminal, administrative or investigative other than an action by or in the right of the corporation, a derivative action, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses including attorneys' fees incurred in connection with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, agreement, a vote of stockholders or disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, offices or controlling persons of the Company, pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of the registration, all of which will be paid by the Company, are as follows:
Item Amount
---- ---------
SEC filing fee $1,093.84
Printing and filing *
Legal expenses, including blue sky *
Accounting expenses *
Miscellaneous *
Total *
|
* To be supplied by Amendment.
II-1
Item 26. Recent Sales of Unregistered Securities
In connection with our organization in February 2005, we issued 1,000,000 to Capital Markets and 20,000 shares to Mark Allen for $102. Both purchasers are "accredited investors" and they represented in writing that they acquired the securities for their own accounts. In February 2006, in connection with the reverse acquisition, we purchased 928,000 shares from Capital Markets for $167,602, and paid $32,398 of debt due to Capital Markets.
In December 2005, we issued 8,000 shares of common stock for $2,000. The sales were made directly by the Company to persons known by the Company. One of the investors, Michael Byl, is president of Southridge Investment Group, LLC, an NASD registered broker-dealer formerly known as Greenfield Capital Partners LLC ("Southridge"). Southridge is affiliated by common ownership with Capital Markets in that both are controlled by a family limited partnership in which Steve Hicks has voting and disposition control. Of the remaining 39 investors, one is an employee, but not an affiliate of, Southridge, 16 are employees of entities that are related to Southridge, but are not broker-dealers, ten have a family relationship with Steve Hicks, and twelve are not affiliated with the Company or Capital Markets. No broker or underwriter was involved in the sale of the shares and no brokerage or underwriting commission was paid. The purchasers acquired the shares for their own accounts and not with a view to the sale or distribution thereof. The stock certificates representing the shares bear a restrictive legend.
On February 24, 2006, we issued the following securities:
o Pursuant to the preferred stock purchase agreement, we sold to Barron Partners, for an aggregate of $2.2 million, (i) 7,719,250 shares of series A preferred stock, and (ii) warrants to purchase 5,610,000 shares of common stock at $.57 per share and 5,610,000 shares of common stock at $.855 per share.
o Pursuant to an agreement with the members of Ranor Acquisition LLC, we issued to the members of Ranor Acquisition 7,997,000 shares of common stock, as follows:
Name No. Shares
---- ----------
James G. Reindl 3,095,300
Andrew A. Levy 2,825,300
Redstone Capital Corporation 250,000
Stanley Youtt 796,000
Martin Daube 741,400
Larry Steinbrueck 204,000
Michael Holly 85,000
---------
Total 7,997,000
|
Mr. Levy is president of Redstone Capital Corporation and the stock of Redstone is owned by Mr. Levy and his wife.
o We sold 1,700,000 shares of common stock to Stanoff Corporation for $500,000.
o We issued the 170,000 shares of common stock for services rendered as follows:
Name Shares
---- -------
Mathers Associates 80,000
Grace Sorensen 40,000
Glenn Goldfinger 40,000
Mary Desmond 10,000
-------
Total 170,000
|
II-2
No broker was involved in connection with any of the foregoing transactions.
The foregoing issuances were exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D of the SEC thereunder.
Item 27. Exhibits
2.1 Stock purchase agreement dated August 17, 2005, by and among Ranor
Acquisiton, LLC, the stockholders of Ranor and Ranor, Inc.(1)
3.1 Certificate of incorporation(1)
3.2 By-laws(2)
3.3 Certificate of Designation for the Series A Convertible Preferred Stock(1)
4.1 Loan and security agreement dated February 24, 2006, between Ranor and
Sovereign Bank(1)
4.2 Guaranty from the Registrant to Sovereign Bank(1)
4.3 Form of warrant issued to Barron Partners LP(1)
5.1 Opinion of Sichenzia Ross Ference LLP*
10.1 Preferred stock purchase agreement dated February 24, 2006, between the
Registrant and Barron Partners, LP(1)
10.2 Registration rights agreement dated February 24, 2006, between the
Registrant and Barron Partners LP(1)
10.3 Agreement dated February 24, 2006, among the Registrant, Ranor Acquisition
LLC and the members of Ranor Acquisition LLC(1)
10.4 Subscription Agreement dated February 24, 2006(1)
10.5 Registration rights provisions pursuant to the agreements listed in
Exhibits 10.3 and 10.4(1)
10.6 Employment agreement between Ranor, Inc. and Stanley Youtt (3)
10.7 Management agreement dated February 24, 2006, between Ranor and
Techprecision LLC(1)
10.8 Lease, dated February 24, 2006 between WM Realty Management, LLC and
Ranor(1)
10.9 2006 Long-term incentive plan(4)
|
10.10 Letter agreement from WM Realty Management, LLC (1)
10.11 Letter agreement from Barron Partners LLC (1)
21.1 List of Subsidiaries(5) 23.1 Consent of Sichenzia Ross Ference LLP (included in Exhibit 5.1) 23.2 Consent of Bloom & Co., LLP (see Page II-7) ---------- |
* to be filed by amendment
(1) Filed herewith
(2) Filed as an exhibit to the Company's registration statement on Form 10-SB, which was filed with the Commission on June 23, 2005 and incorporated herein by reference.
(3) Previously filed.
(4) Filed as an exhibit to the Company's current report on Form 8-K which was filed with the Commission on March 3, 2006, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's annual report on Form 10-KSB for the year ended December 31, 2005 and incorporated hereby reference.
Item 28. Undertakings
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to the Registration Statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events arising after the effective date of the Registration Statement which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reelected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration" table in the effective registration statement; and (iii) include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, provided however, that provisions (i) and (ii) of this undertaking are inapplicable if the information to be filed thereunder is contained in periodic reports filed by the Company pursuant to the Exchange Act that are incorporated by reference into the Registration Statement.
II-3
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any of the securities being registered which remains unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Company is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Westminster, Commonwealth of Massachusetts on this 25th day of August, 2006.
TECHPRECISION CORPORATION
By: /s/James G. Reindl
---------------------------------
James G. Reindl, CEO
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James G. Reindl* Chief Executive Officer August 25, 2006
-------------------- and Director (Principal Executive
James G. Reindl Officer)
/s/Mary Desmond* Chief Financial Officer August 25, 2006
-------------------- (Principal Financial and Accounting
Mary Desmond Officer)
/s/ Stanley A. Youtt* Director August 25, 2006
--------------------
Stanley A. Youtt
/s/ Michael Holly* Director August 25, 2006
--------------------
Michael Holly
/s/ Larry Steinbrueck* Director August 25, 2006
--------------------
Larry Steinbrueck
/s/ Louis A. Winoski* Director August 25, 2006
--------------------
Louis A. Winoski
*By /s/ James G. Reindl
-------------------
James G. Reindl
Attorney in fact
II-5
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Exhibit 2.1
EXECUTION VERSION
STOCK PURCHASE AGREEMENT
By and Among
Ranor Acquisition LLC
as Purchaser
and
Green Mountain Partners III, LP
Phoenix Life Insurance Company
Ann Gray
Daniel Justicz
Jeffrey Lippincott
William Rose and
Stanley Youtt
as Sellers
and
Ranor, Inc.
1. DEFINITIONS...............................................................1
2. PURCHASE AND SALE OF SHARES AND PREFERRED SHARES..........................3
2.1. Purchase and Sale of Common Securities and Preferred Shares; Consideration....................................................3
2.2. Deliveries at Closing............................................4
3. NET CASH ADJUSTMENT; ACCOUNT RECEIVABLES AND PAYABLE TARGETS..............5
4. CLOSING...................................................................7
4.1. Closing and Closing Date.........................................7
4.2. Actions at Closing...............................................7
5. REPRESENTATIONS AND WARRANTIES OF SELLER..................................7
5.1. Organization.....................................................8
5.2. Authorization of Agreement.......................................8
5.3. Effect of Agreement..............................................8
5.4. Litigation.......................................................8
5.5. Title to Shares, Liens, etc......................................8
5.6. No Interest in Competitors.......................................8
6. REPRESENTATIONS AND WARRANTIES IN RESPECT OF THE COMPANY..................8
6.1. Organization, Good Standing, Power, Etc..........................9
6.2. Capital Stock....................................................9
6.3. Articles of Incorporation and By-laws............................9
6.4. Subsidiaries, Divisions and Affiliates...........................9
6.5. Equity Investments...............................................9
6.6. Effect of Agreement.............................................10
6.7. Restrictions....................................................10
6.8. Governmental and Other Consents.................................10
6.9. Financial Statements............................................10
6.10. Absence of Certain Changes or Events............................10
6.11. Title to Assets, Absence of Liens and Encumbrances..............11
6.12. Insurance.......................................................11
6.13. Agreements, Arrangements, Etc...................................11
6.14. Patents, Trademarks, Copyrights, Etc............................14
6.15. Permits, Licenses, Etc..........................................14
6.16. Compliance with Applicable Laws.................................14
6.17. Litigation......................................................15
6.18. Customers, Suppliers, Distributors and Agents...................15
6.19. Books and Records...............................................16
6.20. Employee Benefit Plans..........................................16
6.21. Powers of Attorney..............................................16
6.22. Labor Disputes, Unfair Labor Practices..........................16
6.23. Environmental Matters...........................................17
6.24. Tax and Other Returns and Reports...............................18
6.25. Recent Dividends and Other Distributions........................18
6.26. Debt............................................................19
6.27. Purchase and Sale Obligations...................................19
6.28. Other Information...............................................19
6.29. Accounts Receivable and Accounts Payable........................19
6.30. Foreign Corrupt Practices Act, Etc..............................19
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER..............................19
7.1. Organization....................................................19
7.2. Authorization of Agreement......................................19
7.3. Effect of Agreement.............................................20
7.4. Litigation......................................................20
8. PRE-CLOSING COVENANTS OF RANOR AND THE SHAREHOLDERS......................20
8.1. Conduct of Business Until Closing Date..........................20
8.2. Approvals, Consents and Further Assurances......................21
8.3. Access to Properties, Records, Suppliers, Agents, Etc...........21
8.4. Advice of Changes...............................................22
8.5. Conduct.........................................................22
8.6. Employee Benefit Plans..........................................22
8.7. Satisfaction of Conditions by the Company and Sellers...........22
8.8. Non-Competition.................................................22
8.9. Notices and Consents............................................23
8.10. Transfer Taxes..................................................23
8.11. Developments....................................................23
9. PRE-CLOSING COVENANTS OF PURCHASER.......................................23
10. POST-CLOSING COVENANTS...................................................23
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER.....................23
11.1. Accuracy of Representations and Warranties......................24
11.2. Performance of Agreements.......................................24
11.3. Litigation, Etc.................................................24
11.4. Approvals and Consents..........................................24
11.5. Seller's Certificate............................................25
11.6. Officer's Certificate...........................................25
11.7. Good Standing Certificates......................................25
11.8. No Material Adverse Change......................................25
11.9. Actions, Proceedings, Etc.......................................25
11.10. Licenses, Permits, Consents, Etc................................25
11.11. Employment Agreement............................................25
11.12. Opinion.........................................................25
11.13. Management Fees.................................................25
12. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RANOR AND THE SELLERS.........26
12.1. Accuracy of Representations and Warranties......................26
12.2. Performance of Agreements.......................................26
12.3. No Injunction...................................................26
12.4. Stockholder Agreement...........................................26
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION..............26
13.1. Survival........................................................26
13.2. Indemnification by the Sellers..................................26
13.3. Indemnification by Purchaser....................................27
13.4. Limitations on Indemnification..................................27
13.5. Right to Defend.................................................28
13.6. Subrogation.....................................................28
13.7. Exclusive Remedy................................................28
13.8. Effect of Insurance; Taxes; Etc.................................28
14. POST-CLOSING TAX MATTERS.................................................30
14.1. Tax Periods Beginning Before the Closing Date...................30
14.2. Cooperation on Tax Matters......................................30
15. SELLERS' REPRESENTATIVE..................................................31
16. MISCELLANEOUS............................................................31
16.1. Expenses........................................................31
16.2. Termination of Agreement........................................32
16.3. Waivers.........................................................32
16.4. Binding Effect; Benefits........................................32
16.5. Assignment......................................................32
16.6. Notices.........................................................32
16.7. Entire Agreement................................................33
16.8. Headings; Certain Terms.........................................34
16.9. Counterparts....................................................34
16.10. Governing Law...................................................34
16.11. Severability....................................................34
16.12. Amendments......................................................34
16.13. Section References..............................................34
16.14. Brokers and Finders.............................................34
EXHIBIT INDEX
Exhibit 2.2(b) Form of Escrow Agreement Exhibit 5.6 No Interest in Competitors Exhibit 6.1 Good Standing Certificates Exhibit 6.2(a) Capitalization Exhibit 6.8 Governmental and Other Consents Exhibit 6.10 Material Adverse Changes Exhibit 6.11 Title to Assets, Absence of Liens and Encumbrances Exhibit 6.12 Insurance Exhibit 6.13.1 Commitments Exhibit 6.13.3 Fulfillment of Commitments, No Default Exhibit 6.14 Patents, Trademarks, Copyrights Exhibit 6.15 Permits, Licenses, Etc. Exhibit 6.17 Litigation Exhibit 6.18(a) Customers, Suppliers, Distributors and Agents Exhibit 6.18(b) 10 Largest Purchasers and Providers Exhibit 6.20 Employee Benefit Plans Exhibit 6.21 Powers of Attorney Exhibit 6.22 Labor Disputes, Unfair Labor Practices Exhibit 6.23 Environmental Matters Exhibit 6.25 Recent Dividends and Other Distributions Exhibit 11.11 Form of Employment Agreement Exhibit 11.12 Seller Counsel Opinions Exhibit I Real Property Description |
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of this
17th day of August, 2005(1), by and among Ranor Acquisition LLC, a Delaware
limited liability company (the "Purchaser"), Green Mountain Partners III, LP
("GMP"), Phoenix Life Insurance Company ("Phoenix"; and together with GMP, the
"Institutional Sellers"), Ann Gray ("Gray"), Daniel Justicz ("Justicz"), Jeffrey
Lippincott ("Lipincott"), William Rose ("Rose") and Stanley Youtt ("Youtt"; and
together with Gray, Justicz, Lippincott and Rose, the "Individual Sellers" and
together with the Institutional Sellers, the "Sellers"), and Ranor, Inc, a
Delaware corporation of Bella Drive, Westminster, MA 01473 (the "Company").
Unless otherwise defined herein, capitalized terms have the meaning specified in
Section 1.
RECITALS:
WHEREAS, the Individual Sellers own (and will own as of the Closing Date) all of the issued and outstanding shares (the "Common Shares") of the common stock, $.001 par value, of the Company (the "Common Stock"), as more particularly described on Exhibit 6.2(a) attached hereto;
WHEREAS the Institutional Sellers own (and will own as of the Closing Date) all of the issued and outstanding Warrants ("Warrants"; the Common Shares and the Warrants are collectively referred to herein as the "Common Securities") to purchase Common Stock, as more particularly described on Exhibit 6.2(a) attached hereto;
WHEREAS, the Institutional Sellers own (and will own as of the Closing Date) all of the issued and outstanding shares (the "Preferred Shares") of the Series A Preferred Stock, $.001 par value, of the Company (the "Preferred Stock"), as more particularly described on Exhibit 6.2(a) attached hereto;
WHEREAS, the Purchaser desires to purchase the Common Securities from the Sellers and the Preferred Shares from the Institutional Sellers, and the Sellers desire to sell the Common Securities and Preferred Shares to Purchaser, all on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements of the parties hereinafter set forth, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following terms shall have the following meanings:
"Adjusted Redemption Value" shall mean the lesser of (i) the Redemption Value or (ii) the amount which will cause the Closing Date Purchase Price to equal $10,000.
"Affiliate". As used in this Agreement, the term "Affiliate" shall mean, as applied to any person, any other person directly or indirectly controlling, controlled by, or under common control with, that person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of that person or entity, whether through the ownership of voting securities, by contract, or otherwise.
"Ancillary Documents" shall have the meaning set forth in Section 9 hereof.
"Closing Date" shall have the meaning set forth in Section 4.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and/or superseded.
"Commitments" shall mean all agreements, indentures, mortgages, plans, policies, arrangements, and other instruments, including all amendments thereto (or where they are verbal, written summaries of the materials terms thereof), fixed or contingent, required to be disclosed on Exhibit 6.13.
"Company Debt" shall mean the aggregate principal and interest due the Institutional Investors pursuant to those certain 14% Senior Notes due August 7, 2002 as set forth on the Payoff Letter.
"Indemnifiable Claim" shall mean any claim or other proceeding with respect to which an Indemnitee may be entitled to indemnity under this Agreement.
"Indemnitee" shall mean the person seeking indemnification pursuant to this Agreement.
"Indemnitor" shall mean the party which is required or requested to provide indemnification pursuant to this Agreement.
"Net Cash Amount" shall mean either the Estimated Net Cash Amount or the Final Net Cash Amount, as applicable.
"Payoff Letter" shall have the meaning set forth in Section 2.4(b).
"Preferred Shares Percentage" shall mean, with respect to any Institutional Seller, the percentage obtained by dividing the number of Preferred Shares held by such Institutional Seller divided by 2,000.
"Ratable Portion" means, with respect to any Seller, the percentage set forth on Exhibit 6.2(a) opposite such Seller's name.
"Real Estate" shall mean all of the real property and factory buildings owned by the Company located in Westminster, Massachusetts as more specifically described in Exhibit I hereof.
"Redemption Value" shall mean Two Million Dollars ($2,000,000).
"Redemption Value Per Share" shall mean the amount equal to the Adjusted Redemption Value divided by 2,000.
"Seller Expenses" shall mean the fees and expenses of the Sellers incurred in connection with this Agreement.
"Seller Expenses Certificate" shall mean a certificate of the Seller Representative with respect to Seller Expenses.
"Seller Representative" shall mean GMP.
"2005 Balance Sheet" shall mean the audited balance sheet of the Company as of the fiscal year ended March 31, 2005.
2. PURCHASE AND SALE OF SHARES AND PREFERRED SHARES
2.1. Purchase and Sale of Common Securities and Preferred Shares; Consideration.
(a) In exchange for the consideration specified herein, and upon and subject to the terms and conditions of this Agreement, Purchaser agrees to purchase and acquire from the Sellers, and each Seller agrees to, sell, convey and deliver to Purchaser, at the Closing, all rights, title and interest in and to the Common Securities free of any and all encumbrances of any nature or description in exchange for cash having an aggregate value, determined as set forth herein, equal to $9,250,000, minus the aggregate amount of the Company Debt outstanding on the Closing Date, minus the Adjusted Redemption Value of the Preferred Shares, minus the Sellers' Expenses, plus (or minus, if the Net Cash Amount is a negative number) the Net Cash Amount on the Closing Date as determined in accordance with Section 3, minus, if any, the Account Payable Adjustment Amount (such aggregate value being referred to herein as the "Closing Date Purchase Price"). The Closing Date Purchase Price shall be subject to further adjustment after the Closing pursuant to Section 3.4.
(b) In exchange for the consideration specified herein, and upon and subject to the terms and conditions of this Agreement, Purchaser agrees to purchase and acquire from the Institutional Sellers, and the Institutional Sellers agree to, sell, convey and deliver to Purchaser, at the Closing, all rights, title and interest in and to the Preferred Shares free of any and all encumbrances of any nature or description in exchange for cash having an aggregate value equal to the Adjusted Redemption Value adjusted in adjusted in accordance with Section 3.4 after the Closing Date. In the event of any adjustment pursuant to Section 3.4 payable to the Sellers such amount shall first be paid to the Institutional Sellers until they have received the Redemption Value in full.
2.2. Deliveries at Closing.
(a) Subject to the terms and conditions set forth in this
Agreement, the Sellers agree to sell to Purchaser, and Purchaser agrees
to purchase from the Sellers, at the Closing referred to in Section 4
of this Agreement, all of the Common Securities in exchange for the
payment by Purchaser at the Closing of its Ratable Portion of the
Closing Date Purchase Price (provided that at the election of the
Institutional Sellers, any amount due in respect of the Warrants may be
allocated to the Adjusted Redemption Value payable pursuant to Section
2.2(b). At the Closing, each Seller shall deliver to Purchaser
certificates representing such Seller's Common Securities to be
purchased by Purchaser, free and clear of any lien, encumbrance,
security agreement, equity, option, claim, charge or restriction, other
than restrictions imposed by federal or applicable state securities
laws.
(b) Subject to the terms and conditions set forth in this
Agreement, the Institutional Sellers agree to sell to Purchaser, and
Purchaser agrees to purchase from the Institutional Sellers, at the
Closing referred to in Section 4 of this Agreement, all of the
Preferred Shares in exchange for the payment by Purchaser at the
Closing of the Redemption Value. At Closing, (i) $925,000 of the
Adjusted Redemption Value (the "Escrowed Funds") shall be placed in
escrow with a bank or trust company approved by the Purchaser and the
Sellers' Representative (the "Escrow Agent") pursuant to an escrow
agreement in the form of Exhibit 2.2(b) attached hereto, with such
changes as may be reasonably required by the Escrow Agent (the "Escrow
Agreement") and (ii) an amount equal to the Adjusted Redemption Value
minus the Escrowed Funds shall be distributed to the Institutional
Sellers so that each Institutional Seller will receive by wire transfer
of immediately available funds (x) an amount of the Adjusted Redemption
Value equal to the product of (i) the number of Preferred Shares owned
by such Institutional Seller, multiplied by (ii) the Redemption Value
Per Share, minus (y) such Seller's Preferred Shares Percentage of the
Escrowed Funds. The Escrowed Funds shall be held in escrow pursuant to
the terms of the Escrow Agreement to secure the obligations of the
Sellers with respect to any payment obligations of the Sellers under
Section 3.4 and to secure the indemnification obligations of the
Sellers under Section 13. At the Closing, each Institutional Seller
shall deliver to Purchaser certificates representing such Institutional
Seller's Preferred Shares to be purchased by Purchaser, free and clear
of any lien, encumbrance, security agreement, equity, option, claim,
charge or restriction, other than restrictions imposed by federal or
applicable state securities laws.
(c) Other Settlements at Closing. At the Closing, Purchaser shall (i) on behalf of the Company, cause the Company Debt to be repaid in full to the party or parties entitled thereto pursuant to the Payoff Letter, (ii) pay the Escrow Funds into escrow account to be held by the Escrow Agent in accordance with the terms of this Agreement and the Escrow Agreement and (iii) pay the Sellers Expenses as provided on the Seller Expenses Certificate. The estimated amount of the Company Debt as of September 30, 2005 will be approximately $8,728,000.
3. NET CASH ADJUSTMENT; ACCOUNT RECEIVABLES AND PAYABLE TARGETS
3.1 At the Closing, the Company shall have prepared and delivered to
the Purchaser (i) an unaudited balance sheet (the "Estimated Closing Balance
Sheet") of the Company as of the close of business on the day immediately
preceding the Closing Date (referred to herein as the "Calculation Date"),
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the 2005 Balance Sheet, (ii) a list of the Company's
accounts receivables as of the Calculation Date setting forth with respect to
each account receivable (x) the amount outstanding and (y) the date such account
receivable was created, (iii) a list of each of the Company's accounts payable
as of the Calculation Date setting forth with respect to each account payable
(x) the amount outstanding and (y) the date such account payable was created,
and specifically identifying each account payable outstanding in excess of 45
days as of the Calculation Date, and (iv) a certificate signed by the president
or chief financial officer of the Company, certifying (A) that the Estimated
Closing Balance Sheet was prepared on the basis described in clause (i) above,
(B) that each of the lists in clauses (ii) and (iii) above is true, correct and
complete as of the Calculation Date and (C) the cash balance (including any cash
equivalents) of the Company as of the Calculation Date (the "Estimated
Calculation Date Net Cash Amount"). In calculating the cash balance advance
customer deposits in excess of inventory value identified therewith shall not be
counted toward the Calculation Date Cash Balance.
3.2 If the Estimated Calculation Date Net Cash Amount is less than $250,000, the Closing Date Purchase Price shall be reduced by an amount equal to such deficiency, or if the Calculation Date Cash Balance is greater than $250,000 the Closing Date Purchase Price shall be increased by an amount equal to such excess (such excess or deficiency, the "Estimated Net Cash Amount").
3.3 If the accounts receivable or accounts payable of the Company shall not be substantially at the aging levels averaged over the previous twelve (12) months with payables averaging no more than thirty (30) days and no payables over sixty (60) days Purchaser may, in its sole discretion, elect either to terminate this Agreement and not purchase the Common Securities and Preferred Shares or otherwise proceed to consummate these transactions without any adjustment except as provided in the immediately succeeding sentence. If any accounts payable set forth on the list provided by Section 3.1 are outstanding for more than 45 days as of the Calculation Date, the Closing Date Purchase Price will be reduced by the aggregate amount of such accounts payable (the "Account Payable Adjustment Amount").
3.4 Within 45 days after the Closing, the Purchaser shall prepare and submit to the Seller Representative an unaudited balance sheet of the Company as of the close of business on the Calculation Date, prepared in accordance with generally accepted accounting principles applied on a basis consistent with the 2005 Balance Sheet (the "Final Closing Statement"). The Purchaser and its accountant shall permit the Sellers' accountants at the earliest practicable date to review and make copies of all work papers, schedules and calculations used in the preparation of the Final Closing Statement.
When the Purchaser delivers the Final Closing Statement, the Purchaser shall also deliver to the Sellers' Representative a certificate (i) certifying that the Final Closing Statement was prepared on the basis and in accordance with the procedures set forth in Section 3.1 above, and (ii) containing the Purchaser's calculations based on the Final Closing Statement (the "Purchaser's Proposed Calculations") of the Net Cash Amount of the Company as of the Calculation Date (the "Proposed Final Net Cash Amount"). Within 15 days after receipt of the Final Closing Statement and the accompanying certificate, the Sellers' Representative shall notify the Purchasers of its agreement or disagreement, as the case may be, with the Final Closing Statement and the accuracy of any of the Purchaser's Proposed Calculations. If the Sellers' Representative disputes any aspect of the Final Closing Statement or the amount of any of the Purchaser's Proposed Calculations, then the Sellers' Representative shall have the right to direct the Sellers' independent accountants, at the Sellers' expense, to review and test the Final Closing Statement. The Sellers' accountants shall complete their review and test within fifteen (15) days after the date the Sellers' Representative disputes the Purchaser's Proposed Calculations. If the Sellers' Representative, after such review and test, still disagrees with the Purchaser's Proposed Calculations, and the Purchaser does not accept the Sellers' Representative's proposed alternative calculations (the "Sellers' Proposed Calculations"), then the Sellers' Representative and the Purchaser shall select a nationally recognized independent accounting firm (the "Independent Accounting Firm") to resolve the remaining disputed items (the "Remaining Disputed Items") within fifteen (15) days after the date of the Purchaser's rejection of the Sellers' Proposed Calculations of the Remaining Disputed Items by conducting its own review and test of the Final Closing Statement and thereafter selecting either the Purchaser's Proposed Calculations of the Remaining Disputed Items or the Sellers' Proposed Calculations of the Remaining Disputed Items or an amount in between the two. Each of the Purchaser and the Sellers' Representative agree that they shall be bound by the determination of the Remaining Disputed Items by the Independent Accounting Firm. The fees and expenses of the Independent Accounting Firm shall be paid jointly, one-half by the Purchaser and one-half by the Sellers. The amount determined pursuant to this paragraph shall be the Final Net Cash Amount.
Upon the determination pursuant to this Section 3.4 of the Final
Closing Statement and the final Net Cash Amount, the Closing Date Purchase Price
shall be recalculated in accordance with Section 2.1, using the amounts of the
Net Cash Amount so determined pursuant to this Section 3.4 in lieu of the amount
of the Net Cash Amount as used on the Closing Date. If the Closing Date Purchase
Price as so adjusted (the "Final Adjustment") is greater than the Closing Date
Purchase Price as adjusted pursuant to the Initial Adjustment, then Purchaser
shall pay to the Sellers' Representative (to be disbursed first to the
Institutional Sellers until they have received the Redemption Value and then to
the Sellers prorata in accordance with number of shares issued or issuable
pursuant to the Common Securities). If the Closing Date Purchase Price as
adjusted pursuant to the Final Adjustment is lower than the Closing Date
Purchase Price as adjusted pursuant to the Initial Adjustment, then the
difference shall be paid promptly in cash by the Escrow Agent to the Purchaser
from the Escrowed Funds. Any such payment and adjustment shall be made within
ten (10) days after the determination of the Final Adjustment pursuant to this
Section 3.4.
4. CLOSING
4.1. Closing and Closing Date. Subject to the provisions of this Agreement, the consummation of the transactions contemplated by this Agreement (the "Closing") shall be held at the offices of Bingham McCutchen LLP, One State Street, Hartford, CT 06103 at 10:00 A.M. (local time) within sixty (60) days of the date hereof (the date of the Closing being referred to herein as the "Closing Date"). All Closing transactions shall be deemed to take place simultaneously, and no Closing transaction shall be deemed consummated until all transactions to take place at the Closing have been consummated.
4.2. Actions at Closing. At the Closing, in addition to any other instruments or documents referred to herein:
(a) (i) Each Individual Seller shall deliver to Purchaser,
free and clear of any lien certificates representing its Common Shares
duly endorsed in blank or with duly executed stock powers attached,
(ii) each Institutional Seller shall deliver to Purchaser free and
clear of any lien certificates representing the Warrants, duly endorsed
in blank or with duly executed transfer documents attached and (iii)
each Institutional Seller shall deliver to Purchaser, free and clear of
any lien certificates representing its Preferred Shares duly endorsed
in blank or with duly executed stock powers attached.
(b) The Institutional Sellers shall deliver to the Purchaser pay-off letters and lien discharges (or agreements therefor) satisfactory to the Purchaser from each creditor with respect to the Company Debt (the "Payoff Letter").
(c) Purchaser, on behalf of the Company, shall pay and discharge all outstanding Company Debt.
(d) The Institutional Sellers shall deliver the Sellers Expense Certificate.
(e) Purchaser shall pay, on behalf of the Sellers to the parties identified on the Sellers Expense Certificate, all Sellers Expenses set forth thereon.
(f) Purchaser shall deliver the Escrowed Funds to the Escrow Agent.
(g) Purchaser shall pay via wire transfer the Closing Date Purchase Price, if any, to the Sellers in accordance with Section 2.1(a) hereof.
(h) Purchaser shall pay with wire transfer the Adjusted Redemption Value, minus the Escrowed Funds to the Institutional Sellers in accordance with Section 2.1(b) hereof.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Each Seller hereby, individually and not severally, represents and warrants to Purchaser as follows, each of which representations and warranties shall be true as of the Closing Date:
5.1. Organization. If an Institutional Seller, such Seller is duly organized, validly existing and in good standing under the laws of its state of organization. Such Seller has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
5.2. Authorization of Agreement. The execution, delivery and performance of this Agreement by such Seller, and the consummation of the transactions contemplated hereby have been duly and effectively authorized by such Seller. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Seller. This Agreement constitutes a valid and binding obligation of such Seller, enforceable in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors, rights generally.
5.3. Effect of Agreement. The execution, delivery and performance of this Agreement by such Seller and consummation by such Seller of the transactions contemplated hereby will not, with or without the giving or notice and the lapse of time, or both, (a) violate any provision of law, statute, rule, regulation or executive order to which such Seller is subject; (b) violate any judgment, order, writ or decree of any court applicable to such Seller; or (c) result in the breach of or conflict with any term, covenant, condition or provision of the organizational documents of such Seller or any commitment, contract or other agreement on instrument to which such Seller is a party.
5.4. Litigation. To the best knowledge of such Seller, there are no actions, suits, proceedings or governmental investigations or inquiries pending or threatened against it which, in its reasonable judgment, would prevent the consummation of the transactions contemplated hereby.
5.5. Title to Shares, Liens, etc. Such Seller has, and as of the consummation of the Closing, the Purchaser will have, sole record and beneficial ownership of such Seller's Common Securities and Preferred Shares as set forth on Exhibit 6.2(a) hereto, free and clear of any liens other than any such lien incurred by the Purchaser.
5.6. No Interest in Competitors. Set forth on Exhibit 5.6 is a list describing the extent to which such Seller or any Affiliate of such Seller, directly or indirectly, owns more than a five percent (5%) interest in or controls or is an employee, officer, director, or partner of or participant in (but only to the extent such a participation exceeds one percent (1%)), or consultant to any corporation, partnership, limited partnership, joint venture, association or other entity which is a competitor, supplier or customer of the Company or has any type of business or professional relationship with the Company.
6. REPRESENTATIONS AND WARRANTIES IN RESPECT OF THE COMPANY
As an inducement to Purchaser to enter into this Agreement and perform its obligations hereunder, the Sellers hereby represent and warrant to Purchaser as follows, each of which representation and warranty is material and is being relied upon by Purchaser, and each of which is true as of the date hereof and shall be true as of the Closing, with the same effect as if said representations and warranties had been made at and as of the Closing Date:
6.1. Organization, Good Standing, Power, Etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Except as set forth on Exhibit 6.1, the Company is authorized or licensed to do business as a foreign corporation and is in good standing in the Commonwealth of Massachusetts and each other jurisdiction in which the character and location of its assets or the nature of the business transacted by the Company makes such qualification necessary except where the lack of such qualification would not have a material adverse effect on the business, financial condition, operations, results of operations or future prospects of the Company. The Company has all requisite corporate power and authority to own or lease and operate its properties and assets, and carry on its business as it is presently being conducted.
6.2. Capital Stock.
(a) The entire authorized capital stock of the Company consists of (i) 1,000,000 shares of Common Stock, of which three hundred fifty thousand (350,000) shares are issued and outstanding and six hundred and fifty thousand (650,000) shares are reserved for issuance under the Warrants and (ii) 2,000 shares of Preferred Stock of which 2,000 shares are issued and outstanding, all of which are duly authorized, validly issued, fully paid, non-assessable, free of preemptive rights (other than the Stockholders Agreement which is being terminated on the Closing Date), and were issued in compliance with all federal and applicable state securities laws. All of the issued and outstanding Common Stock, Preferred Stock and Warrants are held of record by the respective Sellers on Exhibit 6.2(a).
(b) Except for the Warrants there are no outstanding offers, options, warrants, rights, puts, calls, commitments, obligations (verbal or written), conversion rights, plans or other agreements (conditional or unconditional) of any character providing for, requiring or permitting the offer, sale, purchase or issuance of any shares of capital stock of the Company or any other securities of the Company (as such term is defined in the Securities Act of 1933, as amended). There are no equity securities of the Company that are reserved for issuance (except in connection with the Warrants).
6.3. Articles of Incorporation and By-laws. Correct and complete copies of the Articles of Incorporation of the Company, as amended to date, and the By-laws of the Company, as amended to date, have been delivered to the Purchaser. Such Articles of Incorporation and By-laws are in full force and effect.
6.4. Subsidiaries, Divisions and Affiliates. There are no subsidiaries or divisions of the Company. The business of the Company has been conducted solely by the Company and not through any Affiliate, joint venture or other entity, person or under any other name.
6.5. Equity Investments. The Company does not own or have any rights to or any contractual right or duty to buy or sell, any equity interest, directly or indirectly, in any corporation, partnership, joint venture, firm or other entity.
6.6. Effect of Agreement. The execution, delivery and performance of
this Agreement by the Sellers and the consummation by the Sellers of the
transactions contemplated hereby, will not, with or without the giving of notice
and the lapse of time, or both, (a) violate any provision of law, statute, rule,
regulation or administrative order to which the Company is subject; (b) violate
any judgment, order, writ or decree of any court applicable to the Company; or
(c) result in the breach of or conflict with any term, covenant, condition or
provision of, result in the modification or termination of, constitute a default
under, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the assets of the Company pursuant to, any
corporate charter, by-law, commitment, contract or other agreement or
instrument, including any of the Commitments, to which the Company is a party or
by which any of the assets is or may be bound or affected or from which the
Company derive benefit, which breach, conflict, modification, termination,
default or encumbrance described in this clause (c) would be material to the
business of the Company or any of its assets.
6.7. Restrictions. The Company is not a party to any contract, commitment or agreement nor are any of its assets subject to, or bound or affected by, any provision of the Articles of Incorporation, By laws or other corporate restriction, or any order, judgment, decree, law, statute, ordinance, rule, regulation or other restriction of any kind or character, which would, individually or in the aggregate, materially adversely affect the business, financial condition, operations, results of operations or future prospects of the Company.
6.8. Governmental and Other Consents. No consent, authorization or approval of, or exemption by, any governmental or public body or authority is required by the Company in connection with the transactions contemplated by this Agreement.
6.9. Financial Statements. The Company has delivered to Purchasers correct and complete copies of audited financial statements of the Company for the fiscal years ended March 31, 2003 (this was for a "stub year" commencing on August 7, 2002), 2004 and 2005 together with such other financial documents requested by Purchaser covering the period through May 31, 2005 (collectively, the "Financial Statements"). The Financial Statements are in accordance with the books and records of the Company, have been prepared in accordance with generally accepted accounting principles and practices consistently applied and accurately present the financial position of the Company at their respective dates and the results of operations and cash flows for the respective periods covered thereby; provided, however, that any interim unaudited financial statements are subject to normal year end adjustments and lack footnotes and other presentation items.
6.10. Absence of Certain Changes or Events. Except as set forth on Exhibit 6.10, since March 31, 2005, the Company has not:
(a) suffered any adverse change in, or the occurrence of any events which, individually or in the aggregate, has or have had, or might reasonably be expected to have, a material adverse effect on, the Company's the business, financial condition, operations, results of operations or future prospects of the Company;
(b) incurred damage to or destruction of any material asset or material portion of the Company's assets, whether or not covered by insurance;
(c) made or entered into any material agreement, contract, lease or license outside the ordinary course of business;
(d) made any capital expenditures in excess of Ten Thousand Dollars ($10,000.00);
(e) mortgaged, pledged or subjected to lien or any other encumbrance any of its assets;
(f) sold, transferred or leased any material asset or material portion of its assets, or canceled or compromised any debt or material claims, except in each case, in the ordinary course of business;
(g) sold, assigned, transferred or granted any rights under or with respect to any licenses, agreements, patents, inventions, trademarks, trade names, copyrights or formulae or with respect to know-how or any other intangible asset; or
(h) amended or terminated any of the contracts, agreements, leases or arrangements which otherwise would have been set forth on Exhibit 6.13 hereto.
6.11. Title to Assets, Absence of Liens and Encumbrances. The Company owns all the assets (whether real personal or mixed and whether tangible or intangible) that they purport to own or which are reflected as owned in the books and records of the Company, including all of the assets reflected in the 2005 Balance Sheet (except for assets held under capitalized leases and personal property sold or disposed of since the date of the 2005 Balance Sheet in the ordinary course of business of the Company), and all of the assets purchased or otherwise acquired by the Company since the date of the 2005 Balance Sheet (except for personal property acquired and sold or disposed of since the date of the 2005 Balance Sheet in the ordinary course of business of the Company). Except as set forth on Exhibit 6.11 or the title report, delivered to Purchaser, all assets owned by the Company are free and clear of all mortgages, claims, liens, charges, encumbrances, security interests, restrictions on use or transfer or other defects as to title.
6.12. Insurance. Exhibit 6.12 contains a list of all material insurance policies that are held by the Company, and that name the Company as an insured, including self-insurance programs and those that pertain to the assets, business or employees of the Company, including the policy limits thereof. All such insurance policies are in full force and effect and the Company has not received notice of cancellation of any such insurance policies.
6.13. Agreements, Arrangements, Etc.
6.13.1 Exhibit 6.13.1 contains a complete and accurate list, and
Sellers have made available to Purchaser, true and complete copies of each of
the following agreements (herein the "Commitments"):
(a) lease agreement (whether as lessor or lessee);
(b) license agreement, assignment or contract (whether as licensor or licensee, assignor or assignee) relating to trademarks, trade names, patents, or copyrights (or applications therefore), unpatented designs or processes, formulae, know-how or technical assistance, or other proprietary rights;
(c) employment or other contract or agreement with an employee or independent contractor which (i) may not be terminated without liability to the Company upon notice to the employee or independent contractor of not more than thirty (30) days, or (ii) provides payments (contingent or otherwise) of more than Thirty Thousand Dollars ($30,000.00) per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or other individual or entity who assists, provides or is otherwise involved in the acquisition, supplying or providing goods to the Company;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services by the Company to any third party in the ordinary course of business (including the government or any other governmental authority) in excess of $100,000.00;
(g) agreement with any labor union;
(h) agreement, contract or order with any distributor, dealer, leasing company, sales agent or representative, other than contracts or orders for the purchase, sale or license of goods made in the usual and ordinary course of business at an aggregate price per contract of more than Ten Thousand Dollars ($10,000.00) and a term of more than six (6) months under any such contract or order;
(i) agreement, contract or order with any manufacturer or supplier at an aggregate price of more than Ten Thousand Dollars ($10,000.00) (including those agreements which allow discounts or allowances or extended payment terms);
(j) agreement with any distributor or brokerage company, leasing company, management company or any other individual or entity who assists, places, brokers or otherwise is involved with the marketing or distribution of the Company's products to its customers;
(k) joint venture or partnership agreement with any other person or entity;
(l) agreement guaranteeing, indemnifying or otherwise becoming liable for the obligations or liabilities of another;
(m) agreement with any banks or other persons, other than its employees, for the borrowing or lending of money or payment or repayment of draws on letters of credit or currency swap or exchange agreements (other than purchase money security interests which may, under the terms of invoices from its suppliers, be granted to suppliers with respect to goods so purchased);
(n) agreement with any bank, finance company or similar organization which acquires from the Company receivables or contracts for sales on credit;
(o) agreement granting any person a lien, security interest or mortgage on any of the Assets, including, without limitation, any factoring or agreement for the assignment of receivables or inventory;
(p) agreement for the incurrence of any capital expenditure in excess of Ten Thousand Dollars ($10,000.00);
(q) advertising, publication or printing agreement;
(r) agreement which restricts the Company from doing business anywhere in the world;
(s) agreement giving any party the right to renegotiate or require a reduction in prices or the repayment of any amount previously paid.
6.13.2 Each of the Commitments is valid, in full force and effect and enforceable by the Company in accordance with its terms.
6.13.3 Except as set forth on Exhibit 6.13.3, the Company has fulfilled, or has taken all action reasonably necessary to enable it to fulfill when due, all of its obligations under the Commitments, except where the failure to do so would not, individually or in the aggregate, have a material adverse affect on the business of the Company. Furthermore, there has not occurred any default by the Company or any event which, with the lapse of time or the election of any person other than the Company, will become a default, nor has there occurred any default by others or any event which, with the lapse of time or the election of the Company, will become a default under any of the Commitments, except for such defaults, if any, which (a) have not resulted and will not result in any material loss to or liability of the Company or any of its successors or assigns or (b) have been indicated on Exhibit 6.13. The Company is not in arrears in any material respect with respect to the performance of satisfaction of the material terms or conditions to be performed or satisfied by it under any of the Commitments and no waiver or variance has been granted by any of the parties hereto.
6.13.4 After the Closing, except as set forth on Exhibit 6.13, each of the Commitments does not require the consent of the other parties thereto and, with respect to any of the Commitments which do require the consent of the other parties thereto, the Company has obtained such consent and has provided or will provide Purchaser with copies thereof.
6.14. Patents, Trademarks, Copyrights, Etc. Exhibit 6.14 sets forth (i) the registered and beneficial owner and the expiration date, to the extent applicable, for each of the federally registered patents, trademarks and copyrights ("Rights") set forth on such Exhibit and (ii) the product, service, or products or services of the Company which make use of, or are sold, licensed or made under, each such Right. All of the Rights constitute all Rights necessary for the conduct of the business of the Company, as such business is currently being conducted. Except as set forth on Exhibit 6.14, the Company has not sold, assigned, transferred, licensed, sub-licensed or conveyed the Rights, or any of them, or any interest in the Rights, or any of them, to any person, and has the entire right, title and interest (free and clear of all security interests, liens and encumbrances of every nature) in and to the Rights necessary to the conduct of the business of the Company as currently being conducted; neither has the validity of such items been, nor is the validity of such items, nor the use thereof by the Company, the subject of any pending or threatened opposition, interference, cancellation, nullification, conflict, concurrent use, litigation or other proceeding. The conduct of the business of the Company as currently operated does not and will not conflict with, or infringe, legally enforceable rights of third parties. Except as set forth on Exhibit 6.14, the Rights owned by or licensed to the Company have not been used, and no use is now being made, by any entity except the Company and other entities duly licensed to use the same. Except as set forth on Exhibit 6.14, there is no infringement of any proprietary right owned or licensed by the Company.
6.15. Permits, Licenses, Etc. There are no permits, licenses, registrations, memberships, certifications, orders or approvals of governmental or administrative authorities or required to permit the Company to carry on its business as currently conducted (other than (i) permits, licenses, registrations, certifications trade memberships, orders or approvals which are set forth on Exhibit 6.15, all of which are in full force and effect, and (ii) other permits, licenses, orders or approvals, the failure to obtain which would not, individually or in the aggregate, have a material adverse affect on the business, financial condition, operations, results of operations or future prospects of the Company).
6.16. Compliance with Applicable Laws. The conduct by the Company of its business does not violate or infringe, and there is no basis for any claims of violation or infringement of, any material law, statute, ordinance, regulation or executive order (including, without limitation, Occupational Safety and Health Act, the National Environmental Policy Act, the Foreign Corrupt Practices Act, the Procurement Integrity Act and the respective regulations thereunder and similar applicable state laws and regulations and any laws, rules and regulations relating to equipment or services to be provided to various agencies of the United States Department of Defense) currently in effect, except in each case for violations or infringements which do not and will not, individually or in the aggregate, have a material adverse affect on the business, financial condition, operations, results of operations or future prospects of the Company. The Company is not in default under any governmental or administrative registration, membership or license issued to it, under any governmental or administrative order or demand directed to it, or with respect to any order, writ, injunction or decree of any court which, in any case, materially adversely affects the business, financial condition, operations, results of operations or future prospects of the Company. The Company has contacted the Massachusetts Department of Labor & Workforce Development Division of Occupational Safety for a voluntary inspection.
6.17. Litigation. Except as set forth on Exhibit 6.17, there is no claim, action, suit, proceeding, arbitration, reparation, investigation or hearing or notice of hearing, pending or, to the knowledge of the Institutional Sellers, threatened, before any court or governmental, administrative or other competent authority or private arbitration tribunal against or relating to or affecting (directly or indirectly, including by way of indemnification) the business of the Company, or the transactions contemplated by this Agreement; nor are any facts known to the Institutional Sellers, which they reasonably believe could reasonably give rise to any such claim, action, suit, proceeding, arbitration, investigation or hearing, which may have any adverse affect, individually or in the aggregate in excess of Twenty Five Thousand Dollars ($25,000.00) upon the business of the Company or the transactions contemplated by this Agreement. There is no continuing order, injunction or decree of any court, arbitrator or governmental, administrative or other competent authority to which the Company is a party, or to which the Company is subject. The Company is not permanently or temporarily enjoined or barred by order, judgment or decree of any court or other tribunal or any agency or other body from engaging in or continuing any conduct or practice in connection with the business engaged in by the Company.
6.18. Customers, Suppliers, Distributors and Agents. Except as set forth on Exhibit 6.18(a), the Company has no knowledge or reason to believe that any customer, client, distributor, supplier or any other person or entity with material business dealings with the Company, will or may cease to continue such relationship with the Company, or will or may substantially reduce the extent of such relationship, at any time prior to or after the Closing Date. Except for such common public information, the Company has no knowledge of (1) any other existing or contemplated modification or change in the business relationship of the Company with, or (2) any existing condition or state of facts which has affected adversely, will adversely affect (in more than a minimal manner), or has a reasonable likelihood of adversely affecting the business of the Company with its customers, clients, suppliers or other persons or entities with material business dealings with the Company or which has prevented or will prevent such business from being carried on by the Company under its new ownership after the Closing in essentially the same manner as it is currently carried on. Exhibit 6.18(b) sets forth as to the Company (a) the ten largest (in dollar value) purchasers of its goods and/or services and (b) the ten largest (in dollar value) providers of goods and/or services to the Company, in each case with respect to each of the fiscal years ended March, 31 2004 and March 31, 2005.
6.19. Books and Records. The books of account and other financial and corporate records of the Company are in all material respects complete, correct and up to date, with all necessary signatures, and are in all material respects accurately reflected in the Financial Statements.
6.20. Employee Benefit Plans. Except as described in Exhibit 6.20, the Company does not have any hospitalization, health insurance, pension, retirement, profit sharing, stock option or similar plans. Exhibit 6.20 sets forth a correct and complete list of each and every employee benefit plan, including each pension, profit sharing, stock bonus, bonus, deferred compensation, severance, stock option or purchase plan, or other retirement plan or arrangement, covering employees of the Company (the "Employee Benefit Plans"). For each such Employee Benefit Plan, multi-employer plan or welfare plan as those terms are defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") and for each Employee Benefit Plan with respect to which the Company is a "party in interest" as defined in Section 3 of ERISA, or a "disqualified person" as defined in Section 4975 of the Code, the Company has delivered to Purchaser complete and accurate copies of (i) all Employee Benefit Plans and all amendments thereto; (ii) the trust instrument or insurance contract, if any, forming a part of the plans, and all amendments thereto; (iii) the most recent and preceding year's Internal Revenue Service Form 5500 and all schedules thereto; (iv) the most recent Internal Revenue Service determination letter, or if no letter has been issued, any pending application to the Internal Revenue Service for a determination letter regarding qualified status; (v) any bond required by Section 412 of ERISA; and (vi) the summary plan description. The Company has complied with all material rules and regulations governing each of the Employee Benefit Plans maintained for the benefit of the Company's employees, including, without limitation, rules and regulations promulgated pursuant to ERISA and the Code, by the Department of Treasury, Department of Labor, and the Pension Benefit Plans Guaranty Corporation, and each of the Employee Benefit Plans now operated has since its inception been operated in all material respects in accordance with its provisions and is in compliance with such rules and regulations. Neither the Company nor any Employee Benefit Plans maintained by the Company or any fiduciaries thereof have engaged in any prohibited transaction, as that term is defined in Section 406 of ERISA or Section 4975 of the Code, nor have any of them committed any breach of fiduciary responsibility with respect to any of the Employee Benefit Plans, and the Company does not have any knowledge that any other person has not complied with these rules and regulations.
6.21. Powers of Attorney. Except as set forth on Exhibit 6.21, no person has any power of attorney to act on behalf of the Company in connection with any of the Company's properties or business affairs other than such powers to so act as normally pertain to the officers of the Company.
6.22. Labor Disputes, Unfair Labor Practices. Except as set forth on
Exhibit 6.22, the Company is not engaged in any labor practice which would have
a material adverse affect on the business, financial condition, operations,
results of operations or future prospects of the Company. There is no pending or
affirmatively threatened (i) unfair labor practice complaint, charge, labor
dispute, strike, slowdown, walkout or work stoppage before the National Labor
Relations Board or any other authority or (ii) grievance or arbitration
proceeding arising out of or under a collective bargaining agreement involving
employees of the Company. There have been no strikes, labor disputes,
slow-downs, walkouts, or work stoppages involving employees of the Company since
August 2003. Union representation of employees exists as set forth on Exhibit
6.22. The Company has not received notice from any of its employees of such
employee's intent to terminate his or her employment or bring any action against
the Company for any reason related to the transactions contemplated by this
Agreement or for any other reason, including but not limited to age
discrimination, racial or sex discrimination or sexual harassment.
6.23. Environmental Matters.
(a) Except as set forth on Exhibit 6.23, (i) the Company is in
compliance with all material environmental laws, regulations, permits
and orders applicable to it, and with all laws, regulations, permits
and orders governing or relating to asbestos removal and abatement;
(ii) the Company has not transported, stored, treated or disposed, or
allowed or arranged for any third parties to transport, store, treat or
dispose, of any Hazardous Substances or other waste to or at any
location other than a site lawfully permitted to receive such Hazardous
Substances or other waste for such purposes, or had performed, arranged
for or allowed by any method or procedure such transportation, storage,
treatment or disposal in contravention of any laws or regulations nor
has the Company disposed of, or allowed or arranged for any third
parties to dispose of, Hazardous Substances or other waste upon
property owned or leased by it in contravention of any applicable laws
or regulations; (iii) there has not occurred since August 2003, nor is
there presently occurring, a Release of any Hazardous Substance on,
into or beneath the surface of any parcel of real property in which the
Company has (or will have after giving effect to the transactions
contemplated hereby) an ownership interest or any leasehold interest in
contravention of any applicable laws or regulations; (iv) the Company
has not since August 2003 transported or disposed of, or allowed or
arranged for any third parties to transport or dispose of, any
Hazardous Substance or other waste to or at a site which, pursuant to
the U.S. comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), has been placed on the
National Priorities List or its Washington equivalent; (v) since August
2003 the Company has not received notice and the Company has no
knowledge of any facts which could give rise to any substantive notice,
that the Company is a potentially responsible party for a federal or
state environmental cleanup site or for corrective action under CERCLA
or notice of any other Environmental Claim whether on site or off site;
(vi) since August 2003 the Company has not undertaken (or been
requested to undertake) any response or remedial actions or cleanup
actions of any kind at the request of any federal, state or local
governmental entity, or at the request of any other person or entity;
and (vii) since August 2003 there are no laws, regulations, ordinances,
licenses, permits or orders relating to environmental matters requiring
any material work, repairs, construction or capital expenditures with
respect to the assets or properties of the Company.
(b) For the purposes of this Agreement: (i) "Environmental Claim" shall mean any written demand, claim, governmental notice or threat of litigation or the actual institution of any action, suit or proceeding which asserts that an Environmental Condition constitutes a violation of any statute, ordinance, regulation, or other governmental requirement relating to the emission, discharge, or Release of any Hazardous Substance into the environment or the generation, treatment, storage, transportation, or disposal of any Hazardous Substance, prior to Closing Date in each case in contravention of any applicable laws or regulations; (ii) "Environmental Condition" shall mean the presence on any real property during the period from the date such real property was first owned, leased or used by the Company as to which material originating at the Company was transported, to the Closing Date, in surface water, ground water, drinking water supply, land surface, subsurface strata or ambient air of any Hazardous Substance arising out of or otherwise related to the operations or other activities of the Company or of any predecessor of the Company, conducted or undertaken prior to the Closing Date, and in each case in contravention of any applicable laws or regulations; (iii) "Hazardous Substance" shall mean any substance defined in the manner set forth in Section 101(14) of the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, as applicable on the Closing Date, and shall include any additional substances designated under Section 102(a) thereof prior to the Closing Date; and (iv) "Release" shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment in each case in contravention of any applicable laws or regulations.
6.24. Tax and Other Returns and Reports. The Company has timely filed
or will file all Tax Returns and information returns required to be filed by the
Company and has paid all Taxes due for all periods commencing on or after August
2, 2003 and ending on or before March 31, 2004. The Tax Returns for March 31,
2005 are the subject of extensions. Adequate provision has been made in the
books and records of the Company and in the Financial Statements referred to in
Section 5.10 above, for all Taxes whether or not due and payable and whether or
not disputed. All Tax Returns of the Company since 2002 remain open. All
required Tax Returns, including amendments to date, have been prepared in good
faith without negligence or willful misrepresentation and are complete and
accurate and in all material respects. No governmental entity has, since August
2003, examined or is in the process of examining any Tax Returns of the Company.
No governmental entity has proposed (tentatively or definitively), asserted or
assessed or threatened to propose or assert, any deficiency, assessment, lien,
or other claim for Taxes and there would be no basis for any such delinquency,
assessment, lien or claim. Except as disclosed above, there are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the assessment of any Taxes or deficiency against the Company or with respect to
any Tax Return filed or to be filed by the Company. For purposes of this
Agreement, the term "Taxes" means all taxes, including without limitation all
Federal, state, local, foreign and other income, franchise, sales, use,
property, payroll, withholding, environmental, alternative or add-on minimum and
other taxes, assessments, charges, duties, fees, levies or other governmental
charges of my kind whatsoever, and all estimated taxes, deficiency assessments,
additions to tax, penalties, and interest, and any contractual or other
obligation to indemnify or reimburse any person with respect to any such
assessment. For purposes of this Agreement, the term "Tax Return" shall mean any
report, statement, return, declaration of estimated tax or other information
required to be supplied by or on behalf of the Company to a taxing authority in
connection with Taxes, or with respect to grants of tax exemption, including any
consolidated, combined, unitary, joint or other return filed by any person that
properly includes the income, deductions or other tax information concerning the
Company. The copies of the Tax Returns for the tax years ended March 31, 2003
and 2004 provided by the Company to Purchaser are complete and correct.
6.25. Recent Dividends and Other Distributions. There has been no dividend or other distribution of assets or securities whether consisting of money, property or any other thing of value, declared, issued or paid to or for the benefit of the Sellers subsequent to the date of the most recent Financial Statements described in Section 5.10 by the Company, except as set forth on Exhibit 6.25 or except as permitted by paragraph 8.1.8.
6.26. Debt. As of the Closing after giving effect to the payments of the Company Debt the Company will have no outstanding debt owing to any of the Sellers or affiliated persons or entities of the Sellers nor will the Company have any debt to financial institutions or to other persons or entities not incurred in the ordinary course of business.
6.27. Purchase and Sale Obligations. All purchase, sales and orders and all other commitments for purchases, sales and orders made by or on behalf of the Company have been made in the usual and ordinary course of its business in accordance with normal practices. On the Closing Date, the Sellers shall deliver to Purchasers a schedule of all such uncompleted purchase and sale orders and other commitments with respect to any of the Company's obligations as of a date not earlier than ten (10) days prior to the Closing.
6.28. Other Information. None of the information which has been or may be furnished by or on behalf of the Sellers or any of their representatives to Purchaser or any of its representatives in connection with the transactions contemplated hereby, which is contained in this Agreement (including the Exhibits hereto) or any Ancillary Document or any certificate or instrument delivered or to be delivered by or on behalf of Sellers in connection with the transactions contemplated hereby, does or will contain any untrue statement of a material fact or omit a material fact necessary to make the information contained herein or therein not misleading.
6.29. Accounts Receivable and Accounts Payable. All of the accounts receivable of the Company are actual and bona fide accounts receivable representing obligations for the total dollar amount thereof showing on the books of the Company, and the accounts receivable are not and will not be subject to any recoupments, set-offs or counter-claims. The list of Accounts Payable delivered pursuant to Section 3.1 is true, current, and complete as of Calculation Date.
6.30. Foreign Corrupt Practices Act, Etc. The Company has not violated, and is not in violation of, the United States Foreign Corrupt Practices Act or any other United States Executive Order, law, rule or regulation regulating the export of defense related or dual use equipment or services.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser hereby represents and warrants to the Sellers as follows, each of which representations and warranties shall be true as of the Closing Date and each of which is made separately as to the Purchaser:
7.1. Organization. The Purchaser is an entity is duly organized, validly existing and in good standing under the laws of its state of organization. The Purchaser has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
7.2. Authorization of Agreement. The execution, delivery and performance of this Agreement by the Purchaser, and the consummation of the transactions contemplated hereby have been duly and effectively authorized by the Purchaser. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Purchaser. This Agreement constitutes a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors, rights generally.
7.3. Effect of Agreement. The execution, delivery and performance of this Agreement by the Purchaser and consummation by the Purchaser of the transactions contemplated hereby will not, with or without the giving or notice and the lapse of time, or both, (a) violate any provision of law, statute, rule, regulation or executive order to which the Purchaser is subject; (b) violate any judgment, order, writ or decree of any court applicable to the Purchaser; or (c) result in the breach of or conflict with any term, covenant, condition or provision of the organizational documents of the Purchaser or any commitment, contract or other agreement on instrument to which the Purchaser is a party.
7.4. Litigation. There are no actions, suits, proceedings or governmental investigations or inquiries pending or, to the knowledge of the Purchaser, threatened against it which, in its reasonable judgment, would prevent the consummation of the transactions contemplated hereby.
8. PRE-CLOSING COVENANTS OF RANOR AND THE SHAREHOLDERS
The Sellers and the Company hereby covenant and agree with Purchaser that the Sellers and the Company shall do, or cause to be done, the following, between the date of this Agreement and the Closing Date or date of termination of this Agreement, as the case may be:
8.1. Conduct of Business Until Closing Date. Except as permitted or required hereby or as Purchaser may otherwise consent in writing, the Sellers shall cause the Company to and the Company shall:
8.1.1 operate the business of the Company only in the usual, regular and ordinary manner, and use their best efforts to (a) preserve the present business organization of the Company intact, (b) keep available the services of the present employees of the Company, and (c) preserve the current business relationships of the Company with customers, clients, suppliers, distributors and others having business dealings with it;
8.1.2 maintain all properties necessary for the conduct of the business of the Company, whether owned or leased;
8.1.3 maintain the books, records and accounts of the Company in the usual, regular and ordinary manner, on the basis consistent with prior periods;
8.1.4 duly comply, in all material respects, with all laws, rules and regulations applicable to the Company and to the conduct of its business;
8.1.5 perform all of the obligations of the Company without default, unless such default is of no significance to the Company and could have no adverse impact on the Company or its business;
8.1.6 neither (a) amend the Company's Articles of Incorporation or By-laws; (b) merge with or into, consolidate, amalgamate or otherwise combine with, any other entity; nor (c) change the character of the business of the Company;
8.1.7 neither (a) encumber, mortgage, or voluntarily subject
to lien any of the existing assets of the Company; (b) transfer, sell,
lease, license or otherwise dispose of any of, or any part of, the
assets of the Company (other than in the ordinary course of business);
(c) convey, transfer or acquire any material asset or property of the
Company to, for or on behalf of the Company other than in the ordinary
course of business; (d) enter into any arrangement, agreement or
undertaking, with respect to any of the employees relating to the
payment of bonus, severance, profit-sharing or special compensation or
any increase in the compensation payable or to become payable to any
such employee; nor (e) incur any material fixed or contingent
obligation or enter into any agreement, commitment, contract or other
transaction or arrangement relating to the business of the Company;
8.1.8 not make any distributions or dividends of assets or securities, nor any changes to the capital structure of the Company; not agree to make or make any sales of its securities including the issuance of any additional capital stock or rights or options or contracts to acquire, or instruments convertible into, Common Stock or Preferred Stock; however, the Company shall be entitled to make cash distributions to any of the Sellers and pay the Company Debt;
8.1.9 neither modify, change or terminate any of its material obligations other than in the ordinary course of business, nor grant any power of attorney with respect to the business of the Company to any party except the Purchaser; and
8.1.10 anything in this Section 8.1 notwithstanding, Sellers shall have the right in their discretion to make all decisions and expenditures regarding new services and equipment required to keep the Company on its business plan for 2005 delivered to the Purchaser.
8.2. Approvals, Consents and Further Assurances. The Sellers shall use and shall cause the Company to use its reasonable best efforts to obtain in writing as promptly as possible all approvals, consents and waivers required in order to effectuate the transactions contemplated hereby, and shall deliver to the Purchaser copies, reasonably satisfactory in form and substance to counsel to the Purchaser, of such approvals and consents. The Sellers shall also use their reasonable best efforts to assure that the other conditions set forth in Article 11 hereof are satisfied by the Closing Date.
8.3. Access to Properties, Records, Suppliers, Agents, Etc. The Sellers shall cause the Company to and the Company shall give to the Purchaser and to the Purchaser's counsel, financiers, accountants and other representatives access to and copies of such of the Company's properties, personnel, books, tax returns, contracts, commitments and records as relate to the assets, suppliers, agents, distributors, etc. or other aspects of the business of the Company; and shall furnish to the Purchaser and such representatives all such additional instruments, contracts, documents or other written obligations (certified by officers of the Company, if so requested) and financial and other information concerning such business, assets, suppliers, agents, etc. as the Purchaser or its representatives may from time to time request.
8.4. Advice of Changes. If any Seller becomes aware of any fact or facts which, if known at the date hereof, would have been required to be set forth or disclosed in or pursuant to this Agreement or which, individually or in the aggregate, could materially adversely affect the business of the Company, such Seller shall promptly advise the Purchaser in writing thereof.
8.5. Conduct. Except as permitted or required hereby or as the Purchaser may otherwise consent in writing, neither the Company nor the Sellers shall enter into any transaction or take any action which would result in any of the representations and warranties of the Sellers contained in this Agreement or in any Ancillary Document not being true and correct as of the time immediately after such transaction has been entered into or such event has occurred and on the Closing Date.
8.6. Employee Benefit Plans. Except for payment of the Company's current obligations, the Company shall not incur any additional obligations or liabilities, including (i) all liabilities for all claims incurred, whether or not reported, on or before the Closing Date under all "employee welfare benefit plans," within the meaning of Section 3(1) of ERISA, (ii) all liabilities or obligations for vacations or sick leave or retiree, medical or life benefits to employees or former employees of the Company, and (iii) all liabilities of the Company for all benefits accrued under any "employee pension benefit plan," within the meaning of Section 3(2) of ERISA under each Employee Benefit Plan.
8.7. Satisfaction of Conditions by the Company and Sellers. The Company and each Seller hereby covenant and agree with the Purchaser that, between the date of this Agreement and the Closing Date or date of termination of this Agreement, as the case may be, they shall use their best efforts to assure that the conditions set forth in Article 11 hereof are satisfied by the Closing Date.
8.8. Non-Competition. Until (i) one year after the Closing Date with respect to the Individual Sellers and (ii) three years after the Closing Date with respect to the GMP, such Sellers will not compete with the Company or realize any benefits from a competitive business (other than any business to which GMP has an interest prior to the Closing Date) or solicit customers of the Company for products and services competitive with products and services of the Company or appropriate any of the Company's intellectual property, customer lists or corporate opportunities for their own benefit or communicate or negotiate with any Person other than the Purchaser with respect to the sale of the Company, its business (including any of its assets or properties) or the Common Stock or Preferred Stock and they will not, and will not permit any of their officers, directors, employees, agents or representatives (including investment bankers, attorneys and accountants) to (a) initiate contact with, (b) make, solicit or encourage any inquiries or proposals from, (c) enter into, or participate in, any discussions or negotiations with, (d) disclose, directly or indirectly, any information not customarily disclosed concerning the business of the Company to or (e) afford any access to the Company's assets, properties, books and records to, any Person in connection with the sale or other disposition of the Company, the Stock or Preferred Stock, its business (including any of its assets or properties). The Sellers shall promptly notify Purchaser if they receive any such offer, inquiry or proposal and the required details thereof, and keep the Purchaser informed with respect to each such offer, inquiry or proposal.
8.9. Notices and Consents. The Sellers shall cause the Company to give any notices to third parties, and shall cause the Company to use its best efforts to obtain any third party consents that the Purchaser may reasonably request in connection with the transactions contemplated by this Agreement. Each of the parties shall give any notices to, make any filings with, and use its reasonable best efforts to obtain any necessary or appropriate authorizations, consents and approvals of governments and governmental agencies. The Company and the Purchaser shall cooperate with each other in obtaining any waiver, consent or any other approval, if any, in connection with such filings, including in connection with responses to requests for additional information.
8.10. Transfer Taxes. Any Transfer Taxes payable as a result of the sale or purchase of the Common Securities or Preferred Stock by the Sellers shall be paid by the applicable Seller.
8.11. Developments. Each party hereto shall give prompt written notice to the others of any development causing a breach or potential breach of any of its representations and warranties contained in this Agreement. No disclosure by any party pursuant to this Section 8.11, however, shall be deemed to amend or supplement the Exhibits hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant.
9. PRE-CLOSING COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with the Sellers and the Company that, between the date of this Agreement and the Closing Date or date of termination of this Agreement, as the case may be, the Purchaser shall use its commercially reasonable best efforts to cause the conditions set forth in Article 12 hereof to be satisfied by the Closing Date.
10. POST-CLOSING COVENANTS
After the Closing hereunder, each Seller, at the request of the Purchaser, shall execute, acknowledge and deliver to the Company and Purchaser, without further consideration, all such further assignments, conveyances, endorsements, deeds, powers of attorney, consents and other documents (together with the instruments referred to in Section 1.3, referred to herein collectively as the "Ancillary Documents") and take such other action as Purchaser may reasonably request to transfer to and fully vest in Purchaser, and protect Purchaser's right, title and interest in and to such Seller's Common Securities and Preferred Stock, as applicable.
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligations of Purchaser pursuant to this Agreement are subject to the satisfaction at the Closing of each of the following conditions, any or all of which conditions may be waived in writing by Purchaser in its sole discretion:
11.1. Accuracy of Representations and Warranties. All representations and warranties made by the Sellers contained in this Agreement, any Exhibit or Schedule hereto, or any certificate or instrument delivered to the Purchaser or their representatives by the Sellers or their representatives shall be true on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date (i.e., with respect to representations that a state of facts exists on or as of the date hereof, it is a condition that such state of facts exists on or as of the Closing Date; and with respect to a representation that a state of facts has or has not changed between a date prior to the date hereof and the date hereof, it is a condition that such state of facts has or has not changed between such prior date and the Closing Date), except as affected by transactions contemplated hereby.
11.2. Performance of Agreements. The Sellers and the Company shall have performed and complied with all covenants, obligations and agreements to be performed or complied with by them on or before the Closing Date pursuant to this Agreement.
11.3. Litigation, Etc.
11.3.1 Except as set forth on Exhibit 6.17, no claim, action, suit, proceeding, arbitration, investigation or hearing or note of hearing shall be pending or threatened against or affecting the Sellers or the Company, which (a) might result either in an action or enjoin or prevent the consummation of the transactions contemplated by this Agreement; (b) would materially adversely affect the business of the Company or the ability of Purchasers to consummate the transactions contemplated by this Agreement or to own the Common Shares or Preferred Shares or to operate the business of the Company.
11.3.2 The Company shall not be in violation of any law, statute, ordinance, rule, regulation or executive order, the enforcement of which would, individually or in the aggregate, materially adversely affect the business of the Company; or which would individually or in the aggregate, materially adversely affect the ability of Purchaser to consummate the transactions contemplated by this Agreement or to own the Common Shares or Preferred Shares or to operate the business of the Company.
11.3.3 No law, regulation or decree shall have been proposed, adopted or promulgated, or have become effective, the enforcement of which would materially adversely affect the ability of the Purchaser to consummate the transactions contemplated by this Agreement or to own the Common Shares or Preferred Shares or to operate any such business.
11.4. Approvals and Consents. The Company shall have obtained, and Purchaser shall have received copies of, all of the approvals and consents referred to in Section 8.2, each of which approvals and consents shall be in full force and effect and reasonably satisfactory in form and substance to Purchaser and its counsel.
11.5. Seller's Certificate. Purchaser shall have received an accurate certificate of the Sellers, dated the Closing Date, satisfactory in form and substance to Purchaser and its counsel, certifying (a) as to the fulfillment of the matters specified in Sections 11.1 through 11.3, and (b) any changes that Purchaser is required to be notified of pursuant to Section 8.4, or that previously had not been disclosed to Purchaser.
11.6. Officer's Certificate. Purchaser shall have received an accurate certificate, of Stan Youtt, CEO of the Company, dated as of the Closing Date, stating, among other things, that he is not aware of any material omissions or facts that would materially alter any of the Financial Statements, nor is he aware of any facts or factors that are reasonably likely to occur, or if known to other parties, that could have a material adverse effect on the financial condition, business, operations, Assets, liabilities, management or prospects of the Company.
11.7. Good Standing Certificates. Purchaser shall have received a certificate of the office of the Secretary of State of Delaware, dated within three (3) days before the Closing Date, certifying that the records of such state regarding the Company incorporated in such state reflect neither a certificate of dissolution, a court order declaring dissolution, a merger or consolidation which terminated its existence, nor suspension of its corporate powers, rights and privileges, and that in accordance with the records of such state, such corporation is authorized to exercise all of its corporate powers, rights and privileges in such state.
11.8. No Material Adverse Change. There shall have been no material adverse changes in the financial condition, business, operations, assets, liabilities, management or prospects of the Company since the execution hereof.
11.9. Actions, Proceedings, Etc. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement shall have been completed.
11.10. Licenses, Permits, Consents, Etc. Purchaser shall have received evidence, in form and substance reasonably satisfactory to counsel for Purchaser, that such licenses, permits, consents, approvals, authorizations or orders of governmental authorities as are necessary to the consummation of the transactions contemplated by this Agreement and the continued operation of the business of the Company have been obtained.
11.11. Employment Agreement. Mr. Stan Youtt as CEO of the Company shall have entered into an employment agreement with the Company in the form of Exhibit 11.11 hereto.
11.12 Opinion. Purchaser shall have received an opinion covering the matters set forth on Exhibit 11.12 attached hereto.
11.13 Management Fees. Purchaser shall have received evidence that any accrued management fees due any Person, including any Individual Seller, have been discharged and released.
12. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RANOR AND THE SELLERS
The obligations of the Sellers and the Company under this Agreement are subject to the satisfaction at the Closing of each of the following conditions.
12.1. Accuracy of Representations and Warranties. All representations and warranties by Purchasers in this Agreement shall be true as of the Closing Date with the same force and effect as though made on and as of the Closing Date.
12.2. Performance of Agreements. Purchaser shall have performed and complied in all material respects with all covenants, obligations and agreements to be performed or complied with by their on or before the Closing Date pursuant to this Agreement, including the payments required by Sections 2 and 4.1.
12.3. No Injunction. No third party injunction, stay or restraining order shall be in effect prohibiting the consummation of the transactions contemplated hereby.
12.4. Stockholder Agreement. Each of the Sellers shall have executed an agreement terminating the Stockholders' Agreement dated August 2, 2002.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
13.1. Survival. The representations and warranties set forth in this
Agreement, in any Exhibit or Schedule hereto and in any certificate or
instrument delivered in connection herewith shall survive for a period of one
(1) year after the Closing Date and shall thereupon terminate and expire and
shall be of no force or effect thereafter, except (i) with respect to any claim,
written notice of which shall have been delivered to Purchaser or the Sellers,
as the case may be, such claim shall survive the termination of such period and
shall survive for as long as such claim is unsettled, and (ii) with respect to
any litigation which shall have been commenced to resolve such claim on or prior
to such date. Notwithstanding the foregoing, with respect to matters of title to
any of the Common Shares or Preferred Shares, the period shall have no
limitation and with respect to taxes, the survival period shall be the
applicable statute of limitations plus 30 days.
13.2. Indemnification by the Sellers. (a) Subject to the limitations set forth in this Section 13, each Seller hereby covenants and agrees with Purchaser that such Seller shall severally (and not jointly) indemnify the Purchaser and its respective directors, officers, employees and Affiliates of Purchaser, and each of their successors and assigns (individually, an "Indemnified Party"), and hold them harmless from, against and in respect of its Ratable Portion of any and all costs, losses, claims, liabilities, fines, penalties, losses and expenses (including interest which may be imposed in connection therewith, court costs and reasonable fees and disbursements of counsel) (herein "Losses") incurred by any of them actually resulting from:
(i) any breach of any representation or warranty made by the Sellers in Section 6 of this Agreement (including without limitation any Exhibit hereto and any certificate or instrument delivered in connection with Section 6); or
(ii) any breach by Sellers of any covenant or obligation of the Sellers in this Agreement.
(b) Subject to the limitations set forth in this Section 13, in the event of a breach by any Seller any of such Seller's representations or warranties in Section 5, then such Seller agrees to indemnify each Indemnified Party from and against any Losses such Indemnified Party may suffer arising, directly or indirectly, from or in connection with such breach.
13.3. Indemnification by Purchaser. Subject to the limitations set forth in Section 13, Purchaser hereby covenants and agrees with the Sellers that such Purchaser shall indemnify the Sellers and hold them harmless from, against and in respect of any and all costs, losses, claims, liabilities, fines, penalties, Losses and expenses (including interest which may be imposed in connection therewith and court costs and reasonable fees and disbursements of counsel) incurred by any of them resulting from any misrepresentation, breach of warranty or the nonfulfillment of any agreement, covenant or obligation by such Purchaser made in this Agreement (including without limitation any Exhibit hereto and any certificate or instrument delivered in connection herewith).
13.4. Limitations on Indemnification.
(a) The obligations of Sellers in the aggregate, on the one hand, and the Purchaser, on the other, with respect to any Indemnifiable Claim hereunder shall be subject to the limitations that (i) the Indemnitees may not make or bring any claim against the Indemnitors in respect of any Indemnifiable Claims unless the aggregate amount of all Losses therefrom from time to time incurred or suffered (and/or threatened to be incurred or suffered) by all Indemnitees collectively exceeds Fifty Thousand Dollars ($50,000.00) (the "Threshold"). All Losses of Purchaser's Indemnified Parties, and all Losses of all Seller Indemnified Parties, shall be aggregated in determining whether the Threshold has been reached. Once the Threshold has been reached Indemnitees shall be entitled to collect the entire Losses.
(b) The aggregate amount for which a Seller shall be liable for indemnification under this Section 13 shall in no event exceed such Seller's Ratable Portion of $925,000.
(c) Any amount payable by any Seller pursuant to this Section 13 shall be first paid from the Escrowed Funds pursuant to the Escrow Agreement.
(d) No Individual Seller shall have any liability under Section 13.2(a)(i) for any amount in excess of the cash consideration received by such Individual Seller pursuant to this Agreement except to the extent such amounts are paid from the Escrowed Funds.
13.5. Right to Defend. If the facts giving rise to any such indemnification shall involve any actual claim or demand by any third party against a Purchaser Indemnified Party or Sellers (referred to hereinafter as an "Indemnified Party"), the indemnifying parties shall be entitled to notice of and entitled (without prejudice to the right of any Indemnified Party to participate at its own expense through counsel of its own choosing) to defend or prosecute such claim at their expense and through counsel of their own choosing if they give written notice of their intention to do so no later than the time by which the interest of the Indemnified Party would be materially prejudiced as a result of its failure to have received such notice; provided, however, that if the defendants in any action shall include both the indemnifying parties and an Indemnified Party, and the Indemnified Party shall have reasonably concluded that counsel selected by the indemnifying parties has a conflict of interest because of the availability of different or additional defenses to the Indemnified Party, the Indemnified Party shall cooperate fully in the defense of such claim and shall make available to the indemnifying parties pertinent information under its control relating thereto, but shall be entitled to be reimbursed, as provided in this Article 13, for all costs and expense incurred by it in connection therewith.
13.6. Subrogation. If the Indemnified Party receives payment or other indemnification from the indemnifying party hereunder, the indemnifying party shall be subrogated to the extent of such payment or indemnification to all rights in respect of the subject matter of such claim to which the Indemnified Party may be entitled, to institute appropriate action for the recovery thereof, and the Indemnified Party agrees reasonably to assist and cooperate with the indemnifying party at no expense to the Indemnified Party in enforcing such rights.
13.7. Exclusive Remedy. The indemnification provided in this Section 13 shall be the sole and exclusive remedy of the parties following the Closing. For purposes of further clarification of the preceding sentence, the parties acknowledge and agree that except as provided in this Section 13 no party shall have any liability: (a) for any misstatement or alleged misstatement made within or outside of this Agreement and the schedules hereto, or for any omission or alleged omission of a fact necessary to make any statement made by or on behalf of any party within or outside of this Agreement not misleading; or (b) for any cause of action based upon any alleged duty to disclose (whether arising under statute or common law), or for any cause of action based upon a theory of negligent misrepresentation. The parties further acknowledge and agree that the purpose of this Section 13.7 is to make it clear that a party is to have no liability whatsoever to another party in connection with the sale of the Common Securities or Preferred Shares except as set forth in this Section 13, and accordingly agree that this Section 13.7 is to be construed broadly. The fact that the Purchaser has conducted due diligence and may have, or could have, with the exercise of reasonable diligence, discovered facts underlying the breach of a representation shall be no defense to the breach of any such representation or damages accruing therefrom. The parties acknowledge that this Section 13.7 has been negotiated fully and that the Sellers would not have entered into this Agreement but for the inclusion of this Section 13.7.
13.8. Effect of Insurance; Taxes; Etc.
Notwithstanding anything in this Section 13 to the contrary, the right of the Purchaser to indemnification is limited as follows:
(a) The Purchaser's right to indemnification pursuant to
Section 13 on account of any Losses will be reduced by all insurance
proceeds or other third party indemnification proceeds actually
received by the Purchaser with respect to such Losses. Purchaser shall
use reasonable efforts to claim and recover any Losses suffered by the
Purchaser under any such insurance policies or other third party
indemnities with respect to such Losses. The Purchaser shall remit to
the Sellers any such insurance or other third party proceeds which are
paid to the Purchaser with respect to Losses for which the Purchaser
has been previously compensated pursuant to this Section 13. Purchaser
shall cause the Company to maintain insurance with coverages and
limitations at least as protective as those in effect immediately prior
to the Closing for a period of at least three years after the Closing
Date.
(b) (i) The Purchaser's right to indemnification pursuant to
Section 13 on account of any Loss will be reduced by the amount of any
actual net reduction in cash payments for Taxes realized by Purchaser
or the Company in any taxable year beginning with the taxable year of
the Losses and ending with the taxable year in which the indemnity
amount is paid as a result of the Losses giving rise to such indemnity
claim (the "Indemnity Tax Period"). If an indemnity amount is paid
prior to the Company realizing any actual reduction in cash payments
for Taxes in connection with the Losses giving rise to such payment,
and Purchaser, the Company subsequently realizes an actual reduction in
cash payments for Taxes within the Indemnity Tax Period, then Purchaser
shall pay or cause to be paid the amount of such actual reduction in
cash payments for Taxes (but not in excess of the cumulative
indemnification payments actually already received with respect to such
Losses) to the Sellers. On the other hand, if, in any taxable year
during the Indemnity Tax Period, there is an actual net increase in
cash payments for Taxes realized by Purchaser, the Company, the Sellers
shall pay such amount to the Company (but not in excess of the
cumulative actual net reduction in Taxes for all prior taxable years
during the Tax Indemnity Period). Likewise, if the payment by the
Sellers to the Company is limited by reason of the parenthetical in the
immediately preceding sentence, but subsequently there is an actual net
reduction in Taxes for any taxable year during the Indemnity Tax Period
that reduces the amount of any indemnity payment for the Losses (a
"Subsequent Reduction"), such indemnity payment shall be increased by
the amount of such prior limitation (but not in excess of the
Subsequent Reduction). For the avoidance of doubt, in no event will the
liability of the Sellers to Purchaser, the Company for any actual net
increase in cash payments for Taxes pursuant to the previous two
sentences exceed the cumulative amount by which the Sellers
indemnification obligation for Losses was reduced pursuant to the first
sentence of this clause (i).
(ii) For purposes of this clause (b), Purchaser, the Company shall be deemed to have realized any actual net reduction or actual net increase in cash payments for Taxes with respect to a taxable year during the Indemnity Tax Period to the extent of the difference between (x) Purchaser's or the Company's net liability for Taxes for such taxable year, calculated by excluding any Tax items (including the receipt of any indemnification payments) for such taxable year that are attributable to the Losses and (y) Purchaser's or the Company's actual net liability for Taxes for such taxable year, calculated by taking into account any Tax items (including the receipt of any indemnification payments) for such taxable year that are attributable to the Losses. If (x) exceeds (y) for any taxable year during the Indemnity Tax Period, then, to the extent thereof, there shall have been an actual net reduction in cash payments for Taxes realized by Purchaser or the Company for such taxable year; if, on the other hand, (y) exceeds (x) for any taxable year during the Indemnity Tax Period, then, to the extent thereof, there shall have been an actual net increase in cash payments for Taxes realized by Purchaser or the Company for such taxable year.
(c) The Purchaser will not be entitled to indemnification pursuant to Section 13 for punitive Losses, or for consequential, exemplary or special Losses.
(d) The Purchaser's right to indemnification pursuant to
Section 13 on account of any Losses will be reduced by the amount of
any reserve reflected on the books, records and accounts of the
Company, on a consolidated basis, as of immediately prior to the
Closing Date established for the general category of items or matters
similar in nature to the specific items or matters giving rise to such
Losses.
14. POST-CLOSING TAX MATTERS
The following provisions shall govern the allocation of responsibility as between the Purchaser and the Sellers for certain tax matters following the Closing Date:
14.1. Tax Periods Beginning Before the Closing Date. The Sellers and the Company shall prepare or cause to be prepared and file or cause to be filed any tax returns of the Company for tax periods which begin before the Closing Date and end immediately prior to the Closing Date. The Sellers shall be responsible to pay all taxes due on the income of the Company prior to the Closing Date.
14.2. Cooperation on Tax Matters.
(a) The Purchaser, the Company and the Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of tax returns and any audit, litigation or other proceeding with respect to taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and the Sellers shall each (i) retain all books and records with respect to tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Purchaser or the Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Company or the Sellers, as the case may be, shall allow the other party to take possession of such books and records. The Purchaser and the Sellers shall, upon request, use their reasonable best efforts to obtain any certificate or other document from any government authority or any other Person as may be necessary to mitigate, reduce or eliminate any tax that could be imposed (including, but not limited to, with respect to the transactions contemplate hereby.)
(b) At the Purchaser's request, so long as there is no adverse
effect on any Seller, the Sellers shall join with the Purchaser in
making an election under Section 338(h)(10) of the Code (and any
corresponding elections under state, or local law) (a "Section
338(h)(10) Election") with respect to the purchase of the Common
Shares. If so requested and required, the Sellers shall deliver at
closing two originals of Form 8023 properly executed. If Purchaser
decides to make the Section 338(h)(10) Election, and the Sellers are so
required, it shall deliver to the Sellers a completed, executed Form
8023, with attachments, no later than ten days before the due date of
such election. If Purchaser delivers the forms to the Sellers and the
Sellers are so required, the Sellers will take all actions necessary on
their part to make the Section 338(h)(10) Election.
15. SELLERS' REPRESENTATIVE
The Sellers' Representative is hereby constituted and appointed as
agent and attorney in fact for and on behalf of the other Sellers. Without
limiting the generality of the foregoing, the Sellers' Representative has full
power and authority, on behalf of each Seller and his or her successors and
assigns, to (a) interpret the terms and provisions of this Agreement and the
documents to be executed and delivered by the Sellers in connection herewith,
(b) execute and deliver and receive deliveries of all agreements, certificates,
statements, notices, approvals, extensions, waivers, undertakings, amendments,
and other documents required or permitted to be given in connection with the
consummation of the transactions contemplated by this Agreement, (c) receive
service of process in connection with any claims under this Agreement, (d) agree
to, negotiate, enter into settlements and compromises of, assume the defense of
claims, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Sellers' Representative for the
accomplishment of the foregoing, (e) give and receive notices and communications
and (f) take all actions necessary or appropriate in the judgment of the
Sellers' Representative on behalf of the Sellers in connection with this
Agreement
The Sellers' Representative will not be liable for any act done or omitted under this Agreement as Sellers' Representative while acting in good faith, and any act taken or omitted to be taken pursuant to the advice of counsel will be conclusive evidence of such good faith.
Purchaser shall be able to rely conclusively on the instructions and decisions of the Sellers' Representative as to any actions required or permitted to be taken by the Sellers' Representative hereunder, and no party hereunder shall have any cause of action against Purchaser to the extent Purchaser has relied upon the instructions or decisions of the Sellers' Representative.
16. MISCELLANEOUS
16.1. Expenses. Except as and to the extent otherwise provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, the Sellers and Purchaser shall each pay their own respective expenses and the fees and expenses of their respective counsel and other experts.
16.2. Termination of Agreement.
(a) This Agreement may be terminated at any time prior to the Closing:
(i) by either the Sellers or the Purchaser if the Closing shall not have occurred by October 17, 2005; provided, however, that the right to terminate this Agreement under this Section 16.2(a)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;
(ii) by the Sellers if the Purchaser shall have breached any of its representations, warranties, covenants or agreements contained in this Agreement, which breach cannot be or has not been cured within ten (10) days after the giving of written notice by the Sellers to the Purchaser specifying such breach;
(iii) by the Purchaser if the Sellers shall have breached any of their representations, warranties, covenants or agreements contained in this Agreement, which breach cannot be or has not been cured within ten (10) days after the giving of written notice by the Purchaser to the Sellers' Representative specifying such breach; or
(iv) by the mutual written consent of the Sellers and the Purchaser.
(b) In the event of termination of this Agreement as provided in
Section 16.2, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto except (a) as set
forth in Section 16 and (b) that nothing herein shall relieve either
party from liability for any breach of this Agreement occurring prior
to such termination.
16.3. Waivers. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein or in any other documents. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. Any party hereto may, at or before the Closing, waive any conditions to its obligations hereunder which are not fulfilled.
16.4. Binding Effect; Benefits. This Agreement shall inure to the benefit of the parties hereto and shall be binding upon the parties hereto and their respective successors and assigns. Except as otherwise set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.
16.5. Assignment. Without limitation, and without the consent, prior, written or otherwise, of the Company, this Agreement and all of the rights and obligations hereunder may be assigned by Purchaser to any entity owned or controlled by, or affiliated with any of them. Immediately upon such assignment, Purchaser shall be released from any obligation, of any kind or nature, under this Agreement.
16.6. Notices. All notices, requests, demands and other communications which are required to be or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or upon receipt when transmitted by facsimile or telex or after dispatch by certified or registered first class mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made:
If to Purchaser, to: c/o Mr. Andrew A. Levy
The Ranor Acquisition LLC
900 Third Avenue, 13th Floor
New York, New York 10022
-and-
Tannenbaum, Helpern, Syracuse & Hirschtritt LLP
900 Third Avenue, 12th Floor
New York, New York 10022
Attn: Joel Klarreich, Esq.
|
If to the Sellers, to the Sellers' Representative:
Green Mountain Partners
Strong House
694 Main Street
Quechee, VT 05059
Attn: Guy Roberts
With a copy to:
Bingham McCutchen LLP One State Street Hartford, CT 06103 Attn: Thomas F. O'Connor
16.7. Entire Agreement. This Agreement (including the Exhibits hereto) and the Ancillary Documents constitute the entire agreement and supersede all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof and supersede all prior agreements, representations, warranties, statements, promises and understandings, whether written or oral, with respect to the subject matter hereof. No party hereto shall be bound by or charged with any written or oral arguments, representations, warranties, statements, promises or understandings no specifically set forth in this Agreement or in any Exhibit hereto or any Ancillary Documents, or in certificates and instruments to be delivered pursuant hereto on or before the Closing.
16.8. Headings; Certain Terms. The section and other headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to affect the meaning or interpretation of this Agreement. As used in this Agreement, the term "including" means "including, but not limited to" unless otherwise specified; the word "or" means "and/or," and the word "person" means and refers to any individual, corporation, trust, partnership, joint venture, government or governmental authority, or any other entity; and the plural and singular forms are used interchangeably.
16.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.
16.10. Governing Law. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to the choice of law principles thereof.
16.11. Severability. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and each term and provision of the agreement shall be valid and enforced to the fullest extent permitted by law.
16.12. Amendments. This Agreement may not be modified or changed except by an instrument or instruments in writing signed by the party or parties against whom enforcement of any such modification or amendment is sought.
16.13. Section References. All references contained in this Agreement to any section number are references to sections of this Agreement unless otherwise specifically stated.
16.14. Brokers and Finders. Each party represents and warrants there are no brokers, finders or similar persons to whom compensation will be due or owing as a result of consummation of the transactions contemplated by this Agreement and each other party hereby agrees to indemnify and hold the other party harmless against any such claims.
[Remainder of page left intentionally blank. Signature page follows.]
IN WITNESS WHEREOF, the parties hereto have signed this Stock Purchase Agreement, or have caused this Stock Purchase Agreement to be signed in their respective names by an officer hereunder duly authorized, on the date first above written.
Ranor, Inc.
By:/s/ Stanley Youtt /s/ Ann Gray
------------------------------------ --------------------------------
Stanley Youtt, CEO Ann Gray, Individually
Seller: /s/ Daniel Justicz
--------------------------------
Daniel Justicz, Individually
Green Mountain Partners III, LP
By: Green Mountain Investments III, LLC
By:/s/ Guy Roberts /s/ Jeffrey Lippincott
------------------------------------ --------------------------------
Guy Roberts, President Jeffrey Lippincott, Individually
Phoenix Life Insurance Company
By:/s/ Brian A. Giantonio /s/ William Rose
------------------------------------ --------------------------------
Brian A. Giantonio Vice President William Rose, Individually
/s/ Stanely Youtt
--------------------------------
Stanely Youtt, Individually
Purchaser:
Ranor Acquistion LLC
By: /s/ James G. Reindl
------------------------------------
James G. Reindl, President
|
EXHIBIT 2.2(b)
Form of Escrow Agreement
To be provided, subject to mutual agreement of Buyer and Sellers.
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of February 24, 2006 (the "Effective Date"), by and among Lounsberry Holdings II, Inc., Delaware corporation ("Buyer"), Green Mountain Partners III, L.P., a Delaware limited partnership, in its capacity as Sellers Representative ("Green Mountain") under the Stock Purchase Agreement (as defined below), and Wells Fargo Bank, National Association, as escrow agent (the "Escrow Agent").
RECITALS
A. Pursuant to the provisions of that certain Stock Purchase Agreement dated as of August 17, 2005 (the "Stock Purchase Agreement"), among Ranor Acquisition LLC, a Delaware limited liability company ("Acquisition Company"), Green Mountain, Ranor, Inc., a Delaware Corporation ("Ranor"), and certain other equity holders of Ranor (together with Green Mountain, the "Sellers"), Acquisition Company agreed to purchase from Sellers certain securities issued by Ranor (the "Securities").
B. Pursuant to an agreement between Acquisition Company and Buyer, Buyer agreed to assume Acquisition's obligations under the Stock Purchase Agreement and Buyer will purchase the Securities from Seller.
C. Under the terms of the Stock Purchase Agreement, $925,000 (the "Escrow Amount") of the purchase price to be paid to Green Mountain and Phoenix Mutual Life Insurance Company ("Phoenix") for certain of the Securities is to be deposited in an escrow account with the Escrow Agent to secure the Sellers' indemnification obligations arising under the Stock Purchase Agreement.
D. The Stock Purchase Agreement provides that the Escrow Agent shall hold and administer the Escrow Amount in accordance with the terms of this Agreement.
E. Green Mountain has been appointed as Sellers Representative to enter into and perform its obligations under this Agreement on behalf of the Sellers.
F. The Escrow Agent will hold the Escrow Amount in Account No. _______ at Wells Fargo Bank, National Association (the "Escrow Account").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein and, with respect to Buyer and Green Mountain, in the Stock Purchase Agreement and intending to be legally bound hereby, the parties hereby agree as follows:
1. Appointment and Agreement of Escrow Agent
Green Mountain and Buyer hereby appoint the Escrow Agent to serve as, and the Escrow Agent hereby agrees to act as, escrow agent upon the terms and conditions of this Agreement.
2. Establishment of the Escrow
(a) Pursuant to Section 2.2(b) of the Stock Purchase Agreement, Buyer shall deliver to the Escrow Agent on the date hereof the Escrow Amount. The Escrow Agent shall hold the Escrow Amount (and, until such time such interest and other amounts are payable to Green Mountain hereunder (for the benefit of the Sellers), all interest and other amounts earned on the Escrow Amount) in escrow pursuant to this Agreement, in the Escrow Account.
(b) Green Mountain and Buyer confirm to the Escrow Agent and to each other that the Escrow Amount is free and clear of all liens, security interests and other charges and encumbrances except as may be created by this Agreement and the Stock Purchase Agreement.
3. Purpose of the Escrow Account
The Escrow Amount will be deposited with, and held by, the Escrow Agent to secure the indemnification obligations of Sellers contained in the Stock Purchase Agreement.
4. Payments from the Escrow Account
(a) If at any time on or prior to the earlier of (i) the first anniversary of the Effective Date and (ii) the date on which Sellers have no obligations under Section 13 of the Stock Purchase Agreement (the "Distribution Date"), Buyer shall deliver to the Escrow Agent a Buyer Certificate (as defined below), the Escrow Agent shall, promptly upon receipt of such Buyer Certificate, deliver a copy thereof to Green Mountain.
As used herein, the term "Buyer Certificate" shall mean a certificate of Buyer, executed by an officer thereof, which certificate shall:
(i) state that Buyer (A) (i) has paid or incurred a Loss or
(ii) is due an adjustment pursuant to Section 3.4 of the Stock Purchase
Agreement and (B) is entitled to indemnification under Section 13 of the
Stock Purchase Agreement (each an "Indemnification Item"); and
(ii) specify in reasonable detail the nature and amount of each such Indemnification Item (including copies of each invoice or other document evidencing the Indemnification Item claimed in such Buyer Certificate).
(b) If Green Mountain objects to any amount claimed in connection with any
Indemnification Item specified in a Buyer Certificate or that the rights to
indemnification under Section 13 of the Stock Purchase Agreement have not been
satisfied, Green Mountain shall, within 30 days after delivery (pursuant to
Section 11) by the Escrow Agent to Green Mountain of such Buyer Certificate,
deliver to the Escrow Agent a certificate of Green Mountain (a "Green Mountain
Certificate") specifying (i) each specific amount to which it objects, (ii) the
specific provision or requirement of the Stock Purchase Agreement not satisfied
and (iii) in reasonable detail, the nature, basis and, if applicable, amount for
each such objection. Promptly upon receipt of a Green Mountain Certificate, the
Escrow Agent shall deliver a copy thereof to Buyer. If the Escrow Agent shall
not have received a Green Mountain Certificate objecting to any amount claimed
with respect to an Indemnification Item within 30 days after delivery (pursuant
to Section 11) to Green Mountain of a Buyer Certificate as set forth above,
Green Mountain shall be deemed to have acknowledged the accuracy of the amount
claimed and the satisfaction of the applicable requirements on such Buyer
Certificate with respect to such Indemnification Item, and the Escrow Agent
shall promptly thereafter transfer to Buyer, by wire transfer in immediately
available funds, out of the Escrow Account, an amount in cash equal to the
claimed amount of the Indemnification Item (or such lesser amount then
representing the Escrow Account).
(c) If Green Mountain timely provides a Green Mountain Certificate to the Escrow Agent objecting to a Buyer Certificate, Green Mountain and Buyer, acting in good faith, shall attempt to reach agreement with respect to the contested Buyer Certificate. If Green Mountain and Buyer should so agree, a written memorandum setting forth such agreement shall promptly be prepared and signed by Green Mountain and Buyer and furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute funds held in escrow in accordance with the terms hereof and thereof .
(d) If Green Mountain and Buyer are unable to reach agreement with respect to any contested Buyer Certificate within 30 days of the delivery of a Green Mountain Certificate, the dispute shall, at the election of either party, be submitted to mediation administered by JAMS in Boston, Massachusetts, before resorting to arbitration. The mediator will be chosen in accordance with JAMS mediation rules, and the parties shall endeavor to pick a mediator experienced in the area of dispute. The parties will participate in the mediation process in good faith, and will have a representative in attendance throughout the mediation with authority to settle the dispute. Statements made during the mediation process shall be considered to be made in the context of settlement discussions, and shall not be admissible in any subsequent arbitration or judicial proceeding. If the parties do not resolve the dispute through mediation (or neither party elects to have the dispute subjected to mediation) then the parties shall submit the dispute to binding arbitration by a single arbitrator under the rules of JAMS in Boston, Massachusetts, modified as provided in this Agreement. All arbitration proceedings shall be confidential. Neither party, nor the arbitrators, may disclose the existence, content, or results of any arbitration hereunder without the written consent of both parties. The arbitrator shall be a retired judge of the Massachusetts Courts or appellate courts, or the United States District Court or appellate courts. Both parties shall cooperate to cause the arbitrator to decide the dispute to be arbitrated within 60 days. The arbitrator shall provide a final decision in writing to Buyer, Green Mountain and the Escrow Agent, which will constitute the conclusive determination of the issue of the present right to indemnification out of the Escrow Account, and may not be contested by either party. The decision may be used in a court of law only for the purpose of seeking enforcement of the decision of the arbitrator and otherwise shall be given no collateral estoppel or res judicata effect. The party not prevailing in the arbitration shall be responsible for the cost of the arbitration, including the arbitrator's fees, and the reasonable fees and disbursements of counsel to the prevailing party. Upon receipt of the decision, the Escrow Agent shall be entitled to rely on the decision and distribute funds held in escrow to Buyer in accordance with the terms of the decision. Green Mountain and the Buyer agree not to make the Escrow Agent a party to the arbitration.
(e) (i) If all claims in all Buyer Certificates delivered to the Escrow Agent prior to the Distribution Date have been resolved pursuant to the terms hereof on or prior to the Distribution Date, the Escrow Agent shall, on the Distribution Date, transfer to (or at the direction of) Green Mountain (for the benefit of Green Mountain and Phoenix), by wire transfer in immediately available funds, an amount in cash equal to the then remaining balance of the Escrow Account, except as directed by an arbitrator as set forth in Section 4(d) above.
(ii) If any claims in any Buyer Certificates delivered to the Escrow
Agent prior to the Distribution Date shall not have been resolved on or prior to
the Distribution Date, the Escrow Agent shall (A) retain in the Escrow Account
an amount of funds equal to the aggregate amount of all such unresolved claims
(or such lesser amount then representing the Escrow Account) as indicated in
such Buyer Certificates until resolution of such dispute as provided in Section
4(b), 4(c) or 4(d), as applicable, and (B) on the Distribution Date, transfer to
(or at the direction of) Green Mountain, by wire transfer in immediately
available funds, an amount in cash equal to the portion of the Escrow Account,
if any, not required to be retained pursuant to clause (A) above. In the case of
subsection (ii)(A) above, this Agreement shall remain in effect until resolution
of the dispute as provided in Section 4(b), 4(c) or 4(d), as applicable.
5. Liquidation of the Escrow Account; Payments
(a) Whenever the Escrow Agent shall be required to make payment from the Escrow Account, the Escrow Agent shall pay such amounts by liquidating the investments of the Escrow Account to the extent necessary to pay such amounts in full and in cash.
(b) Notwithstanding anything herein to the contrary, the Escrow Agent shall be entitled to retain from payments made hereunder to Buyer and to Green Mountain, respectively, an amount of funds equal to the portion of the Escrow Fee and all expenses payable by Buyer or Green Mountain, as the case may be, to the Escrow Agent in connection with this Agreement as provided in Section 9(f) hereof.
6. Maintenance of the Escrow Account; Termination of the Escrow Account
(a) The Escrow Agent shall continue to maintain the Escrow Account until the earlier of (i) the time at which there shall be no funds in the Escrow Account and (ii) the termination of this Agreement.
(b) Notwithstanding any other provision of this Agreement to the contrary, at any time prior to the termination of the Escrow Account, the Escrow Agent shall, if so instructed in a writing signed by Green Mountain and Buyer, pay from the Escrow Account to Buyer or Green Mountain, as directed in such writing, the amount of cash so instructed (and if such cash is not available, shall liquidate such investments of the Escrow Account as are necessary to make such payment).
7. Investment of Escrow Accounts
Upon receipt of written instructions from Green Mountain, the Escrow Agent
shall invest and reinvest moneys on deposit in the Escrow Account in any
combination of the following, as so instructed: (a) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or readily marketable obligations unconditionally
guaranteed by the full faith and credit of the Government of the United States;
(b) insured certificates of deposit of, or time deposits or money market
accounts with, any commercial bank that is a member of the Federal Reserve
System and which issues (or the parent of which issues) commercial paper rated
at least "Prime-1" (or the then equivalent grade) by Moody's Investors Services,
Inc. or "A-1" (or the then equivalent grade) by Standard & Poors, Inc., is
organized under the laws of the United States or any state thereof and has
combined capital and surplus of at least $500 million, or (c) money market
accounts and money market mutual funds (including those of Escrow Agent) which
are rated not less than AAA. Interest or other amounts earned on investments of
the Escrow Amount shall be (a) applied by the Escrow Agent to pay any Escrow
Fees owing to it from Green Mountain or Phoenix and (b) any such amounts
remaining after the application of such fees pursuant to clause (a) above shall
be reinvested by the Escrow Agent in accordance with the terms hereof and shall
be payable to Green Mountain (for the benefit of Green Mountain and Phoenix) on
the date of any final distribution hereunder. Notwithstanding anything herein to
the contrary, no interest or other amounts earned on the Escrow Amount is to be
used or available for use to pay any Sellers' obligations to Buyer. The Escrow
Agent shall be entitled to sell or redeem any such investments as necessary to
make any payments or distributions required under this Agreement. The Escrow
Agent shall have no responsibility or liability for any loss which may result
from any investment made pursuant to this Agreement, or for any loss resulting
from the sale of such investment. The parties acknowledge that the Escrow Agent
is not providing investment supervision, recommendations, or advice. Green
Mountain's Federal Tax Identification Number is 52-2348670 and Phoenix's Federal
Tax Identification Number is ________. Prior to closing, Green Mountain and
Phoenix shall provide the Escrow Agent with certified tax identification numbers
by furnishing appropriate forms W-9 or W-8 and such other forms and documents
that the Escrow Agent may request. The parties understand that if such tax
reporting documentation is not provided and certified to the Escrow Agent, the
Escrow Agent may be required by the Internal Revenue Code of 1986, as amended,
and the Regulations promulgated thereunder, to withhold a portion of any
interest or other income earned on the investment of monies or other property
held by the Escrow Agent pursuant to this Agreement. To the extent that the
Escrow Agent becomes liable for the payment of any taxes in respect of income
derived from the investment of the Escrow Amount, the Escrow Agent shall satisfy
such liability to the extent possible from the Escrow Amount. Buyer and Green
Mountain agree, jointly and severally, to indemnify, defend and hold the Escrow
Agent harmless from and against any tax, late payment, interest, penalty or
other cost or expense that may be assessed against the Escrow Agent on or with
respect to the Escrow Amount and the investment thereof unless any such tax,
late payment, interest, penalty or other expense was caused by the gross
negligence or willful misconduct of the Escrow Agent. The indemnification
provided by this Section 7 is in addition to the indemnification provided in
Section 9(g) and shall survive the resignation or removal of the Escrow Agent
and the termination of this Agreement. All interest income will be split ___% to
Green Mountain and ___% to Phoenix.
8. Assignment of Rights to the Escrow Account; Assignment of Obligations; Successors
Each of Green Mountain and Buyer may assign, transfer, pledge or otherwise dispose of its rights to any portion of the Escrow Account. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors and assigns.
9. Escrow Agent
(a) Except as expressly authorized by this Agreement or by joint written instructions from Green Mountain and Buyer, the Escrow Agent shall not sell, transfer or otherwise dispose of in any manner all or any portion of the Escrow Account, except pursuant to an order of a court of competent jurisdiction.
(b) The duties and obligations of the Escrow Agent shall be determined solely by this Agreement, and the Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement. The Escrow Agent shall not be a fiduciary for any party. In no event shall the Escrow Agent be liable, directly or indirectly, for any (i) damages or expenses arising out of the services provided hereunder, other than damages which result from the Escrow Agent's gross negligence or willful misconduct, or (ii) special or consequential damages, even if the Escrow Agent has been advised of the possibility of such damages.
(c) In the performance of its duties hereunder, the Escrow Agent shall be entitled to rely upon any document, instrument or signature believed by it in good faith to be genuine and signed by any party hereto or an authorized officer or agent thereof, and shall not be required to investigate the truth or accuracy of any statement contained in any such document or instrument. The Escrow Agent may assume that any person or entity purporting to give any notice in accordance with the provisions of this Agreement has been duly authorized to do so. Concurrent with the execution of this Agreement, Buyer and Green Mountain, respectively, shall deliver to the Escrow Agent an authorized signers form in the form of Exhibit B-1 and Exhibit B-2 to this Agreement.
(d) The Escrow Agent shall not be liable for any error of judgment, or any action taken, suffered or omitted to be taken, hereunder except in the case of its gross negligence, bad faith or willful misconduct.
(e) The Escrow Agent shall have no duty as to the collection or protection of the Escrow Account or income thereon, nor as to the preservation of any rights pertaining thereto, beyond the safe custody of any such funds and any payments thereunder actually in its possession.
(f) As compensation for its services to be rendered under this Agreement, the Escrow Agent shall receive a fee in the amount described on the attached Exhibit A ("Escrow Fee") and shall be reimbursed, as described on Exhibit A, upon request for any expenses, disbursements and advances reasonably incurred by it in carrying out its duties under this Agreement. Buyer, on one hand, and Green Mountain and Phoenix (pro rata), on the other hand, shall each be responsible for 50% of the Escrow Fee and all such additional expenses.
(g) Buyer and Green Mountain shall, jointly and severally, reimburse and indemnify the Escrow Agent for, and hold it harmless against, any loss, liability or expense, including, without limitation, reasonable attorney's fees, incurred without gross negligence, bad faith or willful misconduct on the part of the Escrow Agent arising out of, or in connection with the acceptance of, or the performance of, its duties and obligations under this Agreement. The indemnification provided by this Section 9(g) shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement.
(h) The Escrow Agent may at any time resign by giving 20 business days prior written notice of resignation to Buyer and Green Mountain. Buyer and Green Mountain may at any time jointly remove the Escrow Agent by giving 10 business days written notice signed by Buyer and Green Mountain to the Escrow Agent. If the Escrow Agent shall resign or be removed, a successor Escrow Agent, which shall be a bank or trust company having assets in excess of $500 million, shall be appointed by written instrument executed by Buyer and Green Mountain and delivered to the Escrow Agent and to such successor Escrow Agent and, thereupon, the resignation or removal of the predecessor Escrow Agent shall become effective and such successor Escrow Agent, without any further act, deed or conveyance, shall become vested with all right, title and interest to all cash and property held hereunder of such predecessor Escrow Agent, and such predecessor Escrow Agent shall, on the written request of Buyer, Green Mountain or the successor Escrow Agent, deliver to such successor Escrow Agent all the right, title and interest hereunder of such predecessor Escrow Agent in and to the Escrow Account and all other rights hereunder of such predecessor Escrow Agent. If no successor Escrow Agent shall have been appointed within 20 business days of a notice of resignation by the Escrow Agent, the Escrow Agent's sole responsibility shall thereafter be to hold the Escrow Account until the earliest of (x) its receipt of designation of a successor Escrow Agent, (y) its receipt of joint written instructions by Buyer and Green Mountain, and (z) termination of this Agreement in accordance with its terms.
(i) Notwithstanding anything herein to the contrary, if any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold the Escrow Account in escrow and may wait for settlement of any such controversy by agreement by the parties as provided by Section 4. In such event, the Escrow Agent will not be liable to any person or entity for interest or damage, except for its gross negligence, bad faith or willful misconduct. In addition, in the event of any such controversy resulting in adverse claims or demands being made upon the Escrow Account, or in the event that the Escrow Agent, in good faith, is in reasonable doubt as to what action it should take hereunder, the Escrow Agent may, at its option, file a suit as interpleader in a court of appropriate jurisdiction, or refuse to comply with any claims or demands on it, or refuse to take any other action hereunder, so long as such dispute shall continue or such doubt shall exist. The Escrow Agent shall be entitled to continue so to refrain from acting until (A) the rights of all parties have been fully and finally adjudicated by a court of appropriate jurisdiction or by binding arbitration or (B) all differences and such doubt shall have been resolved by agreement among all of the interested persons, and the Escrow Agent shall have been notified of such agreement in writing signed by all such persons. The rights of the Escrow Agent under this subsection (i) are cumulative of all other rights which it may have by law or otherwise.
(j) The following provisions shall control with respect to the rights, duties, liabilities, privileges, and immunities of the Escrow Agent:
(a) The Escrow Agent is not a party to, is not bound by, and has no duty to inquire into any agreement other than this Escrow Agreement. All references in this Escrow Agreement to other agreements, including the Repurchase Agreement and Indemnification Agreement, are for the convenience of the parties hereto other than the Escrow Agent, and the Escrow Agent shall have no duties or obligations with respect thereto. The Escrow Agent shall have no implied duties beyond the express duties set forth herein.
(b) It is the intention of the parties to this Escrow Agreement that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder.
(k) Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor Escrow Agent under this Escrow Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance any further act.
10. Termination
This Escrow Agreement shall terminate on the earlier of (a) the date on which there are no funds remaining in the Escrow Account, (b) 10 business days following the date after the Distribution Date on which all claims made in Buyer Certificates delivered to the Escrow Agent prior to the Distribution Date shall have been finally resolved and (c) subject to Section 4(e), the second anniversary of the Effective Date. In the event of termination of the Escrow Agreement pursuant to clause (c) above, the Escrow Agent shall distribute any funds remaining in the Escrow Account to Green Mountain, subject to Section 4(e).
11. Notices
All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission, or mailed postage prepaid by first-class certified or registered mail, or mailed by a nationally recognized express courier service, or hand-delivered, addressed as follows:
If to Buyer or
Acquisition Company: c/o Lounsberry Holdings I, Inc.
900 Third Avenue
13th Floor
New York, NY 10022
Attention: Andrew Levy
With a copy to: KatskyKorins LLP
605 Third Avenue
New York, NY 10158
Attn: Asher S. Levitsky P.C.
If to Green Mountain Green Mountain Partners III, L.P.
Strong House
Main Street
Quechee, VT 05059
Facsimile: (802) 296-6012
Attention: Guy C. Roberts
With a copy to: Bingham McCutchen LLP
One State Street
Hartford, CT 06103
Facsimile: (860) 240-2800
Attention: Thomas O'Connor
[If to Phoenix Need address if it will be signatory, etc]
If to Escrow Agent, to: Wells Fargo Bank, National Association
MAC P6101-114
1300 SW Fifth Avenue
Portland, Oregon 97201
Telephone: (503) 886-1367
Facsimile: (503) 886-3300
Attention: Corporate Trust Services
|
Any party may change the persons or addresses to which any notices or other communications to it should be addressed by notifying the other parties as provided above. Any notice or other communication, if addressed and sent, mailed or delivered as provided above, shall be deemed given or received three days after the date of mailing as indicated on the certified or registered mail receipt, or on the next business day if mailed by express courier service, or on the date of delivery or transmission if hand-delivered or sent by facsimile transmission.
12. Governing Law
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Oregon applicable to contracts executed and to be performed entirely within that state.
13. Amendments
This Agreement may not be amended or modified except (a) by an instrument in writing signed by Buyer, Green Mountain and the Escrow Agent, or (b) by a waiver in accordance with Section 14 of this Agreement.
14. Waiver
Any party hereto may (a) extend the time for the performance of any obligation or other act of any other party hereto or (b) waive compliance with any agreement or condition contained herein. 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 thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.
15. 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 and legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any 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 a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.
16. Entire Agreement
This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among Buyer, Green Mountain and the Escrow Agent with respect to the subject matter hereof.
17. Binding Effect; No Third Party Beneficiaries
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement is for the sole benefit of the parties hereto and their respective successors and assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
18. Headings
The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
19. Counterparts
This Agreement may be executed in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same agreement.
20. Sellers Representative
The Sellers Representative represents and warrants to the Escrow Agent and Buyer that it has the irrevocable right, power and authority (i) to enter into and perform this Agreement and to bind all of the Sellers to its terms, (ii) to give and receive directions and notices hereunder; and (iii) to make all determinations that may be required or that it deems appropriate under this Agreement. The Escrow Agent may rely conclusively and act upon the directions, instructions and notices of the Sellers Representative named above.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date first written above.
LOUNSBERRY HOLDINGS II, INC.
Title:
RANOR ACQUISITION LLC
Title:
GREEN MOUNTAIN PARTNERS III, L.P.
By: Green Mountain Investors III, LLC,
its General Partner
Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Title:
[Signature page to Escrow Agreement]
EXHIBIT A
ESCROW FEE
1. Escrow Set Up Charge (payable at closing of escrow) $ 750.00
2. Escrow Annual Fee (payable at closing of escrow and, annually thereafter): $ 1,750.00
3. Extraordinary Charges:
(i) Billable at $150.00 per officer hour for services substantially expanding the duties or responsibilities of the Escrow Agent and not generally associated (in the experience of Escrow Agent, either as to type, or frequency, or both) with the routine administration of similar Escrow Agreements; or
(ii) Services rendered in connection with a direction by a party entitled to make such direction.
4. Out-of-Pocket Charges: (will be billed to fee paying entity as they occur)
(i) Publication Costs;
(ii) Counsel fees;
(iii) Printing and reproduction of documents, notices and other instruments;
(iv) Airfreight;
(v) Such other out-of-pocket expenses as may reasonably be incurred.
EXHIBIT B-1
CERTIFICATE AS TO AUTHORIZED SIGNATURES
Re: Escrow Agreement dated January __, 2006, among Ranor Acquisition LLC, Green Mountain Partners III, L.P. and Wells Fargo Bank, National Association, as Escrow Agent
Account Number ____________
The specimen signatures shown below are the specimen signatures of the individuals authorized to initiate and approve transactions of all types for the above-mentioned account on behalf of Lounsberry Holdings II, Inc.
Name/Title Specimen Signature
----------------------------- ---------------------------
Name and Title Signature
----------------------------- ---------------------------
Name and Title Signature
----------------------------- ---------------------------
Name and Title Signature
Dated: January ____, 2006
|
EXHIBIT B-2
CERTIFICATE AS TO AUTHORIZED SIGNATURES
Re: Escrow Agreement dated January __, 2006, among Ranor Acquisition LLC, Green Mountain Partners III, L.P. and Wells Fargo Bank, National Association, as Escrow Agent
Account Number ____________
The specimen signatures shown below are the specimen signatures of the individuals authorized to initiate and approve transactions of all types for the above-mentioned account on behalf of Green Mountain Partners III, L.P.
Name/Title Specimen Signature
----------------------------- ---------------------------
Name and Title Signature
----------------------------- ---------------------------
Name and Title Signature
----------------------------- ---------------------------
Name and Title Signature
Dated: January ____, 2006
|
EXHIBIT 5.6
No Interest in Competitors
None
EXHIBIT 6.1
Good Standing Certificates
See attached.
EXHIBIT 6.2(a)
Capitalization
Common Stock
--------------------------------------------------------------------------------
Holder Shares
--------------------------------------------------------------------------------
Ann Gray 70,000
--------------------------------------------------------------------------------
Daniel Justicz 70,000
--------------------------------------------------------------------------------
Jeffrey Lippincott 70,000
--------------------------------------------------------------------------------
William Rose 70,000
--------------------------------------------------------------------------------
Stanley Youtt 70,000
--------------------------------------------------------------------------------
Warrants
--------------------------------------------------------------------------------
Holder Warrants
--------------------------------------------------------------------------------
Green Mountain Partners III, LP 520,000
--------------------------------------------------------------------------------
Phoenix Life Insurance Company 130,000
--------------------------------------------------------------------------------
Preferred Stock
--------------------------------------------------------------------------------
Holder Shares
--------------------------------------------------------------------------------
Green Mountain Partners III, LP 1600
--------------------------------------------------------------------------------
Phoenix Life Insurance Company 400
--------------------------------------------------------------------------------
Ratable Portion
--------------------------------------------------------------------------------
Holder Percentage
--------------------------------------------------------------------------------
Ann Gray 7%
--------------------------------------------------------------------------------
Daniel Justicz 7%
--------------------------------------------------------------------------------
Jeffrey Lippincott 7%
--------------------------------------------------------------------------------
William Rose 7%
--------------------------------------------------------------------------------
Stanley Youtt 7%
--------------------------------------------------------------------------------
Green Mountain Partners II, LP 52%
--------------------------------------------------------------------------------
|
EXHIBIT 6.8
Governmental and Other Consents
None
EXHIBIT 6.10
Material Adverse Changes
1. Expenditures in connection with the replacement of the Company's Septic System and leach field.
2. See Exhibit 6.23
EXHIBIT 6.11
Title to Assets, Absence of Liens and Encumbrances
1. See attached Owner' Title Insurance Policy No. SV 2020358 and update letter issued by Old Republic National Title Insurance Company dated August 5, 2005.
2. See attached UCC search results
EXHIBIT 6.12
Insurance
See attached insurance certificate.
EXHIBIT 6.13.1
Commitments
(a) IKON copier lease(s)
(c) Management Agreements with the Individual Sellers See attached list of Employee Loans regarding 401-K litigation (See exhibit 6.17).
(e) Confidentiality Agreements with customers. Employees are subject to confidentiality and other provisions regarding Company proprietary information.
(f) See attached list of purchase orders over $100,000
(i) See attached list of vendor orders over $10,000
(j) Representative Agreement between the Company and Ken Blake
(m) Ford Motor Company Loan secured by Truck.
EXHIBIT 6.13.3
Fulfillment of Commitments, No Default
None
EXHIBIT 6.14
Patents, Trademarks, Copyrights
1. Registered domain name: "www.ranor.com"
2. Registered Tradename "Ranor"
EXHIBIT 6.15
Permits, Licenses, Etc.
1. National Board of Boiler & Pressure Vessel Inspectors Certificate of Authorization R - Scope: repairs and/or alterations at Company's facility and extended for field repairs and/or alterations controlled by such location.
2. American Society of Mechanical Engineers Certificates of Authorization for:
a. Code Symbol, NPT, Scope: Class 1, 2, 3 MC & TC fabrication without design responsibility and as a material organization supplying ferrous & nonferrous material at Company's facility only;
b. Code Symbol NA, Scope: Class 1, 2, 3 & MC shop assembly at Company's facility only;
c. Code Symbol NS, Scope: Class 1, 2, 3 & MC fabrication of supports without design responsibility at Company's facility;
d. Code Symbol PP, Scope : Fabrication and assembly of pressure piping at Company's location and field sites controlled by such location;
e. Code Symbol S, Scope: Manufacture and assembly of power boilers at Company's facility and field sites controlled by such location;
f. Code symbol U, Scope: Manufacture of pressure vessels at Company's facility and field sites controlled by such location.
EXHIBIT 6.17
Litigation
1. Kenneth Stewart v. Ranor, Equal Employment Opportunity Commission Socket No. 161-2003-00401. Mr. Stewart filed a claim with the EEOC claiming age discrimination by the Company. The Company denied liability and presented its position to the EEOC investogator. On July 16, 2003, the EEOC dismissed the action based on its investigation. Mr. Stewart did not file a complaint within 90 days of the dismissal, so his federal claims have been extinguished. It is possible that Mr. Stewart would pursue claims of discrimination under Massachusetts law.
2. 401(K) Litigation - Some employees of the Company are suing the trustees of the 401-K Plan of the prior Ranor entity from which the Company purchased the assets in 2002. The Company has no obligation for future litigation costs.
EXHIBIT 6.18(a)
Customers, Suppliers, Distributors and Agents
None
EXHIBIT 6.18(b)
Ten (10) Largest Purchasers and Providers
Ten (10) largest current Purchasers:
1. BAE Systems
2. General Dynamics
3. Northrup Grumman/Newport News
4. Battenfield Gloucester Eng. Inc.
5. Siemens Westinghouse
6. Scandia National Labs
7. Scientech
8. Spincraft
9. Cabot Corp.
10. GT Equipment
Ten (10) largest current Providers:
1. Fallon Community Health
2. Scot Forge Co.
3. Kenneth Crosby Inc.
4. American Alloy Steel Inc.
5. Massachusetts Electric
6. Pierce Aluminum Co. Inc.
7. Sandmeyer Steel Company
8. Dav-Tech Plating Inc.
9. Airgas East
10. Fitchburg Gas & Light Co.
EXHIBIT 6.20
Employee Benefit Plans
1. 401 K Plan
2. Health, Life and Disability Insurance
3. Vacation Policy
EXHIBIT 6.21
Powers of Attorney
None
EXHIBIT 6.22
Labor Disputes, Unfair Labor Practices
See Exhibit 6.17
EXHIBIT 6.23
Environmental Matters
1. Underground Storage Tanks - According to information received from the prior
owner of the Company's property:
o No underground storage tanks currently are located on the Company's
site.
o In 1993 three underground storage tanks were removed from Company's
site. Two tanks had held diesel oil, and one was used for gasoline.
o Approximately 155 cubic yards of petroleum-contaminated soils were
excavated from the area surrounding the dispensers and piping and
were recycled off-site.
2. Septic Problem
Inspection revealed surface sewage breakout in the area of the existing leaching
area servicing Company 's Westminster facility, therefore creating a health
nuisance condition and violation of the following Massachusetts General Laws:
o Chapter 111, section 122: A nuisance condition was found on the
site, which is deemed to be injurious to the public health. Such a
condition must be destroyed or removed.
o 310 CMR 15.303[1]a(2), Title 5 of the Massachusetts Environmental
Code: There is a discharge of effluent directly or indirectly to the
surface of the ground through ponding, surface breakout, or damp
soils above the disposal area or to a surface water of the
Commonwealth.
o Installation of a new septic system was completed July, 2005.
3. Paint Problem The Company currently has partial cans of paint and other hazmat materials stored at the facility. These unused materials need to be disposed of in an environmentally safe manner.
4. Wood Problem Pallets and crates from some products received is not reusable. The Company piles these pallets and crates behind the garage.
5. Lubricant Problem Metal chips and shavings removed from certain machines in the machine shop are placed in open containers and stored behind the machine shop. Rain may have been washing machine coolant residue from these metal chips and shavings into the soil. The Company has not addressed this matter.
Environmental Permits
Paintbooth permit from the Massachusetts Department of Environmental Protection
is necessary for the Company's paint booth. The Company is pursing the necessary
application but has not yet received the permit. Failure to receive this permit
could be material to the operations of the Company's business.
Lead
The Company has lead that was left at the facility by the prior owner. The Company has an obligation to remove the lead.
See Environmental Risk Limited Phase I dated July 2002, a copy of which has been provided to Purchaser.
EXHIBIT 6.25
Recent Dividends and Other Distributions
None
EXHIBIT 11.11
Form of Employment Agreement
See Attached.
[Mr. Youtt's employment agreement is filed as Exhibit 10.6]
EXHIBIT 11.12
Sellers' Counsel Opinion Paragraphs
See Attached.
EXHIBIT I
Real Property Description
See Title Policy No. SV 2020358 attached as Exhibit 6.11.
First Amendment to Stock Purchase Agreement
Reference is made to a Stock Purchase Agreement made and entered into as of the 17th day of August, 2005 by and among Ranor Acquisition LLC, a Delaware limited liability company, Green Mountain Partners III, LP, Phoenix Life Insurance Company, Ann Gray, Daniel Justicz, Jeffrey Lippincott, William Rose and Stanley Youtt and Ranor, Inc. for the purchase by Ranor Acquisition LLC of 100% of the stock and warrants of Ranor Inc. [the "Original Agreement"]. The purpose of this First Amendment to Stock Purchase Agreement is to amend the Original Agreement.
1. Amendments.
(a) Footnote 1 in the Original Agreement is hereby deleted.
(b) The first sentence of Section 4.1 of the Original Agreement shall be replaced in its entirety with the following sentence
"Subject to the provisions of this Agreement, the consummation of the transactions contemplated by this Agreement (the "Closing") shall be held at the offices of Bingham McCutchen LLP, One State Street, Hartford, CT 06103 at 10:00AM (local time) on or before November 15, 2005 (the date of the Closing being referred to herein as the "Closing Date").
(c) The reference to "October 17, 2005" in Section 16.2(a)(i) is replaced with "November 15, 2005."
2. Original Agreement. In all other respects the Original Agreement shall remain unaltered and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to Stock Purchase Agreement, or have caused it to be executed in their respective names by an officer hereunder duly authorized, as of the 15th day of October, 2005.
Ranor, Inc.
By: /s/ Stanley Youtt
----------------------------------
Stanley Youtt
|
Sellers:
Green Mountain Partners III, LP
By: Green Mountain Investments III,
LLC, its general partner /s/ Daniel Justicz
------------------------------------
Daniel Justicz, Individually
By: /s/ Guy Roberts /s/ Jeffrey Lippincott
---------------------------------- ------------------------------------
Guy Roberts, President Jeffrey Lippincott, Individually
Phoenix Life Insurance Company /s/ William Rose
------------------------------------
William Rose, Individually
By: /s/ Brian A. Giantonio /s/ Stanley Youtt
---------------------------------- ------------------------------------
Brian A. Giantonio, Vice President Stanley Youtt, Individually
/s/ Ann Gray
-------------------------------------
Ann Gray, individually
Purchaser:
|
Ranor Acquisition LLC
By: /s/ James G. Reindl
----------------------------------
James G. Reindl, President
|
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
LOUNSBERRY HOLDINGS II, INC.
(Pursuant to Section 102 of the Delaware General Corporation Law)
1. The name of the corporation is LOUNSBERRY HOLDINGS II, INC. (the "Corporation").
2. The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County of New Castle. The name of its registered agent at such address is the Corporation Service Company.
3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware (the "DGCL").
4. The Corporation is to have perpetual existence.
5. The total number of shares of capital stock which the Corporation shall have authority to issue is: One Hundred Million (100,000,000). These shares shall be divided into two classes with 90,000,000 shares designated as common stock at $.0001 par value (the "Common Stock") and 10,000,000 shares designated as preferred stock at $.0001 par value (the "Preferred Stock").
The Preferred Stock of the Corporation shall be issued by the Board of Directors of the Corporation in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors of the Corporation may determine, from time to time.
Holders of shares of Common Stock shall be entitled to cast one vote for each share held at all stockholders' meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights.
No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
6. The Board of Directors shall have the power to adopt, amend or repeal the by-laws of the Corporation.
7. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for 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) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL 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 DGCL. No amendment to or repeal of this Article 7 shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
8. The Corporation shall indemnify, to the fullest extent permitted by
Section 145 of the DGCL, as amended from time to time, each person that such
section grants the Corporation the power to indemnify.
9. The name and mailing address of the incorporator is Michael F. Nertney, c/o Feldman Weinstein LLP, 420 Lexington Avenue, Suite 2620, New York, New York 10170.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named, has executed, signed and acknowledged this certificate of incorporation this 10th day of February, 2005.
s/ Michael F. Nertney ----------------------- Michael F. Nertney Incorporator |
CERTIFICATE OF OWNERSHIP AND MERGER
OF
TECHPRECISION CORPORATION
(a Delaware corporation)
INTO
LOUNSBERRY HOLDINGS II, INC.
(a Delaware corporation)
Under Section 253 of the Delaware General Corporation Law
The undersigned corporation does hereby certify as follows:
FIRST: Lounsberry Holdings II, Inc. (the "Corporation") is a business corporation of the State of Delaware. The Certificate of Incorporation was filed with the Secretary of State on February 10, 2005.
SECOND: The Corporation is the owner of all of the outstanding shares of the stock of Techprecision Corporation, which is also a business corporation of the State of Delaware.
THIRD: On March 3, 2006, the Board of Directors of the Corporation adopted the following resolutions to merge Techprecision Corporation into the Corporation:
RESOLVED that Techprecision Corporation be merged into this Corporation, and that all of the estate, property, rights, privileges, powers and franchises of Techprecision Corporation be vested in and held and enjoyed by this Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by Techprecision Corporation in its name; and further
RESOLVED that this Corporation shall assume all of the obligations of Techprecision Corporation; and further
RESOLVED, that the officers of this Corporation be, and they and each of them hereby is, authorized, empowered and instructed to file a Certificate of Ownership and Merger of Techprecision Corporation into this Corporation pursuant to Section 253 of the Delaware General Corporation Law and to take such other action as they may deem necessary or advisable in order to effect the merger of into this Corporation, the taking of such action to be conclusive evidence as to the necessity or advisability therefor; and further
RESOLVED, that this Corporation shall change its name to Techprecision Corporation upon the effectiveness of the Merger; and further
RESOLVED, that the merger of Techprecision Corporation shall be effective upon filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware; and further
RESOLVED, that the officers of this Corporation be, and they hereby are, authorized and empowered to certify as to the adoption of any or all of the foregoing resolutions.
Dated: March 3, 2006
LOUNSBERRY HOLDINGS II, INC.
Exhibit 4.1
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made as of February 24,2006 by and between Sovereign Bank, with an office at 1010 Farmington Avenue, West Hartford, CT 06107 (hereinafter referred to as the "Lender"), and Ranor, Inc., a corporation organized under the State of Delaware ("Ranor") with its chief executive office, principal place of business and mailing address at One Bella Drive, Westminster, MA 01473 (the "Borrower"). Borrower's liability hereunder shall be joint and several.
SECTION 1. DEFINITIONS. As used herein:
1.1. Accounting Terms All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles in the United States and all financial data submitted pursuant to this Loan Agreement shall be prepared in accordance with such principles.
1.2. Accounts - means "Accounts" as defined in the Uniform Commercial Code.
1.3. Additional Collateral - means (a) all "Securities Entitlements," "Investment Property," "Financial Assets," Commercial Tort Claims and "Documents" as those terms are defined in the Uniform Commercial Code as of the date hereof, whether now existing or hereafter acquired or arising, (b) all securities, bills of lading, dock warrants, dock receipts, warehouse receipts or orders for the delivery of goods, and any other documents which in the regular course of business or financing are treated as adequately evidencing that the persons in possession of them are entitled to receive, hold, and dispose of the goods they cover; (c) all motor vehicles whether now owned or hereafter acquired by the Borrower, and all accessions and additions thereto, replacements therefor, and substitutions therefor; (d) all "General Intangibles" as that term is defined in the Uniform Commercial Code as of the date hereof, whether presently owned or hereafter acquired, including, without limitation, Payment Intangibles and Software (as those terms are defined in the Uniform Commercial Code), all choses in action, causes of action, and all other intangible personal property of the Borrower, including, without limitation, corporate or other business records, inventions, designs, patents, patent applications, trademarks, servicemarks, tradenames, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, credit files, computer programs, printouts and other computer materials and records, guaranty claims, security interests or other property held by or granted to Borrower to secure payment of any obligation of any obligor of Borrower and any and all of the rights of Borrower of whatever nature under any and all contracts, agreements, or leases (whether of real or personal property) to which the Borrower is or may become a party, including without limitation all of the rights of Borrower to enforce all of the provisions of, and to obtain payments or other performance due under, all contracts, agreements, or leases; (e) all of Borrower's rights (including rights as licensee and lessee) with respect to all computer hardware and software and all rights with respect thereto including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights,
renewal rights and indemnifications, and any substitutions, replacements,
additions or model conversions of any of the foregoing, and further including
(i) computer and other electronic data processing hardware, including all
integrated computer systems, central processing units, memory units, display
terminals, printers, computer elements, card readers, tape drives, hard and soft
disk drives, cables, electrical supply hardware, generators, power equalizers,
accessories, peripheral devices and other related computer hardware, (ii) all
Software and all software programs designed for use on the computers and
electronic data processing hardware described in clause (i) above, including all
operating system software, utilities and application programs in any form
(source code and object code in magnetic tape, disk or hard copy format or any
other listings whatsoever (iii) any firmware associated with any of the
foregoing; and (iv) any documentation for hardware, Software and firmware
described in clauses (i), (ii) and (iii) above, including flow charts, logic
diagrams, manuals, specifications, training materials, charts and pseudo codes,
and (f) all monies, securities and other property of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to the
Lender whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and also in and to any and all deposits, general or special, and
credits of the Borrower with, and any and all claims of the Borrower against,
the Bank now or at any time hereafter existing.
1.4. Additional Definitions Unless otherwise specifically defined herein, all terms used in this Loan Agreement and in all documents referred to herein and which have been defined in Articles 1, 2 or 9, Uniform Commercial Code, shall be interpreted and construed in light of the sections, the definitions, the "official comment", and the definitional and substantive cross-references of the Uniform Commercial Code.
1.5. Affiliates - means any Person: (1) which directly or indirectly Controls, or is Controlled by, or is under common Control with, the Borrower or any subsidiary; (2) which directly or indirectly beneficially owns or holds any class of voting stock of the Borrower or any subsidiary; or (3) the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or any subsidiary.
1.6. Banking Day - means with respect to any date that is specified in this Agreement, to be subject to adjustment in accordance with the applicable Business Day Convention, (i) a day on which commercial lenders settle payments in the Governing State, (ii) in any other case, any day on which Lender is not required or authorized to close in the Governing State.
1.7. Business Day Convention - means the convention for adjusting any relevant date if it would otherwise fall on a day that is not a Banking Day. Reference to a payment date, when used in conjunction with the term "Business Day Convention", shall mean that an adjustment will be made if the date would otherwise fall on a day that is not a Banking Day so that the date will be the first following day that is a Banking Day.
1.8. Collateral - means all of Borrower's personal property, now owned or hereafter acquired, including without limitation all Accounts, Health Care Insurance Receivables, Letter-of-Credit Rights, Supporting Obligations, Electronic Chattel Paper, Tangible Chattel Paper and Instruments, as these terms are defined in the Uniform Commercial Code, together with all Inventory, Equipment, Patents, Trademarks and Additional Collateral, as hereinafter defined, and all products and proceeds of the foregoing including, without limitation, proceeds of any insurance policies insuring any of the foregoing, all as more particularly described on Schedule B.
1.9. Control - means the possession, directly or indirectly, 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.
1.10. Effective Date - means the date of execution of this Loan Agreement.
1.11. Eligible Inventory - means Inventory (valued at the lesser of cost to the Borrower or market value) which, on a date which a Borrowing Base Certificate is submitted to Lender, meets the following requirements:
a. It is saleable through normal trade channels; and
b. It is owned by the Borrower and is not subject to any lien or security interest whatsoever other than that of the Lender.
1.12. Eligible Accounts - means the net amount of those Accounts which continually meet the following requirements:
a. The Account is due and payable not more than ninety (90) days
from the date of the invoice evidencing the account and is not more than thirty
(30) days past due;
b. The Account arose from the performance of services by the Borrower which have been satisfactorily performed or from the absolute sale of goods by the Borrower in which the Borrower had the sole and complete ownership and the goods have been shipped or delivered to the account debtor, and the Borrower or the Lender is in possession of shipping and delivery receipts evidencing such shipment or delivery;
c. The Account is not subject to any prior or subsequent assignment, claim, lien or security interest other than that of the Lender;
d. To the best of the Borrower's knowledge, the Account is not subject to setoff, counterclaim, defense, allowance or adjustment other than discounts for prompt payment shown on the invoice, or to dispute, objection or complaint by the account debtor concerning its liability on the account, and the goods, the sale of which gave rise to the account, have not been returned, rejected, lost or damaged;
e. The Account arose in the ordinary course of business;
f. To the best of the Borrower's knowledge, no petition or other application for relief under the Bankruptcy Code or other insolvency law has been filed with respect to the customer or account debtor; and the customer or account debtor has not made an assignment for the benefit of creditors, become insolvent, or suspended or terminated business; and the account debtor is generally paying its debts as they become due;
g. Either the account debtor has its principal place of business in the United States, or the account debtor has posted a letter of credit in favor of the Borrower in an amount at least equal to the amount of the Account;
h. The Borrower does not have any net accounts payable in favor of the account debtor;
i. The account debtor is not the Federal Government of the United States of America or any entity affiliated, in any way, with the Borrower; and
j. The Lender has not notified the Borrower that, in the Lender's sole discretion, the Account or account debtor is not acceptable to the Lender.
PROVIDED, all Accounts whether or not Eligible Accounts constitute the Lender's collateral.
1.13. Equipment - means all Equipment, as that term is defined in the Uniform Commercial Code as of the date hereof, of Borrower, whether presently owned or hereafter acquired, and including, without limitation, machinery, furniture, furnishings, and fixtures, and any and all goods used or bought for use in or being used or for use in the conduct of Borrower's business and all goods used or bought for use in Borrower's business which are not included within the definition of Inventory, and all accessions and additions thereto, replacements therefor, and substitutions therefor, supplies and motor vehicles, now owned and hereafter acquired, present and future, by the Borrower of whatsoever name, nature, kind or description, wherever located, and all additions and accessions thereto and replacements or substitutions therefor, and all proceeds thereof and all proceeds of any insurance thereon.
1.14. Governing State - means the Commonwealth of Massachusetts.
1.15. Guarantor - means any person, firm or corporation which has guaranteed or endorsed or has agreed to act as surety for any of the Obligations.
1.16. Inventory - means all "Inventory" as that term is defined in the Uniform Commercial Code as of the date hereof, including, without limitation, any and all goods, merchandise or other personal property, wheresoever located and whether or not in transit, now owned or hereafter acquired by the Borrower, which is or may at any time be held for sale or lease, or furnished or to be furnished under any contract of service or held as raw materials, work in process, supplies or materials used or consumed in the Borrower's business, and all such property the sale or other disposition of which has given rise to Accounts, Chattel Paper, Documents, or Instruments and which has been returned to or repossessed or stopped in transit by the Borrower.
1.17. Loan Agreement - means this Loan and Security Agreement, as the same may hereafter be supplemented, modified or amended.
1.18. Maturity Date - shall have the meaning in the Note.
1.19. Note - means, collectively, the Revolving Note and the Term Promissory Note as defined in Section 2 below.
1.20. Obligations - means all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender of every kind and description (whether or not evidenced by any note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, whether or not such obligations are related to the transaction described in this Loan Agreement, by class, or kind, or whether or not contemplated by the parties at the time of the granting of this security interest, including without limitation, all interest, fees, charges, expenses and attorneys' fees chargeable to the Borrower or incurred by the Lender in connection with the Revolving Loan or otherwise whether provided for herein or in any Supplemental Agreement.
1.21. Patents - means all of the Borrower's right, title and interest, present and future, in and to (a) all letters patent of the United States or any other country, all right, title and interest therein and thereto, and all registrations and recordings thereof, including without limitation applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States and State thereof or any other country or any political subdivision thereof, all whether now owned or hereafter acquired by the Borrower; and (b) all reissues, continuations, continuations-in-part or extensions thereof and all licenses thereof; and all proceeds of the foregoing and all proceeds of any insurance on the foregoing.
1.22. Person - means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, limited liability company, or other entity of whatever nature.
1.23. Prime Rate - has the meaning provided in the Note.
1.24. Supplemental Agreements - means any and all agreements, instruments, documents, security agreements, mortgages, financing statements, and supplements thereto granting or intending to grant to the Lender any lien, security interest, pledge, assignment or indemnification to secure the Obligations, or entered into between the Borrower or Guarantor in favor of, or with, and the Lender, at any time, for any purpose including, without limitation, this Loan Agreement and the Note.
1.25. Termination Date - shall have the meaning in the Revolving Note.
1.26. Trademarks - means all of the Borrower's right, title and interest, present and future, in and to (a) all trademarks, trade names, trade styles, service marks, prints and labels on which said trademarks, trade names, trade styles and service marks have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all right, title and interest therein and thereto, and all registrations and recordings thereof, including without limitation applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, or any other country or any political subdivision thereof, all whether now owned or hereafter acquired by the Borrower; (b) all reissues, extensions or renewals thereof and all licenses thereof; and (c) the goodwill of the business symbolized by each of the Trademarks, and all customer lists and other records of the Borrower relating to the distribution of products bearing the Trademarks; and all proceeds of the foregoing and all proceeds of any insurance on the foregoing.
SECTION 2. TERMS OF BORROWING.
2.1. Revolving Loan. The Lender may loan to the Borrower, and the Borrower may borrow from the Lender, from time to time (the "Revolving Loan"), up to that amount (hereinafter referred to as the "Borrowing Base") which is the lesser of:
a. The sum of:
(1) Seventy percent (70%) of the Borrower's Eligible Accounts; AND
(2) Forty percent (40%) of the Borrower's Eligible Inventory;
OR
b. One Million Dollars ($1,000,000).
Nothing herein shall prohibit the Lender from lending in excess of the Borrowing Base.
2.2. Borrowing Base Report, Etc. For purposes of computing the Borrowing Base, the Borrower shall furnish to the Lender the Borrowing Base Certificate set forth on Exhibit 1 together with such other information adequate to identify Accounts and Inventory at times and in form and substance as may be required by the Lender, executed by a duly authorized representative of Borrower, together with such certificates as the Lender may require from the Borrower representing that no Event of Default has occurred and that the Borrower knows of no event which, but for the passage of time or the giving of notice, would create an Event of Default. From time to time, the Borrower shall provide the Lender with schedules describing all Accounts created or acquired by the Borrower and shall execute and deliver written assignments of such Accounts to the Lender; provided, however, that the Borrower's failure to execute and deliver such schedules and/or assignments shall not affect or limit the Lender's security interest or other rights in and to any Collateral. Together with each schedule, the Borrower shall, upon reasonable request of the Lender, furnish copies of customers' invoices or the equivalent, and original shipping or delivery receipts for all merchandise sold, and the Borrower warrants the genuineness thereof. The Borrower further warrants that all Accounts are and will be bona fide existing obligations created by the sale and delivery of merchandise or the rendition of services to customers in the ordinary course of business, free of liens, encumbrances and security interests and unconditionally owed to the Borrower and, to the best of the Borrower's knowledge, without defense, offset or counterclaim.
2.3. Repayment of the Revolving Loan. In the event the Revolving Loan at any time exceeds the Borrowing Base, the Borrower will immediately, upon notification thereof from the Lender, repay to the Lender the amount by which the Revolving Loan exceeds the Borrowing Base. All advances under the Revolving Loan shall be evidenced by the Promissory Note from Borrower to the order of Lender of even date herewith in the Revolving Loan amount (the "Revolving Note") or Borrower will, upon reasonable request of the Lender, execute a promissory note evidencing the advance, such note to be in such form and to contain such provisions as the Lender shall deem desirable. Each advance shall be recorded in an account on the Lender's books in which shall also be recorded accrued interest on advances, payments on such advances, and other appropriate debits and credits as herein provided, and such account shall constitute prima facie evidence of the information contained therein.
2.4. Interest on the Revolving Loan. Interest on the Revolving Loan will be payable monthly in arrears on the first business day of each month, commencing on the first business day of the month subsequent to the date of this Loan Agreement, and will be charged to the Borrower upon any and all balances due to the Lender at the rate or rates set forth in the Revolving Note, said interest to be computed based upon average daily balances and upon a 360-day per year basis for the actual number of days elapsed; provided, however, that at no time shall said interest rate be more than the rate of interest permitted by the law governing this Loan Agreement.
2.5. Collection of Accounts. Upon an Event of Default, Lender or its designee may notify customers or account debtors that Accounts have been assigned to the Lender or of the Lender's security interest therein and collect them directly and charge the collection costs and expenses to the Borrower's account. All such payments will be placed by the Lender into a cash collateral account and, until credited to the Borrower's account as hereinafter set forth, shall be held by the Lender as collateral for payment and/or performance of the Borrower's Obligations to the Lender. After allowing two (2) Business Days for collection of checks and other instruments, the Lender will credit (conditional upon final collection) all such payments, or those made on account thereof, to the Borrower's account.
2.6. Returns, Credits, Etc. Any merchandise which is returned by a customer or account debtor or otherwise recovered shall remain part of the Lender's security. The Borrower shall notify the Lender promptly of all returns and recoveries and, upon an Event of Default, deliver at Lender's request the merchandise to the Lender. The Borrower shall also notify the Lender promptly of all disputes and claims and settle or adjust them at no expense to the Lender, but no discount, credit or allowance (other than in the ordinary course of the Borrower's business) shall be granted to any customer or account debtor, and no returns of merchandise (other than in the ordinary course of the Borrower's business) shall be accepted by the Borrower without the Lender's consent. The Lender may, after an Event of Default, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Lender considers advisable, and in all cases the Lender will credit the Borrower's account with only the net amounts received by the Lender in payment of Accounts.
2.7. Further Assurance. Upon the Lender's reasonable request, the Borrower shall perform all other steps reasonably requested by the Lender to create and maintain in the Lender's favor a valid first priority security interest, assignment or lien in, of or on all Accounts and all other security held by or for the Lender.
2.8. Power of Attorney. The Borrower appoints the Lender, or any person whom the Lender may designate, as its attorney, with power, after an Event of Default: to endorse the Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into the Lender's possession; to sign the Borrower's name on any invoice or bill of lading relating to any Accounts, on notices of assignment, financing statements, and other public records, on verifications of accounts and on notices to customers; to notify the post office authorities to change the address for delivery of the Borrower's mail to an address designated by the Lender; to send requests for verification of Accounts to customers or account debtors; and to do all things necessary to carry out this Loan Agreement. The Borrower ratifies and approves all acts of the attorney. Neither the Lender nor the attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law. This power, being coupled with an interest, is irrevocable so long as any Accounts assigned to the Lender or in which the Lender has a security interest remain unpaid or until the Obligations have been fully satisfied. The Lender may file one or more financing statement disclosing the Lender's security interest without the Borrower's signature appearing thereon.
2.9. Termination. All outstanding balances under the Revolving Loan shall be payable on the Termination Date. Notwithstanding the foregoing, should either the Lender or the Borrower become insolvent or go out of business, the other party shall have the right to terminate this Agreement at any time without notice. Upon the effective date of termination, all Obligations, whether or not incurred under this Loan Agreement or any Supplemental Agreement or otherwise, shall become immediately due and payable without notice or demand. Notwithstanding termination, until all Obligations have been fully satisfied, the Lender shall retain its security interest in all existing Collateral and that arising thereafter; the Borrower shall continue to assign Accounts to the Lender and turn over all collections to the Lender; and, except for those specific covenants and conditions dealing with the making of advances, all terms and conditions of all agreements between the Borrower and the Lender shall remain in full force and effect. Notwithstanding any of the foregoing to the contrary, upon the occurrence of an Event of Default, the Lender may terminate this Agreement immediately and without prior notice.
2.10. Unused Line Fee. As further inducement for the Lender to enter into this Loan Agreement, Borrower shall pay on the first day of each month commencing February 1, 2006, a fee (the "Line Fee") equal to one-quarter percent (0.25%) of the average daily unused portion of the Revolving Loan, for the immediately prior month. Said average daily unused portion shall refer to that amount which is equal to the difference between the maximum loan amount set forth in Section 2.1(b) and the average daily outstanding balance of the Revolving Loan for such month. The Line Fee will, at the option of the Lender, be charged to the account of Borrower when due.
2.11. Term Loan. The Lender will make a loan to the Borrower in the original principal amount of FOUR MILLION DOLLARS ($4,000,000) (the "Term Loan") upon further terms and conditions and evidenced by the term promissory note of even date herewith (the "Term Note").
2.12. Prepayment. Except as provided in the Note, the Loans may not be prepaid.
2.13. Automatic Payment; Method of Payment. The Borrower hereby authorizes the Lender to automatically deduct from Borrower's account numbered _______any amount due under this Loan Agreement ("Automatic Payments"). If the funds in said account are insufficient to advance funds to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate such Automatic Payments. Whenever any payment to be made under this Loan Agreement shall be stated to be due on a day other than a Banking Day, such charge shall be subject to the Modified Following Business Day Convention and any such extension of time shall in such case be included in the computation of the payment of accrued interest.
2.14. Late Charge Fee. If a regularly scheduled payment is fifteen (15) days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $10.00, whichever is greater.
2.15. Conditions Precedent to Advances. The obligation of the Lender to make the initial advance under the Revolving Loan and the Term Loan to the Borrower is subject to the conditions precedent that the events or documents required take place or be executed and delivered to the Lender have taken place or have been executed and delivered to Lender, as the case may be, in form and substance satisfactory to the Lender and its counsel. The obligation of the Lender to make any subsequent advances or to issue any Letter of Credit is subject to the conditions precedent that: (a) no event has occurred which with the passage of time or the giving of notice or both would constitute an Event of Default; (b) no Event of Default has occurred and is continuing; (c) the Lender has, upon request, received a certificate signed by a duly authorized officer of the Borrower stating that all representations and warranties contained in this Loan Agreement are correct as though made on and as of the date of such certificate; (d) the Lender has received such other approvals, opinions, or documents as the Lender may reasonably request; and (e) there has been no material adverse change in the financial condition of the Borrower since the date of the latest financial statement delivered to the Lender.
SECTION 3. COLLATERAL.
3.1. Security Interest. As security for payment and performance of the Obligations, the Borrower hereby assigns and grants to the Lender a continuing security interest in the Collateral. The Lender shall retain its security interest in all Collateral, eligible and ineligible, until all Obligations have been fully satisfied.
3.2. Possession of Collateral. Upon an Event of Default, the Lender will have the right: (a) to take physical possession of the Collateral and to maintain such possession on the Borrower's premises; and/or (b) to remove the Collateral or any part thereof to such other places as the Lender may desire; and/or (c) without removal, to render the Equipment unusable and to dispose of the Collateral on the Borrower's premises. Upon an Event of Default, the Borrower shall, upon the Lender's demand, assemble the Collateral and make it available to the Lender at a place reasonably convenient to the Lender.
3.3. Location of Collateral. The Collateral is and will be owned by the Borrower, free of all other liens and encumbrances (except as set forth in Schedule A annexed hereto), and shall be kept by the Borrower at those locations listed in Schedule A annexed hereto and the Borrower will not (without the Lender's prior written approval) remove the Collateral therefrom, except for the purposes of sale in the regular course of business.
3.4. Limitation on Disposition of Collateral. The Borrower will not sell, exchange or otherwise dispose of the Collateral, other than finished goods Inventory in the ordinary course of business, or any part thereof, or any interest therein without the express written authorization of the Lender; in the event of the sale, exchange or other disposition of the Collateral or any part thereof or any interest therein (and no such sale, exchange or other disposition is hereby otherwise authorized or consented to), the security interest of the Lender shall nevertheless continue in said Collateral (including all proceeds, cash and non-cash) notwithstanding said sale, exchange or other disposition; all of said proceeds shall remain Collateral hereunder and shall be transferred and paid over to the Lender immediately following said sale, exchange or other disposition, and shall be applied at the option of the Lender to the payment of the Obligations; and the receipt by the Lender of all or any of said proceeds shall not be deemed or construed to be an authorization or consent of the Lender to such sale, exchange or other disposition of said Collateral.
3.5. Further Assurances Re Inventory. The Borrower shall perform any and all steps reasonably requested by the Lender to perfect the Lender's security interest in the Inventory, such as leasing warehouses to the Lender or the Lender's designee, placing and maintaining signs, appointing custodians, executing and filing financing or continuation statements in form and substance satisfactory to the Lender, maintaining stock records and transferring Inventory to warehouses. If any Inventory is in the possession or control of any of the Borrower's agents or processors, the Borrower shall notify such agents or processors of the Lender's security interest therein, and, upon request, instruct them to hold all such Inventory for the Lender's account and subject to the Lender's instructions. A physical listing of all Inventory, wherever located, shall be taken by the Borrower whenever reasonably requested by the Lender, and a copy of each such physical listing shall be supplied to the Lender. The Lender may examine and inspect the Inventory at any time during normal business hours upon reasonable prior notice.
3.6. Discharge of Liens. The Lender may, at its option, discharge any taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral, and the Lender may pay insurance premiums or procure insurance and otherwise pay for the maintenance and preservation of the Collateral and the Borrower will reimburse the Lender on demand for any payment made or expense incurred by the Lender pursuant to the foregoing authority, with interest at the highest rate provided in this Loan Agreement.
3.7. Existence, Properties, Insurance. The Borrower will at all times maintain, preserve and protect all franchises, patents, and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good condition and repair (normal wear and tear and obsolescence excepted), and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, and will pay or cause to be paid, except when the same may be contested in good faith, all rent due on premises where any property is held or may be held, so that the business carried on in connection therewith may be continuously conducted. The Borrower will have and maintain insurance at all times with respect to all Collateral against risks of fire (including so-called extended coverage), theft and such risks as the Lender may require containing such terms, in such form, and for such periods, and written by such companies as may be satisfactory to the Lender, such insurance to be payable to the Lender and the Borrower as their interests may appear; each policy of liability insurance shall name the Lender as an additional insured; each policy of property casualty and business interruption insurance shall have a loss payee endorsement providing:
a. That loss or damage, if any under the policy, shall be payable to the Lender, as mortgagee and/or secured party, as its interests may appear;
b. That the insurance as to the interest of the Lender shall not be invalidated by any act or neglect of the insured or owner of the property described in said policy, nor by any foreclosure, or other proceeding, nor by any change in the title of ownership of said property, nor by the occupation of the premises where the property is located for purposes more hazardous than are permitted by said policy;
c. That, if the policy is canceled at any time by the insurance carrier, in such case the policy shall continue in force for the benefit of the Lender for not less than thirty (30) days after written notice of cancellation to the Lender from the insurance carrier; and
d. That the policy will not be reduced or canceled at the request of the insured nor will said loss payee endorsement be amended or deleted without thirty (30) days' prior written notice to the Lender from the insurance carrier.
The Borrower will furnish the Lender with certificates or other evidence satisfactory to the Lender of compliance with the foregoing insurance provisions, and upon an Event of Default the Lender may act as attorney for the Borrower in obtaining, adjusting, settling, and canceling such insurance and receiving and endorsing any drafts. The Borrower hereby assigns to the Lender any and all monies which may become due and payable under any policies of property casualty insurance insuring the Collateral and business interruption insurance, including return of unearned premiums, and hereby directs any insurance company issuing any such policy to make payment directly to the Lender and authorizes the Lender, at its option: (i) to apply such monies in payment on account of any of the Obligations, whether or not due, and remit any surplus to the Borrower; or (ii) to return said funds to the Borrower for the purpose of replacement of the Collateral. The Borrower will also at all times maintain necessary workmen's compensation insurance and such other insurance as may be required by law or as may be reasonably required by the Lender.
SECTION 4. REPRESENTATIONS, WARRANTIES AND GENERAL COVENANTS
The Borrower hereby represents and warrants to the Lender (which representations and warranties will survive the delivery of the Note and this Agreement and the making of any advances and shall be deemed to be continuing until the Note is fully paid and this Agreement is terminated) that, except as set forth on Schedule A:
4.1. Organization and Qualification. The Borrower, if a legal entity,
(i) is and will continue to be duly organized and validly existing and in good
standing under the laws of its state of organization; (ii) has filed in all
locations required under the laws of each jurisdiction in which it does
business; (iii) is qualified and in good standing to do business in all other
jurisdictions in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary; (iv)
has the power to execute and deliver this Agreement, the Note, and all other
documents, instruments and agreements related hereto (the "Supplemental
Agreements") and to borrow hereunder. Borrower has all requisite permits,
authorizations, franchise agreements and licenses, without unusual restrictions
or limitations, to own, operate and lease its properties and to conduct the
business in which it is presently engaged, all of which are in full force and
effect.
4.2. No Legal Bar. The execution and delivery of this Loan Agreement and compliance by the Borrower with any of the terms and provisions hereof or of any of the other Supplemental Agreements will not, on the Effective Date, violate any provision of any existing law or regulation or any writ or decree of any court or governmental instrumentality, or any agreement or instrument to which the Borrower is a party or which is binding upon it or its assets, and will not result in the creation or imposition of any lien, security interest, charge or encumbrance of any nature whatsoever upon or in any of its assets, except as contemplated by this Loan Agreement; and no consent of any other party, and no consent, license approval or authorization of or registration or declaration with any governmental bureau or agency, is required in connection with the execution, delivery, performance, validity and enforceability of this Loan Agreement or any of the other Supplemental Agreements.
4.3. Title, Liens and Encumbrances. The Borrower has good and marketable title to all Collateral, and none of the Collateral is subject to any pledge, lease, trust, bailment, lien, security interest, encumbrance, charge or title retention or other security agreement or arrangement of any character whatsoever other than as permitted in the Supplemental Agreements.
4.4. No Material Litigation. The Borrower represents that no material litigation or administrative proceeding of or before any governmental body is presently pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its property.
4.5. No Default. The Borrower is not, on the date hereof, in default with respect to the payment or performance of any of its obligations or in the performance of any covenants or conditions to be performed by it pursuant to the terms and provisions of any indenture, agreement or instrument to which it is a party or by which it may be bound and the Borrower has received no notice of default thereunder.
4.6. Compliance with Laws. The Borrower has substantially complied with and will continue to comply with all applicable statutes and regulations of the United States of America, and all states, counties, municipalities and agencies of any thereof with respect to (a) any restrictions, specifications or other requirements pertaining to products which the Borrower manufactures and sells, or to the services it performs; (b) the conduct of its business operations; (c) the use, maintenance and operation of the real and personal properties owned or leased by it in the operation of its business; and (d) if a legal entity, the issued and outstanding equity interests of the Borrower and the disclosure of material facts and information to its equity interestholders.
The Borrower shall indemnify the Lender and hold the Lender harmless from and against all loss, liability, damage and expense, including reasonable attorneys' fees, suffered or incurred by the Lender (i) under or on account of any applicable local, state or federal laws or regulations, including the assertion of any liens thereunder (the "Environmental Laws"); (ii) with respect to any discharge, spillage, uncontrolled loss, seepage or filtration of oil or petroleum or chemical, liquids or solid, liquid or gaseous products or hazardous waste which, if contained or removed or mitigated by any applicable local, state or federal agency or entity, would give rights to a lien (a "Spill") affecting any real or personal property owned or leased by the Borrower, including any loss of value of any such property as a result of such Spill; or (iii) with respect to any other matter affecting the real or personal property owned or leased by the Borrower and governed by the provisions of the Environmental Laws.
4.7. No Secondary Liabilities. There are no outstanding contracts or agreements of guaranty or suretyship made by the Borrower, or to which it is a party, or to which any of its assets are subject of any material nature.
4.8. Taxes. The Borrower has filed or caused to be filed or obtained extensions for the filing of, and will continue to file and cause to be filed, all federal, state and local tax returns required by law to be filed, and has paid and will continue to pay all taxes shown to be due and payable on said returns or on any assessment made against it, except if being contested in good faith and adequate provision has been made therefor on its books of account. No claims are being asserted with respect to such taxes which are not reflected in the financial statements which have been furnished by the Borrower to the Lender.
4.9. Financial Condition. The Borrower has submitted to the Lender various financial statements and information, and represents that all of said financial information is true and correct to the best of the knowledge and belief of the Borrower; that such financial information fairly presents the financial condition and results of the operations of the Borrower as of the date thereof and for the period indicated therein; that such financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently maintained throughout the period involved; that, as of the date of said financial information submitted, there were no material unrealized or anticipated losses from any unfavorable commitments of the Borrower; and that there has been no material adverse change in the business or assets or in the condition, financial or otherwise, of the Borrower from that set forth in said financial statements other than normal seasonal changes which occur in the normal course and operation of the Borrower's business.
4.10. Representation Accuracy. No representation or warranty by the Borrower contained in any certificate or other document furnished or to be furnished by the Borrower pursuant hereto or in connection with the transactions contemplated hereunder, contains, or at the time of delivery will contain, any untrue statement of material fact or omits or will omit to state a material fact necessary to make it not misleading.
4.11. Agreements re Equity Interests. Except as provided in the Stock Purchase Agreement dated August 17, 2005, as amended, and except for the sale by Borrower of real property contemporaneously with the closing of the initial borrowing under this Agreement, the Borrower does not have any agreements pertaining to the purchase or sale of its equity interests.
4.12. Collective Bargaining Agreements. The Borrower is not a party to any collective bargaining agreements.
4.13. Pension Plans. To the extent that any present or future pension plan of the Borrower is subject to state or federal statutes or regulations, the Borrower represents and warrants that it shall at all times be in compliance with said statutes and regulations and will furnish the Lender with copies of such reports as it may be required to furnish under said statutes or regulations.
4.14. Commercial Tort Claims. The Borrower shall promptly notify Lender in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the date hereof against any third party and, upon Lender's reasonable request, enter into an amendment to this Agreement and do such other acts and things required by Lender to give Lender a security interest in such Commercial Tort Claim.
4.15. Other Collateral. Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights or Electronic Chattel Paper and, upon the reasonable request of Lender, promptly execute such other documents, and do such other acts or things deemed appropriate by Lender to deliver to Lender control with respect to such Collateral; promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of documents or other instruments and, upon the reasonable request of Lender, will promptly execute such other documents, and do such other acts or things deemed appropriate by Lender to deliver to Lender possession of such Documents which are negotiable and Instruments, and, with respect to non negotiable Documents, to have such nonnegotiable Documents issued in the name of Lender; and with respect to Collateral in the possession of a third party, other than Certificated Securities and Goods covered by a Document and obtain an acknowledgment from the third party that it is holding the collateral for the benefit of Lender.
4.16. Lien Perfection; Further Assurances. Borrower shall execute such UCC-1 financing statements as may be required by the UCC and such other instruments, assignments or documents as are necessary to perfect Lender's lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Lender's lien upon the Collateral. Unless prohibited by applicable law, Borrower hereby irrevocably authorizes Lender to execute and/or file any such financing statements, including, without limitation, financing statements that indicate the Collateral as all assets of Borrower or words of similar effect, on Borrower's behalf. Borrower also hereby ratifies its authorization for Lender to have filed in any jurisdiction any like financing statements or amendments thereto it filed prior to the date hereof. The parties agree that a photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Lender's reasonable request, Borrower shall also promptly execute or cause to be executed and shall deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of the Supplemental Agreements. Borrower shall further take such steps as the Lender may reasonably request for the Lender (a) to obtain an acknowledgement, in form and substance reasonably satisfactory to the Landlord, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for the Landlord, (b) to obtain "control" of any Investment Property, Deposit Accounts, Letter-of-Credit Rights or Electronic Chattel Paper (in accordance with provisions in Rev. ss.ss. 9-104, 9-105, 9-106 and 9-107 relating to what constitutes "control" for such items of Collateral), with any agreements establishing control to be in form and substance satisfactory to the Lender, and (c) otherwise to insure the continued perfection and priority of the Lender's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation and following the effectiveness of Revised Article 9 of the Uniform Commercial Code in any jurisdiction.
SECTION 5. NEGATIVE COVENANTS
So long as any Obligations of the Borrower to the Lender remain outstanding and unpaid, and so long as Lender is committed to make loans and other credit accommodations hereunder, the Borrower covenants and agrees as follows, except as set forth on Schedule A:
5.1. Limitation on Liens. The Borrower shall not create, assume or suffer to exist, any mortgage, pledge, encumbrance, lien, security interest or charges of any kind upon any of its assets (other than statutory liens provided same are paid within the time provided for payment without penalty or interest) or equity interests, whether now owned or hereafter acquired.
5.2. Limitation on Advances and Investments. The Borrower shall not make or suffer to exist any advances or loans to, or any investments in (by transfers or property, contributions to capital, purchase of stock or securities or evidence of indebtedness, acquisition of assets or business or otherwise) any Person other than the securities of the United States of America and other investments as may be offered by the Lender.
5.3. Limitation on Other Borrowing. The Borrower shall not incur, create, assume or permit to exist any indebtedness or liability outside of the ordinary course of the Borrower's business on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations or incorporated in any lease or license agreement, except as referred to in or permitted by this Loan Agreement; provided, however, that Borrower shall be permitted to incur purchase money indebtedness for the purchase of capital assets in an amount not to exceed $500,000.
5.4. Limitation on Dividends and Distributions. Borrower shall not declare or pay any dividend or distribution (whether in cash, property or otherwise) unless Borrower is current on all debt payments to the Lender or no Event of Default has occurred.
5.5. Limitation on Issuance or Acquisition of Equity Interest. If a legal entity, Borrower shall not issue any additional equity interests (except to existing holders), or redeem, retire, purchase or otherwise acquire for value any equity interests.
5.6. Limitation on Fundamental Changes. The Borrower shall not convey,
sell, lease or otherwise dispose of all or substantially all of its property,
assets or business; enter into any transaction not in the usual course of
business and, if a legal entity, (i) make any change in its capital structure or
in any of its business objectives, purposes and operations which might in any
way adversely affect the ability of the Borrower to repay the Obligations, (ii)
merge or consolidate with or into any other firm or corporation or, without
Lender's approval not to be unreasonably withheld or delayed, change its name or
(iii) permit a transfer of more than 10% of its equity interests without the
prior written consent of the Lender. Lender acknowledges that Borrower is
transferring certain real property contemporaneously with the closing of the
initial borrowing under this Agreement.
5.7. Limitation on Disposition of Assets. The Borrower shall not, other than in the ordinary course of business, sell, exchange or otherwise dispose of any of its assets, or any part thereof or any interest therein, without the express written authorization of the Lender.
5.8. Limitation on Contingent Liabilities. The Borrower shall not become liable as guarantor, surety, endorser or otherwise for, or agree to purchase, repurchase or assume, any obligation of any Person, except for endorsement of commercial paper for deposit, collection, or discount in the ordinary course of business.
5.9. Limitation on Acquisition of Affiliates. The Borrower shall not acquire, directly or indirectly, any Affiliates without the prior written consent of the Lender, not to be unreasonably withheld.
5.10. Financial Covenants. The Borrower hereby covenants that it shall not:
(a) Capital Expenditures. Directly or indirectly make or commit to make any Capital Expenditure; provided, however, that so long as no Event of Default exists at the time thereof or after giving effect thereto, Borrower may make Capital Expenditures in the ordinary course of business and not exceeding $500,000 per year.
(b) Fixed Charge Coverage Ratio. Permit Earnings Available for Fixed Charges to be less than 120% of Fixed Charges for the quarter ending June 30, 2006 building to a rolling four (4) quarter basis, tested at the end of each fiscal quarter.
(c) Interest Coverage. Permit its Interest Coverage Ratio to be less than 2:1 as at the end of each fiscal quarter.
For the purpose of this Section 5.10 the following definitions shall apply (terms not otherwise defined herein shall have the meaning ascribed to them under GAAP):
"Capital Expenditures" - for any period, the sum of (i) all expenditures that, in accordance with GAAP, are required to be included in land, property, plant or equipment or similar fixed asset account (whether involving real or personal property) and (ii) Capital Lease Obligations incurred during such period (excluding renewals of Capital Leases).
"Capital Lease" - any lease of property by Borrower, as lessee, that, in accordance with GAAP, would be capitalized on a balance sheet.
"Capital Lease Obligations" - the aggregate capitalized amount of the obligations of Borrower under all Capital Leases.
"Earnings Available for Fixed Charges" - for any period, EBIT plus all amounts deducted in computing net income in respect of depreciation and amortization, less dividends and distributions less non-financed Capital Expenditures less cash taxes paid.
"EBIT" means the total of (i) net earnings of Borrower plus (ii) all amounts deducted in computing such net income in respect of (a) interest expense on indebtedness and (b) taxes based upon or measured by income, as each such item is determined in accordance with GAAP.
"Fixed Charges" - for any period, the aggregate amount of Borrower's interest expense plus current maturities of long term debt (including subordinated debt and Capital Lease Obligations) during such period.
"GAAP" - means generally accepted accounting principles in the United States of America, as in effect on the date of the preparation and delivery of the financial statements described in Section 6 and consistently followed, without giving effect to any subsequent changes other than changes consented to in writing by the Lender.
"Interest Coverage Ratio" means for any period, the ratio of EBIT to Borrower's current interest payments due during such period on Indebtedness for borrowed money.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Obligations shall remain outstanding, and so long as the Lender is committed to make loans and other credit accommodations hereunder, except as set forth on Schedule A the Borrower will perform and observe each and all of the covenants and agreements herein set forth.
6.1. Payments Under this Loan Agreement, Etc. The Borrower will make punctual payment of all monies and will faithfully and fully keep and perform all of the terms, conditions, covenants and agreements contained on the Borrower's part to be paid, kept or performed hereunder, and will be bound in all respects as debtor under this Loan Agreement; and will make punctual payment of all monies and will faithfully and fully keep and perform all of the terms, conditions, covenants and agreements on its part to be paid, kept or performed under the terms of any lease or mortgage of the premises where Borrower operates, and will promptly notify the Lender in the event of any default on the part of the Borrower or receipt by the Borrower of any notice of alleged default under any such lease or mortgage. The Borrower will pay and discharge at or before their maturity all taxes, assessments, rents, claims, debts and charges.
6.2. Information, Access to Books and Inspection. The Borrower will furnish to the Lender such information regarding the business affairs and financial condition of the Borrower as the Lender may reasonably request, and upon reasonable notice to Borrower give any representative of the Lender access during normal business hours to, and permit such representative to examine and copy, and make extracts from, any and all books, records and documents in the possession of the Borrower relating to its affairs and to inspect any of the properties of the Borrower.
6.3. Existence, Properties and Insurance. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect the legal existence of Borrower and its rights and franchises, and comply with all laws applicable thereto; at all times maintain, preserve and protect all franchises, patents, and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good condition and repair (normal wear and tear and obsolescence excepted), and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, and will pay or cause to be paid, except when the same may be contested in good faith, all rent due on premises where any property is held or may be held, so that the business carried on in connection therewith may be continuously conducted. The Borrower will have and maintain insurance at all times with respect to its properties against risks of fire (including so-called extended coverage), theft and such risks as the Lender may require containing such terms, in such form, and for such periods, and written by such companies as may be satisfactory to the Lender. The Borrower will furnish the Lender with certificates or other evidence satisfactory to the Lender of compliance with the foregoing insurance provisions. The Borrower will also at all times maintain necessary workmen's compensation insurance and such other insurance as may be required by law or as may be reasonably required by the Lender.
6.4. Notices of Default and Governmental Orders. The Borrower will promptly give notice in writing to the Lender of the occurrence of any event which constitutes or which with notice or lapse of time, or both, would constitute an Event of Default; of any court or governmental orders, notices, claims, investigations, litigation and proceedings affecting the Borrower, and of any dispute which may exist between the Borrower, and any governmental regulatory body or any other party, which, if decided adversely against the Borrower, would have a material adverse effect on the Borrower's financial and operating conditions and would prevent the Borrower to operate its business as presently operated.
6.5. Financial Statements. The Borrower agrees to furnish to the Lender the following financial information:
(a) Annual Statement. on or before 90 days after the end of its fiscal year, its annual financial statement audited by a firm of certified public accountants in scope and with exceptions acceptable to the Lender, accompanied by a certificate by such accountant and by an officer of the Borrower that to the best of their knowledge no default exists under this Loan Agreement, or under any indenture pursuant to which any other indebtedness of the Borrower is outstanding, and that all the terms of this Loan Agreement have been fully performed, or if to the knowledge of either of them, any of the terms of this Loan Agreement have not been fully performed, such certificate shall specify the nature of the default and the steps taken by the Borrower to correct such default.
(b) Quarterly Certificate. on or before forty-five (45) days after the end of each quarter, a quarterly compliance certificate;
(c) Monthly Statements. on or before fifteen (15) days of month end a financial statement for the preceding month in form satisfactory to the Lender, and a monthly borrowing base certificate in the form attached as Exhibit 1; and
(d) Other Information. promptly after the Lender's request, such other information as the Lender may, from time to time, reasonably request.
The foregoing shall be certified to the Lender as correct by an authorized representative of the Borrower. Such financial statements shall consist of balance sheets, income statements and supporting information, including without limitation, leases, schedule and pledge status of liquid assets, schedule of debt maturities, schedule of contingent liabilities, and cash flow schedules for income producing property. The financial statements shall fairly and consistently represent Borrower's financial condition.
Whether requested or not, the Borrower will furnish to the Lender promptly upon receipt thereof copies of any and all management letters and financial statements submitted to the Borrower by its accountants and copies of all regular statements and all regular or periodic financial reports which the Borrower is or may be required to file with the Securities and Exchange Commission.
(e) Field Exams. Lender may cause commercial finance field examinations to be completed semi-annually, at Borrower's sole cost and expense.
6.6. Solvency. The Borrower hereby represents to the Lender that it is solvent and is generally paying its debts as such debts become due.
6.7. F.I.C.A. and Withholding Taxes. Upon request of the Lender, the Borrower will furnish the Lender with proof satisfactory to the Lender of the payment or deposit of F.I.C.A. and withholding taxes required of the Borrower by applicable law. Should the Borrower fail to make any such payment or deposit or furnish such proof within a reasonable time, the Lender may, in the Lender's sole and absolute discretion, and without notice to the Borrower: (a) make payment of the same or any part thereof; or (b) set up such reserves in the Borrower's account as the Lender may deem necessary to satisfy the liability therefor. Each amount so deposited or paid by the Lender shall constitute an advance under the Revolving Loan, payable on demand, and shall be secured by all the Collateral held by the Lender. Nothing herein contained shall obligate the Lender to make such deposit or payment or set up such reserve, or to ascertain whether such deposit payments are being made by Borrower, nor shall the making of one or more such deposits or payments or the setting up of any such reserve constitute: (i) an agreement on the Lender's part to take any further or similar action; or (ii) a waiver of any default by the Borrower under the terms hereof or of any other agreements between the Borrower and the Lender. Upon the expiration or termination of this Loan Agreement or transactions hereunder, the Lender shall retain its security interest in all the Collateral held by the Lender until the Borrower shall have paid or discharged all such F.I.C.A. and tax obligations accrued to the date of such expiration or termination, or shall have supplied to the Lender evidence satisfactory to the Lender that due provisions have been made therefor.
6.8 Cash Flow Recapture. Borrower shall be required to utilize 50% of the excess cash flow of Ranor Inc. above the required 1.2X Fixed Charge Coverage Ratio to be applied to payments due on the Term Loan in the inverse order of maturity. Such amount shall be due on or before April 1, 2007 for the period ending March 31, 2007, and annually on July 1 of each year thereafter.
SECTION 7. DEFAULT
7.1. Events of Default. The occurrence of any one or more of the following events or conditions shall constitute an "Event of Default" under this Loan Agreement:
a. Borrower's failure to make any payment of principal or interest or any other sums within fifteen (15) days of the date when due on any of the Obligations.
b. Any warranty or representation or other statement made or furnished to the Lender by or on behalf of the Borrower or Guarantor herein or in any document or instrument furnished in connection herewith proves to have been false or misleading in any material respect when made or furnished.
c. Breach of or failure in the due observance or performance of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to this Loan Agreement (other than those to be observed or
performed pursuant to Section 5 and other than those specifically listed in this
Section 7.1) and the failure to cure (if curable) any such breach or failure
within fifteen (15) days after receipt of written notice thereof from the Lender
to the Borrower.
d. Breach of or failure in the due observance or performance of any covenant, condition or agreement on the part of the Borrower to be observed or performed pursuant to Section 5 and the failure to cure (if curable) any such breach or failure within fifteen (15) days after receipt of written notice thereof from the Lender to the Borrower.
e. Breach of or failure in the due observance or performance of any covenant, condition or agreement on the part of the Borrower to be observed or performed pursuant to any Supplemental Agreements or breach by Borrower or any Guarantor of any other agreement with Lender beyond the expiration of any grace or cure periods provided therein.
f. A judgment or judgments for the payment of money in excess of $50,000 shall be rendered against the Borrower or any Guarantor, and any such judgment shall remain unsatisfied and in effect for any period of thirty (30) consecutive days without a stay of execution; or
g. The Borrower or any Guarantor shall (1) apply for or consent to the appointment of a receiver, trustee or liquidator of all or a substantial part of any of its assets; (2) be unable, or admit in writing its inability, to pay its debts as they mature; (3) file or permit the filing of any petition, case arrangement, reorganization, or the like under any insolvency or bankruptcy law, or the adjudication of it as a bankrupt, or the making of an assignment for the benefit of creditors or the consenting to any form or arrangement for the satisfaction, settlement or delay of debt or the appointment of a receiver for all or any part of its properties; or (4) any action shall be taken by the Borrower or any Guarantor for the purpose of effecting any of the foregoing; or
h. An order, judgment or decree shall be entered, or a case shall be commenced, against the Borrower or any Guarantor, without its application, approval or consent by any court of competent jurisdiction, approving a petition or permitting the commencement of a case seeking reorganization or liquidation of the Borrower or any Guarantor or appointing a receiver, trustee or liquidator of the Borrower or any Guarantor, or of all or a substantial part of the assets of the Borrower or any Guarantor, and Borrower or any Guarantor, by any act, indicate its approval thereof, consent thereto, or acquiescence therein, or such order, judgment, decree or case shall continue unstayed and in effect for any period of thirty (30) consecutive days or an order for relief in connection therewith shall be entered; or
i. If the Borrower or any Guarantor shall dissolve or liquidate, or be dissolved or liquidated, or cease to legally exist, or merge or consolidate, or be merged or consolidated with or into any other corporation; or
j. If Borrower or any Guarantor who is a natural person shall die; or
k. Failure by the Borrower or by any Guarantor to pay any other indebtedness or obligation in excess of $50,000, or if any such other indebtedness or obligation which is not subject to a bonafide dispute shall be accelerated, or if there exists any event of default under any instrument, document or agreement governing, evidencing or securing such other indebtedness or obligation which is not subject to a bonafide dispute; or
l. Substantial loss, theft, damage, or destruction of the collateral provided to the Lender pursuant to this Loan Agreement, and not covered by insurance in any material respect.
m. Termination by any party thereto of the loan arrangement provided pursuant to Section 2 of this Agreement.
n. The occurrence of any material adverse change in the financial and/or operation condition of the Borrower or any Guarantor.
o. If at any time, the Lender believes in good faith that there is such a material adverse change in the condition or affairs (financial or otherwise) of the Borrower or any Guarantor as the Lender believes in good faith impairs the Lender's security (if any) or increases its risk.
7.2. Acceleration. Upon and after an Event of Default, the entire unpaid balance owed under this Loan Agreement, or any note or other documents evidencing the same, plus any other Obligations, shall, at the option of the Lender, upon written notice from Lender, immediately become due and payable without presentment, demand, protest, notice of protest, or other notice of dishonor of any kind, all of which are hereby expressly waived by the Borrower, and Lender shall immediately be entitled to exercise all of its rights and remedies hereunder, under the Supplemental Agreements and under applicable law.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1. Setoff. Borrower hereby grants to Lender a lien, security interest and a right of setoff as security for all of the Obligations, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity under the control of Lender, or in transit to any of them. At any time, without demand or notice, Lender may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Lender shall not be required to marshal any present or future security for, or guarantees of, the Obligations or to resort to any such security or guarantee in any particular order and the Borrower waives to the fullest extent that it lawfully can, (a) any right it might have to require the Lender to pursue any particular remedy before proceeding against the Lender and (b) any right to the benefit of, or to direct the application of the proceeds of any collateral until the Obligations are paid in full.
8.2. Waiver of Right to Trial by Jury and Consent to Jurisdiction.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ACCEPT THIS
AGREEMENT.
Borrower hereby agrees that the following courts:
State Court - Any state or local court of the Governing State
Federal Court - United States District Court for the District of Governing State
shall have exclusive jurisdiction to hear and determine any claims or disputes between Borrower and Lender pertaining directly or indirectly to this Agreement or to any matter arising in connection with this Agreement. Borrower expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in such courts, hereby waiving personal service of the summons and complaint, or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to Borrower at the address set forth herein. Should Borrower fail to appear or answer any summons, complaint, process or papers so served within thirty (30) days after the mailing thereof, it shall be deemed in default and an order and/or judgment may be entered against it as demanded or prayed for in such summons, complaint, process or papers. The exclusive choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce the same in any appropriate jurisdiction.
8.3. No Waiver. No course of dealing between the Borrower and the Lender and no failure to exercise or delay in exercising on the part of the Lender any right, power or privilege under the terms of this Loan Agreement or under the terms of any other agreements, instruments or other documents between the Lender and the Borrower shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further privilege. The rights and remedies provided herein and in any other agreement are cumulative and not exclusive or in derogation of any rights or remedies provided herein, therein, by law or otherwise.
8.4. Survival of Agreements. All agreements, representations and warranties made herein, in any agreement and in any statements, notices, invoices, certificates, schedules, documents or other instruments delivered to the Lender in connection with this Loan Agreement or any other agreement shall survive the making of the loans and advances hereunder.
8.5. Rights of Assignee. All rights of the Lender in, to and under this Loan Agreement shall pass to and may be exercised by any assignee thereof. The Borrower agrees that, in the event of an assignment of this Loan Agreement and notice of such assignment to the Borrower, the liability of the Borrower to a holder for value of this Loan Agreement shall be immediate and absolute and not affected by any actions of the Lender; and that the Borrower will not set up any claim against the Lender as a defense, counterclaim or setoff to any action for the unpaid balance owed under this Loan Agreement or for possession, brought by said holder.
8.6. Binding Effect. All rights and obligations of the Lender hereunder shall inure to the benefit of and be binding upon its successors and assigns, and all the obligations of the Borrower contained in this Loan Agreement shall bind the successors, heirs and assigns of the Borrower. If the Borrower consists of more than one party , all of the obligations, covenants, representations and warranties of the Borrower contained in this Loan Agreement shall be the joint and several obligations of the parties constituting the "Borrower".
8.7. Entire Agreement. This Loan Agreement and the Supplemental Agreements constitute the entire agreement of the parties and may not be amended orally.
8.8. Governing Law. This Loan Agreement shall be governed and construed in accordance with the laws of the Governing State, including its conflict of laws principles.
8.9. Payments. Acceptance of any check, draft or money order tendered in payment of any of the Obligations is conditioned upon and subject to receipt of final payment in cash.
8.10. Schedules. All schedules referred to herein and annexed hereto are hereby incorporated into this Loan Agreement and made a part hereof.
8.11. Counsel Fees and Expenses. The Borrower agrees to pay all reasonable counsel fees and expenses, including recording and filing fees, incurred by the Lender in connection with the financing of any kind and character hereafter incurred by the Lender, whether in connection with efforts to collect the Obligations, or in the enforcement or defense of any of the provisions of this Loan Agreement; or negotiations regarding and consultation concerning this Loan Agreement or any Supplemental Agreement, or preparation therefor, or the financing extended thereunder; or the defense of any proceedings involving any claims made or threatened against or arising out of this Loan Agreement or any Supplemental Agreement, or the financing extended thereunder, or which the Lender may hereafter incur in protecting, enforcing, increasing or releasing any security held by the Lender or any Obligation or any provision of this Loan Agreement or any Supplemental Agreement. Borrower's obligation to pay such counsel fees and expenses of the Lender shall exist whether or not proceedings are instituted or legal appearances are made in any court on behalf of the Lender.
8.12. Lender Advances. The Lender may, in its sole and absolute discretion upon five (5) business days written notice, pay any amount which the Borrower has failed to pay or perform any act which the Borrower has failed to perform under this Loan Agreement. In such event the costs, disbursements, expenses and reasonable counsel fees thereof, together with interest thereon from the date the expense is paid or incurred, at the highest interest rate allowed under this Loan Agreement shall be (i) added to the Obligations, (ii) payable on demand to the Lender and (iii) secured by the Collateral. Nothing herein contained shall obligate the Lender to make such payments nor shall the making of one or more such payments constitute (i) an agreement on the Lender's part to take any further or similar action; or (ii) a waiver of any Event of Default under this Loan Agreement.
8.13. Descriptive Headings. The descriptive headings of the several sections of this Loan Agreement are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.
8.14. Notices. Except as otherwise specified herein, any written notice required or permitted by this Loan Agreement may be delivered by depositing it in the U.S. mail, first class, postage prepaid, or by any national overnight courier, charges prepaid, addressed to the Borrower or the Lender at the addresses set forth at the beginning of this Loan Agreement.
8.15. Severability. If any provision of this Loan Agreement or application thereof to any person or circumstance shall to any extent be invalid, the remainder of this Loan Agreement or the application of such provision to persons, entities or circumstances other than those as to which it is held invalid, shall not be affected thereby and each provision of this Loan Agreement shall be valid and enforceable to the fullest extent permitted by law.
8.16. Third Party Purchaser. Lender shall have the unrestricted right at any time or from time to time, and without Borrower's (or any Guarantor's) consent, to sell, assign, endorse, or transfer all or any portion of its rights and obligations hereunder to one or more banks or other entities (each, an "Assignee") and, Borrower (and each Guarantor) agrees that it shall execute, or cause to be executed such documents including without limitation, amendments to this Agreement and to any other documents, instruments and agreements executed in connection herewith as Lender shall deem necessary to effect the foregoing. In addition, at the reasonable request of Lender and any such Assignee, Borrower shall issue one or more new promissory notes, as applicable, to any such Assignee and, if Lender has retained any of its rights and obligations hereunder following such assignment, to Lender, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the note held by Lender prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and Lender after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by Lender in connection with such assignment, and the payment by Assignee of the purchase price agreed to by Lender and such Assignee, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of Lender hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by Lender pursuant to the assignment documentation between Lender and Assignee, and Lender shall be released from its obligation hereunder and thereunder to a corresponding extent.
8.17. Participation. Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower (or any Guarantor), but without increased cost to Borrower, to grant to one or more institutions or other persons (each a "Participant") participating interests in Lender's obligations to lend hereunder and/or any or all of the loans held by Lender hereunder. In the event of any such grant by Lender of a participating interest to a Participant, whether or not upon notice to Borrower, Lender shall remain responsible for the performance of its obligations hereunder and Borrower shall continue to deal solely and directly with Lender in connection with Lender's rights and obligations hereunder. Lender shall furnish any information concerning Borrower in its possession from time to time to any prospective assignees and Participants, provided that Lender shall require any such prospective assignee or Participant to maintain the confidentiality of such information.
8.18. Replacement Documents. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other security document(s) which is not of public record and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other document(s), the Borrower will issue, in lieu thereof, a replacement Note or other document(s) in the same principal amount thereof and otherwise of like tenor.
8.19. Federal Reserve. Lender may at any time pledge, endorse, assign, or transfer all or any portion of its rights under the Loan Documents including any portion of the Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release Lender from its obligations under any of the Loan Documents.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be duly executed and delivered by the proper and duly authorized officers as of the date and year first above written.
SOVEREIGN BANK
By:/s/ Christopher T. Phelan --------------------------------- Christopher T. Phelan Its Senior Vice President Duly Authorized |
BORROWER
RANOR, INC.
By:/s/ James G. Reindl --------------------------------- Its Chairman Duly Authorized |
The foregoing has been read and consented to by the following Guarantor:
LOUNSBERRY HOLDINGS II, INC.
By:/s/ James G. Reindl --------------------------------- Its Chairman Duly Authorized |
Schedule A
Disclosures
Schedule B
COLLATERAL
All personal property now owned or hereafter acquired by the Debtor, wherever located, including, without limitation:
All "Accounts," "Chattel Paper," "Instruments," "Health-Care-Insurance Receivables," "Letter of Credit Rights," "Payment Intangibles," "Software," "Supporting Obligations," "Electronic Chattel Paper," "Commercial Tort Claims" and "Tangible Chattel Paper," as those terms are defined in the UCC as of the date hereof, whether now owned or hereafter acquired by Debtor;
All "Inventory" as that term is defined in the UCC as of the date hereof, including, without limitation, any and all goods, merchandise or other personal property, wheresoever located and whether or not in transit, now owned or hereafter acquired by the Debtor, which is or may at any time be held for sale or lease, or furnished or to be furnished under any contract of service or held as raw materials, work in process, supplies or materials used or consumed in the Debtor's business, and all such property the sale or other disposition of which has given rise to Accounts, Chattel Paper, Documents, or Instruments and which has been returned to or repossessed or stopped in transit by the Debtor;
All "Securities Entitlements," "Investment Property," "Financial Assets," "Documents" as those terms are defined in the UCC, whether now existing or hereafter acquired or arising.
All bills of lading, dock warrants, dock receipts, warehouse receipts or orders for the delivery of goods, and any other documents which in the regular course of business or financing are treated as adequately evidencing that the persons in possession of them are entitled to receive, hold, and dispose of the goods they cover;
All "Equipment," as that term is defined in the UCC, of Debtor, whether presently owned or hereafter acquired, and including, without limitation, machinery, furniture, furnishings, and fixtures, and any and all goods used or bought for use in or being used or for use in the conduct of Debtor's business and all goods used or bought for use in Debtor's business which are not included within the definition of Inventory, and all accessions and additions thereto, replacements therefor, and substitutions therefor.
All "Motor Vehicles" whether now owned or hereafter acquired by the Debtor, and all accessions and additions thereto, replacements therefor, and substitutions therefor.
All "General Intangibles" as that term is defined in the UCC as of the date hereof, whether presently owned or hereafter acquired, including, without limitation, all choses in action, causes of action, and all other intangible personal property of the Debtor, including, without limitation, corporate or other business records, inventions, designs, patents, patent applications, trademarks, service marks, tradenames, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, credit files, computer programs, printouts and other computer materials and records, guaranty claims, security interests or other property held by or granted to Debtor to secure payment of any obligation of any obligor of Debtor and any and all of the rights of Debtor of whatever nature under any and all contracts, agreements, or leases (whether of real or personal property) to which the Debtor is or may become a party, including without limitation all of the rights of Debtor to enforce all of the provisions of, and to obtain payments or other performance due under, all contracts, agreements, or leases;
All monies, securities and other property of the Debtor, and the proceeds thereof, now or hereafter held or received by or in transit to the Bank whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also in and to any and all deposits, general or special, and credits of the Debtor with, and any and all claims of the Debtor against, the Bank now or at any time hereafter existing;
All of Debtor's rights (including rights as licensee and lessee) with respect to
all computer hardware and software and all rights with respect thereto
including, any and all licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement rights,
renewal rights and indemnifications, and any substitutions, replacements,
additions or model conversions of any of the foregoing, and further including
(i) computer and other electronic data processing hardware, including all
integrated computer systems, central processing units, memory units, display
terminals, printers, computer elements, card readers, tape drives, hard and soft
disk drives, cables, electrical supply hardware, generators, power equalizers,
accessories, peripheral devices and other related computer hardware, (ii) all
Software and all software programs designed for use on the computers and
electronic data processing hardware described in clause (i) above, including all
operating system software, utilities and application programs in any form
(source code and object code in magnetic tape, disk or hard copy format or any
other listings whatsoever (iii) any firmware associated with any of the
foregoing; and (iv) any documentation for hardware, Software and firmware
described in clauses (i), (ii) and (iii) above, including flow charts, logic
diagrams, manuals, specifications, training materials, charts and pseudo codes;
and
All products and proceeds of the foregoing, including, without limitation, proceeds of any insurance policies insuring any of the foregoing.
All references to the UCC shall refer to the Uniform Commercial Code in effect in the state applicable to the Collateral, as the same may be revised.
Exhibit 1
Borrowing Base Certificate
[GRAPHIC OMITTED]
Date: 0/0/00
Borrowing Base Certificate - DRAFT - Number: XX-OO
Pursuant to its Security Agreement with
Sovereign Bank,
the undersigned hereby certifies to Sovereign Bank as of the above
date the following:
-----------------------------------------------------------------------------------------------------------------------------
From line 1 of Collateral Update or 0/0/00
line D of BBC dated:
------------------
Previous accounts receivable: 0.00 (A)
--------------------
Additions to accounts receivable:
Date Sales Misc. Additions
---- ----- ---------------
0/0/00 0.00 0.00
-------------------- -------------- ------------------
0/0/00 0.00 0.00
-------------------- -------------- ------------------
Total: 0.00 + 0.00 = 0.00 (B)
-------------- ------------------ --------------------
Reductions to accounts receivable:
Date Collections Credit Memos Other Reductions
---- ----------- ------------ ----------------
0/0/00 ( 0.00 ) ( 0.00 ) 0.00 )
(
-------------------- -------------- ------------------ --------------------
0/0/00 ( 0.00 ) ( 0.00 ) 0.00 )
(
-------------------- -------------- ------------------ --------------------
Total: ( 0.00 ) + ( 0.00 ) + ( 0.00 ) = ( 0.00 ) (C)
-------------- ------------------ -------------------- --------------------
New accounts receivable (lines A+B-C): 0.00 (D)
--------------------
From Collateral Update dated: 0/0/00
--------------------
Ineligible accounts receivable ( 0.00 ) (E)
(line 2):
--------------------
Eligible accounts receivable (line D- 0.00 (F)
line E):
--------------------
Accounts receivable advance rate: 0 % (G)
-----
Accounts receivable availability (line 0.00 (H)
F times line G):
--------------------
From Collateral Update dated: 0/0/00
--------------------
Inventory availability (line 8): 0.00 (I)
--------------------
Letters of Credit, other reserves and/or holdbacks (line ( 0.00 ) (J)
9):
--------------------
Other availability (line 10+11): 0.00 (K)
--------------------
Net Available Borrowing Base (lines 0.00 (L)
H+I-J+K):
--------------------
|
-----------------------------------------------------------------------------------------------------------------------------
From line 13 of Collateral Update or line Q 0/0/00
of BBC dated: --------------------
Beginning 0.00 (M)
loan balance:
--------------------
Less: Deposits/collections/paydowns since
last BBC:
Date Amount Date Amount
---- ------ ---- ------
0/0/00 ( 0.00 ) 0/0/00 ( 0.00 )
-------------------- -------------- ------------------ --------------------
0/0/00 ( 0.00 ) 0/0/00 ( 0.00 )
-------------------- -------------- ------------------ --------------------
Total: ( 0.00 ) + ( 0.00 ) = ( 0.00 ) (N)
-------------- -------------------- --------------------
Plus: Interest and other charges applied to the 0.00 (O)
loan:
--------------------
Plus: Principal amount of additional borrowing now desired, if any: 0.00 (P)
--------------------
New loan balance (lines M-N+O+P) not to exceed
either
Line 0.00 or net available borrowing base (line L): Overline! (Q)
limit of
-------------- --------------------
Available for future borrowings (line Overline! (R)
L-line Q):
--------------------
-----------------------------------------------------------------------------------------------------------------------------
Prepared by: xxxxxxxxxxxxxxxxxxxx for: xxxxxxxxx
xxxxxxxxxx xxxxxxxxxx xxxx
------------------------------------------------- ---------------------------------------------
Name/Position Borrower
|
[GRAPHIC OMITTED] Date: 0/0/00
Collateral Update Certificate - DRAFT - Number: XX-OO
Pursuant to its Security Agreement with Sovereign Bank, the undersigned hereby certifies to Sovereign Bank as of the above date the following:
--------------------------------------------------------------------------------------------------------------------------
Per accounts receivable aging dated: 0/0/00
-------------------
Total 0.00 (1)
Accounts
Receivable:
--------------------
--------------------
Accounts more than 0 days from xxxxxxxxxxxxx 0.00
Ineligibles:
------ ------------------------- --------------------
Intercompany accounts + 0.00
--------------------
Government accounts + 0.00
--------------------
Contra accounts + 0.00
--------------------
Foreign Accounts + 0.00
--------------------
0 % Cross aging + 0.00
exclusion
----- --------------------
xxxxxxxxxx xxxxx xx + 0.00
------------------------------ --------------------
xxxxxxxxxx xxxxx xx + 0.00
------------------------------ --------------------
Total ineligible 0.00 (2)
accounts receivable:
--------------------
Eligible accounts receivable (line 0.00 (3)
1-line 2):
--------------------
Accounts receivable 0 % (4)
advance rate:
-----
Accounts receivable availability (line 0.00 (5)
3 times line 4):
--------------------
Inventory as 0/0/00
of: -------------------
|
Gross Adv Inventory
Inventory Type Amount Ineligible % Cap Availability
----------------------------------------- -------------------------------------------- --------------------
xxx xxxx xx 0.00 0.00 0 0.00 0.00
----------------------------------------- -------------------------------------------- --------------------
xxx xxxx xx 0.00 0.00 0 0.00 + 0.00
----------------------------------------- -------------------------------------------- --------------------
xxx xxxx xx 0.00 0.00 0 0.00 + 0.00
----------------------------------------- -------------------------------------------- --------------------
xxx xxxx xx 0.00 0.00 0 0.00 + 0.00
----------------------------------------- -------------------------------------------- --------------------
xxx xxxx xx 0.00 0.00 0 0.00 + 0.00
----------------------------------------- -------------------------------------------- --------------------
Total of inventory 0.00 (6)
availability by type:
--------------------
Availability cap on aggregate 0.00 (7)
inventory, if any:
--------------------
Inventory availability (line 6, not to 0.00 (8)
exceed line 7):
--------------------
Letters of credit, other reserves ( 0.00 ) (9)
and/or holdbacks:
--------------------
Other xxx x xxxxxx 0.00 (10)
availability: xxxxxx xxxx
-------------------------------------------------- --------------------
Other xxx x xxxxxx 0.00 (11)
availability: xxxxxx xxxx
-------------------------------------------------- --------------------
Net available borrowing base (line 0.00 (12)
5+8-9+10+11):
--------------------
--------------------------------------------------------------------------------------------------------------------------
Loan Balance not to
exceed either
Line 0.00 or net available 0.00 (13)
limit borrowing base (line
of: 12):
------------------- --------------------
Available for future borrowings (line Overline! (14)
12-line 13):
--------------------
--------------------------------------------------------------------------------------------------------------------------
Prepared by: xxxxxxxxxxxxxxxxxxxx for: xxxxxxxxx
xxxxxxxxxx xxxxxxxxxx xxxx
------------------------------------------------- --------------------------------------------
Name/Position Borrower
|
[GRAPHIC OMITTED] Date: 0/0/00
Accounts Receivable & Loan Reconciliation - DRAFT - Number: XX-OO
Pursuant to its Security Agreement with
Sovereign Bank,
the undersigned hereby certifies to Sovereign Bank as of the above
date the following:
----------------------------------------------------------------------------------------------------------------------------
Activity for the 0/0/00 to: 0/0/00
period from:
-------------------- --------------------
BBCs from: XX-00 to: XX-00
-------------------- --------------------
A/R Reconciliation:
Ending Accounts Receivable Balance (from line D 0.00 (I)
of the last BBC of the period):
--------------------
Additions (reductions) to accounts
receivable reported on BBCs
subsequent to the last BBC in the
period but relating to the period:
BBC# Description Amount
---- ----------- ------
XX-00 xxxxxxxxxx 0.00
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx + 0.00
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx - ( 0.00 )
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx - ( 0.00 ) = 0.00 (II)
xxxxxxxxx xxx
-------------------- -------------------------------------------- -------------------- --------------------
Adjusted end-of-period accounts receivable balance (Line I+II): 0.00 (III)
--------------------
End-of-period accounts receivable per 0/0/00 0.00 (IV)
aging dated:
-------------------- --------------------
Variance between line III and line IV: 0.00 (V)
--------------------
Explain: xxxxx xxxx xx
xxxxxxxxxxx xxx
-----------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Loan Activity:
Ending loan balance (from line Q of the last 0.00 (VI)
BBC of the period):
--------------------
Additions (reductions) to the loan
balance reported on BBCs subsequent
to the last BBC in the period but
relating to the period:
|
BBC# Description Amount
---- ----------- ------
XX-00 xxxxxxxxxx 0.00
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx + 0.00
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx - ( 0.00 )
xxxxxxxxx xxx
-------------------- -------------------------------------------- --------------------
XX-00 xxxxxxxxxx - ( 0.00 ) = 0.00 (VII)
xxxxxxxxx xxx
-------------------- -------------------------------------------- -------------------- --------------------
Adjusted end-of-period loan balance (line VI+line VII): 0.00(VIII)
--------------------
End-of-period loan balance from company accounting records: 0.00 (IX)
--------------------
Variance between line IX and line X: 0.00 (X)
--------------------
Explain: xxxxx xxxx xx
xxxxxxxxxxx xxx
-----------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Prepared by: xxxxxxxxxxxxxxxxxxxx for: xxxxxxxxx
xxxxxxxxxx xxxxxxxxxx xxxx
------------------------------------------------ ---------------------------------------------
Name/Position Borrower
|
TERM PROMISSORY NOTE
FOR VALUE RECEIVED, on March 1, 2013 (the "Maturity Date"), RANOR, INC., a Delaware corporation, each with its chief executive office and principal place of business at One Bella Drive, Westminster, MA 01473 ("Borrower") promises to pay to the order of SOVEREIGN BANK, (hereinafter called "Lender") at its offices at 1010 Farmington Avenue, West Hartford, CT 06107 or at such other place as the holder of this note may from time to time designate in writing, the principal sum of FOUR MILLION DOLLARS ($4,000,000), in lawful money of the United States with interest at the rate or rates set forth below, until fully paid. Borrower further agrees to pay all taxes levied or assessed upon said principal sum against any holder of this Note and all costs, including reasonable attorneys' fees incurred in the collection, defense, preservation, enforcement or protection of this Note or any guaranty hereof in the foreclosure of any mortgage or security interest now or hereafter securing the same or in any proceedings to otherwise enforce or protect this Note or any guaranty hereof or any security therefor. Interest on this Note shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed.
(1) INTEREST RATE/PAYMENTS.
(a) Principal Plus Interest. Payments of principal shall be made in twenty-eight (28) successive quarterly installments as follows:
Twenty-Seven (27) equal successive quarterly installments in the
amount of ONE HUNDRED FORTY-TWO THOUSAND EIGHT HUNDRED FIFTY-SEVEN AND 14/100THS
DOLLARS ($142,857.14) commencing June 1, 2006 and continuing on the first day of
each successive calendar quarter thereafter, with the final and twenty-eighth
(28th) installment being due and payable on the Maturity Date, said installment
being an amount equal to the balance of all unpaid principal and accrued
interest.
(b) Interest Rates, Payment of Interest. So long as no Event of Default (hereafter defined) has occurred and subject to the terms hereof, principal outstanding hereunder shall bear interest at a fixed rate of nine (9%) percent per annum (herein the "Fixed Rate") through and including February 28, 2011, and thereafter at a variable rate (the "Variable Rate") equal to the Prime Rate (hereinafter defined) plus one and one-half percent (1.5%) per annum. Interest on all amounts outstanding at the Variable Rate and Fixed Rate shall be payable quarterly beginning June 1, 2006, and continuing thereafter on the first Banking Day of each succeeding quarter until the principal balance shall be paid in full.
(c) Automatic Payments. Borrower hereby authorizes Lender to automatically deduct from Borrower's account at Lender the amount of any loan payment ("Automatic Payments"). If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate Automatic Payments. The Lender shall record on the books and records of the Lender an appropriate notation evidencing each repayment on account of the principal hereof and the amount of interest paid; and the Borrower authorizes the Lender to maintain such records or make such notations and agrees that the amount shown on the books and records as outstanding from time to time shall constitute the amount owing to the Lender pursuant to this Note, absent manifest error.
(d) Cash Flow Recapture. Borrower shall also pay the amounts required under Section 6.7 of the Loan Agreement.
(2) DEFAULT RATE. To the extent allowed by applicable law, after the occurrence of any Event of Default, after maturity or after judgement has been rendered on this Note, all outstanding principal and unpaid interest shall bear, until paid, interest at a rate per annum equal to two (2%) percentage points greater than that which would otherwise be applicable (the "Default Rate").
(3) LATE CHARGE. If a regularly scheduled payment is fifteen (15) days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $10.00, whichever is greater.
(4) EXPENSES. Borrower further promises to pay to the Lender, as incurred, and as an additional part of the unpaid principal balance, all costs, expenses and reasonable attorneys' fees incurred (i) in the protection, modification, collection, defense or enforcement of all or part of this Note or any guaranty hereof, or (ii) in the foreclosure or enforcement of any mortgage or security interest which may now or hereafter secure either the debt hereunder or any guaranty thereof, or (iii) with respect to any action taken to protect, defend, modify or sustain the lien of any such mortgage or security agreement, or (iv) with respect to any litigation or controversy arising from or connected with this Note or any mortgage or security agreement or collateral which may now or hereafter secure this Note, or (v) with respect to any act to protect defend, modify, enforce or release any of its rights or remedies with regard to, or otherwise effect collection of, any collateral which may now or in the future secure this Note or with regard to or against Borrower or any endorser, guarantor or surety of this Note.
(5) DEFINITIONS. (a) "Fixed Rate" shall have the meaning set forth in Paragraph 1(b) hereof.
(b) "Governing State" shall mean the state where Lender's offices are located as set forth in the first paragraph of this Note.
(c) "Loan Documents" shall mean any and all agreements, instruments, documents, security agreements, mortgages, financing statements, and supplements thereto and relating to the Loan, or entered into between the Borrower or Guarantor (hereafter defined) in favor of, or with, the Lender, at any time, for any purpose.
(d) "Maturity Date" shall have the meaning set forth in the first paragraph of this Note.
(e) "Obligations" shall mean all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender of every kind and description (whether or not evidenced by any note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, whether or not such obligations are related to the transaction described in this Loan Agreement, by class, or kind, or whether or not contemplated by the parties at the time of the granting of this security interest, including without limitation, all interest, fees, charges, expenses and attorneys' fees chargeable to the Borrower or incurred by the Lender in connection with the Borrower's account whether provided for herein or in any Loan Document.
(f) The term "Prime Rate" means the variable per annum rate of interest so designated from time to time by the Lender as its prime rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. The rate of interest hereunder shall change simultaneously and automatically, without further notice, upon the Lender's determination and designation from time to time of the Prime Rate. The Lender's determination and designation from time to time of the Prime Rate shall not in any way preclude the Lender from making loans to other borrowers at rates that are higher or lower than or different from the referenced rate.
(g) "Variable Rate" shall have the meaning set forth in paragraph 1(b) hereof.
(6) OPTIONAL PREPAYMENT. Borrower may prepay the outstanding indebtedness due hereunder in whole, or in part, if no Event of Default then exists and any applicable Prepayment Consideration (as defined below) is tendered with each prepayment. The "Prepayment Consideration" shall be in the first year of this Loan, three (3%) percent of the principal amount prepaid; in the second year of this Loan, two (2%) percent of the principal amount prepaid; in the third year of this Loan, one (1%) percent of the principal amount prepaid. After the third full year of this Loan, no Prepayment Consideration is due. No Prepayment Consideration shall be due if the prepayment is solely as a result of application of insurance or condemnation proceeds from a casualty or condemnation action against Borrower's assets.
Prepayment Consideration shall be due on any payment of principal that is paid prior to the date upon which it is scheduled to be due, including an involuntary early payment, such as by reason of operation of law, condemnation, casualty or acceleration of the Loan upon an Event of Default or by reason of liquidation of the Borrower by a receiver or otherwise. Borrower recognizes that Lender will incur substantial additional costs and expenses including loss of yield and anticipated profitability in the event of a prepayment of the Loan (or a portion thereof) and that the Prepayment Consideration compensates Lender for such costs and expenses. Borrower acknowledges that the Prepayment Consideration is bargained for consideration and not a penalty.
All such prepayment amounts shall be applied first to fees and expenses then due hereunder, then to interest on the unpaid principal balance accrued to the date of prepayment and last to the principal balance then due hereunder.
(7) DEFAULT. The happening of any of the following events or conditions shall constitute an "Event of Default" under this Note:
1. Failure to make any payment of principal or interest or any sum due under this Note within fifteen (15) days of the date when the same shall be due and payable; or
2. Default by the Borrower in the payment or performance of any obligation on its part to be paid or performed, or breached by the Borrower of any representation, warranty, term, covenant or condition of or under any agreements between the Lender and the Borrower including, without limitation, any default or Event of Default under that certain Loan and Security Agreement dated of even date herewith, as the same may be amended, modified, extended or restated or in any documents or instruments referred to in said agreements, and without limitation any default or Event of Default under that certain Revolving Promissory Note given by Borrower to Lender of even date herewith as the same may be amended, modified extended or restated.
Upon and after an Event of Default, the availability of advances hereunder shall, at the option of the Lender, be deemed to be automatically terminated and, at its option, the whole of said indebtedness, both principal and interest, and including any other sums which may become due under this Note, shall, at the option of the holder of this Note, immediately become due and payable without presentment, demand, protest, notice of protest, or other notice of dishonor of any kind, all of which are hereby expressly waived by the Borrower.
(8) WAIVERS, CONSENT TO JURISDICTION. The Borrower agrees that no delay or failure on the part of the holder in exercising any power, privilege, remedy, option or right hereunder shall operate as a waiver thereof or of any other power, privilege, remedy or right; nor shall any single or partial exercise of any power, privilege, remedy, option or right hereunder preclude any other or future exercise thereof or the exercise of any other power, privilege, remedy, option or right. The rights and remedies expressed herein are cumulative, and may be enforced successively, alternately, or concurrently and are not exclusive of any rights or remedies which holder may or would otherwise have under the provisions of all applicable laws, and under the provisions of all agreements between the Borrower and the Lender.
The Borrower hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The Borrower hereby assents to any extension or postponement of the time of payment or any other indulgence, to the addition or release of any party or person primarily or secondarily liable, and to the addition, release and/or substitution of all or any portion of any collateral now or hereafter securing this Note.
Borrower shall not be obligated to pay and Lender shall not collect interest at a rate higher than the maximum permitted by law or the maximum that will not subject Lender to any civil or criminal penalties. If, because of the acceleration of maturity the payment of interest in advance or any other reason, Borrower is required, under the provisions of any Loan Document or otherwise, to pay interest at a rate in excess of such maximum rate, the rate of interest under such provisions shall immediately and automatically be reduced to such maximum rate and any payment made in excess of such maximum rate shall be applied to principal outstanding hereunder or, if required by applicable law, shall be returned to Borrower.
This Note is subject to and secured by the collateral set forth in the Loan Agreement which, inter alia, contains waivers and consents of the Borrower including, without limitation, waivers of jury trial, setoff rights and Lender's right to sell all or portions of the loan evidenced hereby.
This Note shall be governed by and construed in accordance with the laws of the Governing State.
Dated: February 24, 2006.
RANOR, INC.
By: /s/ James G. Reindl ------------------------------------ Its Chairman duly authorized |
REVOLVING PROMISSORY NOTE
FOR VALUE RECEIVED, RANOR, INC., a Delaware corporation, with its chief executive office and principal place of business at One Bella Drive, Westminster, MA 01473 (hereinafter called "Borrower") promises to pay to the order of SOVEREIGN BANK, (hereinafter called "Lender") at its offices at 1010 Farmington Avenue, West Hartford, CT 06107 or at such other place as the holder of this note may from time to time designate in writing, the principal sum of ONE MILLION DOLLARS ($1,000,000.00), or the aggregate unpaid principal amount of all advances made by the Lender to the Borrower under terms hereinafter set forth, whichever is less (the "Commitment Amount"), in lawful money of the United States, to pay interest on each advance at the rate set forth below, and to pay all taxes levied or assessed upon said principal sum against any holder of this Note and all costs, including reasonable attorneys' fees incurred in the collection, defense, preservation, enforcement or protection of this Note or any guaranty hereof, in the foreclosure of any mortgage or security interest now or hereafter securing the same or in any proceedings to otherwise enforce or protect this Note or any guaranty hereof or any security therefor. Interest on this Note shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed. All advances shall be due and payable as set forth herein, but if not sooner paid, this note and all amounts due hereunder shall be due and payable on June 30, 2007 (the "Termination Date").
(1) ADVANCES, NOTICE OF BORROWING. When the Borrower desires to borrow hereunder, it shall give the Lender one (1) days' written notice specifying the date of the proposed borrowing (which shall be a Banking Day (hereafter defined)), and the amount to be borrowed. Any such notice shall be irrevocable and shall be subject to Section 2(c) hereof. If any advance is made, the Lender shall record on the books and records of the Lender an appropriate notation evidencing such advance, each repayment on account of the principal thereof and the amount of interest paid; and the Borrower authorizes the Lender to maintain such records or make such notations and agrees that the amount shown on the books and records as outstanding from time to time shall constitute the amount owing to the Lender pursuant to this Note, absent manifest error. Each Variable Rate Advance shall be due and payable on the Termination Date. Unless an Event of Default has occurred the Borrower may borrow, repay and reborrow; and provided, further, that all outstanding principal plus accrued and unpaid interest shall be paid in full on the Termination Date.
(2) INTEREST RATE/PAYMENTS.
(a) Interest Rates, Payment of Interest. So long as no Event of Default (hereafter defined) has occurred and subject to the terms hereof, each advance hereunder shall bear interest at a rate per annum (the "Variable Rate") equal to the Prime Rate (as hereafter defined) plus one and one-half (1.5%) percent (herein a "Variable Rate Advance"). Interest on all Variable Rate Advances shall be payable monthly beginning on the first Banking Day of the month following the date of this Note, and continuing thereafter on the first Banking Day of each succeeding month until the principal balance shall be paid in full.
(b) Automatic Payments. Borrower hereby authorizes Lender to automatically deduct from Borrower's account numbered [_______________] the amount of any loan payment ("Automatic Payments"). If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate Automatic Payments. If any advance is made, the Lender shall record on the books and records of the Lender an appropriate notation evidencing any advance, each repayment on account of the principal thereof and the amount of interest paid; and the Borrower authorizes the Lender to maintain such records or make such notations and agrees that the amount shown on the books and records as outstanding from time to time shall constitute the amount owing to the Lender pursuant to this Note, absent manifest error.
(3) DEFAULT RATE. To the extent allowed by applicable law, after the occurrence of any Event of Default, after maturity or after judgement has been rendered on this Note, Borrower's right to select pricing options shall cease (if applicable) and all outstanding principal and unpaid interest shall bear, until paid, interest at a rate per annum equal to two (2%) percentage points greater than that which would otherwise be applicable (the "Default Rate"). Where Borrower would, but for the application of the preceding sentence, have had the right to elect among interest rate options, the "Default Rate" shall mean the Variable Rate plus two (2%) percentage points.
(4) LATE CHARGE. If a regularly scheduled payment is fifteen (15) days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $10.00, whichever is greater.
(5) EXPENSES. Borrower further promises to pay to the Lender, as incurred, and as an additional part of the unpaid principal balance, all costs, expenses and reasonable attorneys' fees incurred (i) in the protection, modification, collection, defense or enforcement of all or part of this Note or any guaranty hereof as provided in the Loan Agreement, or (ii) in the foreclosure or enforcement of any mortgage or security interest which may now or hereafter secure either the debt hereunder or any guaranty thereof, or (iii) with respect to any action taken to protect, defend, modify or sustain the lien of any such mortgage or security agreement, or (iv) with respect to any litigation or controversy arising from or connected with this Note or any mortgage or security agreement or collateral which may now or hereafter secure this Note, or (v) as a consequence of any default by Borrower to complete a borrowing or (vi) with respect to any act to protect defend, modify, enforce or release any of its rights or remedies with regard to, or otherwise effect collection of, any collateral which may now or in the future secure this Note or with regard to or against Borrower or any endorser, guarantor or surety of this Note.
(6) DEFINITIONS. (a) "Banking Day" shall mean with respect to Variable Rate Advances, any day other than a day on which commercial lenders in the Governing State are required or permitted by law to close.
(b) "Governing State" shall mean the state where Lender's offices are located as set forth in the first paragraph of this Note.
(c) "Loan Documents" shall mean any and all agreements, instruments, documents, security agreements, mortgages, financing statements, and supplements thereto and relating to the Loan, or entered into between the Borrower or Guarantor (hereafter defined) in favor of, or with, the Lender, at any time, for any purpose.
(d) "Obligations" shall mean all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender of every kind and description (whether or not evidenced by any note or other instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, whether or not such obligations are related to the transaction described in this Loan Agreement, by class, or kind, or whether or not contemplated by the parties at the time of the granting of this security interest, including without limitation, all interest, fees, charges, expenses and attorneys' fees chargeable to the Borrower or incurred by the Lender in connection with the Borrower's account whether provided for herein or in any Loan Document.
(e) The term "Prime Rate" means the variable per annum rate of interest so designated from time to time by the Lender as its prime rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. The rate of interest hereunder shall change simultaneously and automatically, without further notice, upon the Lender's determination and designation from time to time of the Prime Rate. The Lender's determination and designation from time to time of the Prime Rate shall not in any way preclude the Lender from making loans to other borrowers at rates that are higher or lower than or different from the referenced rate.
(f) "Variable Rate Advance" shall have the meaning set forth in paragraph 2(a) hereof.
(9) PREPAYMENT. The Borrower shall be required to prepay ON DEMAND all advances made under this Note to the extent the aggregate of all such advances exceeds the amounts permitted hereunder. In addition the Borrower shall pay, if applicable, charges incurred pursuant to the terms hereof.
All payments will be applied first to the payment of late charges, then to accrued and unpaid interest due and owing and the balance on account of the unpaid principal of this Note.
Borrower may terminate the Revolving Loan evidenced by this Note at any time provided the applicable Prepayment Consideration (as defined below) is tendered at termination. The "Prepayment Consideration" shall be (a) during the first year of this loan, three (3%) percent of Commitment Amount; and (b) during the second year of this loan, two (2%) percent of the Commitment Amount.
(10) DEFAULT. The happening of any of the following events or conditions shall constitute an "Event of Default" under this Note:
1. Failure to make any payment of principal or interest or any sum due under this Note within fifteen (15) days of the date when the same shall be due and payable; or
2. Default by the Borrower in the payment or performance of any obligation on its part to be paid or performed, or breached by the Borrower of any representation, warranty, term, covenant or condition of or under any agreements between the Lender and the Borrower including, without limitation, any default or Event of Default under that certain Loan and Security Agreement dated of even date herewith, as the same may be amended, modified, extended or restated or in any documents or instruments referred to in said agreements, and without limitation any default or Event of Default under that certain Term Promissory Note given by Borrower to Lender of even date herewith as the same may be amended, modified extended or restated.
3. Termination of this loan and line of credit for any reason prior to the Termination Date.
Upon and after an Event of Default, the availability of advances hereunder shall, at the option of the Lender, be deemed to be automatically terminated and, at its option, the whole of said indebtedness, both principal and interest, and including any other sums which may become due under this Note, shall, at the option of the holder of this Note, immediately become due and payable without presentment, demand, protest, notice of protest, or other notice of dishonor of any kind, all of which are hereby expressly waived by the Borrower.
(12) WAIVERS, CONSENT TO JURISDICTION. The Borrower agrees that no delay or failure on the part of the holder in exercising any power, privilege, remedy, option or right hereunder shall operate as a waiver thereof or of any other power, privilege, remedy or right; nor shall any single or partial exercise of any power, privilege, remedy, option or right hereunder preclude any other or future exercise thereof or the exercise of any other power, privilege, remedy, option or right. The rights and remedies expressed herein are cumulative, and may be enforced successively, alternately, or concurrently and are not exclusive of any rights or remedies which holder may or would otherwise have under the provisions of all applicable laws, and under the provisions of all agreements between the Borrower and the Lender.
The Borrower hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The Borrower hereby assents to any extension or postponement of the time of payment or any other indulgence, to the addition or release of any party or person primarily or secondarily liable, and to the addition, release and/or substitution of all or any portion of any collateral now or hereafter securing this Note.
Borrower shall not be obligated to pay and Lender shall not collect interest at a rate higher than the maximum permitted by law or the maximum that will not subject Lender to any civil or criminal penalties. If, because of the acceleration of maturity the payment of interest in advance or any other reason, Borrower is required, under the provisions of any Loan Document or otherwise, to pay interest at a rate in excess of such maximum rate, the rate of interest under such provisions shall immediately and automatically be reduced to such maximum rate and any payment made in excess of such maximum rate shall be applied to principal outstanding hereunder or, if required by applicable law, shall be returned to Borrower.
Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other security document(s) which is not of public record and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other document(s), the Borrower will issue, in lieu thereof, a replacement Note or other document(s) in the same principal amount thereof and otherwise of like tenor.
This Note is subject to and secured by the collateral set forth in the Loan Agreement which, inter alia, contains waivers and consents of the Borrower including, without limitation, waivers of jury trial, setoff rights and Lender's right to sell all or portions of the loan evidenced hereby.
This Note shall be governed by and construed in accordance with the laws of the Governing State.
Dated: February 24, 2006.
RANOR, INC.
By:/s/ James G. Reindl
---------------------------
Its Chairman
---------------------------
Duly Authorized
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Exhibit 4.2
GUARANTY
To: SOVEREIGN BANK
1010 Farmington Avenue
West Hartford, CT 06107
To induce Sovereign Bank (hereinafter referred to as the "Lender") to make a certain loan to RANOR, INC. (hereinafter referred to as the "Borrower"), pursuant to a certain Loan and Security Agreement dated of even date herewith (hereinafter referred to as the "Loan Agreement") and in consideration thereof and of any loans, advances or financial accommodations heretofore or hereafter granted by the Lender to or for the account of the Borrower, whether pursuant to the Loan Agreement or otherwise, the undersigned Guarantor (the "Guarantor") unconditionally, jointly and severally guarantees by this agreement (the "Guaranty") the payment and performance from or by the Borrower of any and all obligations from the Borrower to the Lender (the "Obligations"). "Obligations" shall mean any and all loans and advances made by the Lender prior to, on or after the date hereof to or for the account of the Borrower, and any and all interest, commissions, obligations, liabilities, indebtedness, charges and expenses now or hereafter chargeable against the Borrower by the Lender or owing by the Borrower to the Lender, whether any of the foregoing are direct or indirect, joint or several, absolute or contingent, due or to become due, now existing or hereafter arising, no matter how or when arising and whether under any present or future agreement or instrument between the Borrower and the Lender or otherwise, and the performance and fulfillment by the Borrower of all of the terms, conditions, promises, covenants and provisions contained in the Loan Agreement or in any note or notes secured thereby or in any present or future agreement or instrument between the Borrower and the Lender, and including all costs of collection and expenses, including reasonable attorneys' fees incurred by the Lender to collect the Obligations from any party liable for the payment thereof, whether as maker, endorser, guarantor, surety or otherwise, or in protecting, enforcing or realizing upon the Lender's rights in connection with any collateral securing the Obligations or any guaranty thereof.
The Guarantor also agrees: to indemnify the Lender and hold the Lender harmless against all losses in any way suffered, incurred or paid by the Lender as a result of or in any way arising out of, or following, or consequential to transactions with the Borrower, whether under the Loan Agreement or otherwise; that this Guaranty shall not be impaired by any modification, release or other alteration of any of the Obligations or arrangements whatsoever with the Borrower or anyone else; that the liability of the Guarantor is direct and unconditional and may be enforced without requiring the Lender first to resort to any other right, remedy or security; to waive and hereby does waive any right of subrogation, reimbursement or indemnity whatsoever, and any right of recourse to security for the debts and Obligations of the Borrower to the Lender and the Guarantor until all of the Obligations are paid in full; that if there is more than one Guarantor, Guarantor should at any time become insolvent or make a general assignment, or if any petition in bankruptcy or any insolvency or reorganization proceedings shall be filed or commenced by, against or in respect of the Borrower or any Guarantor, any and all Obligations of each Guarantor shall, at the Lender's option, forthwith become due and payable without notice; that the Lender's books and records showing the account between the Lender and the Borrower shall be admissible in any action or proceedings, shall be binding upon each Guarantor for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof; that this Guaranty is, as to each Guarantor, a continuing
Guaranty; that nothing shall discharge or satisfy the liability of any Guarantor hereunder except the full payment and performance of all of the Borrower's said debts and Obligations to the Lender with interest; that any and all present and future debts and obligations of the Borrower to Guarantor are hereby waived and postponed in favor of and subordinated to the full payment and performance of the Obligations; and that all sums at any time in the Lender's possession shall be deemed held by the Lender as security for the Obligations to the Lender and to the Lender's subsidiaries, no matter how or when arising, whether absolute or contingent, whether due or to become due and whether under this Guaranty or otherwise.
Guarantor hereby grants to Lender a lien, security interest and a right of setoff as security for all of the Obligations, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity under the control of Lender, or in transit to any of them. At any time, without demand or notice, Lender may set off the same or any part thereof and apply the same to any liability or obligation of Guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Lender shall not be required to marshal any present or future security for, or guarantees of, the Obligations or to resort to any such security or guarantee in any particular order and the Guarantor waives to the fullest extent that it lawfully can, (a) any right it might have to require the Lender to pursue any particular remedy before proceeding against the Lender and (b) any right to the benefit of, or to direct the application of the proceeds of any collateral until the Obligations are paid in full.
The Guarantor further agrees to furnish to the Lender on or before April 1 of every year, its annual financial statement in form satisfactory to the Lender, and promptly after the Lender's request, such other information as the Lender may, from time to time, reasonably request.
The Guarantor waives: notice of acceptance hereof; presentment and protest of any instrument, and notice thereof; notice of default; and all other notices to which such Guarantor might otherwise be entitled.
Without the Lender's prior written consent after full disclosure, the Guarantor shall not transfer any material portion of the Guarantor's property, real or personal, or release any contract right or claim which constitutes a material portion of the Guarantor's net worth, either voluntarily or involuntarily, absolutely or collaterally, without receiving full fair market value therefor. The Guarantor agrees that any transfer or release in violation of the foregoing provisions shall per se be deemed to have occurred with an intent to defraud creditors.
This Guaranty shall be valid and binding upon the Guarantor, regardless of any invalidity, irregularity, defect or unenforceability of or in any of the Obligations. The Guarantor further agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment of all or any part of the Obligations is rescinded or otherwise must be restored by the Lender to the Borrower or to the creditors of the Borrower or any representative of the Borrower or representative of its creditors upon the insolvency, bankruptcy or reorganization of the Borrower, or to any Guarantor or the creditors of any Guarantor or any representative of any Guarantor or representative of the creditors of any Guarantor upon the insolvency, bankruptcy or reorganization of any Guarantor, or otherwise, all as though such payments had not been made.
The Guarantor hereby waives the right to trial by jury in any action or proceeding of any kind or nature in any court in which an action may be commenced arising out of this Guaranty or any assignment thereof or by reason of any other cause or dispute between the Guarantor and the Lender.
The Guarantor hereby further agrees that (a) any state or local court of the Commonwealth of Massachusetts; or (b) the United States District Court for the District of Massachusetts, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Guarantor and the Lender pertaining directly or indirectly to this Guaranty or to any matter arising in connection with this Guaranty. The Guarantor expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in such courts, hereby waiving personal service of the summons and complaint, or other process or papers issued therein, and agreeing that service of such summons and complaint, or other process or papers, may be made by registered or certified mail addressed to the Guarantor at the address set forth below. Should the Guarantor fail to appear or answer any summons, complaint, process or papers so served within thirty (30) days after the mailing thereof, it shall be deemed in default and an order and/or judgment may be entered against it as demanded or prayed for in such summons, compliant, process or papers. The exclusive choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Guaranty to enforce the same in any appropriate jurisdiction.
This Guaranty, all acts and transactions hereunder, and the rights and obligations of the parties hereto shall be governed, construed and interpreted according to the laws of the Commonwealth of Massachusetts, shall be binding upon the heirs, executors, administrators, successors and assigns of each Guarantor and shall inure to the benefit of the Lender's successors and assigns.
Dated: February 24, 2006
GUARANTOR:
LOUNSBERRY HOLDINGS II, INC.
By:/s/ James G. Reindl --------------------------------- Its Chairman duly authorized |
Exhibit 4.3
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 PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY ___, 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.
LOUNSBERRY HOLDINGS II, INC.
COMMON STOCK PURCHASE WARRANT "A(1) "
Number of Shares: 5,610,000 Holder: Barron Partners LP
c/o Barron Capital Advisors LLC
Original Issue Date: February ___, 2006 Managing Partner
Attn: Andrew Barron Worden
730 Fifth Avenue, 9th Floor
Expiration Date: February ___, 2011 New York NY 10019
tel 212-659-7790
Exercise Price per Share: $.57 fax 646-607-2223
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Lounsberry Holdings II, Inc., a company organized and existing under the laws of
the State of Delaware (the "COMPANY"), hereby certifies that, for value
received, BARRON PARTNERS LP, or its registered assigns (the "WARRANT HOLDER"),
is entitled, subject to the terms set forth below, to purchase from the Company
up to five million six hundred ten thousand (5,610,000) shares (as adjusted from
time to time as provided in Section 7, the "WARRANT SHARES") of common stock,
$.0001 par value (the "COMMON STOCK"), of the Company at a price of fifty seven
cents ($0.57) 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
February ___, 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.
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 six (6) 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 the expiration of 36 months from the Closing, as defined in the Purchase Agreement, if the Company closes on the sale of a note or notes, shares of Common Stock, or shares of any class of Preferred Stock at a price per share of Common Stock, or with a conversion right to acquire Common Stock at a price per share of Common Stock, 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, that is less than the Exercise Price in effect at the time of such sale (such lower price being referred to as the "Lower Price"), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such issuance 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 at the Lower Price 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 issued in connection therewith). Such adjustment shall be made successively whenever such an issuance is made.
e. THE COMPANY FAILS TO MEET CERTAIN EBITDA PER SHARE PROJECTIONS.
i. In the event the Company's EBITDA (as defined in the Purchase Agreement) per share of Common Stock, determined on a fully diluted basis pursuant to Section 6.15 of the Purchase Agreement, is between $0.06591 and $0.04613 per share, the Exercise Price shall be reduced proportionately by 0% if the EBITDA is $0.06591 per share and by 15% if EBITDA is $0.04613 per share or lower. For example, if the Company's EBITDA is $0.052728 per share, or 20% below $0.06591 per share, then the Exercise Price shall be reduced by 10%. Such reduction shall be made at the time the Company files its Form 10-K or Form 10-KSB for the year ended March 31, 2006. In the event that EBITDA per share is less than $0.04613, or the Company has a loss, the Exercise Price shall be reduced by a maximum of 15%. This Section 7(d)(i) shall apply to the all of the Preferred Stock which is outstanding on the date the Form 10-KSB or 10-K is filed, or, if not filed on time, on the date that filing was required.
ii. In the event the Company's EBITDA per share of Common
Stock, determined as provided in Section 7(i) of this Warrant, for the fiscal
year ended March 31, 2007 is between $0.08568 and $0.05997, the Exercise Price
then in effect shall be reduced proportionately by 0% if EBITDA is $0.08568 or
greater and 15% if EBITDA is $0.05997 or less, with a proportionate reduction if
EBITDA is between $0.08568 and $0.05997. Such reduction shall be made at the
time the Company files its Form 10-K or Form 10-KSB for the year ended March 31,
2007. In the event that EBITDA per share is less than $0.05997, or the Company
has a loss, the Exercise Price shall be reduced by a maximum of 15%. In
determining the EBITDA per share of Common Stock pursuant to this Section
7(d)(ii), there shall be excluded any shares of Common Stock issuable as a
result of an adjustment to the Exercise Price pursuant to Section 7(d)(i). This
Section 7(d)(ii) shall apply to the all of the Preferred Stock which is
outstanding on the date the Form 10-KSB or 10-K is filed, or, if not filed on
time, on the date that filing was required.
iii. An adjustment pursuant to Section 7(d) or this Section 7(e) shall not affect the number of shares of Common Stock issuable upon exercise of this Warrant.
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:
c/o Techprecision Management LLC
P.O. Box 4651
Greenville, DE 19807
Attention: James G. Reindl, Chairman
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 shareholder of the Company, either at law or equity, and the rights of the Warrant Holder are limited to those expressed in this Warrant.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by the authorized officer as of the date first above stated.
LOUNSBERRY HOLDINGS II, INC.
By: /s/ James G. Reindl ------------------------------------ Name: James G. Reindl Its: Chairman of the Board |
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: LOUNSBERRY HOLDINGS II, INC.:
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 Lounsberry Holdings II, Inc. 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:
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:
Dated:
---------------------- Name of Warrant Holder:
(Print)
---------------------------------
(By:)
-----------------------------------
(Name:)
---------------------------------
(Title:)
--------------------------------
Signature must conform in all respects
to name of Warrant Holder as specified
on the face of the Warrant
|
Exhibit 10.1
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
LOUNSBERRY HOLDINGS II, INC.
AND
BARRON PARTNERS LP
DATED
February 24, 2006
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the 24th day of February, 2006 between Lounsberry Holdings II, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company") and BARRON PARTNERS LP, a Delaware limited partnership ("Investor").
PRELIMINARY STATEMENT:
WHEREAS, the Investor wishes to purchase from the Company, upon the terms and subject to the conditions of this Agreement, seven million seven hundred nineteen thousand two hundred fifty (7,719,250) shares of Series A Convertible Preferred Stock, par value $.0001 per share ("Series A Preferred Stock"), of the Company, with such preferred stock being as described in the Certificate of Designations, Rights and Preferences (the "Certificate of Designations") in substantially the form attached hereto as Exhibit A for the Purchase Price set forth in Section 1.3.23 hereof. Subject to the limitations set forth herein and in the Certificate of Designation, the Series A Preferred Stock shall be initially convertible into shares of common stock of the Company at any time at a conversion rate (the "Conversion Rate") of one (1) share of Common Stock, par value $.0001 per share ("Common Stock"), for each share of Series A Preferred Stock, subject to adjustment as provided in the Certificate of Designation. In addition, the Company will issue to the Investor two Common Stock Purchase Warrants (the "Warrants") to purchase up to five million six hundred ten thousand shares (5,610,000) of Common Stock of the Company at fifty six cents ($0.57) per share and five million six ten thousand (5,610,000) shares of Common Stock of the Company at eighty five cents ($0.855) per share; and
WHEREAS, as part of the transaction by which the Investor is purchasing the Series A Preferred Stock and Warrants, the members of Ranor Acquisition LLC, a Delaware limited liability company, the Company will issue an aggregate of 7,408,000 shares of Common Stock, in consideration for the assignment of the agreement to acquire Ranor, Inc. and money advanced on behalf of the Company; and
WHEREAS, the parties intend to memorialize the purchase and sale of such Series A Preferred Stock and the Warrants.
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, SUPERSEDER 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. Superseder. 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.
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. "1933 Act" means the Securities Act of 1933, as amended.
1.3.2. "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.3.3. "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.
1.3.4. "Articles" means the Certificate of Incorporation of the Company, as the same may be amended from time to time.
1.3.5. "Closing" shall mean the Closing of the transactions contemplated by this Agreement on the Closing Date.
1.3.6. "Closing Date" means the date on which the payment of the Purchase Price (as defined herein) by the Investor to the Company is completed pursuant to this Agreement to purchase the Series A Preferred Stock and Warrants, which shall occur on or before February 15, 2006.
1.3.7. "Common Stock" means shares of common stock of the Company, par value $0.0001 per share.
1.3.8. "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, determined in accordance with U.S. GAAP plus any deduction taken as a result of the issuance of the Restricted Shares.
1.3.9. "Escrow Agreement" shall mean the Escrow Agreement among the Company, the Investor and Katsky Korins LLP, as Escrow Agent, attached hereto as Exhibit E, it being acknowledged that the Escrow Agent is counsel for the Company.
1.3.10. "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) the Company pursuant to the Company's 2006 Long-Term Incentive Plan or any other stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee 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 and any other options, warrants or convertible securities which are outstanding on the Closing Date after completion of the Closing, (c) the Restricted Shares, and (d) 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.
1.3.11. "Material Adverse Effect" shall mean 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 and affiliates, taken as a whole and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company 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.
1.3.12. "Delaware Act" means the Delaware General Corporation Law, as amended.
1.3.13. "Person" means an individual, partnership, firm, limited liability company, trust, joint venture, association, corporation, or any other legal entity.
1.3.14. "Purchase Price" means the two million two hundred thousand dollars ($2,200,000) to be paid by the Investor to the Company for the Series A Preferred Stock and the Warrants.
1.3.15. "Registration Rights Agreement" shall mean the registration rights agreement between the Investor and the Company attached hereto as Exhibit B.
1.3.16. "Registration Statement" shall mean 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 attached hereto as Exhibit B.
1.3.17. "Restricted Shares" shall mean 143,000 shares of Common Stock issued by the Company pursuant to restricted stock agreements with key employees.
1.3.18. "Securities" means the shares of Series A Preferred Stock, the Warrants and the Shares.
1.3.19. "SEC" means the Securities and Exchange Commission.
1.3.20. "SEC Documents" shall mean the Company's latest Form10-SB, Form 10-K or Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question 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.
1.3.21. "Shares" shall mean, collectively, the shares of Common Stock of the Company issued upon conversion of the Series A Preferred Stock subscribed for hereunder and those shares of Common Stock issuable to the Investor upon exercise of the Warrants.
1.3.22. "Subsequent Financing" shall mean any offer and sale of shares of Series A Preferred Stock or debt that is initially convertible into shares of Common Stock or otherwise senior or superior to the Series A Preferred Stock.
1.3.23. "Transaction Documents" shall mean this Agreement, all Schedules and Exhibits attached hereto and all other documents and instruments to be executed and delivered by the parties in order to consummate the transactions contemplated hereby, including, but not limited to the documents listed in Sections 3.2 and 3.3 hereof.
1.3.24. "Warrants" shall mean the Common Stock Purchase Warrants in the form attached hereto Exhibit D.
ARTICLE II
SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS; PURCHASE PRICE
2.1. Sale of Series A Preferred Stock and Issuance of Warrants.
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 Investor, and the Investor agrees to purchase from the Company, on the Closing Date seven million seven hundred nineteen thousand two hundred fifty (7,719,250) shares of Series A Preferred Stock and the Warrants for the (the "Purchase Price") of two million two hundred thousand dollars ($2,200,000). The Purchase Price shall be paid by the Investor to the Company on the Closing Date by a wire transfer or check 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 Series A Preferred Stock and the Warrants to be issued to the Investor upon the release of the Purchase Price to the Company by the escrow agent pursuant to the terms of the Escrow Agreement. The Company shall register the shares of Common Stock into which the Series A Preferred Stock is convertible pursuant to the terms and conditions of a Registration Rights Agreement attached hereto as Exhibit B.
2.1.2. Each share of Preferred stock shall initially be convertible by the
Investor into one (1) share of Common Stock; provided, however, that
the Investor shall not be entitled to convert the Series A Preferred
Stock into shares of Common Stock to the extent that such conversion
would result in beneficial ownership by the 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 the immediately preceding
sentence, 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. The limitation set forth in this Section
2.1.2 is referred to as the "4.9% Limitation."
2.1.3. Upon execution and delivery of this Agreement and the Company's receipt of the Purchase Price from the Escrow Agent pursuant to the terms of the Escrow Agreement, the Company shall issue to the Investor the Warrant to purchase an aggregate of 11,220,000 shares of Common Stock at exercise prices as stated in the Warrants, all pursuant to the terms and conditions of the form of Warrants attached hereto as Exhibit C; provided, however, that the Investor shall not be entitled to exercise the Warrants and receive shares of Common Stock that would result in beneficial ownership by the 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 Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
2.2. Purchase Price. The Purchase Price shall be delivered by the Investor in the form of a wire transfer in United States dollars from the Investor to the escrow agent pursuant to the Escrow Agreement on the Closing Date.
ARTICLE III
CLOSING DATE AND DELIVERIES AT CLOSING
3.1. Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing"), unless expressly determined herein, shall be held at the offices of the Company, at 5:00 P.M. local time, on the Closing Date or on such other date 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;
(b) At or prior to Closing, executed Warrants in the name of the Investor in the form attached hereto as Exhibit C;
(c) The executed Registration Rights Agreement;
(d) Certifications in form and substance acceptable to the Company and the Investor 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 Investor, 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;
(e) Evidence of approval of the board of directors of the Company of the Transaction Documents and the transactions contemplated hereby;
(f) Evidence of the completion of the acquisition of Ranor, Inc., a Delaware corporation ("Ranor") contemporaneously with the Closing.
(g) Certificate of the President and the Secretary of the Company that the Certificate of Designation has been adopted and filed;
(h) Evidence that the Certificate of Amendment to the Certificate of Incorporation of the Company adopting the provision described in Section 6.19 has been approved by the Company's board of directors subject to stockholder approval.
(i) Good standing certificates of the Company issued by the Secretary of State of Delaware;
(j) An opinion from the Company's counsel concerning the Transaction Documents and the transactions contemplated hereby in form and substance reasonably acceptable to Investor;
(k) Stock Certificate in the name of Investor evidencing the Series A Preferred Stock;
(l) The executed Escrow Agreement; and
(m) 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 Investor.
(n) Such other documents or certificates as shall be reasonably requested by Investor or its counsel.
3.3. Deliveries by Investor. 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;
(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 provided to the other party in Paragraphs 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 Investor shall, upon request, on or after the Closing Date, cooperate with each other (specifically, the Company shall cooperate with the Investor, and the Investor 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 Investor 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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor 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 Investor has heretofore made or may hereinafter make with respect to such warranties and representations) as follows:
4.1. Organization and Qualification. Each of the Company and Ranor is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and 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.
4.2. Articles of Incorporation and By-Laws. The complete and correct copies of the Company's Articles and By-Laws, as in effect on the Closing Date, has been delivered to the Investor.
4.3. Capitalization.
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 or 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 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 not now 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 Investor in writing of any additional warrants granted prior to the Closing Date.
4.3.4. The Company on the Closing Date (i) will have full right, power, and authority to sell, assign, transfer, and deliver, by reason of record and beneficial ownership, to the Investor, the Series A Preferred Stock hereunder, free and clear of all liens, charges, claims, options, pledges, restrictions, and encumbrances whatsoever; and (ii) upon conversion of the Series A Preferred Stock or exercise of the Warrants, the Investor will acquire title to such Shares, free and clear of all liens, charges, claims, options, pledges, restrictions, and encumbrances whatsoever, except as otherwise provided in this Agreement as to the limitation on the voting rights of such Shares in certain circumstances and except for any of the foregoing which results from actions or omissions on the part of the Investor.
4.4. Authority. The Company has all requisite corporate power and authority to execute and deliver this Agreement, 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. 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 Series A Preferred Stock or exercise any Warrant if and to the extent that the Conversion Price, as defined in the Certificate of Designation, of the Series A Preferred Stock 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").
4.5. 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 Articles or By-Laws of the Company; (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 ---- (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 pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by the Company or any of its properties or assets is bound. Excluding from the foregoing are such 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. Schedule 4.6 sets forth the audited balance sheet of Ranor as of March 31, 2005 and the audited statements of operations, stockholders equity and cash flows for the years ended March 31, 2005 and 2004, and the unaudited balance sheet as of September 30, 2005 and unaudited statements of operations and cash flows for the six months ended September 30, 2005 and 2004 and stockholders' equity for the six months ended September 30, 2005, in each cash including notes to the financial statements (collectively, the "Financial Statements"). Each of the balance sheets contained in or incorporated by reference into any such Financial Statements (including the related notes and schedules thereto) fairly presented the financial position of Ranor, 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, changes in stockholders' equity and changes in cash flows, as the case may be, of Ranor, for the periods to which they relate, in each case in accordance with United States generally accepted accounting principles ("U.S. GAAP") consistently applied during the periods involved, 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 U.S. GAAP and any other applicable legal and accounting requirements and reflect only actual transaction.
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 Law of a governmental agency, except for violations which individually or in the aggregate do not have a Material Adverse Effect.
4.8. Brokers. Except as set forth on Schedule 4.8, 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. SEC Documents. The Investor acknowledges that the Company is a publicly held company and has made available to the Investor 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 Investor 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.
4.10. 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 or Ranor, 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 Investor's representations in Article V, except as required pursuant to the Registration Rights Agreement, the sale of the Series A Preferred Stock and Warrants by the Company to the Investor will not require registration under the 1933 Act, but may require registration or an exemption from registration under New York state securities law if applicable to the Investor. 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 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 Investor.
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. Except as set forth in Schedule 4.13 attached hereto, since September 30, 2005, no event or circumstance resulting in a Material Adverse Effect has occurred or exists with respect to Ranor. 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 Ranor from historical levels.
4.14. Material Non-Public Information. The Company has not disclosed to the 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 Investor matters relating to the Company's acquisition of Ranor and the financing of such acquisition.
4.15. Internal Controls And Procedures. To the knowledge of the Company, Ranor maintains books and records and internal accounting controls which provide reasonable assurance that (i) all transactions to which Ranor or any subsidiary is a party or by which its properties are bound are executed with management's authorization; (ii) the recorded accounting of Ranor's consolidated assets is compared with existing assets at regular intervals; (iii) access to Ranor's consolidated assets is permitted only in accordance with management's authorization; and (iv) all transactions to which Ranor or any subsidiary 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 Ranor has not 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 Investor 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.
4.17. Independent Board. At the Closing, the board of directors of the Company shall consist of five directors, three of whom shall be independent, as defined under the regulation of the Nasdaq Stock Market, and a majority of the members of the audit and compensation committees of the board of directors of the Company will be comprised of independent directors.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investor represents and warrants to the Company that:
5.1. Organization and Standing of the Investor. The Investor is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware. The state in which any offer to purchase shares hereunder was made or accepted by such Investor is the state shown as such Investor's address. The Investor was not formed for the purpose of investing solely in the Series A Preferred Stock, the Warrants or the shares of Common Stock which are the subject of this Agreement.
5.2. Authorization and Power. The 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 the Investor and the consummation by the Investor of the transactions contemplated hereby have been duly authorized by all necessary partnership action where appropriate. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Investor and at the Closing shall constitute valid and binding obligations of the Investor enforceable against the 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 the 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 the
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 the 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, the Investor is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
5.4. Financial Risks. The Investor acknowledges that such Investor is able to bear the financial risks associated with an investment in the securities being purchased by the 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 the Investor from the Company by virtue of its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and the Investor is capable of bearing the entire loss of its investment in the securities being purchased by the 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 the 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. Except as set forth in Schedule 4.8, 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 Investor.
5.7. Knowledge of Company. The Investor and such Investor's 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 the Investor from the Company. The Investor and such Investor's 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.
5.8. Risk Factors. The Investor understands that such Investor's investment in the securities being purchased by the 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 the Investor from the Company. The Investor warrants that such Investor is able to bear the complete loss of such Investor's investment in the securities being purchased by the Investor from the Company. In acquiring the Securities, the Investor is not relying upon any projections of the future financial condition, results of operations or cash flows relating to the Company.
5.9. Full Disclosure. No representation or warranty made by the 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) the 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 the Investor nor 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 according to the provisions of the Registration Rights Agreement and the Company shall comply in all material respects with the terms thereof.
6.2. Reservation of Common Stock. As of the date hereof, the Company has 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 Series A Preferred Stock and 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. The Investor agrees to vote in favor of such proposal.
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 Laws.
6.4. Exchange 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. Preferred Stock. Until the earlier of (a) three years from the Closing or (b) such date as the Investor shall have converted not less than 90% of the shares of Series A Preferred Stock and sold the underlying Shares or (c) such date as the Investor shall have transferred not less than 90% of the shares of Series A Preferred Stock or (d) such date as the total number of shares of Preferred Stock which the Investor shall have either transferred or converted and sold the underlying Shares shall represent not less than 90% of the shares of Series A Preferred Stock issued to the Investor, the Company will not issue any preferred stock of the Company with the exception of Series A Preferred Stock issued to the Investor.
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 earlier of (a) three years from the Closing or (b) such date as the Investor shall have converted not less than 90% of the shares of Series A Preferred Stock and sold the underlying Shares or (c) such date as the Investor shall have transferred not less than 90% of the shares of Series A Preferred Stock or (d) such date as the total number of shares of Preferred Stock which the Investor shall have either transferred or converted and sold the underlying Shares shall represent not less than 90% of the shares of Series A Preferred Stock issued to the Investor, the Company will not issue any convertible debt.
6.8. Debt Limitation. The Company agrees for two years after Closing not to enter into any new borrowings of more than three times the sum of the EBITDA from recurring operations over the trailing four quarters.
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 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 which have a conversion or exercise price that is based on the market price at the time of conversion or exercise or any other device which results in an adjustment to the exercise price or conversion price of the above mentioned securities in section 6.9 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, before Closing.
6.10.2. If, at any time from the Closing and until the earlier of (a) three years from the Closing or (b) such date as the Investor shall have converted not less than 90% of the shares of Series A Preferred Stock and sold the underlying Shares or (c) such date as the Investor shall have transferred not less than 90% of the shares of Series A Preferred Stock, 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 75 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. For purposes of this Section 6.10, an 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 Investor, as liquidated damages and not as a penalty,
an amount equal to twelve percent (12%) per annum of the Purchase Price
of the then outstanding Series A Preferred Stock, payable monthly in
cash or Series A Preferred Stock at the option of the Investor, based
on the number of days that such condition exists. The parties agree
that the only damages payable for a violation of such provisions shall
be such liquidated damages. Nothing shall preclude the Investor 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 Investor
by reason of the failure of the Company to have a majority of directors
as independent directors.
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 eighteen percent (18%) of the Purchase Price of the then outstanding Series A Preferred Stock.
6.11. Independent Directors Become Majority of Audit and Compensation Committees. The Company will cause the appointment of a majority of independent directors to the audit and compensation committees of the board of directors before or at Closing. If at any time after Closing independent directors do not compose the majority of the audit and compensation committees, the Company shall pay to the Investors, pro rata, as liquidated damages and not as a penalty, an amount equal to twelve percent (12%) of the Purchase Price per annum, payable monthly in cash or Series A Preferred Stock at the option of the Investor, 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 Investor 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 proceeds from the sale of the Series A Preferred Stock and the Warrants (excluding amounts paid by the Company for legal and administrative fees in connection with the sale of such securities) for the acquisition of Ranor and working capital.
6.13. Right of First Refusal
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, the 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 Shares held by the Investor plus the number of Shares issuable upon conversion of the Series A Preferred Stock then owned by the Investor, 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 Series A Preferred Stock 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.
6.13.2. The terms on which the Investor shall purchase securities pursuant to Proposed Financing shall be the same as such securities are purchased by other investors. The Company shall give the Investor 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, the Company shall provide the Investor with the same notice of the revised terms that are provided to the other investors.
6.13.3. In the event that the Investor does not exercise its right to
participate in the Proposed Financing, 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
Investor. If the Company subsequently changes the price or terms so
that the terms are at a price or more favorable to the investors, the
Company shall reoffer the securities to the Investor as provided in
Section 6.12.2 of this Agreement.
6.14. Price Adjustment. The Certificate of Designation shall include the
following provision: If, within the 36 months following the Closing
Date, the Company closes on the sale of a note or notes, shares of
Common Stock, or shares of any class of Preferred Stock at a price per
share of Common Stock, or with a conversion right to acquire Common
Stock at a price per share of Common Stock (other than (x) an Exempt
Issuance or (y) an issuance covered by the [Section of the Certificate
of Designation relating to stock dividends, distributions and reverse
splits] and [Section of the Certificate of Designation relating to pro
rata distributions] or (z) 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
[Section no. of Certificate of Designation]), that is less than the
Conversion Price in effect at the time of such sale (such lower price
being referred to as the "Lower Price"), the conversion rate shall be
adjusted as follows. The "Conversion Price" shall mean the price paid
for one share of Series A Preferred Stock divided by the number of
shares of Common Stock issuable upon conversion of one share of Series
A Preferred Stock. The "Conversion Rate" is the number of shares of
Common Stock issuable upon conversion of one (1) share of Series A
Preferred Stock. The initial Conversion Rate is one share of Common
Stock per share of Series A Preferred Stock and the initial Conversion
Price is $.285. The Conversion Rate shall be adjusted by multiplying
the Conversion Rate in effect immediately prior to such issuance by a
fraction, the numerator 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 issued in connection
therewith) and the denominator 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 at the Lower Price would purchase at
the Conversion Price then in effect. Such adjustment shall be made
successively whenever such an issuance is made.
6.15. Price Adjustment Based on EBITDA Per Share.
6.15.1. In the event the Company's EBITDA per share of Common Stock is between $0.06591 and $0.04613 per share (where such EBITDA per share is defined as EBITDA as reported for the audited fiscal year ended March 31, 2006 from recurring operations before any charges relating to the transaction contemplated by this Agreement and any other non recurring items, including warrants, but excluding options or stock grants issued to management and key employees), the conversion price shall be reduced proportionately by 0% if the EBITDA is $0.06591 per share and by 15% if EBITDA is $0.04613 per share or lower. Fully-diluted EBITDA Per Share shall be based on the number of outstanding shares of Common Stock plus all shares of Common Stock issuable upon conversion of all outstanding convertible securities and upon exercise of all outstanding warrants, options and rights, regardless of whether (i) such shares would be included in determining diluted earnings per share and (ii) such convertible securities are subject to a restriction or limitation on exercise. Thus, for purpose of determining fully-diluted Pre-Tax Income Per Share, the 4.9% Limitation shall be disregarded. For example, if the Company's EBITDA is $0.052728 per share, or 20% below $0.06591 per share, then the Conversion Price shall be reduced by 10%. Such reduction shall be made at the time the Company files its Form 10-K or Form 10-KSB for the year ended March 31, 2006. In the event that EBITDA per share is less than $0.04613, or the Company has a loss, the Conversion Price shall be reduced by a maximum of 15%. This Section 6.15.1 shall apply to the all of the Series A Preferred Stock which is outstanding on the date the Form 10-KSB or 10-K is filed, or, if not filed on time, on the date that filing was required.
6.15.2. In the event the Company's EBITDA per share of Common Stock, determined
as provided in Section 6.15.1 of this Agreement, for the fiscal year
ended March 31, 2007 is between $0.08568 and $0.05997, the Conversion
Price then in effect shall be reduced proportionately by 0% if EBITDA
is $0.08568 or greater and 15% if EBITDA is $0.05997 or less, with a
proportionate reduction if EBITDA is between $0.08568 and $0.05997.
Such reduction shall be made at the time the Company files its Form
10-K or Form 10-KSB for the year ended March 31, 2007. In the event
that EBITDA per share is less than $0.05997, or the Company has a loss,
the Conversion Price shall be reduced by a maximum of 15%. In
determining the EBITDA per share of Common Stock pursuant to this
Section 6.15.2, there shall be excluded any shares of Common Stock
issuable as a result of an adjustment to the Conversion Price pursuant
to Section 6.15.1
6.16. Insider Selling. The earliest any "Insiders" can start selling their
shares in the public market shall be twelve months from Closing. After
twelve months following the Closing (the "Lock-up Period"), no Insider
shall sell more than 10% of his or her shares in the Company in the
public market in the twelve-month period following the expiration of
the Lock-up Period or more than an additional 10% of his or her shares
(based on shares owned on the Closing Date) during the following
twelve-month period, and such shares may be sold pursuant to either
Rule 144 or any registration statement which may cover such shares.
Insiders shall include all persons who are officers and directors of
the Company at the Closing or who become officers and directors during
the fiscal year ended March 31, 2006. Andrew Barron Worden and the
Investor shall not be considered "Insiders." 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 comprises of a
majority of independent directors. The Company may include in the
registration statement filed pursuant to the Registration Rights
Agreement all of the shares of Common Stock which are outstanding
immediately prior to the Closing, none of which shall be owned by
Affiliates of the Company.
6.17. Employment and Consulting Contracts. For three years after the Closing Company must have a unanimous opinion from the Compensation Committee of the Board of Directors that any awards other than salary are usual, appropriate and reasonable for any officer, director or consultants whose compensation is more than $100,000 per annum holding a similar position in other public companies with independent majority boards with similar market capitalizations in the same industry with securities listed on the OTCBB, ASE, NYSE or Nasdaq.
6.18. Subsequent Equity Sales. From the date hereof until such time as the Investor holds no more than 5% of the Shares (determined as if 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 such investor than the terms granted to the Investor in this Agreement. Any Purchaser 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 6.17 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. Amendment to Certificate of Incorporation. At or before the next annual meeting of the stockholders of the Company, the Board of Directors shall propose and submit to the holders of the Common Stock for approval, an amendment to the Certificate of Incorporation that provides substantially as follows:
"The terms and conditions of any rights, options and warrants approved by the Board of Directors may provide that any or all of such terms and conditions may be waived or amended only with the consent of the holders of a designated percentage of a designated class or classes of capital stock of the Corporation (or a designated group or groups of holders within such class or classes, including but not limited to disinterested holders), and the applicable terms and conditions of any such rights, options or warrants so conditioned may not be waived or amended absent such consent."
6.20. Stock Splits. All forward and reverse stock splits shall effect all equity and derivative holders proportionately.
6.21. Payment of Due Diligence Expenses. At Closing the Escrow Agent shall disperse to the Investor Fifty Thousand Dollars ($50,000.00) for due diligence, legal and any other expenses which the Investor may incur in connection with this Agreement.
ARTICLE VII
COVENANTS OF THE INVESTOR
7.1. Compliance with Law. The Investor's 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. The Investor's acknowledge that (1) the Series A Preferred Stock, Warrants and shares underlying the Series A Preferred Stock and Warrants have not been registered under the provisions of the 1933 Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Investor shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Series A Preferred Stock, Warrants and shares of Common Stock underlying the Series A Preferred Stock and Warrants to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; and (2) any sale of the Series A Preferred Stock, Warrants and shares underlying the Series A Preferred Stock and Warrants made in reliance on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller, or the person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder.
7.3. Restrictive Legend. The Investor acknowledges and agrees that the Series A Preferred Stock, the Warrants and the Shares underlying the Series A Preferred Stock and Warrants, and, until such time as the Shares underlying the Series A Preferred Stock and Warrants have been registered under the 1933 Act and sold in accordance with an effective Registration Statement, certificates and other instruments representing any of the Shares, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such securities):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES 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 SECURITIES ACT, OR (2) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, OR (3) AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND THE HOLDER HAS PROVIDED THE COMPANY WITH AN OPINION OF COUNSEL TO SUCH EFFECT."
7.4. Amendment to Certificate of Incorporation. Investor hereby agrees to vote any shares of capital stock that it may own directly or beneficially, for the amendment to the Certificate of Incorporation referenced in Section 6.19. Pending adoption of such amendment, Investor hereby agrees for itself and its successors and assigns that neither this Section 7.4 or Section 6.19 above, or any restriction on exercise of the Warrant shall be amended, modified or waived without the consent of the holders of a majority of the shares of Common Stock held by Persons who are not Affiliates of the Company, or the Investor or Affiliates of the Investor.
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 Investor 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 Investor shall have performed and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed or complied 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 INVESTOR'S 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.
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 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.
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 Investor 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 Investor set forth in this Agreement, or the Investor upon a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company or the Investor, respectively, shall have become untrue, in either case such that any of the conditions set forth in Article VIII or Article IX hereof would not be satisfied (a "Terminating Breach"), and such breach 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 Investor 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 Investor, 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.
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 Investor for its expenses as provided in Section 6.21.
11.2. Indemnification. The Investor 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 Investor (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 Series A Preferred Stock and Warrants in violation of the provisions of this Agreement, the Investor, as its 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 Investor 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, Warrants 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.
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 followed by registered or certified mail confirmation; (iii) on the date delivered by an overnight courier service; 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:
Mr. James G. Reindl, President
Techprecision, LLC
P.O. Box 4651
Greenville, DE 19807
Katsky Korins LLP 605 Third Avenue New York, New York 10158 Attention: Asher S. Levitsky P.C.
Facsimile No.: (212) 716-3338
If to the Investor:
Barron Partners L.P.
c/o Barron Capital Advisors, LLC
730 Fifth Avenue, 9th Floor
New York, New York 10019
Attn: Andrew Barron Worden
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.
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.
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. This Agreement shall be exclusively governed by and construed in accordance with the laws of the State of New York. 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 Securities and Exchange Commission filings. The Investor 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 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.
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]
IN WITNESS WHEREOF, the Investors and the Company have as of the date first written above executed this Agreement.
THE COMPANY:
LOUNSBERRY HOLDINGS II, INC.
/s/ James G. Reindl ---------------------------- James G. Reindl, Chairman |
INVESTOR:
BARRON PARTNERS LP
By: Barron Capital Advisors, LLC, its General Partners
/s/ Andrew Barron Worden ---------------------------- Andrew Barron Worden President 730 Fifth Avenue, 9th Floor New York NY 10019 |
Schedule A
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES
AMOUNT OF INTO WHICH PREFERRED UNDERLYING "A" AND
NAME AND ADDRESS INVESTMENT STOCK IS CONVERTIBLE "B" WARRANTS
---------------- ---------- -------------------- --------------------
Barron Partners LP
730 Fifth Avenue, 9th Floor
New York, New York 10019 $2,200,000 7,719,250 5,610,000/5,610,000
Attn: Andrew Barron Worden
|
Schedule 4.3.1 - Capitalization
Ranor Capitalization 022406
% of
outstanding % of % of
Description No. Shares plus preferred fully-diluted actual o/s
Original Investor Group 9,867,000 55.37% 32.85% 99.00%
Restricted Stock Grants to be issued 133,000 0.75% 0.44%
Barron Partners (on conversion of preferred) 7,719,250 43.32% 25.70%
Public Stockholders 100,000 0.56% 0.33% 1.00%
Total Outstanding, including Barron conversion 17,819,250
Total Outstanding (actual) 9,967,000
Barron warrants A 5,610,000 18.68% $0.570
Barron warrants B 5,610,000 18.68% $0.855
Stock option/incentive plan 1,000,000 3.33%
Total fully-diluted 30,039,250
100.00% 100.00% 100.00%
|
Schedule 4.8 - List of Brokers
None
Exhibit A
Form of Certificate of Deisgnation of Preferences, Rights and Limitations
See Exhibit 3.3
Exhibit B
Registration Rights Agreement
See Exhibit 10.2
Exhibit C
Warrants
See Exhibit 4.3
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of 24th day of February, 2006 by and among Lounsberry Holdings II, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), and Barron Partners L.P., a Delaware limited partnership (hereinafter referred to as the "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 Investor.
PRELIMINARY STATEMENT
WHEREAS, pursuant to the Purchase Agreement, the Investor is purchasing Preferred Stock and Warrants, which entitle the Investor to receive Shares of the Company upon conversion or exercise thereof; and
WHEREAS, the ability of the Investor to sell their Shares of Common Stock is subject to certain restrictions under the 1933 Act; and
WHEREAS, as a condition to purchase of Preferred Stock and Warrants pursuant to the Purchase Agreement, the Company has agreed to provide the Investor with a mechanism that will permit such Investor, subject to a market stand-off agreement, to sell its Shares of Common Stock 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 and the Exhibits attached hereto and referred to herein, are hereby acknowledged to be true and accurate, and are incorporated herein by this reference.
1.2. Superseder. 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 underlying the Preferred Stock and 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 Preferred Stock and those shares of Common Stock of the Company issuable to the Investor 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 Investor shall elect by written notice to the Company, and absent such election, covering the sale of all of the shares 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, should the Registration Statement not relate to the maximum number of Registrable Securities acquired by (or potentially acquirable by) the holders of the Shares of the Company issued to the Investor pursuant to the Purchase Agreement and the Warrants, 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 Investor 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 Investor 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, strikes, lockouts or other acts of industrial disturbance, acts of public enemies, death or incapacitating illness affecting key personnel, events which result in the full or partial closure of the SEC, orders of any kind of federal, state, provincial or local government or government subdivision or officials or civil or military authorities, insurrections, war, civil uprisings, riots, fire, hurricanes, tornados, storms, floods, washouts, blackouts or other power failure, droughts, restraints of governments and individuals, civil disturbances, explosions, breakages or accidents to machinery, transmission pipes or cables, partial or entire failure of utilities or communications networks, or any other cause or event not reasonably within the control of the party claiming the inability to perform.
2.7. Plan of Distribution. The Company hereby agrees that the Registration Statement shall include a plan of distribution section reasonably acceptable to the Investor; 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 Investor 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 Investor, as liquidated damages and not as a penalty, 2,540 shares of 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 Preferred Stock that were issued by the Company, the liquidated damages per day shall be the percentage of 2,540 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 Preferred Stock that were initially issued to the Investor. However, in no event shall the Company be required to pay any liquidated damages under this Section 2.8 in an amount exceeding 1.4 million shares of 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 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) In the event that, at the time of a failure of the Company to maintain the effectiveness of the Registration Statement, the Holder shall own less than the number of shares of Preferred Stock initially issued by the Company, the number of shares of Preferred Stock issuable per day shall be reduced to a fraction of 2,540 shares of Preferred Stock, the numerator of which is the number of shares of Preferred Stock then owned by the Holder and the denominator is the number of shares of Preferred Stock initially issued to the Holder.
(d) The Company shall have the right, in its discretion, to pay cash in lieu of issuing shares of Preferred Stock, with the value per share being the initial purchase price of one share of Preferred Stock.
(e) No fractional shares shall be issued. Any fractional shares which would otherwise be issued on any date on which 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 the Investor to provide information 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 Investor or the affiliates
of the Investor.
(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 Investor 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 Investor no longer holds more than eleven percent (11%) 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 Investor 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 Investor and its 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 Investor shall reasonably request in writing (at the expense of the requesting or benefiting Investor) 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 Investor 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 Investor 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 Investor. 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 Investor. The indemnification by the Investor shall be limited to Fifty Thousand ($50,000.0) 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 "Investor's 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 Investor's 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 supercedes 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 Investor and the Company have as of the date first written above executed this Agreement.
LOUNSBERRY HOLDINGS II, INC.
/s/ James G. Reindl
---------------------------
By:/s/ James G. Reindl
------------------------
Title: Chairman
---------------------
|
INVESTOR
BARRON PARTNERS LP
By: Barron Capital Advisors, LLC, its General Partners
By:/s/ Andrew Barron Worden ------------------------ Andrew Barron Worden President 730 Fifth Avenue, 9th Floor New York NY 10019 |
Exhibit 10.3
AGREEMENT
This Agreement (the "Agreement") is made as of the 24th day of February, 2006 by and among Ranor Acquisition LLC, a Delaware limited liability company with an office c/o Andrew A. Levy 900 Third Avenue, New York, New York 10022 ("Ranor"), Lounsberry Holdings II, Inc., a Delaware corporation having its offices at One Bella Drive, Westminster, Massachusetts 01473 (the "Issuer"), the persons named in Schedule A to this Agreement (each a "Member" and collectively, the "Members"), having the addresses set forth on said Schedule A.
W I T N E S S E T H:
WHEREAS, Ranor is a party to a stock purchase agreement dated August 17, 2005, by and among Ranor, the stockholders of Ranor, Inc., a Delaware corporation (the "Company"), and the Company, which agreement, as amended through the Closing, as hereinafter defined, is referred to as the "Purchase Agreement," pursuant which Ranor has agreed to acquire all of the issued outstanding capital stock of the Company (the "Company Stock"), and
WHEREAS, Ranor desires to assign to the Issuer, and the Issuer is
willing (a) to accept the assignment from Ranor of the Purchase Agreement and
(b) to purchase the Company Stock all on and subject to the terms of this
Agreement and the Purchase Agreement; and
WHEREAS, the Issuer is willing to sell shares of series A convertible preferred stock, par value $.0001 per share, which is a newly-created series of preferred stock ("Preferred Stock"), to Barron Partners pursuant to a Preferred Stock Purchase Agreement (the "Preferred Stock Agreement"), and warrants to purchase shares of Common Stock, the proceeds of which sale are intended to provide the Company with a portion of the purchase price payable pursuant to the Purchase Agreement; and
WHEREAS, the Members constitute all of the members of Ranor, and they have advanced the sum of $115,000 in on behalf of the Issuer in connection with the transactions contemplated by the Purchase Agreement and the Preferred Stock Agreement, desire to purchase an aggregate of 7,697,000 shares (the "New Shares") of common stock, par value $.0001 per share ("Common Stock") of the Issuer, and the Issuer is willing to sell the New Shares to the Members; and
WHEREFORE, the parties to hereby agree as follows:
1. Assignment of the Purchase Agreement. Subject to the terms and conditions of this Agreement, and in reliance upon the representations, warranties, covenants and agreements contained in this Agreement, at or prior to the Closing, as hereinafter defined:
(a) Ranor shall assign to the Issuer all of its rights under the Purchase Agreement.
(b) The Issuer shall accept the assignment of the Purchase Agreement and perform Ranor's obligations under the Purchase Agreement to purchase the Company Stock, subject to the Issuer receiving from Ranor or from sources provided by Ranor funding sufficient to enable the Issuer to perform such obligations as hereinafter provided.
2. Closing.
(a) The closing of the transactions contemplated hereunder (the "Closing") on such date and time as Ranor and the Issuer may mutually agree upon (the "Closing Date"), but in no event shall the Closing be later than February 28, 2006, unless the parties mutually agree to extend the closing deadline to a later date.
(b) At the Closing, Ranor will assign the Purchase Agreement to the Issuer, and the Issuer will accept the assignment and purchase the Company Stock, subject to the terms of this Agreement, including the receipt by the Issuer of funding sufficient to enable the Issuer to complete the acquisition contemplated by the Purchase Agreement.
3. Representations and Warranties of the Members. Each Member hereby severally represents, warrants, covenants and agrees as follows:
(a) Such Member understands that the offer and sale of the New Shares is being made only by means of this Agreement and understands that the Company has not authorized the use of, and the Member confirms that he or she is not relying upon, any other information, written or oral, other than material contained in this Agreement. Such Member is aware that the acquisition of the New Shares involves a high degree of risk and that such Member 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 New Shares, such Member 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 executing this Agreement and acquiring the New Shares.
(b) Such Member 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 A. Such Member further represents that he or she has such knowledge and experience in financial and business matters as to enable the Member to understand the nature and extent of the risks involved in purchasing the New Shares. Such Member is fully aware that such investments can and sometimes do result in the loss of the entire investment. Such Member has engaged his or her own counsel and accountants to the extent that the Member deems it necessary.
(c) Such Member is acquiring the New Shares 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 Member'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 New Shares; is aware that the New Shares 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 New Shares shall bear the Company's standard investment legend. The Member understands the meaning of these restrictions.
(d) The Member will not transfer any New Shares 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.
(e) Such Member represents and warrants that no broker or finder was involved directly or indirectly in connection with his or her purchase of the New Shares pursuant to this Agreement. Such Member 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 Member's warranty contained in this Paragraph 3(f).
(f) Such Member understands that he or she has no registration rights with respect to the New Shares except as set forth in Exhibit B to this Agreement.
(g) Such Member represents and warrants that the address set forth on Schedule A 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.
4. Restriction on Sales. No Member may sell any New Shares for a period of twelve months following the issuance of the New Shares (the "Lock-up Period"). No Member shall sell more than 10% of his or her New Shares in the public market in the twelve-month period following the expiration of the Lock-up Period or more than an additional 10% of his or her New Shares during the following twelve-month period. Any sales that a Member is permitted to make pursuant to this Section 4 may be made pursuant to either Rule 144 or any registration statement which may cover such shares. Any transferee of New Shares shall be subject to the same restrictions as are set forth in this Section 4.
5. Representations and Warranties of Ranor. Ranor hereby makes the following representations and warranties to the Issuer, none of which shall survive the Closing:
(a) Ranor 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, and has the right, under the Purchase Agreement, to assign its obligations under the Purchase Agreement to the Issuer.
(b) Ranor is a limited liability company organized, existing and in good standing under the laws of the State of Delaware. Ranor has the power to own its properties and to carry on its business as now being conducted. Ranor is not in violation of its operating agreement. No consent, approval or agreement of any Person is required to be obtained by Ranor in connection with the execution and performance by Ranor of this Agreement or the execution and performance by Ranor of any agreements, instruments or other obligations entered into in connection with this Agreement.
(c) No consent, approval or agreement of any Person is required to be obtained by Ranor in connection with the execution and performance by Ranor of this Agreement.
6. Representations and Warranties of the Issuer. The Issuer hereby represents and warrants to the Members 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 New Shares, when issued pursuant to this Agreement, will be duly and validly authorized and issued, fully paid and non-assessable. The issuance of the New Shares to Members is exempt from the registration requirements of the Securities Act, pursuant to an exemption provided by Section 4(2) thereunder.
(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.
7. Conditions to the Obligation of Members and the Issuer. The obligations of Members 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.
8. 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 Member is a resident of a state set forth in Exhibit C to this Agreement or if the Member negotiates the purchase of the Shares from or receives this Agreement while in Florida, the provisions of such Exhibit C relating to the Member's purchase of the Shares are incorporated as if set forth in full in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first aforeseaid.
/s/ Andrew A. Levy ----------------------------------- Andrew A. Levy /s/ James G. Reindl ----------------------------------- James G. Reindl |
REDSTONE CAPITAL CORP.
By: /s/ Andrew A. Levy -------------------------------- Name: Andrew A. Levy Title: President /s/ Stanley Youtt ----------------------------------- Stanley Youtt /s/ Martin Daube ----------------------------------- Martin Daube /s/ Larry Steinbrueck ----------------------------------- Larry Steinbrueck |
LOUNSBERRY HOLDINGS II, INC.
By: /s/ James G. Reindl -------------------------------- James G. Reindl, Chairman |
RANOR ACQUISITION LLC.
By: /s/ Andrew A. Levy -------------------------------- Andrew A. Levy, Manager |
Schedule A
Members
Name and Address No. Shares
---------------- ----------
Andrew A. Levy 2,825,300
900 Third Avenue, 13th floor
New York, NY 10022
Social Security No.
James G. Reindl 3,095,300
347 E. Hillendale Road
Kennett Square, PA 19317
Social Security No.
Redstone Capital Corporation 250,000
c/o Andrew A. Levy
900 Third Avenue, 13th floor
New York, NY 10022
Taxpayer ID No.
Stanley Youtt 796,000
5 Taymax Road
Westminster, MA 01473
Social Security No.
Martin Daube 741,400
Social Security No.
Larry Steinbrueck 204,000
Social Security No.
Michael Holly 85,000
Social Security No.
Total 7,997,000
|
Exhibit A
Accredited investors
A Member who meets any one of the following tests is an accredited investor:
(a) The Member is an individual who has a net worth, or joint net worth with the Member's spouse, of at least $1,000,000.
(b) The Member is an individual who had individual income of more than $200,000 (or $300,000 jointly with the Member's spouse) for the past two years, and the Member has a reasonable expectation of having income of at least $200,000 (or $300,000 jointly with the Member's spouse) for the current year.
(c) The Member is an officer or director of the Company.
(d) The Member is a bank as defined in section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity.
(e) The Member is a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934.
(f) The Member is an insurance company as defined in section 2(13) of the Securities Act.
(g) The Member is an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act.
(h) The Member is a small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958.
(i) The Member is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.
(j) The Member is a private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Member is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
(l) The Member is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Member is an entity in which all of the equity owners are accredited investors (i.e., all of the equity owners meet one of the tests for an accredited investor).
If an individual Member qualifies as an accredited investor, such individual may purchase the Shares in the name of his or her individual retirement account ("IRA").
Exhibit C
State Representations
The following provisions are an integral part of this Agreement if the Member is a resident of the following state(s).
1. Florida
If the Member is a Florida resident or if the offer or sale occurs in Florida or if the Disclosure Material is delivered in Florida, the following shall apply:
Pursuant to Section 517.061(11)(a)(5) of the Florida Statutes, Florida Members have a three day right to rescission. If a Florida resident has executed a subscription agreement, he or she may elect, within three business days after signing the subscription agreement, to withdraw from the subscription agreement and receive a full refund and return (without interest) of any money paid by him or her. A Florida resident's withdrawal will be without any further liability to any person. To accomplish such withdrawal, a Florida resident need only send a letter or telegram to the issuer at One Bella Drive, Westminster, Massachusetts 01473, Attention of Mr. James G. Reindl, Chairman, indicating his or her intention to withdraw. Such letter or telegram must be sent and postmarked prior to the end of the aforementioned third business day. If a Florida resident sends a letter, it is prudent to sent it by certified mail, return receipt requested, to insure that it is received and also to evidence the time and date when it is mailed. Should a Florida resident make this request orally, he or she should ask for written confirmation that his or her request has been received.
2. Pennsylvania
If the Member is a Pennsylvania resident, the following shall apply:
Each person who accepts an offer to purchase securities exempted from registration by Section 203(d) of the Pennsylvania Securities Act of 1972, as amended, directly from the issuer or affiliate of the issuer, shall have the right to withdraw his or her acceptance without incurring any liability to the seller, underwriter (if any) or any other person within two business days from the date of receipt by the issuer of his or her written binding contract of purchase or, in the case of a transaction in which there is no binding contract of purchase, within two business days after he or she makes the initial payment for the securities being offered.
Each Pennsylvania subscriber is prohibited from selling his or her Shares for a period of twelve months from the date of his or her purchase.
Exhibit 10.4 February 24, 2006
Mr. James G. Reindl, Chairman
Lounsberry Holdings II, Inc.
One Bella Drive
Westminster, MA 01473
Re: Subscription Agreement
Dear Sirs:
Pursuant to a private offering, the undersigned (the "Subscriber") hereby subscribes for 1,700,000 shares (the "Shares") of common stock, par value $0.0001 per share ("Common Stock"), of the Lounsberry Holdings II, Inc., a Delaware corporation (the "Company"), as follows.
1. Subscription. The Subscriber hereby agrees to purchase from the Company, and the Company agrees to sell to the Subscriber, the Shares for a purchase price of $500,000.
2. Representations and Warranties of the Company. The Company represents and warrants to the Subscriber as follows:
(a) The Company is a corporation duly organized and existing in good standing under the laws of the state of Delaware.
(b) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to issue and sell the Shares pursuant to this Agreement. The execution, delivery and performance of this Agreement and the issuance of the Shares have been duly authorized by the Company's board of directors. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or other laws of general application affecting the rights of creditors generally and subject to the exercise of judicial discretion as to the application of principles of equity, regardless of whether such principles are applied by a court of law or equity.
(c) The Shares have been duly authorized and reserved for issuance. When issued pursuant to this Agreement upon payment of the consideration provided in this Agreement, the Shares will be validly issued, fully paid and non-assessable and will not be subject to preemptive rights or other similar rights of stockholders of the Company.
3. Representations and Warranties of the Subscriber. The Subscriber hereby represents and warrants to, and covenants and agrees with, the Company as follows:
(a) The Subscriber understands that the offer and sale of the Shares is being made only by means of this Agreement. In deciding to subscribe for Shares, the Subscriber has not considered any information other than that contained in this Agreement. In particular, the Subscriber understands that the Company has not authorized the use of, and the Subscriber confirms that he or she is not relying upon, any other information, written or oral, other than material contained in this Agreement. The Subscriber is aware that the purchase of the Shares involves a high degree of risk and that the Subscriber may sustain, and has the financial ability to sustain, the loss of his or her entire investment. The Subscriber understand that the proceeds from the sale of the Shares will be used in connection with the purchase by the Company of all of the issued and outstanding capital stock of Ranor, Inc. The Subscriber understands that no assurance can be given that the Company will be profitable in the future. There is no market for the Shares and there is no assurance that the Common Stock will be listed on the OTC Bulleting Board, the Nasdaq Stock Market or any stock exchange, and that the Company may need additional financing and the failure of the Company to raise additional funds when required, may have a material adverse effect upon its business. Furthermore, in subscribing for the Shares, the Subscriber acknowledges that the Company has not made, and the Subscriber is not relying in any manner upon, any projections or forecasts of future operations. The Subscriber has had the opportunity to ask questions of, and receive answers from, the Company's management regarding the Company.
(b) The Subscriber represents to the Company that it (i) is an accredited investor within the meaning of Rule 501 of the Commission under the Securities Act, (ii) understands that in order to be treated as an accredited investor, the Subscriber must meet one of the tests for an accredited investor set forth on Exhibit A to this Agreement, and (iii) has read Exhibit A and is an accredited investor as set forth on the signature page of this Agreement. The Subscriber further represents that he or she has such knowledge and experience in financial and business matters as to enable him or her to understand the nature and extent of the risks involved in purchasing the Shares. The Subscriber is fully aware that such investments can and sometimes do result in the loss of the entire investment. The Subscriber can afford to sustain the loss of his or her entire investment, and the Subscriber's purchase of the Shares is being made from funds which the Subscriber has allocated to high risk, illiquid investments and such funds are not required by the Subscriber to meet his or her normal expenses. The Subscriber has engaged his or her own counsel and accountants to the extent that he or she deems it necessary.
(c) All of the information provided by the Subscriber in his Confidential Investor Questionnaire (the "Questionnaire"), is true and correct in all material respects. The Subscriber acknowledges that the Company is relying on such statements and the Subscriber's representations contained in this Agreement in executing this Agreement and issuing the Shares, and the Subscriber agrees to indemnify and hold harmless the Company and its officers, directors, controlling persons and counsel from and against all manner of loss, liability, damage or expense (including fees and expenses of counsel) which they or any of them may incur as a result of any material misstatement of fact or omission of a material fact set forth in the Subscriber's Questionnaire or as a result of any misrepresentation by the Subscriber in this Agreement. The Subscriber further agrees to notify the Company immediately upon the occurrence of any event which makes the information contained in the Subscriber's Questionnaire inaccurate or misleading in any material respect.
(d) The Subscriber is acquiring the Shares pursuant to this Agreement for investment and not with a view to the sale or distribution thereof, for its 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 Shares; 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 Shares bear the Company's standard investment legend. The Subscriber understands the meaning of these restrictions.
(e) The Subscriber will not transfer the Shares except in compliance with all applicable Federal and state securities laws and regulations. The Subscriber understands and agrees that the Company is not obligated to recognize any transfer of the Shares unless it is satisfied that there has been compliance with such 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) The Subscriber has been informed by the Company that the issuance of the Shares pursuant to this Agreement will be exempt under Section 4(2) or 4(6) of the Securities Act and/or Regulation D, and in particular, Rule 506, of the Commission under the Securities Act and applicable exemption under state securities laws, and the Subscriber understands that such exemption is dependent upon the accuracy of the information contained in the Subscriber's Questionnaire and the Subscriber's representations set forth in this Agreement.
(g) The Subscriber represents and warrants that no broker or finder was involved directly or indirectly in connection with the Subscriber's purchase of the Shares pursuant to this Agreement. The Subscriber 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 Subscriber's warranty contained in this Section 3(g).
(h) To the extent that the Subscriber has deemed it necessary, the Subscriber has consulted his or her own legal, accounting, tax, investment and other advisors.
(i) If the Subscriber is a corporation, all corporate action necessary for the execution, delivery and performance by the Subscriber has been taken and the person executing this Agreement on behalf of the Subscriber is an authorized officer of the Subscriber. If the Subscriber is a limited partnership or limited liability company, the person executing this Agreement is a general partner or managing member of the Subscriber. If the Subscriber is a trust, estate or other fiduciary, the person executing this Agreement is the trustee, executor, administrator or other fiduciary.
(j) The Subscriber understands that it has registration rights set forth in Exhibit B to this Agreement.
(k) The Subscriber has not received and is not aware of any solicitation or advertising in connection with the offering of the Shares.
4. Use of Proceeds. The Company shall use the net proceeds from the sale of the Shares in connection with the acquisition of Ranor, Inc.
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 or messenger against receipt thereof or sent by registered or certified mail (air mail if overseas), return receipt requested or by telecopier of receipt of transmission is confirmed or if transmission is confirmed by mail as provided in this Section 5. Notices shall be deemed to have been received on the date of personal delivery or telecopy 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. Notices shall be sent to the Company at One Bella Drive, Westminster, MA 01473, telecopier ( ) - , Attention of James Reindl, Chairman, and to the Subscriber at its address and telecopier number set forth on the signature page or to such other address as any party shall designate in the manner provided in this Section 5.
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. Each party hereby (i) irrevocably consents and agrees that any legal or equitable action or proceeding arising under or in connection with this Agreement or any document or instrument delivered with respect to this Agreement and/or the Shares shall be brought exclusively in any Federal or state court in the County of New York, State of New York, and (ii) irrevocably submits to and accepts, with respect to its properties and assets, generally and unconditionally, the jurisdiction of the aforesaid courts. In any such litigation, each party waives personal service of any summons, complaint or other process, and agrees that the service thereof may be made by in the manner for giving of notices provided for in Section 4 of this Agreement (other than by telecopier) and waives any defense that such forum is not a convenient forum.
(c) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
(d) In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.
(e) Each party shall, without payment of any additional consideration by any other party, at any time on or after the sale of the Shares take such further action and execute such other and further documents and instruments as the other party may request in order to provide the other party with the benefits of this Agreement.
(f) If the Subscriber is a resident of a state set forth in Exhibit C to this Agreement or if the Subscriber negotiates the purchase of the Shares from or receives the Disclosure Documents while in Florida, the provisions of such Exhibit relating to the Subscriber's purchase of the Shares are incorporated as if set forth in full in this Agreement.
(g) All references to any gender shall be deemed to include the masculine, feminine or neuter gender, the singular shall include the plural, and the plural shall include the singular.
(h) 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.
(i) 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.
Please confirm your agreement with the foregoing by signing this Agreement where indicated.
[Signatures on following page]
Please confirm your agreement with the foregoing by signing this Agreement where indicated.
Very truly yours,
STANOFF CORPORATION
By: /s/ Howard Weingrow
--------------------------------------
Name:
------------------------------------
Title: President
-----------------------------------
|
Accepted this 24 day of February, 2006
LOUNSBERRY HOLDINGS II, INC.
By: /s/ James G. Reindl ----------------------------------------- James G. Reindl, Chairman |
Exhibit A Accredited Investors
A Subscriber who meets any one of the following tests is an accredited investor:
(a) The Subscriber is an individual who has a net worth, or joint net worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past two years, and the Subscriber has a reasonable expectation of having income of at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in section 2(13) of the Securities Act.
(g) The Subscriber is an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
(l) The Subscriber is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are accredited investors (i.e., all of the equity owners meet one of the tests for an accredited investor).
If an individual investor qualifies as an accredited investor, such individual may purchase the Units in the name of his or her individual retirement account ("IRA").
Exhibit B
Registration Rights
See Exhibit 10.5
Exhibit C State Representations
The following provisions are an integral part of this Agreement if the Subscriber is a resident of the following state(s).
1. Florida
If the Subscriber is a Florida resident or if the offer or sale occurs in Florida or if the Disclosure Material is delivered in Florida, the following shall apply:
Pursuant to Section 517.061(11)(a)(5) of the Florida Statutes, Florida investors have a three day right to rescission. If a Florida resident has executed a subscription agreement, he or she may elect, within three business days after signing the subscription agreement, to withdraw from the subscription agreement and receive a full refund and return (without interest) of any money paid by him or her. A Florida resident's withdrawal will be without any further liability to any person. To accomplish such withdrawal, a Florida resident need only send a letter or telegram to the issuer at One Bella Drive, Westminster, MA 01473, Attention of James Reindl, Chairman, indicating his or her intention to withdraw. Such letter or telegram must be sent and postmarked prior to the end of the aforementioned third business day. If a Florida resident sends a letter, it is prudent to sent it by certified mail, return receipt requested, to insure that it is received and also to evidence the time and date when it is mailed. Should a Florida resident make this request orally, he or she should ask for written confirmation that his or her request has been received.
2. Pennsylvania
If the Subscriber is a Pennsylvania resident, the following shall apply:
Each person who accepts an offer to purchase securities exempted from registration by Section 203(d) of the Pennsylvania Securities Act of 1972, as amended, directly from the issuer or affiliate of the issuer, shall have the right to withdraw his or her acceptance without incurring any liability to the seller, underwriter (if any) or any other person within two business days from the date of receipt by the issuer of his or her written binding contract of purchase or, in the case of a transaction in which there is no binding contract of purchase, within two business days after he or she makes the initial payment for the securities being offered.
Each Pennsylvania investor is prohibited from selling his or her Units for a period of twelve months from the date of his or her purchase.
Exhibit 10.5
Exhibit B
Registration Rights Provisions
These Registration Rights Provisions constitute an integral part of the Agreement dated February 24, 2006, by and among the Stockholders named therein, who are the members of Ranor Acquisition, LLC, and Lounsberry Holdings II, Inc. and a subscription agreement dated February 24, 2006, by and among Lounsberry Holdings II, Inc. and Stanoff Corporation. The term "Agreement" shall refer to both of the aforementioned agreements.
1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the following meanings:
"Affiliate" of a Person means any Person that controls, is under common control with, or is controlled by, such Person. For purposes of this definition, "control" means the ability of one Person to direct the management and policies of another Person.
"Agreement" shall have the meaning set forth in the introduction to these Registration Rights Provisions.
"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to be closed.
"Commission" means the Securities and Exchange Commission.
"Common Stock" shall mean the common stock, par value $.0001 of the Company.
"Company" shall mean Lounsberry Holdings II, Inc., a Delaware corporation.
"Exchange" means the principal stock exchange or market on which the Company's Common Stock is traded, if any.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any similar or successor statute.
"Excusable Reason" means the occurrence of negotiations with respect to a material agreement prior to either the announcement of the execution of the agreement or the termination of the negotiations with respect to such proposed agreement and other similar material corporate events to which the Company is a party or expects to be a party if, in the reasonable judgment of the Company, disclosure of the negotiations or other event would be adverse to the best interests of the Company provided that the Company is continuing to treat such negotiations as confidential and provided further that the period during which the Company is precluded from filing the registration statement (or suspended the use of an effective registration statement) as a result thereof has not exceeded ninety (90) days and provided further that the Company shall not be permitted to avoid filing a registration statement (or to suspend the use of an effective registration statement) for an Excusable Reason more than twice in any one-year period.
"Expenses" means all expenses incident to the Company's performance of or compliance with its obligations under these Registration Rights Provisions, 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 discounts and 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 Common Stock in all cases.
"Holder" shall mean any of the Stockholders and any Transferee who has rights of a Holder pursuant to Section 12 of these Registration Rights Provisions.
"NASD" means the National Association of Securities Dealers, Inc. and NASD Regulation, Inc.
"Nasdaq" means the Nasdaq Stock Market and includes The Nasdaq National Market and The Nasdaq SmallCap Market.
"Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental or regulatory body or subdivision thereof or other entity.
"Public Offering" means a public offering and sale of Registrable Common Stock pursuant to an effective registration statement under the Securities Act.
"Registrable Common Stock" means the shares of Common Stock issued pursuant to the Agreement, but only for so long as registration pursuant to the Securities Act is required for public sale without regard to volume limitations pursuant to Rule 144(k), and as adjusted to reflect any merger, consolidation, recapitalization, reclassification, split-up, stock dividend, rights offering or reverse stock split made, declared or effected with respect to the Registrable Common Stock.
"Requesting Holders" has the meaning set forth in Section 3 of these Registration Rights Provisions.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar or successor statute.
"Selling Holders" means the Holders of Registrable Common Stock requested to be registered pursuant to Section 2(a) of these Registration Rights Provisions.
"Shelf Registration" means a shelf registration statement pursuant to Rule 415 promulgated under the Securities Act.
"Transfer" means any transfer, sale, assignment, pledge, hypothecation or other disposition of any interest. "Transferor" and "Transferee" have correlative meanings.
Any terms which are defined in the Agreement and not separately defined in these Registration Rights Provisions shall have the same meanings in these Registration Rights Provisions as in the Agreement.
All references to laws, rules and forms shall relate to the laws, rules and forms as in effect on the date of the Agreement and shall include any amendments thereto and any subsequent successor laws, rules and forms.
2. Securities Act Registration on Request.
(a) If the Company shall not have provided the holders of Registrable Common Stock with the right to have their Registrable Common Stock included in a registration statement prior to January 31, 2007, at any time after January 31, 2007, any Holder or Holders holding at least thirty five percent (35%) of the Registrable Common Stock which is then outstanding or are otherwise included in the Holder's request, may make a written request (the "Initiating Request") to the Company for the registration with the Commission under the Securities Act of all or part of such Holder's Registrable Common Stock; provided, however, that if such Initiating Request is not for all of the total number of Registrable Common Stock which could be registered by the Initiating Holder, then the Initiating Request shall cover not less than thirty five percent (35%) of the total number of the then-outstanding shares of Registrable Common Stock. Upon the receipt of any Initiating Request for registration pursuant to this Section 2(a), the Company promptly shall notify in writing all other Holders of the Registrable Common Stock of the receipt of such request and will use its commercially reasonable efforts to effect, at the earliest possible date, such registration under the Securities Act, including a Shelf Registration (if then eligible), of
(i) the Registrable Common Stock which the Company has been so requested to register by such Initiating Holder, and
(ii) all other Registrable Common Stock which the Company has been requested to register by any other Holders by written request given to the Company within 30 days after the giving of written notice by the Company to such other Holders of the Initiating Request,
all to the extent necessary to permit the disposition (in accordance with
Section 2(b) of these Registration Rights Provisions) of the Registrable Common
Stock so to be registered; provided, that any Holder whose Registrable Common
Stock was to be included in any such registration, by written notice to the
Company, may withdraw such request, and the Company shall not be required to
effect any registration pursuant to this Section 2(a) if either (x) the
Initiating Holder or (y) the Holders of more than 40% of the shares of
Registrable Common Stock withdraw the request for inclusion. The sale of
Registrable Common Stock pursuant to this Section 2(a) shall not be pursuant to
an underwritten public offering without the prior written consent of the
Company. The Holders shall have one registration right pursuant to this Section
2, and the Company shall not be required to file a registration statement
pursuant to these Registration Rights Provisions prior to February 1, 2007.
(b) Registration under Section 2(a) of these Registration Rights Provisions shall be on such appropriate registration form prescribed by the Commission under the Securities Act as shall be selected by the Company and as shall permit the disposition of the Registrable Common Stock pursuant to the method of disposition determined by the Selling Holders; provided, however, that if the Company is eligible to use a registration statement on Form S-3, the Company shall use such form.
(c) The Holders of Registrable Common Stock to be included in a registration statement may, at any time on written notice to the Company, terminate a request for registration made pursuant to this Section 2.
(d) The Company shall use its commercially reasonable efforts to keep any Shelf Registration effective for nine (9) months from the effective date of the registration statement or until such earlier date as all of the Registrable Common Stock covered by the registration statement shall have been sold.
(e) No registration effected under this Section 2 shall relieve the Company of its obligation to permit the registration of Registrable Common Stock pursuant to Section 3 of these Registration Rights Provisions.
(f) As a condition to the inclusion of a Holder's Registrable Common Stock in a registration statement pursuant to Sections 2(a) and 3 of these Registration Rights Provisions, each Holder shall:
(i) furnish the information and indemnification as set forth in these Registration Rights Provisions and update such information immediately upon the occurrence of any events or condition which make the information concerning the Holder inaccurate in any material respect;
(ii) not sell any Registrable Common Stock pursuant to the registration statement except in the manner set forth in the registration statement;
(iii) comply with the prospectus delivery requirements and the provisions of Regulation M of the Commission pursuant to the Securities Act;
(iv) not sell or otherwise transfer or distribute any Registrable Common Stock shares if the Holder possesses any material nonpublic information concerning the Company; and
(v) not sell or otherwise transfer any Registrable Common Stock pursuant to a registration statement upon receipt of advice from the Company that the registration statement is no longer current until the Holder is advised that the Registrable Common Stock may be sold pursuant to the registration statement; and
(vi) provide any other information requested by the Commission, the NASD, any stock exchange or market on which the Common Stock is traded and any state securities commission.
3. Piggyback Registration.
(a) If at any time after January 31, 2007, the Company proposes to
register any of its securities under the Securities Act by registration on any
forms other than Form S-4 or S-8, whether or not pursuant to registration rights
granted to other holders of its securities and whether or not for sale for its
own account, it shall give prompt written notice to all of the Holders of its
intention to do so and of such Holders' rights (if any) under this Section 3,
which notice, in any event, shall be given at least fifteen (15) days prior to
such proposed registration. Upon the written request of any Holder receiving
notice of such proposed registration that is a Holder of Registrable Common
Stock (a "Requesting Holder") made within ten (10) days after the receipt of any
such notice, the Company shall, subject to Section 6(b) of these Registration
Rights Provisions, effect the registration under the Securities Act of all
Registrable Common Stock which the Company has been so requested to register by
the Requesting Holders thereof; provided, however, that this Section 3(a) shall
not apply to Registrable Common Stock which has been registered pursuant to
Section 2(a) of these Registration Rights Provisions and is subject to a current
and effective registration statement.
(b) If at any time after giving 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 not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Requesting Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Common Stock in connection with such registration (but not from any obligation of the Company to pay the Expenses in connection therewith), without prejudice, however, to the rights of any Holder to include Registrable Common Stock in any future registration (or registrations) pursuant to this Section 3 or to cause such registration to be effected as a registration under Section 2(a) of these Registration Rights Provisions, as the case may be, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Common Stock, for the same period as the delay in registering such other securities.
(c) If such registration involves an underwritten offering, the provision of Section 6 of these Registration Rights Provisions shall apply.
4. Expenses. the Company shall pay all Expenses in connection with any registration initiated pursuant to Section 2(a) or 3 of these Registration Rights Provisions, whether or not such registration shall become effective and whether or not all or any portion of the Registrable Common Stock originally requested to be included in such registration is ultimately included in such registration. Each Holder shall pay any underwriting discounts and commissions and applicable transfer taxes, if any, legal fees and other expenses incurred by such Holder.
5. Registration Procedures.
(a) If and whenever the Company is required to effect any registration under the Securities Act as provided in Sections 2(a) and 3 of these Registration Rights Provisions, the Company shall, as expeditiously as possible:
(i) Subject to Section 5(b) of these Registration Rights Provisions, prepare and file with the Commission (promptly and, in the case of any registration pursuant to Section 2(a), in any event within one hundred twenty (120) days unless the Initiating Request is made subsequent to first day of the eleventh month of any fiscal year and prior to the fifteenth day of the second month of the following year, in which event the registration statement shall be filed within thirty (30) days after the earlier of the date a Form 10-K or 10-KSB is required to be filed or the date of such filing) the requisite registration statement to effect such registration and thereafter use its commercially reasonable efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of its securities that are not shares of Registrable Common Stock (and, under the circumstances specified in Section 3 of these Registration Rights Provisions, its securities that are shares of Registrable Common Stock) at any time prior to the effective date of the registration statement relating thereto.
(ii) Notify each seller of Registrable Common Stock and other securities covered by such registration statement at any time after an Initiating Request when an Excusable Reason shall have occurred.
(iii) Notify each Selling Holder at any time when a prospectus relating thereto is required to be delivered under the Securities 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 fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and subject to Section 5(a)(iv) of these Registration Rights Provisions and except during the time the Company may delay a registration for an Excusable Reason, prepare and file with the Commission 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 Securities Act and the Exchange Act with respect to the disposition of all Registrable Common Stock covered by such registration statement until such time as all of such Registrable Common Stock has been disposed of in accordance with the method of disposition set forth in such registration statement, subject to Section 2(e) of these Registration Rights Provisions.
(iv) If requested by the holders of a majority of the Registrable Common Stock included or to be included in the registration statement being filed pursuant to Section 2(a) or 3 of these Registration Rights Provisions, before filing any registration statement or prospectus or any amendments or supplements thereto, furnish to and afford the Holders of the Registrable Common Stock, one firm of counsel for the Holders designated by the Holders of a majority of the Registrable Common Stock included or to be included in the registration statement (the "Holders Counsel"), and provides Holders Counsel a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (at least ten (10) Business Days prior to such filing). The Company shall not file any registration statement or prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority of the shares of Registrable Common Stock covered by such registration statement, the Holders Counsel, or the managing underwriters, if any, shall reasonably object. Any registration statement, when declared effective by the Commission or when subsequently amended (by an amendment which is declared effective by the Commission) or any prospectus in the form included in the registration statement as declared effective by the Commission or when subsequently supplemented will not contain 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, in light of the circumstances under which they were made, not misleading;
(v) Use its commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness of a registration statement, and in any event shall, within thirty (30) days of such cessation of effectiveness, use its commercially reasonable efforts to amend the registration statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof,
(vi) Furnish to each seller of Registrable Common Stock covered by such registration statement such reasonable number of copies of such drafts and final conformed versions of such registration statement and of each such amendment and supplement thereto (in each case including, if requested, one copy of all exhibits and any documents incorporated by reference), such number of copies of such drafts and final versions 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 Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request in writing.
(vii) Use its commercially reasonable efforts to register or qualify all Registrable Common Stock under such other securities or blue sky laws of such states or other jurisdictions of the United States of America as the sellers of Registrable Common Stock covered by such registration statement shall reasonably request in writing, 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 Section 5(a)(vii) be obligated to be so qualified, to subject itself to taxation in such jurisdiction or to consent to general service of process in any such jurisdiction.
(viii) 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 Securities Act and Rule 158 promulgated thereunder, and furnish to each seller of Registrable Common Stock at least ten days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus.
(ix) Cause all such Registrable Common Stock covered by such registration statement to be listed on the Exchange, if any.
(b) Each seller of Registrable Common Stock as to which any registration is being effected shall furnish the Company and the underwriters, if any, such information regarding such seller and the distribution of the securities covered by such registration statement as the Company may from time to time reasonably request in writing and as is required by applicable laws and regulations.
(c) Each Holder agrees that as of the date that a final prospectus is made available to it for distribution to prospective purchasers of Registrable Common Stock it shall cease to distribute copies of any preliminary prospectus prepared in connection with the offer and sale of such Registrable Common Stock. Each Holder further agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 5(a)(ii) and (iii) of these Registration Rights Provisions, such Holder shall forthwith discontinue such Holder's disposition of Registrable Common Stock pursuant to the registration statement relating to such Registrable Common Stock until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by said Sections 5(a)(ii) and (iii), and, if so directed by the Company, shall 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 Common Stock current at the time of receipt of such notice.
6. Underwritten Offerings.
(a) If the Company proposes to register any of its securities under the Securities Act as contemplated by Section 3 of these Registration Rights Provisions and such securities are to be distributed by or through one or more underwriters, the Company shall, if requested by any Requesting Holders, request that such underwriters include all of the Registrable Common Stock to be offered and sold by such Requesting Holders among the securities of the Company to be distributed by such underwriters; provided, that, if the managing underwriter of
such underwritten offering shall advise the Company in writing (with a copy to the Requesting Holders) that if all the Registrable Common Stock requested to be included in such registration (together with all other shares of Common Stock of other stockholders of the Company requested to be so included pursuant to "piggyback" rights granted to such stockholders) were so included, in its opinion, the number and type of securities proposed to be included in such registration would exceed the number and type of securities which could be sold in such offering within a price range acceptable to the Company, then the Company shall include in such registration, to the extent of the number and type of securities which the Company is advised by the managing underwriter can be sold in such offering, (i) first, securities that the Company proposes to issue and sell for its own account and (ii) second, securities held by any person exercising demand registration rights, and (iii) third, Registrable Common Stock requested to be registered by Requesting Holders pursuant to Section 3 of these Registration Rights Provisions and Common Stock of any other stockholders of the Company having such registration rights who request registration as aforesaid (other than stockholders referred to in clause (ii) of this Section 6(a)), pro rata, among such holders on the basis of the number of shares of Common Stock requested to be registered by all such holders.
(b) Any Requesting Holder may withdraw its request to have all or any portion of its Registrable Common Stock included in any such offering by notice to the Company within ten (10) Business Days after receipt of a copy of a notice from the managing underwriter pursuant to Section 6(a) of these Registration Rights Provisions.
(c) The Holders of Registrable Common Stock to be distributed by underwriters in an underwritten offering contemplated by Section 6(a) of these Registration Rights Provisions, shall be parties to the underwriting agreement between the Company and such underwriters and any such Holder, at its option, may require that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders. No such Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters except that each such Holder shall be required to make representations, warranties and agreements regarding such Holder, such Holder's Registrable Common Stock and such Holder's intended method of distribution. The Holders whose Registrable Common Stock is being sold to the underwriters shall appoint an attorney-in-fact who shall be authorized to negotiate with the underwriter on behalf of such Holders and to execute the underwriting agreement and related documentation on their behalf.
(d) In connection with any underwritten public offering, regardless of whether the Holder is selling Registrable Common Stock pursuant to the registration statement, the Holder shall agree to such lock-up as may be requested by the managing underwriter provided that such lock-up is not for a period longer than the lock-up required of the Company's principal stockholders, officers and directors.
7. Preparation; Reasonable Investigation.
(a) In connection with the preparation and filing of each registration statement under the Securities Act pursuant to these Registration Rights Provisions, the Company shall give each Holder of Registrable Common Stock registered under such registration statement, the underwriter, if any, and its respective counsel and accountants the reasonable opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and shall give each of them such reasonable access to its books and records and such reasonable 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 any such Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.
(b) Each Holder of Registrable Common Stock shall maintain the
confidentiality of any confidential information received from or otherwise made
available by the Company to such Holder of Registrable Common Stock and
identified in writing by the Company as confidential and shall not make any
sales or purchases of the Company's securities while in possession of material
confidential information; provided, however, that any information relating to an
Excusable Reason shall be deemed to be material confidential information
regardless of whether it is expressly marked as confidential. Information that
(i) is or becomes available to a Holder of Registrable Common Stock from a
public source, (ii) is disclosed to a Holder of Registrable Common Stock by a
third-party source who has the right to disclose such information shall not be
deemed to be confidential information for purposes of these Registration Rights
Provisions. Each Holder shall indemnify and hold harmless the Company, its
officer, directors and counsel from and against any loss, liability, damage or
expense which they may incur as a result of any breach of the provisions of this
Section 7(b).
8. Indemnification.
(a) In connection with any registration statement filed by the Company pursuant to Section 2(a) or 3 of these Registration Rights Provisions, the Company shall, and hereby agrees to, indemnify and hold harmless, each Holder and seller of any Registrable Common Stock covered by such registration statement and each other Person, if any, who controls such Holder or seller, and their respective directors, officers, partners, agents and Affiliates from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act, or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof), which are collectively referred to as "Losses," arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact made by the Company contained in the Registration Statement, or any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any amendment thereof or supplement thereto, or in any blue sky application or other document executed by the Company specifically for that purpose (or based upon written information furnished by the Company) filed in any state or other jurisdiction in order to qualify any of the Securities or other Securities under the securities laws thereof (any such application, document or information being referred to as a "Blue Sky Application"); or (ii) the omission or alleged omission to state in any such Registration Statement, Preliminary Prospectus or Prospectus, or amendment thereof or supplement thereto, or Blue Sky Application a material fact required to be stated therein or necessary to make the statements made therein not misleading, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein or omitted therefrom in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use in connection with the preparation thereof, and further provided, however, that the foregoing indemnity with respect to any untrue statement, alleged untrue statement, omission, or alleged omission contained in any Preliminary Prospectus shall not inure to the benefit of any Holder from whom the person asserting any such loss, claims any of, damage, or liability purchased any of the securities that are the subject thereof (or to the benefit of any person who controls such Holder or other Person), if a copy of the prospectus was not delivered to such person with or prior to the written confirmation of the sale of such security to such person. The indemnify provided for in this Section 8(a) shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party and shall survive any transfer of the Registrable Shares by the indemnified party. This indemnity agreement will be in addition to any liability that the Company may otherwise have.
(b) In connection with any registration statement filed by the
Company pursuant to Section 2(a) or 3 of these Registration Rights Provisions in
which a Holder has registered for sale Registrable Common Stock, each Holder or
seller of Registrable Common Stock shall, and hereby agrees to, indemnify and
hold harmless the Company and each of its directors, officers, employees and
agents, each other Person, if any, who controls the Company and each other
seller and such seller's directors, officers, stockholders, partners, employees,
agents and affiliates from and against any and all Losses to which they or any
of them may become subject under the Securities Act, the Exchange Act, or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or
any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or
any amendment thereof or supplement thereto, or in a Blue Sky Application, or
(ii) the omission or the alleged omission to state in any such Registration
Statement, Preliminary Prospectus or Prospectus, amendment thereof or supplement
thereto, or Blue Sky Application a material fact required to be stated therein
or necessary to make the statements made therein not misleading, in each case to
the extent, but only to the extent, that the same was made therein or omitted
therefrom in reliance upon and in conformity with written information furnished
to the Company by or on behalf of such Holder specifically for use in the
preparation thereof, and agrees to reimburse each such indemnified party for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending against any such loss, claim, damage, liability or
action. The indemnify provided for in this Section 8(a) shall remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party and shall survive any transfer of the Registrable Shares by
the indemnified party. This indemnity agreement will be in addition to any
liability that the Company may otherwise have.
(c) Within five (5) business days after receipt by an indemnified
party under Section 8(a) or (b) of these Registration Rights Provisions of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; the failure so to notify the indemnifying party shall relieve the
indemnifying party from any liability under this Section 8 as to the particular
item for which indemnification is then being sought, unless such indemnifying
party has otherwise received actual notice of the action at least thirty (30)
days before any answer or response is required by the indemnifying party in its
defense of such action, but will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 8. If any such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof; provided, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and either (i) the indemnifying party or parties agree, or
(ii) in the opinion of counsel for the indemnifying parties, representation of
both the indemnifying party or parties and the indemnified party or parties by
the same counsel is inappropriate under applicable standards of professional
conduct because of actual or potential conflicting interests between them, then
the indemnified party or parties shall have the right to select separate counsel
to assume such legal defense and to otherwise participate in the defense of such
action. The indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (x) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel in each jurisdiction
which counsel is approved by indemnified parties (whether pursuant to this
Agreement or other agreements if the claim relates to the same or similar
allegations) holding a majority of the shares as to which indemnification is
claimed), (ii) the indemnifying party shall not have employed counsel to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying party be liable under this
Section 8 for any settlement, effected without its written consent, which
consent shall not be unreasonably withheld, of any claim or action against an
indemnified party.
(d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to an indemnified party under Section 8(a) and (b) of these Registration Rights Provisions in respect of any Losses, then, in lieu of the amount paid or payable under said Section 8(a) or (b), the indemnified party and the indemnifying party under said Section 8(a) or (b) shall contribute to the aggregate Losses (including legal or other expenses reasonably incurred in connection with investigating the same) (i) in such proportion as is appropriate to reflect the relative fault of the Company and the prospective sellers of Registrable Common Stock covered by the registration statement which resulted in such Loss or action in respect thereof, with respect to the statements, omissions or action which resulted in such Loss or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and such prospective sellers, on the other hand, from their sale of Registrable Common Stock; provided, that, for purposes of this clause (ii), the relative benefits received by any prospective sellers shall be deemed not to exceed (and the amount to be contributed by any prospective seller shall not exceed) the amount received by such seller. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The obligations, if any, of the Selling Holders of Registrable Common Stock to contribute as provided in this Section 8(d) are several in proportion to the relative value of their respective Registrable Common Stock covered by such registration statement and not joint. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or Losses effected without such Person's consent.
9. Registration Rights to Others. Nothing in these registration rights provisions shall restrict the Company from granting registration rights to others.
10. Restrictions on Sale. Each Stockholder agrees that he will not publicly transfer any of the shares of Registrable Common Stock during the eighteen (18) months following the Effective Date, as defined in the Agreement. Any person who acquired Common Stock or Warrants from a Stockholder (other than pursuant to a registration statement or Rule 144) shall be subject to the provisions of this Section 10.
11. Amendments and Waivers. Any provision of these Registration Rights Provisions may be amended, modified or waived if, but only if, the written consent to such amendment, modification or waiver has been obtained from (i) except as provided in clause (ii) below, the Holder or Holders of at least 66 2/3% of the shares of Registrable Common Stock affected by such amendment, modification or waiver and (ii) in the case of any amendment, modification or waiver of any provision of Section 4 of these Registration Rights Provisions or this Section 11, or as to the percentages of Holders required for any amendment, modification or waiver, or any amendment, modification or waiver which adversely affects any right and/or obligation under these Registration Rights Provisions of any Holder, the written consent of each Holder so affected.
12. Assignment. The provisions of these Registration Rights Provisions shall be binding upon and inure to the benefit of the parties hereto, and, in the event of the death or incompetence of any Holder to their legal representatives, heirs, distributees or legatees, provided that the such Transferee shall agree in writing with the parties hereto prior to the assignment to be bound by these Registration Rights Provisions as if he or she were an original party hereto, whereupon such Transferee shall for all purposes be deemed to be a Holder under these Registration Rights Provisions. Except as provided above or otherwise permitted by these Registration Rights Provisions, neither these Registration Rights Provisions nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any Holder without the prior written consent of the Company.
13. Miscellaneous.
(a) Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required or desirable to carry out the provisions of these Registration Rights Provisions and the transactions contemplated hereby.
(b) The headings in these Registration Rights Provisions are for convenience of reference only and shall not control or affect the meaning or construction of any provisions of these Registration Rights Provisions.
(c) Notwithstanding any provision of these Registration Rights Provisions, neither the Company nor any other party hereto shall be required to take any action which would be in violation of any applicable federal or state securities law. The invalidity or unenforceability of any provision of these Registration Rights Provisions in any jurisdiction shall not affect the validity, legality or enforceability of any other provision of these Registration Rights Provisions in such jurisdiction or the validity, legality or enforceability of these Registration Rights Provisions, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.
Exhibit 10.7
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement"), dated as of February 24, 2006, (the "Effective Date") among TECHPRECISION, LLC, a Delaware limited liability company having an address at P.O. Box 4651, Greenville, DE 19807 (the "Manager"), and RANOR, INC., a Delaware corporation having an address at One Bella Drive, Westminster, Massachusetts 01473 (the "Company").
WHEREAS, the Board of Directors of the Company has determined that it would be in the best interests of the Company to retain the services of Manager to provide general management, corporate planning, sales and financial consulting services to the Company, and Manager is willing to render such services upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, (i) the
stock of the Company is being acquired by Lounsberry Holdings II, Inc., a
Delaware corporation ("Parent"), (ii) Barron Partner, LP is purchasing shares of
preferred stock in the Parent, (iii) the Company is financing its equipment, and
(iv) the Company is selling its real estate to WM Realty Management, LLC, in a
sale and leaseback transaction, the foregoing transactions being referred to
collectively as the "Acquisition Transactions";
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto intending to be bound hereby, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person controlling, controlled by or under common control with such Person or any of its Affiliates.
"Cause" means:
(a) a breach of trust whereby Manager or any of its Affiliates, in violation of this Agreement, obtains material personal gain or benefit to the detriment of the Company;
(b) any fraudulent or dishonest conduct by Manager or any other wrongful conduct by Manager which damages the Company or its property, business or reputation;
(c) a conviction of, or guilty plea or plea of nolo contendere by, Manager of (i) any felony or (ii) any other crime involving fraud, theft, embezzlement or use or possession of illegal substances, or the admission by Manager of any matters set forth in this clause (c), or
(d) a material violation of Sections 6, 7 or 8 of this Agreement.
"Company" means Ranor, Inc., a Delaware corporation.
"Confidential Information" means any and all information, however documented and regardless of the medium on which such information is provided and whether the information is provided in machine readable or human readable form, that is a trade secret within the meaning of applicable statutory or case law concerning the business and affairs of the Company, including, but not limited to: (a) computer software and programs; source and object codes; database technologies; concepts, ideas and methods; product specifications; data; know-how; formulas; compositions; processes; designs; sketches; photographs; graphs; drawings; samples; inventions and ideas; past, current and planned research and development; customer lists; current and anticipated customer requirements; relationships with vendors; price lists and costs; market studies and business plans; (b) preliminary financial statements, information and data derived from or based on such financial statements and information; financial projections and budgets; historical and projected sales; capital spending budgets and plans; the names and backgrounds of key personnel, personnel training, techniques and materials; (c) any and all notes, analysis, compilations, studies, summaries and other material prepared by or for the Manager containing or based, in whole or in part, on any information including the foregoing; (d) any letters of intent, memoranda of understanding, term sheets, agreements and understandings, whether oral or in writing and whether formal or informal, to which the Company is a party, and the status of any negotiations relating to any of the foregoing and the identity of the other party to any such transaction. Notwithstanding the foregoing, if any confidential information is given other than in written or computer readable form, the Company shall advise Manager within five (5) business days of the delivery thereof as to the confidential nature of such material, and such material shall be treated as Confidential Information. Notwithstanding the foregoing, Confidential Information does not include any information which: (a) is now, or hereafter becomes, generally known or publicly available other than as a result of a breach by Manager of this Agreement; (b) is already known by Manager at the time it receives such information, or (c) after the term, is furnished to Manager by a third party unless the Manager knows or has reason to know that the third party is subject to a confidentiality restriction, or (d) is otherwise approved for disclosure by the Company.
"Consulting Period" has the meaning set forth in Section 2.1 of this Agreement.
"EBITDA" shall mean income before interest, taxes, depreciation and amortization, determined in accordance generally accepted accounting principles as reflected in the Form 10-KSB or Form 10-K filed by the Company's parent corporation, Lounsberry Holdings II, Inc. after giving effect to any payment to Manager based on EBITDA.
"Intellectual Property" has the meaning set forth in Section 7 of this Agreement.
"Management Fee" has the meaning set forth in Section 4 of this Agreement.
"Non-competition Period" has the meaning set forth in Section 9.1 hereof.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
"Reimbursable Expenses" has the meaning set forth in Section 5.1 of this Agreement.
"Subsidiary" means, with respect to any Person, any other Person in which such Person either (a) owns a majority of the equity or voting rights or (b) has the power to control the management regardless of the percentage of equity or voting rights held by such Person.
SECTION 2. CONSULTING PERIOD.
2.1. The Company hereby engages Manager, and Manager hereby accepts its engagement with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the Effective Date of this Agreement and ending March 31, 2009 (the "Consulting Period").
2.2. In the event of a termination for Cause, this Agreement and
Manager's obligations shall terminate; provided, however, that Manager shall be
entitled to accrued compensation to the date of termination. If, at the date of
termination, the amount of Manager's accrued compensation cannot be determined
because the adjustment required by Section 4.1 of this Agreement has not been
determined, then at such time as the Management Fee, as adjusted pursuant to
Section 4 is determined, any outstanding balance then due to Manager shall be
paid.
SECTION 3. DUTIES.
3.1. Duties. During the Consulting Period, Manager shall serve as a consultant to the Company and each of its existing and future Subsidiaries with primary responsibility, subject at all times to the direction of the Board of Directors of the Company, to consult in respect of: (a) the general policies and direction of the Company and its Subsidiaries, (b) assistance in connection with various forms of financings for the Company and its Subsidiaries, (c) interfacing with operating management of the Company in all aspects of manufacturing, sales, distribution and customer relations, (d) in establishment of budgets and performance goals of the Company and its Subsidiaries, and (e) supervising the internal accounting of the Company. Manager shall, consistent with the foregoing, perform such duties as may, from time to time, be determined and assigned to it by the Board of Directors of the Company.
3.2. Personnel. It is contemplated that Manager will, with their consent, assign (i) James G. Reindl for strategic planning, management oversight, marketing support and assistance with day to day operation of Ranor, Inc. (ii) Andrew A. Levy for marketing support and analysis of long-term contracts and (iii) Martin M. Daube for marketing support. Manager may replace any of these individuals with similarly qualified persons in its discretion. The Company recognizes that additional personnel may be required for the activities described in this Section 3.2, and such persons shall be engaged by the Company.
3.3. Performance of Duties; Other Activities. Manager shall devote its reasonable efforts, attention and skills toward performing the consulting duties on behalf of the Company and its Subsidiaries. Notwithstanding the foregoing, it is recognized that Manager and its Affiliates and employees will be engaged in other business activities and/or and consulting duties.
3.4. Chairman. Manager will, with the consent of James G. Reindl, provide the services of Mr. Reindl to serve as Chairman of the Company during all or part of the Consulting Period if requested by the Company's Board of Directors.
SECTION 4. COMPENSATION.
4.1. During the Consulting Period, Manager's consulting fee will be initially set at $200,000 per annum (the "Management Fee"), which Management Fee will be payable monthly, in advance, at the rate of $16,666.67 per month, or pro rata for part thereof, payable semi-monthly on the 1st and 15th day of each month, commencing March 1, 2006. The payment due on March 1, 2006, shall also include the proportionate payment for the period from the date of this Agreement to February 28, 2006.
4.2. In addition to the Management Fee, the Manager shall be entitled to a performance bonus determined as follows. The compensation committee of the board of directors shall, as early as practical, but not later than June 30, in each fiscal year shall set performance objectives for the Company for the fiscal year. If the performance objectives are attained or exceeded, the Company shall pay Manager a performance bonus equal to two and one-half percent (2 1/2%) of the Company's cash flow from operations for such fiscal year. The bonus shall be paid within ten (10) business days after the Company files its Form 10-K or Form 10-KSB for the fiscal year. In the event that the Company makes an acquisition or disposes of a business segment during a fiscal year, the performance objectives may be revised by the compensation committee to reflect such transaction.
SECTION 5. EXPENSES. The Company will reimburse Manager for all reasonable expenses incurred by it in the course of performing its duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses ("Reimbursable Expenses"), subject to the Company's requirements with respect to reporting and documentation of expenses.
SECTION 6. TRADE SECRETS AND PROPRIETARY INFORMATION.
6.1. Manager recognizes and acknowledges that the Company, through the expenditure of considerable time and money, has developed and will continue to develop in the future information concerning customers, clients, marketing, products, services, business, research and development activities and operational methods of the Company and its customers or clients, contracts, financial or other data, technical data or any other confidential or proprietary information possessed, owned or used by the Company, the disclosure of which could or does have a material adverse effect on the Company, its business, any business it proposes to engage in, its operations, financial condition or prospects and that the same are confidential and proprietary and considered "confidential information" of the Company for the purposes of this Agreement. In consideration of his engagement, Manager agrees that neither Manager nor any of its members will, during or after the Term, without the consent of the Company's board of directors, make any disclosure of confidential information now or hereafter possessed by the Company, to any person, partnership, corporation or entity either during or after the term here of, except that nothing in this Agreement shall be construed to prohibit Manager or its members from using or disclosing such information (a) if such disclosure is necessary in the normal course of the Company's business in accordance with Company policies or instructions or authorization from chief Manager or financial officer or an officer designated by the chief Manager or financial officer, or (b) such information shall become public knowledge other than by or as a result of disclosure by a person not having a right to make such disclosure, or (c) subsequent to the Term, if such information shall have either (i) been developed by Manager or its members independent of any of the Company's confidential or proprietary information or (ii) been disclosed to Manager or its members by a person not subject to a confidentiality agreement with or other obligation of confidentiality to the Company. For the purposes of Sections 6, 7 and 8 of this Agreement, the term "Company" shall include the Company, its parent, its subsidiaries and affiliates, other than affiliates whose relationship as an affiliate is derived solely from Manager's interest in or position at the other party.
6.2. As requested by the Company from time to time and upon the termination of Manager's services to the Company for any reason, Manager will promptly deliver to the Company or destroy all copies and embodiments, in whatever form or medium, of all Confidential Information or Intellectual Property in the possession of Manager or within its control (including written records, notes, photographs, manuals, notebooks, documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other materials containing any Confidential Information or Intellectual Property) irrespective of the location or form of such material and, if requested by the Company, will provide the Company with written confirmation that all such materials have been delivered to the Company or destroyed. To the extent that any Confidential Information or Intellectual Property is on Manager's computer system, Manager shall, in lieu of returning or destroying such material, Manager shall continue to treat the material as confidential.
6.3. In the event that any trade secrets or other confidential information covered by Section 6.1 of this Agreement is required to be produced by Manager pursuant to legal process, Manager shall give the Company notice of such legal process within a reasonable time, but not later than ten (10) business days prior to the date such disclosure is to be made, unless Manager has received less notice, in which event Manager shall immediately notify the Company. The Company shall have the right to object to any such disclosure, and if the Company objects (at the Company's cost and expense) in a timely manner so that Manager is not subject to penalties for failure to make such disclosure, Manager shall not make any disclosure until there has been a court determination on the Company's objections. If disclosure is required by a court order, final beyond right of review, or if the Company does not object to the disclosure, Manager shall make disclosure only to the extent that disclosure is unequivocally required by the court order, and Manager will exercise reasonable efforts at the Company's expense, to obtain reliable assurance that confidential treatment will be accorded the Confidential Information.
SECTION 7. COVENANT NOT TO SOLICIT OR COMPETE.
7.1. During the period from the date of this Agreement until one (1) year following the expiration or termination of this Agreement, neither Manager nor its members will, directly or indirectly:
(i) Persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, or to reduce the amount of business it does with the Company (the terms "customer" and "client" as used in this Section 7 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Manager's engagement hereunder or during the twelve (12) months preceding the termination of this Agreement or Manager's engagement hereunder;
(ii) solicit for himself or itself or any other person or entity
other than the Company the business of any person or entity which is a customer
or client of the Company, or was a customer or client of the Company within one
(1) year prior to the termination of this Agreement or his engagement hereunder;
provided, that this clause (ii) shall not apply to business which does not
directly or indirectly compete with the Company;
(iii) persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the one (1) year period prior to the termination of this Agreement, to leave the Company's employ, or to become employed by any person or entity other than the Company; or
(iv) engage in any business in the United States whether as an officer, director, Manager, partner, guarantor, principal, agent, employee, advisor or in any manner, which directly competes with the business of the Company as it is engaged in at the time of the termination of this Agreement, unless, at the time of such termination or thereafter during the period that Manager is bound by the provisions of this Section 7, the Company ceases to be engaged in such activity, provided, however, that nothing in this Section 7 shall be construed to prohibit Manager from owning an interest of not more than five (5%) percent of any public company engaged in such activities.
7.2. Manager acknowledges that the restrictive covenants (the "Restrictive Covenants") contained in Sections 6 and 7 of this Agreement are a condition of his engagement are reasonable and valid in geographical and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part of any of the Restrictive Covenants, is invalid or unenforceable, the remainder of the Restrictive Covenants and parts thereof shall not thereby be affected and shall remain in full force and effect, without regard to the invalid portion. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court shall have the power to reduce the geographic or temporal scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable.
SECTION 8. INVENTIONS AND DISCOVERIES. Manager agrees promptly to disclose in writing to the Company any invention or discovery made by him during the Term, whether during or after working hours, in any business in which the Company is then engaged or which otherwise relates to any product or service dealt in by the Company and such inventions and discoveries shall be the Company's sole property. Upon the Company's request, Manager shall, and shall cause its members to, execute and assign to the Company all applications for copyrights and letters patent of the United States and such foreign countries as the Company may designate, and Manager shall execute and deliver to the Company such other instruments as the Company deems necessary to vest in the Company the sole ownership of all rights, title and interest in and to such inventions and discoveries, as well as all copyrights and/or patents. If services in connection with applications for copyrights and/or patents are performed by Manager at the Company's request after the termination of his engagement hereunder, the Company shall pay him reasonable compensation for such services rendered after termination of this Agreement.
SECTION 9. INJUNCTIVE RELIEF. Manager agrees that the violation or threatened violation of any of the provisions of Sections 6, 7 or 8 of this Agreement by Manager or its members shall cause immediate and irreparable harm to the Company. In the event of any breach or threatened breach of any of said provisions, Manager and its members consent to the entry of preliminary and permanent injunctions by a court of competent jurisdiction prohibiting Manager from any violation or threatened violation of such provisions and compelling Manager to comply with such provisions. This Section 9 shall not affect or limit, and the injunctive relief provided in this Section 9 shall be in addition to, any other remedies available to the Company at law or in equity or in arbitration for any such violation by Manager. The provisions of Sections 6, 7, 8 and 9 of this Agreement shall survive any termination of this Agreement and Manager's engagement pursuant to this Agreement.
SECTION 10. MISCELLANEOUS.
10.1. Any notice, consent or communication required under the provisions of this Agreement shall be given in writing and sent or delivered by hand, overnight courier or messenger service, against a signed receipt or acknowledgment of receipt, or by registered or certified mail, return receipt requested, or telecopier or similar means of communication if receipt is acknowledged or if transmission is confirmed by mail as provided in this Section 10.1, to the parties at their respective addresses set forth at the beginning of this Agreement or by telecopier to the numbers set forth on the signature page of this Agreement, with notice to the Company being sent to the attention of the individual who executed this Agreement on its behalf. Any party may, by like notice, change the Person, address or telecopier number to which notice is to be sent. If no telecopier number is provided for Manager, notice to him shall not be sent by telecopier.
10.2. This Agreement shall in all respects be construed and interpreted in accordance with, and the rights of the parties shall be governed by, the laws of the Commonwealth of Massachusetts applicable to contracts executed and to be performed wholly within such State, without regard to principles of conflicts of laws. Each party hereby (i) consents to the exclusive jurisdiction of the federal courts in the County Worcester, Commonwealth of Massachusetts, (ii) agrees that any process in any action commenced in such court under this Agreement may be served upon it personally, either (x) by certified or registered mail, return receipt requested, or by courier service which obtains evidence of delivery, with the same full force and effect as if personally served upon such party in such county, or (y) by any other method of service permitted by law, and (iii) waives any claim that the jurisdiction of any such court is not a convenient forum for any such action and any defense of lack of in personam jurisdiction with respect thereof.
10.3. If any term, covenant or condition of this Agreement or the
application thereof to any party or circumstance shall, to any extent, be
determined to be invalid or unenforceable, the remainder of this Agreement, or
the application of such term, covenant or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law, and any court or
arbitrator having jurisdiction may reduce the scope of any provision of this
Agreement, including the geographic and temporal restrictions set forth in
Section 7 of this Agreement, so that it complies with applicable law.
10.4. This Agreement constitute the entire agreement of the Company and Manager as to the subject matter hereof, superseding all prior or contemporaneous written or oral understandings or agreements, including any and all previous employment agreements or understandings, all of which are hereby terminated, with respect to the subject matter covered in this Agreement; provided, however, that nothing in this Agreement shall be deemed to modify any obligations which Manager may have as a stockholder of the Company pursuant to the Merger Agreement. 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 intended to be a modification, amendment or waiver and is signed by both parties in the case of a modification or amendment or by the party granting the waiver. No course of conduct or dealing between the parties and no custom or trade usage shall be relied upon to vary the terms of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
10.5. No party shall have the right to assign or transfer any of its or his rights hereunder except that the Company's rights and obligations may be assigned in connection with a merger of consolidation of the Company or a sale by the Company of all or substantially all of its business and assets.
10.6. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and permitted assigns.
10.7. The headings in this Agreement are for convenience of reference only and shall not affect in any way the construction or interpretation of this Agreement.
10.8. This Agreement may be executed in counterparts, each of which when so executed and delivered will be an original document, but both of which counterparts will together constitute one and the same instrument.
10.9. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
10.10. This Agreement will not confer any rights or remedies upon any person other than the Company, Manager and their respective heirs, executors, successors and assigns.
10.11. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Any reference to any federal, state, local or foreign statute or law will be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The use of the word "including" in this Agreement means "including without limitation" and is intended by the parties to be by way of example rather than limitation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
TECHPRECISION LLC
By /s/ Andrew A. Levy --------------------------- Its Chairman --------------------------- |
RANOR, INC.
By /s/ James G. Reindl --------------------------- Its Chairman --------------------------- |
The undersigned members of Techprecision LLC do hereby agree to be bound by the provisions of Section 6, 7, 8, 9 and 10 of the foregoing Management Agreement.
Exhibit 10.8
LEASE BETWEEN
WM REALTY MANAGEMENT, LLC, LANDLORD
AND
RANOR, INC., TENANT
TABLE OF CONTENTS
Page
1. THE LEASED PREMISES 1
2. TERM 2
2.a. OPTIONS TO EXTEND TERM 2
3. FIXED ANNUAL MINIMUM RENTAL 4
4. UTILITIES 6
5. ADDITIONAL RENT 6
6. USE 8
7. COMPLIANCE WITH LAWS AND AGREEMENTS 9
8. MAINTENANCE AND REPAIR 9
9. CHANGES, ALTERATIONS AND NEW CONSTRUCTION BY THE TENANT 10
10. INDEMNITY AND PUBLIC LIABILITY INSURANCE 12
11. INSURANCE FOR DAMAGE OR DESTRUCTION AND WORKER'S COMPENSATION 13
12. CONDEMNATION 16
13. REMOVAL OF TENANT'S PROPERTY 17
14. SUBORDINATION, NON-DISTURBANCE, NOTICE TO LESSORS AND MORTGAGEES 17
15. NON-WAIVER 19
16. QUIET ENJOYMENT 19
17. ASSIGNMENT AND SUBLETTING 19
18. ENTRY BY LANDLORD 21
19. TENANT'S DEFAULT 21
20. TAX APPEALS AND CONTESTS 24
21. SIGNS 25
22. SURRENDER OF PREMISES 25
23. BROKER 25
24. "LANDLORD" DEFINED 25
25. TENANT'S PAYMENTS 26
26. RIGHT TO CURE DEFAULTS 26
27. COVENANT AGAINST LIENS 27
28. WAIVER OF REDEMPTION 27
29. LANDLORD'S AND TENANT'S CERTIFICATES 28
30. WAIVER OF TRIAL BY JURY 28
31. NET LEASE 28
32. MISCELLANEOUS PROVISIONS 29
33. LATE CHARGES 33
34. ENVIRONMENTAL LAWS 34
35. [INTENTIONALLY DELETED] 35
36. TRANSFER TAXES 35
37. OPTION TO PURCHASE 35
LEASE
THIS LEASE is entered into this 24th day of February, 2006 by and between WM Realty Management, LLC, a Massachusetts limited liability company having an address at One Bella Drive (a/k/a 48 Town Farm Road), Westminster, Massachusetts 01473 (hereinafter called "Landlord") and Ranor, Inc., a Delaware corporation having an address at One Bella Drive, (a/k/a 48 Town Farm Road) Westminster, Massachusetts 01473 (hereinafter called "Tenant").
Upon the terms and subject to the conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord, the property hereinafter described:
1. THE LEASED PREMISES.
(a) The property hereby leased to Tenant is a portion of that certain premises known as One Bella Drive (a/k/a 48 Town Farm Road), Westminster, Massachusetts 01473 (the "Land") situated in the City of Westminster, Commonwealth of Massachusetts as more particularly described in the metes and bounds description annexed hereto as Exhibit "A", together with the buildings and other improvements now or hereafter located thereon (collectively, the "Improvements").
(b) The Land and Improvements leased hereunder, together with all
Landlord's right, title and interest, if any, in and to all easements and other
appurtenances thereto, hereinafter sometimes collectively referred to as the
"Leased Premises", are demised in their "as is" condition as of the
"Commencement Date" (as hereinafter defined) without representation or warranty
by Landlord, except as specifically provided in this Lease, and let subject to
(a) the existing state of the title thereof as of the date of this Lease, (b)
any state of facts which may be shown by an accurate survey or physical
inspection of the Leased Premises, (c) all zoning regulations, restrictions,
rules and ordinances, building restrictions and other laws and regulations now
in effect or hereafter adopted by any governmental authority having jurisdiction
over the Leased Premises, and all agreements, licenses, easements, covenants,
restrictions and other matters which affect the Leased Premises, the title
thereto, or the use, enjoyment, occupancy or possession thereof, and (d) with
respect to the Improvements, their condition as of the date of this Lease,
without representation or warranty by Landlord. Tenant represents and warrants
to Landlord that Tenant has examined the title to and the physical condition of
the Leased Premises prior to the execution and delivery of this Lease and has
found the same to be satisfactory for all purposes hereof, and Tenant accepts
the title and condition of the Leased Premises in their respective, present
condition "as is".
(c) Landlord makes no representation or warranty with respect to the condition of the Leased Premises or its fitness or availability for any particular use and Landlord shall not be liable for any latent or patent defect therein.
(d) The Leased Premises constitutes a portion of the entire parcel of land owned by Landlord which is described in Exhibit B to this Agreement, which land is referred to as the "Entire Parcel."
2. TERM.
The term (the "term" or the "Term") of this Lease shall be for a period commencing on the date of this Lease (the "Commencement Date") and terminating on the date (the "Expiration Date") which is the last day of the calendar month in which the fifteenth (15th) anniversary of the Commencement Date occurs, or on such earlier date upon which said term may expire or be terminated pursuant to any of the conditions of limitation or other provisions of this Lease or pursuant to the provisions of any present or future constitution, law, statute, ordinance, rule, regulation, other governmental order or controlling judicial determination of any Federal, State, local, municipal or other governmental body, agency or authority having or asserting jurisdiction over the Leased Premises and all departments, commissions, boards and officers thereof (collectively the "Laws").
2.a. OPTIONS TO EXTEND TERM
(1) Tenant shall have an option (the "Option") to extend the term of
this Lease for two (2) additional terms of five (5) years on each such option
(each as the "Option Term") to begin respectively upon the first day next
succeeding either the Expiration Date, or the expiration of the preceding Option
Term, upon the same terms, conditions and provisions as are provided for in this
Lease (other than the provisions of this Section 2.a. except that the Minimum
Rent payable pursuant to Section 2.a. hereof for each Option Term shall be the
greater of (i) the Minimum Rent payable under this Lease immediately prior to
either the Expiration Date, or the expiration of the preceding Option Term, or
(ii) the fair market rent for the Leased Premises (hereinafter "FMV") on either
the Expiration Date,or the expiration of the preceding Option Term (each the
"Rent Appraisal Date").
(2) The FMV shall be determined by the mutual written agreement of Landlord and Tenant. In the event that Landlord and Tenant shall not have reached mutual agreement as to the FMV on or before the sixtieth (60th) day following the Rent Appraisal Date, but Landlord's determination of the FMV is less than twenty percent (20%) greater than Tenant's determination of the FMV (which respective determinations shall be based on blind written bids submitted at the end of the sixty (60) day period by each of Landlord and Tenant to the other), the FMV will be the average of Landlord's and Tenant's respective determinations. In the event that Landlord and Tenant shall not have reached mutual agreement as to the FMV on or before the sixtieth (60th) day following the Rent Appraisal Date and Landlord's determination of the FMV is more than twenty percent (20%) greater than Tenant's determination of the FMV, then Landlord and Tenant each shall, no later than the seventy-fifth (75th) day following the Rent Appraisal Date, select a Real Estate Appraiser, as hereinafter defined. If either party shall fail to so appoint a Real Estate Appraiser, the one Real Estate Appraiser so appointed shall proceed to determine the FMV. In the event that the Real Estate Appraisers selected by Landlord and Tenant agree as to the FMV, said determination shall be binding on Landlord and Tenant. In the event that the Real Estate Appraisers selected by Landlord and Tenant cannot agree as to the FMV on or before the one hundred fifth (105th) day following the Rent Appraisal Date, then said Real Estate Appraisers shall jointly select a third Real Estate Appraiser, provided that if they cannot agree
on the third Real Estate Appraiser on or before the one hundred twentieth
(120th) day following the Rent Appraisal Date, then said third Real Estate
Appraiser shall be selected in accordance with the rules prescribed by the
American Arbitration Association in the Commonwealth of Massachusetts (or any
successor thereto). The FMV shall then be determined by the third Real Estate
Appraiser no later than the one hundred fiftieth (150th) day following the Rent
Appraisal Date and said determination shall be binding on Landlord and Tenant
provided however that if the third Real Estate Appraiser shall determine a FMV
which is lower than the FMV designated by both of the other two Real Estate
Appraisers, then the FMV which is the lower FMV designated by one of the other
two Real Estate Appraisers shall be the FMV as determined hereunder. The term
"Real Estate Appraiser" shall mean a fit and impartial person having not less
than five (5) years experience as an appraiser of leasehold estates relating to
first class office space in the Worcester, Massachusetts area. The appraisal
shall be conducted in accordance with the provisions of this Section and, to the
extent not inconsistent herewith, in accordance with the prevailing rules of the
American Arbitration Association in Massachusetts or any successor thereto. The
final determination of the Real Estate Appraiser(s) shall be in writing and
shall be binding and conclusive upon the parties, each of which shall receive
counterpart copies thereof. In rendering such decision the Real Estate
Appraiser(s) shall not add to, subtract from or otherwise modify the provisions
of this Lease. The fees and expenses of the Real Estate Appraiser selected by
Landlord and Tenant shall be shared equally by Landlord and Tenant.
(3) The Option may be exercised only by Tenant giving written notice to Landlord of Tenant's said Option by certified mail, return receipt requested, not more than fifteen (15) nor less than twelve (12) months prior to either the Expiration Date of the Term, or the expiration of the preceding Option Term (the "Exercise Notice"). Upon Tenant's giving of the Exercise Notice, the term of this Lease shall be extended automatically upon the terms and conditions (subject to Section 2.a.(1)) herein specified, without the execution of an extension agreement or other instrument. If Tenant shall not give Landlord the Exercise Notice at the time and in the manner set forth above, the Option shall terminate and be deemed waived by Tenant. Time is of the essence as to the date for the giving of the Exercise Notice.
(4) In rendering the determination of FMV the real estate appraiser(s) shall assume or take into consideration as appropriate all of the following: (a) Landlord and Tenant are typically motivated; (b) the Landlord and prospective tenant are well informed and well advised and each is acting in what it considers its own best interest; (c) a reasonable time under then-existing market conditions is allowed for exposure of the Leased Premises on the open market; (d) the rent is unaffected by concessions, special financing amounts and/or terms, or unusual services, fees, costs or credits in connection with the leasing transaction; (e) the Leased Premises are fit for immediate occupancy and use "as is" and require no additional work by Landlord and that no work has been carried out therein by the Tenant, its subtenant, or their predecessors in interest during the Term which has diminished the rental value of the Leased Premises; (f) in the event the Leased Premises have been destroyed or damaged by fire or other casualty, they have been fully restored; (g) that the Leased Premises are to be let with vacant possession and subject to the provisions of this Lease; and (h) market rents then being charged for comparable space in other similar office buildings in the same area. In rendering such decision and award, the arbitrators shall not modify the provisions of this Lease. The decision and award of the real estate appraisers shall be in writing and shall be final and conclusive on all parties and counterpart copies thereof shall be delivered to each of said parties. Judgment may be had on the decision and award of the arbitrators so rendered in any court of competent jurisdiction.
(5) Notwithstanding the foregoing provisions of this Section 2.a., if on the date that Tenant exercises the Option, or if on any subsequent date up to and including the date upon which the extension of the Term commences, Tenant is in default, beyond any applicable notice and grace periods, in the payment of fixed annual rent or additional rent hereunder, or is in default in the performance of any of the other terms, conditions or provisions of this Lease, Tenant's exercise of the Option and the extension of the Term contemplated thereby shall, at the option of Landlord exercised by written notice to Tenant, be rendered null and void and shall be of no further force and effect and Tenant shall have no other additional right to exercise such Option, which shall be deemed waived by Tenant.
(6) If Tenant exercises the Option, then, at Landlord's request,
Tenant agrees within ten (10) days after request is made, to execute,
acknowledge and deliver to Landlord an instrument in form and substance
satisfactory to Landlord, confirming (i) the fixed annual rent payable under
this Lease, unless Tenant is then, in good faith, disputing same in accordance
with the provisions of this Section 2.a., in which case Tenant agrees to
execute, acknowledge and deliver a separate instrument satisfactory to Landlord
confirming the fixed annual rent as finally determined, (ii) the expiration date
of the term, and (iii) the other modifications provided for in this Section
2.a., but no such instrument shall be required in order to make the provisions
hereof effective.
(7) Time shall be of the essence with respect to the exercise of the Option by Tenant.
3. FIXED ANNUAL MINIMUM RENTAL.
Tenant covenants to pay Landlord, without previous demand therefor and without any setoff, abatement or deduction whatsoever of any kind in lawful money of the United States which is legal tender at the time of payment a net fixed annual minimum rent (the "Minimum Rental") for each year of the Term of this Lease, at the office of Landlord or such other place as Landlord may designate from time to time, payable in advance on or before the first (1st) day of each and every calendar month during the Term as follows:
(a) Commencing on the Commencement Date through the last day of the month in which the first anniversary of the Commencement Date occurs (the "Initial Term"): Four Hundred Thirty Eight Thousand Dollars ($438,000), payable in initial equal monthly installments of Thirty Six Thousand Five Hundred Dollars ($36,500).
(b) Commencing on the first day next succeeding the expiration of the Initial Term, the above fixed annual monthly rental rate shall be adjusted upon the first day of each successive lease year following the expiration of the Initial Term in the manner set forth below:
(i) Definitions: For the purposes of this Article, the following definitions shall apply:
(1) The term "Base Year" shall mean 2006.
(2) The term "Price Index" shall mean the "Consumer Price Index" for All Urban Consumers as published by the United States Department of Labor for the Boston, Massachusetts Metropolitan area, or a successor or substitute index appropriately adjusted.
(3) The term "Price Index for the Base Year" shall mean the average Price Index for the Base Year.
(c) Effective as of January of each year subsequent to the Base Year, there shall be made a cost of living adjustment of the Minimum Rental payable hereunder. The January adjustment shall be based on such percentage difference between the Price Index for the preceding month of December and the Price Index for the Base Year.
(d) In the event the Price Index for December in any calendar year during the term of this lease reflects an increase over the Price Index for the Base Year, then the fixed annual rent herein provided to be paid as of the January 1st, following such month of December (unchanged by any adjustments under this Article) shall be multiplied by the percentage difference between the Price Index for September and the Price Index for the Base Year, and the resulting sum shall be added to such fixed annual rent, effective as the commencement date of each applicable, successive lease year. Said adjusted fixed annual rent shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms of this lease.
The following illustrates the intentions of the parties hereto as to the computation of the aforementioned cost of living adjustment in the annual rent payable hereunder:
Assuming that said fixed annual rent is $10,000, that the Price Index for the Base Year was 102.0 and that the Price Index for the month of December in a calendar year following the Base Year was 105.0, then the percentage increase thus reflected, i.e., 2.941% (3.0/102.0) would be multiplied by $10,000, and said fixed annual rent would be increased by $294.10 effective as of January 1st of said calendar year.
In the event that the Price Index ceases to use 1982-84=100 as the basis of calculation, or if a substantial change is made in the terms or number of items contained in the Price Index, then the Price Index shall be adjusted to the figure that would have been arrived at had the manner of computing the Price Index in effect at the date of this lease not been altered. In the event such Price Index (or a successor or substitute index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Price Index shall be used.
(e) The statement of the cost of living adjustment to be furnished by Landlord shall consist of data prepared for Landlord by Landlord's accountant(s). The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the cost of living adjustment for the periods represented thereby.
(f) In no event shall the fixed annual rent originally provided to be paid under this lease exclusive of the adjustments under this Section be reduced by virtue of this Section.
(g) Any delay or failure of Landlord in computing or billing for the rent adjustments hereinabove provided, shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder.
(h) Notwithstanding any expiration or termination of this lease prior to the lease expiration date (except in the case of a cancellation by mutual agreement) Tenant's obligation to pay rent as adjusted under this Section shall continue and shall cover all period up to the lease expiration date, and shall survive any expiration or termination of this lease.
4. UTILITIES.
Tenant shall furnish, at its own expense, all utilities of every type and nature required by it in its use of the Leased Premises and shall pay or cause to be paid, when due, all bills for water, sewerage, heat, gas, electricity and other utilities, if any, used on, in connection with, or chargeable against the Leased Premises until the termination of this Lease and all bills for utility charges relating to the Leased Premises or the use thereof and imposed on users of utilities, whether or not such charges shall relate to services or benefits available to the Tenant during the term of this Lease, and the Tenant shall indemnify and save harmless the Landlord from and against any loss, cost and expense in connection therewith.
5. ADDITIONAL RENT.
(a) It is the purpose and intent of Landlord and Tenant that the rent payable hereunder shall be absolutely net to Landlord so that this Lease shall yield, net to Landlord, the Minimum Rental due during the term of this Lease.
(b) Tenant covenants to pay, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof, as additional rent, all taxes, assessments (including but not limited to, all assessments for public improvements or benefits, whether or not commenced or completed within the term of this Lease and so-called business improvement district taxes or assessments) water, sewer and other rents, rates and charges, charges for public utilities, excises, levies, license and permit and inspection fees and other governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which at any time during the term of this Lease may have been or may be assessed, levied, confirmed, imposed upon, or grow to become due or payable out of or in respect of, or become a lien on, the Leased Premises or any part thereof or any appurtenance thereto, any personal property, the rent and income received by Tenant from subtenants, any use, possession or occupation of the Leased Premises, or rentals or sales therefrom or activity conducted therein, such franchises as may be appurtenant
to the use or occupation of the Leased Premises (all of the foregoing, together with any and all Premiums (as hereinafter defined), and together with any and all penalties, fines and/or interest thereon, being hereinafter sometimes collectively referred to as "Impositions", and any of the same being hereinafter sometimes referred to as an "Imposition"). Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or any capital levy, corporate franchise, excess profits, estate, succession, inheritance or transfer taxes of Landlord, unless such taxes are imposed or levied upon or assessed as a total or partial substitute for, or in lieu of, any other Imposition required to be paid by Tenant pursuant to this Section 5(b), in which event same shall be deemed Impositions and shall be paid by Tenant; provided, however, that if at any time during the term of this Lease, the method of taxation shall be such that there shall be levied, assessed or imposed on Landlord in lieu of, or in addition to, the foregoing, a capital levy, gross receipts or other tax directly on the rents received therefrom and/or a franchise tax or an assessment, levy or charge measured by or based, in whole or in part, upon such rents, the Leased Premises (including, but not limited to the acquisition, leasing, use, or value thereof) or the present or any future Improvements on the Leased Premises or the construction thereof and/or measured in whole or in part by Landlord's income from the Leased Premises if in computing such income there is not allowed as a deduction any significant portion of the depreciation or interest deductions allowed for federal income tax purposes, then all such taxes, assessments, levies and charges, or the part thereof so measured or based, shall be deemed to be included within the term "Imposition" for the purposes hereof, but only to the extent that such taxes would be payable if the Leased Premises were the only property of Landlord, and Tenant shall pay and discharge the same as herein provided in respect of the payment of Impositions. Tenant shall furnish to Landlord, promptly after payment of any real estate taxes or Premiums, and, with respect to any other Impositions, promptly upon request of Landlord, official receipts or other satisfactory proof evidencing payment of such Imposition. In addition, Tenant shall furnish to Landlord semi-annually, throughout the term of this Lease, a certificate executed by an executive officer of Tenant, stating that all Impositions have been paid to date. Landlord shall have the right, at Landlord's option, to require Tenant to: (i) promptly deposit with Landlord funds for the payment of current Impositions required to be paid by Tenant hereunder; and (ii) deposit one-twelfth (1/12th) of the amount which would be sufficient at all times to pay the Impositions payable, or estimated by Landlord or any Mortgagee to be payable, during the ensuing twelve (12) months and all additional funds required for the payment of any Imposition shall also be deposited with Landlord on the first day of the month during which or at the end of which an Imposition is due and payable without interest, penalty or liability and any interest earned on such funds and made available to Landlord shall accrue for the benefit of Tenant and may be applied by Landlord against any other sum then or which may become due hereunder from Tenant to Landlord. No sum collected by Landlord under this Paragraph 5 shall constitute a trust fund and all of such sums may be commingled with other assets of Landlord.
(c) At Landlord's option, if at any time during the term of this Lease, Tenant has been delinquent in making payments of Impositions or utility charges, the failure of payment of which may result in a lien on the Leased Premises, then Tenant agrees that, upon notice to the Tenant, Landlord may be the receiver of all bills for Impositions, utilities and any other operating expenses appurtenant to the Leased Premises, the failure of payment of which may constitute or result in a lien on the Leased Premises. If Landlord so elects, Tenant agrees to execute any and all documentation necessary or required and
otherwise cooperate with Landlord to effectuate such receipt by Landlord. If Landlord receives such bills, Tenant shall pay to Landlord, as additional rent hereunder all such sums (subject to proration as specifically provided in this Lease) within the later of (x) fifteen (15) days after billing by Landlord to Tenant or (b) twenty (20) days prior to the date on which such bills are payable to the applicable payees. Until such time as Landlord becomes the receiver of such bills, Tenant will deliver to Landlord a copy of such bills with three days of receipt thereof and deliver to Landlord proof of payment of such bills simultaneously with Tenant's remittal thereof.
(d) Notwithstanding anything else herein to the contrary, in the event that any portion of the Entire Parcel not forming part of the Leased Premises shall be improved by Landlord or by any tenant or other occupant of such portion of the Entire Parcel, and such improvement increases the real property taxes and other charges assessed (as described in subparagraph 5(b)) against the Entire Parcel, then from and after such date and with respect to any such assessment relating to improvements on the Entire Parcel, Tenant shall be obligated to pay only that portion of the real property taxes and other charges assessed against improvements that are situated on the Leased Premises.
6. USE.
(a) Tenant shall be permitted to use the Leased Premises for manufacturing, warehousing, office space and any other permitted use, subject, however, to compliance with all Federal, State and local laws, zoning ordinances, the orders, rules and regulations of the Board of Fire Insurance Underwriters and any similar bodies having or asserting jurisdiction over the Leased Premises now in effect or hereafter adopted by any governmental authority having or asserting jurisdiction, and such conditions, restriction and other encumbrances, if any, to which the Leased Premises are subject at the time of execution and delivery of this Lease (collectively, hereinafter referred to as the "Laws").
(b) Tenant shall not use or occupy or permit the Leased Premises to be used or occupied, nor do or permit anything to be done in or on the Leased Premises or any part thereof, in a manner that would in any way violate any of the Laws or any certificate of occupancy affecting the Leased Premises or make void or voidable any insurance then in force with respect thereto, or that may interfere in any way with the ability to obtain at regular rates fire or other insurance thereon required to be furnished hereunder by Tenant, or that will cause or be likely to cause injury to any of the Improvements, or that will constitute a public or private nuisance or waste. Nothing contained in this Lease and no action or inaction by Landlord shall be deemed or construed to mean that Landlord has granted to Tenant any right, power or permission to do any act or to make any agreement that may create, give rise to, or be the foundation for, any right, title, interest, lien, charge or other encumbrance upon the estate of Landlord in the Leased Premises.
7. COMPLIANCE WITH LAWS AND AGREEMENTS.
(a) Tenant shall, throughout the term of this Lease, and at Tenant's sole
cost and expense, promptly comply or cause compliance: (i) with all Federal,
State, and local laws, whether present or future, foreseen or unforeseen,
ordinary or extraordinary, and whether or not the same shall be presently within
the contemplation of Landlord and Tenant or shall involve any change of
governmental policy, or require structural or extraordinary repairs,
alterations, or additions, and irrespective of the cost thereof, which may be
applicable to the Leased Premises, and (ii) with any agreements, contracts,
easements and restrictions (collectively, the "Restrictions") affecting the
Leased Premises or any part thereof or the ownership, occupancy or use thereof
(x) existing on the date hereof other than, except as otherwise provided herein,
any mortgage given by Landlord, or (y) hereafter created by Tenant, or consented
to or requested by Tenant.
(b) Except as expressly provided in this Lease, no abatement, diminution, setoff or reduction in Minimum Rental, additional rent or any other charges required to be paid by Tenant pursuant hereto shall be claimed by or allowed to Tenant for any inconvenience or interruption, cessation, or loss of business caused directly or indirectly, by any present or future Laws, or by priorities, rationing or curtailment of labor or materials, or by war, civil commotion, strikes or riots, or any manner or thing resulting therefrom, or by any other cause or causes beyond the control of Landlord or Tenant, nor shall this Lease be affected by any such causes; and, except as expressly provided in this Lease, no diminution in the amount of the space used by Tenant caused by legally required changes in the construction, equipment, fixtures, motors, machinery, operation or use of the Leased Premises shall entitle Tenant to, any abatement, diminution or reduction of the rent or any other charges required to be paid by Tenant pursuant to the terms of this Lease.
8. MAINTENANCE AND REPAIR.
(a) Tenant shall with reasonable promptness throughout the term of this Lease, at Tenant's cost and expense, take good care of and maintain the Leased Premises and all roadways, sidewalks and curbs, if any, on, adjacent and appurtenant thereto, in good order and repair, and shall promptly remove all accumulated snow, ice and debris from any and all roadways, sidewalks and curbs located upon or appurtenant to the Leased Premises and from any and all other sidewalks and curbs adjacent to the Leased Premises.
(b) Tenant shall not commit or suffer to be committed any waste upon or about the Leased Premises, and shall promptly at its cost and expense, make all necessary replacements, restorations, renewals and repairs to the Leased Premises and appurtenances thereto, whether interior or exterior, structural or non-structural, ordinary or extraordinary, and foreseen or unforeseen, which repairs, restorations, renewals and replacements shall, to the extent possible, be at least equivalent in quality to the original work or the property replaced, as the case may be. Tenant shall not make any claim or demand upon or bring any action against the Landlord for any loss, cost, injury, damage or other expense caused by any failure or defect, structural or non-structural, of the Leased Premises or any part thereof.
(c) Landlord shall not under any circumstances be required to build any improvements on the Leased Premises, or to make repairs, replacements, alterations or renewals of any nature or description to the Leased Premises or to any of the Improvements, whether interior or exterior, ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever in connection with this Lease or to inspect or maintain the Leased Premises in any way. Tenant hereby waives the right to make repairs, replacements, renewals or restorations at the expense of Landlord pursuant to any Laws.
9. CHANGES, ALTERATIONS AND NEW CONSTRUCTION BY THE TENANT.
(a) Tenant, at its sole cost and, expense, shall have the right at any time and from time to time during the term of this Lease to make changes and alterations to the building or buildings on the Leased Premises or to construct improvements, thereon or repair any building damaged destroyed or taken (all of the foregoing, including the Construction Addition, are hereinafter collectively called "Tenant Changes" and any of the foregoing is called a "Tenant Change"), subject, however, in all cases, to the following:
(i) Landlord's prior written consent shall be required in each instance of any Tenant Change involving the structure structural integrity or exterior of any building (which consent shall not be unreasonably withheld; it shall not be unreasonable for Landlord to withhold such consent if the same shall be in violation of any Mortgage or if any Mortgagee shall not give its consent to the same where such Mortgagee is entitled to give such consent by the terms of its Mortgage).
(ii) No Tenant Change shall be undertaken until the Tenant shall have procured and paid for all required permits and authorizations of all municipal departments and governmental subdivisions having jurisdiction and until all originals of which are delivered to Landlord.
(iii) Any Tenant Change involving an estimated cost of more than One Hundred Thousand Dollars ($100,000.00) shall be conducted under the supervision of a licensed architect or engineer selected by Tenant and shall be made in accordance with detailed plans and specifications (the "Plans and Specifications").
(iv) Any Tenant Change shall be made promptly and in a good workmanlike manner and in compliance with all applicable permits and authorizations and building and zoning laws and all Laws and in accordance with the orders, rules and regulations of the Board of Fire Insurance Underwriters and any other body hereafter exercising similar functions having or asserting jurisdiction over the Leased Premises.
(v) Tenant shall pay the cost of any Tenant Change in cash or its equivalent, so that the Leased Premises are at all times free of liens for labor or materials supplied or claimed to have been supplied to the Leased Premises.
(vi) Except with respect to Tenant's personal property, any such Tenant Change shall immediately upon incorporation into the Leased Premises be and become the property of the Landlord, subject to the leasehold rights of Tenant hereunder.
(vii) Tenant shall carry all necessary Worker's Compensation Insurance and shall furnish Landlord with evidence of any all such coverage.
(viii) If any Tenant Change is undertaken by Tenant pursuant to the provisions of Section 11 or 12 of this Lease, then each request for payment shall be made on thirty (30) days' prior notice to Landlord and Mortgagee and shall be accompanied by a certificate to be made by the supervising architect or engineer, stating (a) that all of the work completed has been done in material compliance with the approved Plans and Specifications, (b) that the sum requested is justly required to reimburse the Tenant for payments by Tenant to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the work (giving a brief description of such services and materials), and that all persons or entities that could otherwise claim a lien on any portion of or interest in the Leased Premises by reason of having rendered any services or materials for such work have either been paid in full and/or have duly, effectively and irrevocably waived and released all rights to any such liens, and that, when added to all sums previously paid out by the Landlord, such sum may not exceed ninety (90%) percent of the value of the work done to the date of such certificate, with final payment of the balance of the cost of the work to be made upon certification by the supervising architect or engineer as to completion in accordance with the approved Plans and Specifications. The amount of such proceeds remaining in the hands of the Landlord must be sufficient on completion of the work to pay for the same in full (giving in such reasonable detail as Landlord may require an estimate of the cost of such completion).
(ix) If any Tenant Change resulting from a Casualty or Condemnation involving an estimated cost in excess of Fifty Thousand ($50,000.00) Dollars is undertaken by Tenant pursuant to the provisions of this Lease, then each request for reimbursement shall be accompanied by waivers of lien which shall be satisfactory to Landlord and any Mortgagee, covering that part of the work for which payment or reimbursement is being requested and by a search prepared by a title company or licensed abstractor or by other evidence, satisfactory to Landlord and Mortgagee, that there has not been filed with respect to any part of the Leased Premises any mechanics' or other lien or instrument for the retention of title in respect of any of the work not discharged of record, and, if and as requested by, and satisfactory to, Landlord or any Mortgagee, title policy endorsements sufficient to evidence the foregoing and insure the priority of the requesting party's interest in the Leased Premises.
(x) If any Tenant Change involving an estimated cost in excess of Fifty Thousand ($50,000.00) Dollars is undertaken by Tenant pursuant to the provisions of this Section 9 or of Section 11 or 12 of this Lease, then the request for any payment after the work has been completed shall be accompanied by such certificates permits and licenses required by any Laws and such other instruments and agreements as Landlord or any Mortgagee shall require.
(xi) No Tenant Change shall impair the structural integrity of any building.
(xii) Tenant recognizes that the use of the Leased Premises as a manufacturing facility is a legal non-conforming use under applicable zoning laws and regulations. No Tenant Change shall impair the legal non-conforming use status of the Leased Premises. Further, in the event of
a Tenant Change resulting from a Casualty, the Leased Premises shall be restored in a manner such that the use of the Leased Premises after such Tenant Change will continue to be a legal non-conforming use under applicable zoning laws and regulations.
(xiii) In connection with any Tenant Change undertaken pursuant to the provisions of this Section 9 or of Section 11 or 12 of this Lease, Landlord, if required by any Mortgagee, may require Tenant to post a reasonable bond or other security, as shall be reasonably satisfactory to such Mortgagee, to insure the lawful, safe and expedient completion of such Tenant Change.
10. INDEMNITY AND PUBLIC LIABILITY INSURANCE.
(a) Tenant shall at all times indemnify Landlord for, defend Landlord against, and save Landlord harmless from any liability, loss, cost, injury, damage or other expense or risk whatsoever that may occur or be claimed by or with respect to any person(s) or property on the Leased Premises and resulting from the use, misuse, occupancy, possession or vacancy of the Leased Premises by Tenant or any concessionaires, subtenants or other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons, or from the condition of the Leased Premises. Tenant shall, at its cost and expense, defend against any and all such actions, claims and demands and shall indemnify Landlord for all reasonable costs, expenses, and liabilities it may incur in connection therewith. Landlord shall not in any event whatsoever be liable for any injury or damage to the Leased Premises or to Tenant or to any concessionaires, subtenants or other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons or to, any property of any such persons. Tenant shall not make any claim or demand upon or institute any action against the Landlord as result of such injury or damage unless such injury or damage resulted from Landlord's (or Landlord's employees, agents, contractors, invitees and others who are on the premises at the request or Landlord) negligence or acts or omissions.
(b) Tenant, at its cost and expense, shall obtain and maintain in force throughout the term of this Lease, comprehensive general liability insurance against any loss, liability or damage on, about or relating to the Leased Premises, with limits of not less than Five Million ($5,000,000.00) Dollars for death or injuries to one person and not less than Five Million ($5,000,000.00) Dollars for death or injuries to two or more persons in one occurrence, and not less than Two Million Five Hundred Thousand ($2,500,000.00) Dollars for damage to property (all of the foregoing being hereinafter sometimes collectively referred to as the "Liability Insurance"). All such Liability Insurance obtained and maintained by Tenant shall name Landlord, any Mortgagee and Tenant as the insured parties therein and shall be obtained and maintained from and with a reputable and financially sound insurance company(ies) acceptable to Landlord, authorized to issue such insurance in the Commonwealth of Massachusetts.
(c) The policies of insurance required under this Lease shall contain an agreement by the insurer that it will not cancel or modify such policy except after sixty (60) days' prior written notice to Landlord and any mortgagees by certified mail, return receipt requested. Not less than sixty (60) days prior to the expiration of such any insurance policy, Tenant shall deliver to Landlord a certificate evidencing the replacement or renewal thereof.
(d) Tenant shall furnish Landlord and any Mortgagee with duplicate originals (or original certificates) of such insurance policies, including renewal and replacement policies, together with written evidence that the premiums therefor have been paid. It is understood and agreed that said policies may be blanket policies covering other locations operated by Tenant, its affiliates or subsidiaries, provided that such blanket policies otherwise comply with the provisions of this Section 10.
(e) Tenant shall comply, notwithstanding any other provision, with the requirements of any ground lease and any mortgages relating to the insurance and to the proceeds of insurance maintained and required to be maintained by Tenant pursuant to the provisions of Sections 10 and 11 of this Lease.
(f) All such insurance described in subparagraph (b) of this Section 10 shall:
(i) be obtained from and maintained with reputable and financially sound insurance company(ies) acceptable to Landlord and any Mortgagees, authorized to issue such insurance in the Commonwealth of Massachusetts;
(ii) be on and/or contain such terms and conditions as shall be satisfactory to Landlord and to any Mortgagees; and
(iii) contain an agreement by the insurer that it will not cancel or modify such policy except after sixty (60) days' prior written notice to Landlord and any Mortgagees by certified mail, return receipt requested.
11. INSURANCE FOR DAMAGE OR DESTRUCTION AND WORKER'S COMPENSATION.
(a) Tenant shall, throughout the term of this Lease, at its own cost and expense, obtain and maintain in full force and effect and in the name of Tenant, Landlord (as additional insured and loss payee), and, if so requested by Landlord, any Mortgagees (as additional insured and loss payee, as its interest may appear) (except that Landlord and any Mortgagee need not be named on any Worker's Compensation policy) as their respective interests may appear:
(i) all risk insurance, together with a so called "terrorism" endorsement, including but not limited to collapse, loss or damage occasioned by fire, the perils included in the so-called extended coverage endorsement, vandalism and malicious mischief, and water damage covering the Improvements and all replacements and additions thereto, and all fixtures, equipment and other personal property therein; the foregoing coverage shall be provided in amounts sufficient to provide one hundred (100%) percent of the full replacement cost of the Improvements and shall be determined from time to time, at Tenant's expense, at the request of the Landlord, by any appraiser selected by Tenant and approved by Landlord and the insurance carrier;
(ii) if a sprinkler system shall be located in the Leased Premises, sprinkler leakage insurance in amounts reasonably satisfactory to Landlord and any Mortgagees;
(iii) boiler and machinery broad form policy insurance covering explosions in respect of steam and pressure boilers and similar apparatus, if any, located on the Leased Premises in an amount equal to one hundred (100%) percent of the full replacement cost of the Improvements;
(iv) war risk insurance as and when such insurance is obtainable from the United States Government or any agency or instrumentality thereof, and a state of war or national or public emergency exists or threatens, and in an amount not less than the full insurable value of the Leased Premises;
(v) the Liability Insurance as provided in Section 10 of this Lease;
(vi) Worker's Compensation insurance subject to statutory limits or better in respect of any work or other operations on about the Leased Premises;
(vii) during the performance of any construction, broad form Builder's All-Risk insurance; and
(viii) rent insurance on the "All Risks of Physical Loss" basis in an amount equal to one (1) year of the then current Minimum Rental and Impositions.
(b) All such insurance described in subparagraph (a) of this Section 11 shall:
(i) be obtained from and maintained with reputable and financially sound insurance company(ies) acceptable to Landlord and any Mortgagees, authorized to issue such insurance in the Commonwealth of Massachusetts;
(ii) be on and/or contain such terms and conditions as shall be satisfactory to Landlord and to any Mortgagees;
(iii) provide that the proceeds of any loss shall be payable to Landlord (but to be held in escrow by any recognized financial institution selected by Landlord), or, if Landlord so requests, to any Mortgagees in accordance with this Lease;
(iv) contain an agreement by the insurer that it will not cancel or modify such policy except after thirty (30) days' prior written notice to Landlord and any Mortgagees by certified mail, return receipt requested; and
(v) contain an agreement that any loss otherwise payable thereunder shall be payable notwithstanding any act or negligence of Landlord or Tenant which might, absent such agreement, result in a forfeiture of all or part of the payment of such loss.
(c) Not less than thirty (30) days prior to the expiration of any such insurance policy, Tenant shall deliver to Landlord and any Mortgagee a certificate evidencing the replacement or renewal thereof.
(d) Tenant shall furnish Landlord and any Mortgagees with duplicate originals (or original certificates) together with true copy(ies) of all insurance policies described in subparagraph (a) of this Section 11, including renewal and replacement policy(ies), together with written evidence that the premiums therefor (the "Premiums") have been paid. It is understood and agreed
that said policies may be blanket policies covering other locations operated by Tenant, its affiliates or subsidiaries, provided that such blanket policies otherwise comply with the provisions of this Section 11, and provided further that such policies shall provide for a reserved amount thereunder with respect to the Leased Premises so as to assure that the amount of insurance required by the provisions of this Section 11 will be available notwithstanding any losses with respect to other property covered by such blanket policies.
(e) If any portion of the Leased Premises is damaged or destroyed by fire or other casualty, Tenant shall forthwith give notice thereof to Landlord and Tenant shall, at its cost and expense, forthwith repair, restore, rebuild or replace the damaged or destroyed Improvements, fixtures or equipment, and complete the same as soon as reasonably possible, to the condition they were in prior to such damage or destruction, except for such changes in design or materials as may then be required by Law. Landlord, in such event, shall, to the extent and at the times the insurer and any Mortgagees make the proceeds of the insurance available, reimburse Tenant for the costs of making such repairs, restoration, rebuilding and replacements, provided further that said reimbursements need be made only under such conditions that Landlord and any Mortgagees are assured that at all times the Leased Premises shall be free of liens or claims of liens by reason of such work, and provided further that the portion of the proceeds paid out at any time shall not exceed the value of the actual work and materials incorporated in the repaired, restored, rebuilt or replaced Leased Premises and that the conditions described in Section 9 are complied with and that Landlord shall not disburse insurance proceeds for any purpose other than for expenses incurred by Tenant to replace the Leased Premises. To the extent, if any, that the proceeds of insurance made available as aforesaid are insufficient to pay the entire cost of making such repairs, restoration, rebuilding and replacements, and notwithstanding the expiration or termination of the term of this Lease, Tenant shall pay the amount by which such costs exceed the insurance proceeds made available as aforesaid. Any surplus of insurance proceeds over the cost of restoration, net of all expenses incurred by Landlord in connection with the administration thereof, shall be paid over to Landlord. Notwithstanding the foregoing, if such damage or destruction shall occur during the last three years of this Lease, Tenant may, on notice given within one hundred twenty (120) days after the date of the casualty, terminate this Lease, in which event Tenant shall have no obligation to re-build.
(f) In the event of any damage to or destruction of the Leased Premises, Tenant shall promptly notify Landlord and any Mortgagees and shall file prompt proof of loss to the relevant insurance company(ies).
(g) The obligation to pay the rent provided for herein and to otherwise perform Tenant's obligations hereunder shall be abated during the period that the Leased Premises are unusable following damages to the Leased Premises.
(h) The provisions and requirements of all of Section 9 shall apply with
respect to any repairing, restoring, rebuilding or replacing made pursuant to
Section 11; and same shall be made in accordance with the Plans and
Specifications to the extent required hereunder.
(i) As to any loss or damage which may occur upon the property of a party hereto and be collected under any insurance policy(ies), such party hereby releases the other from any and all liability for such loss or damage to the extent of such amounts collected.
(j) Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be furnished by Tenant under Sections 10 and 11 of this Lease, unless Landlord, and with respect to the insurance described in Section 11, and any Mortgagees designated by Landlord, are included therein as named insured, with loss payable as in said Sections, provided. Tenant shall immediately notify Landlord whenever any such separate insurance is taken out and shall deliver to Landlord Lessor duplicate originals thereof, or original certificates evidencing the same with true copies thereof, as provided in this Lease.
12. CONDEMNATION
(a) In the event that at any time during the term of this Lease, title to the whole or materially all of the Improvements on the Leased Premises shall be taken by the exercise of the right of condemnation or eminent domain or by agreement between Landlord and those authorized to exercise such right, this Lease shall terminate and expire on the date of such taking (herein called the "Taking Date") and the rent provided to be paid by the Tenant shall be apportioned and paid to the Taking Date.
(b) If (i) thirty-five (35%) percent or more of the gross area of the
Improvements on the Leased Premises shall be taken, or (ii) substantially all
reasonable means of ingress and egress to and from the Leased Premises are
permanently eliminated by reason of such a taking, then and in any of such
events, Landlord and Tenant shall each have the right to terminate this Lease on
the next day for payment of Minimum Rental occurring at least one hundred twenty
(120) days after notice to the other given within ninety (90) days after the
Taking Date.
(c) In the event of any taking of the Leased Premises and if this Lease shall not terminate as provided in subsection 12(a) and 12(b) above, then this Lease shall continue unaffected (except as hereinafter specifically otherwise provided) and Landlord shall be entitled to all awards, damages, consequential damages and compensation for such taking, and Tenant shall not be entitled to share in any such award or have any claim against Landlord for any part thereof, provided: (i) Landlord shall to the extent the award paid with respect to the Leased Premises is made available to Landlord, reimburse Tenant for its cost of demolition, repair, rebuilding and restoration to return the Improvements to a tenantable condition, as and when expended, and paid in like manner and subject to the provisions and conditions contained in Section 9 above, which provisions and conditions shall be deemed to apply to such demolition, repair, rebuilding and restoration; (ii) the Minimum Rental payable by Tenant to Landlord annually under Section 3 hereof, from and after the date of restoration of the Leased Premises, shall be reduced to reflect the percentage of the usable space taken. In the event of any taking which does not result in a termination of this Lease, Tenant shall promptly make such demolition, repair, rebuilding and restoration as are necessary to return the Leased Premises to a tenantable condition (in accordance with the Plans and Specifications, to the extent same is practicable), and in the event that the cost of such demolition, repair, rebuilding and restoration shall exceed the Net Award collected by the Landlord, Tenant shall pay the deficiency. Notwithstanding anything stated to the contrary herein, in the event of any taking of the Leased Premises and if this Lease shall not terminate as provided in subsection 12(a) and 12(b) above, and this Lease continues unaffected (except as hereinafter specifically otherwise provided), Landlord's Mortgagee shall have the right to cause Landlord to apply all awards, damages, consequential damages and compensation for such taking towards paying down any outstanding principal debt in connection with the Leased Premises, owed by Landlord to Landlord's Mortgagee.
(d) In the event Landlord is advised of an impending condemnation, Landlord shall give notice of such fact to Tenant and Tenant, at its election, shall be entitled to participate in any negotiations or litigation with the condemning authority.
(e) Notwithstanding the foregoing, Tenant, at its cost and expense, shall be entitled to separately claim, in any condemnation proceeding, any damages payable for movable trade fixtures paid for and installed by Tenant (or any persons claiming under Tenant) without any contribution or reimbursement therefor by Landlord, and for Tenant's loss of business, and for Tenant's relocation costs; provided Landlord's award is not reduced or otherwise adversely affected thereby. Tenant shall make no claim for the value of its leasehold estate.
13. REMOVAL OF TENANT'S PROPERTY.
Provided Tenant is not then in default hereunder, Tenant shall have the right, at any time during the term of this Lease, to remove "Tenant's Property", consisting of machinery, trade equipment, business and trade fixtures, and other trade equipment placed, installed, supplied or made by it in or on the Leased Premises at Tenant's cost and expense (without any contribution or reimbursement therefore by Landlord), and which may be removed without material injury to the Leased Premises; provided, however, that any damage to the Leased Premises or any part thereof occasioned by such removal shall be repaired by Tenant at Tenant's cost and expense. As used herein and hereafter, the term "Tenant's Property" shall not include or be deemed to include any item now or hereafter installed in or on the Leased Premises that is an integral part of the improvements, including, without limiting the generality of the foregoing, heating, ventilating, and air conditioning plants and systems, electrical and plumbing fixtures and systems and other like equipment and fixtures, if any.
14. SUBORDINATION, NON-DISTURBANCE, NOTICE TO LESSORS AND MORTGAGEES.
(a) This Lease, and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to any other underlying and ground leases (the "Ground Lease") of all or any portions of the Leased Premises, now or hereafter existing (collectively, the "Superior Leases" and the holder(s) thereof are hereinafter referred to collectively as the "Superior Lessors") and to all mortgages which may now or hereafter affect all or any portions of the Leased Premises and/or the Ground Lease (individually, a "Mortgage" and collectively, the "Mortgages" and the Mortgagee(s) thereof are hereinafter referred to collectively as the "Mortgagees"), to each and every advance made or hereafter to be made under such Mortgages, and to all renewals, modifications, replacements and extensions of the Superior Leases and the Mortgages and spreaders and consolidations of such Mortgages; provided, that, as to any Superior Leases (a) existing as of the date hereof and (b) entered into by Landlord as lessor and/or Mortgages encumbering Landlord's Land or any part thereof that become liens of record after the date of this Lease, the Superior Lessors and/or Mortgagees thereunder shall each enter into a non-disturbance agreement, in favor of Tenant, to provide that in the event its said Mortgage shall be foreclosed or its said Superior Lease shall be terminated, as the case may be, and provided, however, that if there is no uncured Event of Default hereunder, this Lease shall not terminate on account thereof so long as Tenant continues to pay rents reserved in this Lease and otherwise performs and observes in all material respects the terms, covenants, conditions and
provisions of this Lease to be performed and observed by or on behalf of Tenant thereunder, and provided, further, that Tenant shall be entitled to exercise all of its rights under the Lease. At the request of the Superior Lessor or Mortgagee such non-disturbance agreement also may contain the provisions referenced in paragraph (c) below and shall be in such form as it reasonably requires. The provisions of this subsection (a) shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver any instruments that Landlord, the Superior Lessors or the Mortgagees or any of their respective successors in interest, may reasonably request to evidence such subordination. If any Mortgagees shall, from time to time, so require, this Lease shall be prior in lien to the lien of its or their respective Mortgages.
(b) In the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right (i) until it has given written notice of such act or omission to each Mortgagee, and the Superior Lessors whose names and addresses shall previously have been furnished to Tenant in writing, and (ii) unless such act or omission shall not have been cured within thirty (30) days after notice from Tenant unless such act or omission is not capable of being remedied by Landlord or any Mortgagee or the Superior Lessors within such thirty (30) day period, a cure has been commenced within such period and completed with a reasonable period of time thereafter.
(c) If the Ground Lessor or the Superior Lessors or a Mortgagee shall succeed to the rights of Landlord under this Lease whether through possession of foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights (herein sometimes called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment which such Successor Landlord shall agree to accept if so requested by Tenant, Tenant shall attorn to and recognize such Successor Landlord as Tenant's Landlord under this Lease, and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and deliver such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request, such power being coupled with an interest. Upon such attornment, this Lease shall continue in full force and effect as, and as if it were, a direct lease between the Successor Landlord and Tenant upon all of the terms, covenants and conditions set forth in this Lease, and all such terms, covenants and conditions shall be applicable after such attornment except that the Successor Landlord shall:
(i) not be liable for any previous act or omission of Landlord under this Lease,
(ii) not be subject to any offset, not expressly provided for in this Lease, which shall have theretofore accrued or which may thereafter accrue to Tenant against Landlord, and
(iii) not be bound by any previous modification of this Lease, not expressly provided for in this Lease, other than a modification of this Lease executed by Landlord and Tenant prior to the execution of any Superior Lease or Mortgage, or by any previous prepayment of more than one month's Minimum Rental, unless such modification or prepayment shall have been expressly approved in writing by the Superior Lessors or the Mortgagee(s) through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease.
15. NON-WAIVER.
Neither a failure by the Landlord to exercise any of its options hereunder, nor failure to enforce its rights or seek its remedies upon any default, nor the acceptance by the Landlord of any rent accruing before or after any default, shall effect or constitute a waiver of the Landlord's right to exercise such option, to enforce such right, or to seek such remedy with respect to that default or to any prior or subsequent default. The remedies provided in this Lease shall be cumulative and shall not in any way abridge, modify or preclude any other rights or remedies to which the Landlord may be entitled either at law or in equity.
16. QUIET ENJOYMENT.
If Tenant pays rent it is obligated hereunder to pay, and observes all other terms, covenants and conditions hereof, it may peaceably and quietly have, hold and enjoy the Leased Premises during the term of this Lease, subject, however, to all the terms of this Lease. No failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Lease or to abate, reduce or make any deduction from or offset against any rent or any other sum payable under this Lease, or to fail to perform any other obligations of Tenant hereunder.
17. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, sublet the whole or any portion of the Leased Premises, or otherwise transfer the Leased Premises without the prior written consent of Landlord which shall not be unreasonably withheld or delayed; provided, however, that it shall not be unreasonable for Landlord to withhold such consent if the same shall be in violation of any Mortgage or if any Mortgagee shall not give its consent to the same where such Mortgagee is entitled to give such consent by the terms of its Mortgage; provided, further, that if required by such Mortgagee with respect to any request to assign this Lease, the consent to the assignment shall be conditioned upon the agreement of Tenant to remain liable under the Lease. If Tenant shall desire to obtain Landlord's consent to any such transfer, Tenant shall give written notice thereof to Landlord, which notice shall be accompanied by (i) a conformed or photostatic copy of the proposed assignment or sublease, (ii) a statement setting forth in reasonable detail the identity of the proposed assignee or
sublessee, the nature of its business and its proposed use of the Leased Premises, and (iii) current financial information with respect to the proposed assignee or sublessee, including, without limitation, its most recent financial report, if available, and such other information as Landlord may reasonably request. The consent of Landlord shall not be required in connection with an assignment of this Lease pursuant to a merger or consolidation of Tenant into another entity or in connection with the sale by Tenant of all or substantially all of its business and assets or a transfer to a parent or subsidiary of Tenant.
(b) Subject to the requirements set forth in Section 17(a) hereof, Tenant may assign this Lease or sublet the Premises upon condition that:
(i) Any assignment shall transfer to the assignee all of Tenant's rights in, and interest under, this Lease.
(ii) At the time of any assignment and/or subletting, this Lease must be in full force and effect without any breach or default thereunder beyond applicable notice and grace periods on the part of the Tenant and without the existence of any condition, matter or state of fact which, with the giving of notice or the passage of time, or both, would constitute an Event of Default hereunder.
(iii) Any assignee shall assume, by written, recordable instrument, in form and content satisfactory to Landlord, the due performance of all of Tenant's obligations under this Lease including any accrued obligations at the time of the assignment. A copy of the assignment and assumption agreement, both in form and content satisfactory to Landlord, fully executed and acknowledged by the assignee, together with a certified copy of a properly executed corporate resolution (if the assignee be a corporation) authorizing such assumption agreement, shall be sent to Landlord within ten (10) days from the effective date of such assignment.
(iv) A copy of any sublease fully executed and acknowledged by Tenant and the sublessee shall be mailed to Landlord within ten (10) days from effective date of such subletting.
(v) Such assignment and/or subletting shall be subject to all the provisions, terms, covenants and of this Lease and the Tenant-assignor and such assignee(s) shall continue to be and remain liable hereunder, it being expressly understood and agreed that no assignment or subletting of the Leased Premises shall, in any way, relieve Tenant or any subsequent assignee(s) from the performance of any of the agreements, terms, covenants and conditions of this Lease.
(vi) Each sublease shall contain provisions to the effect that (A) such sublease is only for the actual use and occupancy by the sublessee, and (B) such sublease is subject and subordinate to all of the terms, covenants and conditions of this Lease and to all of the rights of Landlord thereunder, and (C) in the event this Lease shall terminate before the expiration of such sublease, the subtenant thereunder will, at Landlord's option, attorn to Landlord and waive any rights the subtenant may have to terminate the sublease or to surrender possession thereunder, as a result of the termination of this Lease.
(c) Notwithstanding anything contained in this Lease to the contrary and notwithstanding any consent by Landlord to any sublease of the Leased Premises
or to any assignment of this Lease or any portion thereof, no subtenant shall assign its sublease nor further sublease the Leased Premises or any portion thereof, and no assignee shall further assign its interest in this Lease nor sublease the Leased Premises or any portion thereof, without Landlord's prior written consent in each of such cases.
(d) Tenant's failure to comply with all of the provisions and conditions of this Section 17 and all of the subsections hereof shall (whether or not Landlord's consent is required under this Section), at Landlord's option, render any purported assignment or subletting null and void and of no force or effect.
(e) Tenant may not mortgage, pledge or otherwise encumber its leasehold estate hereunder, and any attempt to mortgage, pledge or otherwise encumber such estate shall be null and void and of no force and effect without the consent of Landlord.
18. ENTRY BY LANDLORD.
Landlord, any Superior Lessor(s) and any Mortgagee(s), and their respective duly authorized representatives shall have the right to enter the Leased Premises at all reasonable times and upon reasonable prior notice for the purposes of:
(a) inspecting the condition of same, and making such repairs, alterations, additions, or improvements thereto as may be necessary or desirable if Tenant fails to do so as required hereunder (but the Landlord shall have no duty whatsoever to make any such inspections, repairs, alterations, additions, or improvements); and
(b) exhibiting the same to persons who may wish to purchase or lease the same, and, during the last six (6) months of the term of this Lease, placing a notice of reasonable size on the Leased Premises offering the same or any part thereof for sale or for rent.
19. TENANT'S DEFAULT.
The following shall be defined and deemed as an "Event of Default": (a) if
Tenant shall default in the payment of the Minimum Rental or any additional rent
or any other sum due hereunder and if Tenant shall fail to cure said default
within five (5) days after same is due; or, (b) if Tenant shall default in the
performance or observance of any term, obligation, covenant or condition to be
performed or observed by Tenant under this Section 19 or under any of Sections
6(b) 10, 11, 17 or 27(a) of this Lease and such failure or default shall
continue for thirty (30) days after notice thereof from Landlord; or (c) if
Tenant shall default in the performance or observance of any term, obligation,
covenant or condition to be performed or observed by Tenant under subsection
7(a)(ii) and if Tenant shall fail to cure said default prior to the expiration
of any grace or cure period, if any, provided in the Restriction the failure to
comply with which constitutes Tenant's default under said subsection 7(a)(ii);
or (d) if Tenant shall default in the performance or observance of any other
term, obligation, covenant or condition to be performed or observed by Tenant
under this Lease and if Tenant shall fail to cure said default within twenty
(20) days after receipt of notice of said default from Landlord, or if said
default shall reasonably require longer than twenty (20) days to cure, if Tenant
shall fail to commence to cure said default within twenty (20) days after
receipt of notice thereof and continuously prosecute the curing of the same to
completion with due diligence, or (e) if Tenant shall make an assignment of its
property for the benefit of creditors or shall institute any proceedings
relating to it or its property under any bankruptcy or insolvency laws of any
jurisdiction or shall petition to any court for, or consent to, the appointment
of a receiver, trustee or assignee of it or any part of its property, or (f) if
an order for relief under any provisions of the Bankruptcy Reform Act of 1978,
as same may be amended, shall be entered against Tenant and is not stayed or
dismissed within ninety (90) days, or (g) if Tenant shall be declared bankrupt
or insolvent according to law, or (h) if any bankruptcy or insolvency
proceedings shall be commenced against Tenant and shall not be stayed or
dismissed within ninety (90) days thereafter, or (i) if a receiver, trustee, or
assignee shall be appointed without the consent of Tenant in any bankruptcy or
insolvency proceedings of Tenant or the property of Tenant and shall not be
stayed or discharged within ninety (90) days thereafter, or (j) if Tenant shall
be liquidated or dissolved, or shall begin proceedings toward its liquidation or
dissolution, or shall, in any manner, permit the divestiture of substantially
all of its assets, or (k) if, as a result of any failure by Tenant (other than
as otherwise provided in this Section 19) to perform or observe any of the
terms, obligations, covenants or conditions to be performed or observed by it
under this Lease, a breach or default shall have occurred and be continuing
under any Superior Lease or Mortgage. The word "Tenant" as used in subsections
(e), (f), (g), (h), (i), (j) and (k) of this Section 19 shall mean the then
holder of the Tenant's interest in this Lease hereunder and/or other persons who
or which are liable for any of Tenant's obligations under this Lease. Any
defaults in Tenant's liabilities or obligations under this Lease occasioned by
any acts or failures to act by any persons having or claiming any right, title
and interest in or to the Leased Premises by, through or under Tenant, shall be
deemed the default of Tenant hereunder. If this Lease is terminated pursuant to
this section 19, Tenant waives (i) the benefit of any Laws exempting property
from liability for rent or for debt, and (ii) the service of any notice which
may be required by any Laws.
In case of the occurrence of any Event of Default hereinbefore provided, Landlord shall have the immediate right of reentry and may remove all persons and property from the Leased Premises by summary proceedings, lawful force or otherwise. In addition, in the event of the occurrence of any Event of Default (whether or not Landlord shall elect to reenter or to take possession pursuant to legal proceedings or pursuant to any notice provided for by Laws) Landlord shall have the right, at its option, to terminate this Lease on not less than two (2) days notice to Tenant and upon the giving of said notice, this Lease and the term hereof shall cease and expire on the date set forth in said notice as if the date were the expiration date originally set forth herein and/or it may from time to time, whether or not this Lease be terminated, make such alterations and repairs as may be reasonably necessary in order to relet the Leased Premises or any part(s) thereof for such term or terms (which may extend beyond the term of this Lease) and at such rental(s) and upon such other terms and conditions as Landlord in its sole discretion may deem advisable; upon each such reletting all rentals received by the Landlord from such reletting shall be applied, first, to the payment of any indebtedness (other than rents due
hereunder) of Tenant to Landlord, second, to the payment of any costs and expenses of such reletting, including, without limitation, brokerage fees (at no greater than customary rates in the area in which the Leased Premises is located) and reasonable attorneys' fees and of the cost of such alterations and repairs, third, to the payment of rents due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rents and other payments required to be made by Tenant hereunder as the same may become due and payable hereunder, with the right reserved to Landlord to bring such action(s) or proceedings(s) for the recovery of any deficits remaining unpaid without being obliged to await the end of the term for a final determination of Tenant's account; and the commencement or maintenance of any one or more actions shall not bar Landlord from bringing other or subsequent actions for further accruals pursuant to the provisions of this Section. If such rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly subject to Landlord's right of action(s) or proceedings as aforesaid. No such reentry or taking possession of the Leased Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach as damages for loss of the bargain and not as a penalty, including the cost of recovering the Leased Premises, reasonable attorneys' fees, and including the worth, at the time of such termination, of the excess, if any, of the amount of rental and charges equivalent to the rental and charges reserved in this Lease for the remainder of the then term of this Lease, over the aggregate rental value of the Leased Premises for the remainder of such term, all of which shall be immediately due and payable from Tenant to Landlord. If any Laws shall validly limit the amount of the damages provided for in the immediately preceding sentence to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such Laws. In the event the Tenant does not comply with its obligations under this Lease, Landlord shall also have the right to appropriate injunctive relief. The rights and remedies whether herein or anywhere else in this Lease provided shall be cumulative, and the exercise of any one right or remedy shall not preclude the exercise of or act as a waiver of any other right or remedy of Landlord hereunder, or which may be existing at law, or in equity or by statute or otherwise. In addition to the foregoing, Tenant, and its successors and assigns, shall at all times indemnify Landlord for, defend Landlord against and save Landlord harmless from any liability, loss, cost, injury, damage or other expense or risk whatsoever (including, without limitation, attorneys' fees and expenses), directly or indirectly, arising out of, resulting from or otherwise in connection with the failure for any reason on the part of Tenant to perform, observe or comply with any of the covenants, conditions and obligations under this Lease to be performed, observed or complied with by Tenant, and/or (ii) the failure for any reason of any representation, warranty or covenant given by Tenant in connection with the execution of this Lease by Landlord to be materially true, complete and accurate, including, without limitation, any representation, warranty or covenant given or made by Tenant under that certain Contract of Purchase and Lease executed by and between Landlord or its predecessor-in-interest, as purchaser, and Tenant or its predecessor-in-interest, as seller, respecting the acquisition of the Leased Premises by Landlord and contemporaneously with the consummation of which this Lease was executed, all of which representations, warranties and covenants are hereby incorporated by reference herein this Lease.
20. TAX APPEALS AND CONTESTS.
(a) Tenant shall have the right, at its cost and expense, to contest the amount or validity, in whole or in part, of any Imposition of any kind by appropriate proceedings diligently conducted in good faith, but no such contest shall be carried on or maintained by Tenant after the time limit for the payment of any Imposition unless the Tenant, at its option: (i) shall pay the amount involved under protest; or (ii) shall procure and maintain a stay of all proceedings to enforce any collection of any Imposition, together with all penalties, interest, costs and expenses, by a deposit of a sufficient sum of money, or by such undertaking, as may be required or permitted by law to accomplish such stay, if any; or (iii) shall deposit with Landlord or the Ground Lessor or any Superior Lessor or Mortgagee, as security for the performance by the Tenant of its obligations hereunder with respect to such Impositions, such security in amounts equal to such contested amount and such other security as may be demanded by the Landlord or the Ground Lessor or any Superior Lessor or Mortgagee to insure payment of such contested Imposition and all penalties, interest, costs and expenses which may accrue during the period of the contest. Upon the termination of any such proceedings, it shall be the obligation of Tenant to pay the amount of such Imposition or part thereof, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees (including counsel fees), interest, penalties or other liabilities in connection therewith, whereupon the Landlord shall arrange to have returned to the Tenant, with any interest (less an administrative fee of one (1%) percent per annum) earned thereon and made available for such return, all amounts, if any, held by or on behalf of Landlord which were deposited by the Tenant in accordance with the provisions hereof.
(b) Tenant shall have the right, at its cost and expense, to seek a reduction in the valuation of the Leased Premises as assessed for tax purposes and to prosecute any action or proceeding in connection therewith. Provided Tenant is not in default hereunder beyond any applicable notice and grace periods, beyond any applicable notice and grace periods, Tenant shall be authorized to collect any tax refund of any tax paid by Tenant obtained by reason thereof and to retain the same (except for tax refunds for any period prior to the date hereof).
(c) Landlord agrees that whenever Landlord's cooperation is required in any of the proceedings brought by Tenant as aforesaid, Landlord will reasonably cooperate therein, provided same shall not entail any cost, liability or expense to Landlord and Tenant will pay, indemnify and save Landlord harmless of and from, any and all liabilities, losses, judgments, decrees, costs and expenses (including all reasonable attorneys' fees and expenses) in connection with any such contest and will, promptly after the final settlement, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and Tenant shall perform and observe all acts and obligations, the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord or the Ground Lessor or any Superior Lessor or Mortgagee to the risk of any material civil liability or the risk of any criminal liability and Tenant shall give such reasonable indemnity or security to Landlord, any Superior Lessor and any Mortgagee as may reasonably be demanded by any of them to insure compliance with the foregoing provisions of this Section 20.
21. SIGNS.
Tenant may, during the term of this Lease, upon obtaining any and all necessary permits from governmental authorities, paint or erect and maintain, at its cost and expense, signs of such dimensions and materials as it may reasonably deem appropriate in or about the Leased Premises. Tenant shall remove all such signs and any damage caused by such removal shall promptly be repaired by Tenant, all at Tenant's sole cost and expense, upon the termination of its occupancy of the Leased Premises.
22. SURRENDER OF PREMISES.
Except in the case of condemnation described in subsection 12(a), at the expiration or sooner termination of the term of this Lease, Tenant shall surrender the Leased Premises in good condition, reasonable wear and tear excepted, and shall surrender all keys for the Leased Premises to Landlord at the place then fixed for the payment of rent and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Leased Premises. Tenant shall within thirty (30) days of such time remove all Tenant's Property and shall repair any damage to the Leased Premises caused thereby, and any or all of such property not so removed shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant. If the Leased Premises be not surrendered as and when aforesaid, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Leased Premises including, without limitation, any claims made by any succeeding occupant founded on such delay. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease.
23. BROKER.
Tenant represents and warrants to Landlord that it has not dealt with any broker or person acting as broker, finder or salesperson in connection with this Lease. The execution and delivery of this Lease by Landlord shall be conclusive evidence that Landlord has relied upon the foregoing representation and warranty. Tenant shall indemnify and hold Landlord harmless from and against any and all claims for commission, fee or other compensation by any Person who has dealt with Tenant in connection with this Lease and for any and all costs incurred by Landlord in connection with such claims, including, without limitation, reasonable attorneys' fees and disbursements. The provisions of this Article 23 shall survive the Expiration Date.
24. "LANDLORD" DEFINED.
(a) The term "Landlord" as used in this Lease, means only the owner of the Leased Premises for the time being, so that in the event of any sale or other transfer of the Leased Premises, Landlord shall be and hereby is entirely freed and relieved of all liabilities and obligations of Landlord hereunder, and it shall be deemed without further agreement between the parties and any successor of Landlord, that such successor has assumed and agreed to perform and observe all liabilities and obligations of Landlord hereunder.
(b) Notwithstanding anything contained herein to the contrary, it is specifically understood and agreed that there shall be no personal liability on any of Landlord's stockholder, members, partners, officers, directors, employees or agent in respect of any of the terms, covenants, conditions or provisions of this Lease, and in the event of a breach or default by Landlord of any of its liabilities and obligations under this Lease, Tenant and any persons claiming by, through or under Tenant shall look solely to the equity of the Landlord in the Leased Premises for the satisfaction of Tenant's and such persons' remedies and claims for damages.
25. TENANT'S PAYMENTS.
Each and every payment and expenditure, other than Minimum Rental and other than costs for any additions, alterations, repairs, replacements and improvements to the Improvements, which are required to be paid by Tenant under this Lease shall be deemed to be additional rent hereunder, whether or not the provisions requiring payment of such amounts specifically so state, and shall be payable, unless otherwise provided in this Lease, on demand by Landlord and in the case of the non-payment of any such amount, Landlord shall have, in addition to all of its other rights and remedies, all of the rights and remedies available to Landlord hereunder or by Laws in the case of non-payment of Minimum Rental. Unless expressly otherwise provided in this Lease, the performance and observance by Tenant of all the terms, covenants and conditions of this Lease to be performed and observed by Tenant hereunder shall be performed and observed by Tenant at Tenant's sole cost and expense. Tenant agrees to pay or reimburse Landlord, on demand, for any reasonable costs and expenses that may be incurred by Landlord or any Superior Lessor or Mortgagee in connection with its or their review of any instrument or documents requested by Tenant pursuant to this Lease or relating to the Leased Premises including but not limited to the costs and expenses of making such investigations as Landlord and said entities shall deem appropriate and the reasonable legal fees and disbursements of Landlord and said entities and their counsel. All payments of Minimum Rental hereunder shall be made to Landlord by check, as Landlord may direct, at the address set forth in the beginning hereof unless otherwise provided herein or at such other address as may be designated by Landlord, or by wire transfer of federal funds to an account or accounts designated by Landlord.
26. RIGHT TO CURE DEFAULTS.
If Tenant shall fail to fully comply with any of its liabilities or obligations under this Lease (including, without limitation, its obligation to make repairs, maintain various policies of insurance, comply with all Laws and pay all Impositions and bills for utilities), then three (3) days after the giving of written notice of such breach to Tenant (except that prior written notice shall not be required in the event of an emergency) Landlord shall have the right, at its option, to cure such breach at Tenant's cost and expense. Tenant agrees to reimburse Landlord (as additional rent) for all losses, costs, damages and expenses resulting therefrom or incurred in connection therewith, together with interest thereon from demand at the Default Rate, promptly upon demand.
27. COVENANT AGAINST LIENS.
(a) If, because of any act or omission (or alleged act or omission) of Tenant, any mechanic's or other lien, charge or order for the payment of money or other encumbrances shall be filed or imposed against Landlord, the Ground Lessor, any Superior Lessor, any Mortgagee and/or any portion of the Leased Premises (whether or not such lien, charge, order or encumbrance is valid or enforceable as such), Tenant shall, at its cost and expense, cause same to be discharged of record or bonded within thirty (30) days after notice to Tenant of the filing or imposition thereof; and Tenant shall indemnify and defend Landlord against and save Landlord harmless from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable counsel fees, resulting therefrom. If Tenant fails to comply with the foregoing provisions, Landlord shall have the option in addition to its other rights or remedies of discharging or bonding any such lien, charge, order or encumbrance, and Tenant agrees to reimburse Landlord (as additional rent) for all losses, costs, damages and expenses resulting therefrom or incurred in connection therewith, together with interest thereon (at a rate equal to the "Default Rate") promptly upon demand.
(b) All materialmen, contractors, artisans, mechanics, laborers and any other persons now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to any portion of the Leased Premises, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies or equipment furnished or to be furnished to the Tenant upon credit, and that no mechanic's or other lien for any such labor, services, materials, supplies or equipment shall attach to or affect the estate or interest of Landlord in and to the Leased Premises.
28. WAIVER OF REDEMPTION.
It is understood by Tenant that Landlord is unwilling to enter into any lease of the Leased Premises unless the statutory rights of redemption after a dispossess proceeding and to a second further trial after an action in ejectment shall be waived by Tenant (unless such second or further trial results from an Appellate Court decision reversing the decision of the first trial) and Tenant being willing to waive all such rights of redemption conferred by statute in order that it may secure a lease, Tenant covenants and agrees that in the event of an action for ejectment or any other action or proceeding to dispossess, terminating this Lease, the right of redemption provided or permitted by any Laws and the right to any second or further trial provided or permitted by any laws, shall be and hereby are expressly waived (unless such second or further trial results from an Appellate Court decision reversing the decision of the first trial). Tenant hereby expressly waives the service of any notice in writing of intention to reenter as provided for or may be provided for in and by the laws of the State in which the Leased Premises is located, as the same may from time to time exist.
29. LANDLORD'S AND TENANT'S CERTIFICATES.
Landlord and Tenant shall, each without charge at any time and from time to time, within ten (10) days after request by the other party, certify by written instrument, duly executed, acknowledged and delivered to the Ground Lessor, any Superior Lessor, Mortgagee, assignee of any Mortgages or purchaser, or any proposed Mortgagee, or proposed assignee or sub-tenant of Tenant or any other person, firm or corporation specified by Landlord or Tenant:
(a) That this Lease is unmodified and in full force and effect (or, if there has been modification, that the same is in full force and effect as modified and stating the modifications);
(b) Whether or not there are then existing any breaches or defaults by the other party under any of the terms of this Lease and specifying such breach or default or any setoffs or defenses against the enforcement of any of the agreements, terms, covenant or conditions of this Lease upon the part of the Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same); and
(c) The dates, if any, to which the rental(s) and other charges under this Lease have been paid in advance.
30. WAIVER OF TRIAL BY JURY.
Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other, upon any matters whatsoever arising out of or in any way connected with this Lease, Tenant's use or occupancy of the Leased Premises, and/or any claim of injury or damage. It is further mutually agreed that in the event Landlord commences any summary proceeding for non-payment of Minimum Rental or additional rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding.
31. NET LEASE.
This is an absolutely net lease, and, except as otherwise specifically provided in Section 11 or 12 of this Lease, this Lease shall not terminate nor shall Tenant have any, right to terminate this Lease; nor shall Tenant be entitled to any abatement, deduction, deferment, suspension or reduction of, or setoff, defense or counterclaim against, any rentals, charges, or other sums payable by Tenant under this Lease; nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of damage to or destruction of the Leased Premises from whatever cause, any taking by condemnation, eminent domain or by agreement between Landlord and those authorized to exercise such rights, the lawful or unlawful prohibition of Tenant's use of the Leased Premises, the interference with such use by any persons, corporations or other entities, or by reason of any eviction by paramount title, or by reason of Tenant's acquisition of ownership of the Leased Premises otherwise than pursuant to an express provision of this Lease, or by reason of any default or breach of any warranty by Landlord under this Lease or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties, or for any
other cause whether similar or dissimilar to the foregoing, any Laws to the contrary notwithstanding; it being the intention that the obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and that the Minimum Rental, additional rent and all other charges and sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated or abated pursuant to the express provisions of this Lease; and Tenant covenants and agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, cancel, rescind or void this Lease, notwithstanding the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee of, or successor to Landlord, and notwithstanding any action with respect to this Lease that may be taken by a trustee or receiver of Landlord or any assignee of, or successor to, Landlord or by any court in any such proceeding.
32. MISCELLANEOUS PROVISIONS.
(a) NOTICES. Any notice, exercise of option or election, communication, request or other document or demand required or permitted under this Lease shall be in writing and shall be given to Landlord or Tenant by Federal Express or other similar national, reputable, overnight courier which provides proof of delivery, registered or certified mail, return receipt requested, postage prepaid, to the parties at the address listed below:
(i) to the Landlord as follows:
WM Realty Management, LLC One Bella Drive (a/k/a 48 Town Farm Road) Westminster, Massachusetts 01473 Attention: Andrew A. Levy, Manager
And Copy to:
Katsky Korins LLP
605 Third Avenue
New York, New York 10158
Attention: Asher S. Levitsky P.C.
(ii) to the Tenant as follows:
Ranor, Inc.
One Bella Drive (a/k/a 48 Town Farm Road)
Westminster, Massachusetts 01473
Attention: Stanley Youtt, President
And Copy to:
Katsky Korins LLP
605 Third Avenue
New York, New York 10158
Attention: Asher S. Levitsky P.C.
Either party may, from time to time, change the address at which such written notices, exercise of options or elections, communications, requests, or other documents or demands are to be mailed, by giving the other party(ies) written notice of such changed address, pursuant to the terms hereinabove set forth. Tenant shall send copies of any and all said notices and other communications addressed to Landlord, to any Mortgagees and Superior Lessors, who shall be designated by Landlord, in the same manner as notices are required to be sent to Landlord, and at such addresses as Landlord may from time to time designate by notice to Tenant. Contemporaneously with the execution of this Lease, Landlord is providing Tenant with the name, address and contact person for the Mortgagee with respect to the Leased Premises, and Tenant acknowledges receipt of such notice.
(b) RELATIONSHIP OF THE PARTIES. It is the intention of the parties hereto to create the relationship of Landlord and Tenant, and no other relationship whatsoever, and unless expressly otherwise provided herein, nothing herein shall be construed to make the parties hereto liable for any of the debts, liabilities or obligations of the other party.
(c) APPLICABILITY. Whenever a provision in this Lease is stated to apply to the term of this Lease, or words of similar import, the same shall be deemed to mean and include any Option Term as well, unless specific reference is made to such provisions as having applicability only to all or any portions of the Initial Term and/or any Option Term.
(d) GOVERNING LAWS. This Lease shall be governed exclusively by the provisions hereof and by, and shall be construed in accordance with, the laws of the Commonwealth of Massachusetts.
(e) INVALIDITY OF PARTICULAR PROVISION. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
(f) WAIVER. Failure on the part of either party to complain of any action or non-action on the part of the other party, no matter how long the same may continue, shall never be deemed to be a waiver by either party of any of its rights hereunder. Acceptance by Landlord of Minimum Rental, additional rent or any other charges paid by Tenant hereunder shall not be or be deemed to be a waiver by Landlord of any default by Tenant, whether or not Landlord knows of such default. No waiver at any time of any of the provisions hereof by either party shall be construed as a waiver of any of the other provisions hereunder and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions.
(g) COUNTERPARTS. This Lease may be executed in several counterparts, each of which shall be deemed an original, and such counterparts shall constitute but one and the same instrument.
(h) SOLE AGREEMENT. This Lease sets forth all the promises, inducements, agreements, conditions and understandings between Landlord and Tenant relative to the demise of the Leased Premises, and there are no promises, agreements, conditions or understandings, either oral or written, express or implied between them, other than as herein incorporated or set forth with respect to such demise. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant, unless reduced to writing and signed by the party(ies) to be charged therewith.
(i) SHORT FORM OF LEASE. A short form of Lease for recording purposes only, in form satisfactory to Landlord's counsel, shall, simultaneously with the execution hereof, and at any time hereafter upon the request of Landlord, be executed by Landlord and Tenant in recordable form.
(j) CAPTIONS. The captions of the several Sections and subsections of this Lease and table of contents are not a part of the context hereof and shall be ignored in construing this Lease. They are intended only as aids in locating various provisions hereof.
(k) SUCCESSORS AND ASSIGNS. Except as may be expressly otherwise provided herein, the terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Landlord and its successors and assigns and the terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Tenant and its successors and permitted assigns.
(l) NO MERGER. There shall be no merger of this Lease, or the leasehold
estate created by this Lease, with any other estate or interest in the Leased
Premises, or any part thereof, by reason of the fact that the same person, firm,
corporation or other entity may acquire or own or hold, directly or indirectly,
(i) this Lease or the leasehold estate created by this Lease, or any interest in
this Lease or in any such leasehold estate, and (ii) any such other estate or
interest in the Leased Premises or any part thereof; and no such merger shall
occur unless and until all persons, corporations, firms and other entities
having an interest (including a security interest) in (i) this Lease or the
leasehold estate created by this Lease; and (ii) any such other estate or
interest in the Leased Premises or any part thereof, shall join in a written
instrument effecting such merger and shall duly record the same.
(m) RIGHTS OF SUPERIOR LESSOR. Any rights provided herein for the benefit of any Mortgagees shall apply with equal force and effect for the benefit of the Ground Lessor and any Superior Lessors as if expressly so stated in each instance.
(n) OWNERSHIP OF LEASED PREMISES. Tenant acknowledges that the Leased Premises are the property of Landlord and that Tenant has only the right to the possession and use thereof upon the terms, covenants and conditions set forth in this Lease.
(o) ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Improvements shall, at any time during the Term hereof, encroach upon any property, street or right of way adjoining or adjacent to the Leased Premises, or shall violate the agreements or conditions contained in any restrictive covenant or other agreement affecting the Leased Premises, or any part thereof, or shall hinder or obstruct any easement or right-of-way to which the Leased Premises are subject, or shall impair the rights of others under such easement or right-of-way, then promptly upon the request of the Landlord at the behest of any persons affected by any such encroachment, violation, hindrance, obstruction or impairment, Tenant shall, at its cost and expense, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord or Tenant, or (ii) make such changes in the Improvements and take such other actions as shall be necessary to remove such encroachments, hindrances or obstructions and to end such violations or impairments, including, if necessary, but only with Landlord's prior written consent, the alteration or removal of any of the Improvements. Any such alteration or removal consented to by Landlord shall be made by Tenant in accordance with the requirements of Section 9, above. Tenant's obligations under this subsection 32(o) shall survive the expiration or sooner termination of this Lease.
(p) ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or of the Leased Premises, or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and consented to in writing by any and all Mortgagees and the Ground Lessor and any Superior Lessors, and no act or omission by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, consented to as aforesaid, shall constitute an acceptance of any such surrender.
(q) CONSENT BY LANDLORD. Wherever in this Lease Landlord agrees not to unreasonably withhold its consent or approval, or words of like import, Tenant agrees that it shall not be unreasonable for Landlord to withhold, such consent or approval (i) if by granting such consent or approval Landlord shall be in violation of any Mortgage, the Ground Lease or any Superior Lease, or (ii) the Ground Lessor, and Superior Lessor or any Mortgagee shall not give its consent or approval thereto where its consent or approval is required or where the Ground Lessor, or any Superior Lessor or any Mortgagee is entitled to give its consent or approval by the terms of the Ground Lease, any Superior Lease or its Mortgage. Anything herein contained to the contrary notwithstanding, any consent or approval given by Landlord in or pursuant to the terms of this Lease with respect to any act or matter to which the Ground Lessor, any Superior Lessor or a Mortgagee is entitled by the terms of the Ground Lease, any Superior Lease or its Mortgage to consent or approve shall be of no force or effect, and shall be deemed to have been withheld, unless accompanied by the written consent or approval of the Ground Lessor, any Superior Lessor or Mortgagee. In the event
that a claim or adjudication is made that Landlord has acted unreasonably or unreasonably delayed acting in any case where by law or under this Lease it has an obligation to act reasonably or promptly, Landlord shall not be liable for any monetary damages, and Tenant's remedies shall be limited to injunctive relief or declaratory judgment. Any dispute relating to the withholding or delay of consent by Landlord may be determined, at Tenant's option, under the Expedited Procedures provisions of the Commercial Arbitration Rules of the American Arbitration Association (presently Rules 53 through 57); provided, however, that with respect to any such arbitration, (i) the list of arbitrators referred to in Rule 54 shall be returned within five (5) business days from the date of mailing, (ii) the parties shall notify the American Arbitration Association, by telephone, within four (4) days of any objections to the arbitrator appointed and will have no right to object if the arbitrator so appointed was on the list submitted by the American Arbitration Association and was not objected to in accordance with the second sentence of Rule 54, (iii) the Notice of Hearing referred to in Rule 55 shall be four (4) days in advance of the hearing, (iv) the hearing shall be held within seven (7) days after the appointment of the arbitrator, and (v) the arbitrator shall have no right to award damages. Judgment upon any decision rendered in any arbitration held pursuant to this Article shall be final and binding upon Landlord and Tenant, whether or not a judgment shall be entered in any Court. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article, including the expenses and fees of any arbitrator selected by it in accordance with the provisions of this Article, and the parties shall share all other expenses and fees of any such arbitration. The arbitrators shall be bound by the provisions of this Lease, and shall not add to, subtract from or otherwise modify such provisions.
(r) HOLDOVER. If Tenant should remain in occupancy of the Leased Premises after the expiration of the lease term, Tenant shall (i)for the first sixty days of such occupancy, pay Minimum Rental equal to one hundred fifty (150%) percent and thereafter two hundred (200%) percent of the Minimum Rental payable hereunder for the last year of the Initial Term or the Option Term, as the case may be, prorated for the period that Tenant remains in occupancy, (ii) pay all additional rent required hereunder, and (iii) otherwise comply with the terms of this Lease. Nothing herein is intended to grant Tenant the option to remain in occupancy at such rental or limit Landlord's remedies in such event.
(s) All sums of money or charges of any kind payable by Tenant to Landlord pursuant to this Lease, other than Minimum Rental are items of "additional rent" and Landlord shall have the same rights with respect to the collection thereof and the enforcement of payment thereof as Landlord has with respect to the payment of Minimum Rental.
33. LATE CHARGES.
(a) Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the term of any mortgage or trust deed encumbering the Leased Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within five (5) days after the date on which such sum is due, Tenant shall pay to Landlord a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.
(b) Any amount due Landlord not paid within ten (10) days after the date on which such amount is due shall bear interest from the due date of such amount at a rate (the "Default Rate") equal to the lesser of (i) the maximum rate of interest permitted under the laws of the Commonwealth of Massachusetts or (ii) the greater of (A) eighteen percent (18%) per annum or (B) the rate per annum which is four percent (4%) above the prime rate of Citibank, N.A. Payment of such interest shall not excuse or cure any default by Tenant under this Lease.
34. ENVIRONMENTAL LAWS.
The term "Environmental Laws" shall mean all Federal, State and local laws including statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances including, but not limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 ("RCRA"), the Federal Comprehensive Environmental Responsibility Cleanup and Liability Act of 1980 ("CERCLA"), regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations of any federal or state department of natural resources or environmental protection agency now or at any time hereafter in effect.
Tenant covenants and agrees to comply in all material respects with applicable Environmental Laws and provide to Landlord, immediately upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a circumstance or condition which requires or may require a financial contribution by Tenant or Landlord or a cleanup, removal, remedial action, or other response by or on the part of Tenant or Landlord under Environmental Laws or which seeks damages or civil, criminal or punitive penalties from Tenant or Landlord for an alleged violation of Environmental Laws. In the event of any such circumstance, Tenant agrees, at its expense and at the request of Landlord to permit an environmental audit solely for the benefit of Landlord, the Ground Lessor, the Superior Lessors or the Mortgagees, to be conducted by Landlord or the Ground Lessor, the Superior Lessors or the Mortgagees or an independent agent selected by Landlord or the Ground Lessors, the Superior Lessors or the Mortgagees and which may not be relied upon by Tenant for any purpose. This provision shall not relieve Tenant from conducting its own environmental audits or taking any other steps necessary to comply with Environmental Laws. If in the opinion of Landlord or the Ground Lessor or any Superior Lessor or a Mortgagee there exists any uncorrected violation by Tenant of an Environmental Law or any condition which requires, or may require, a cleanup, removal or other remedial action by the Tenant under any Environmental Laws, and such cleanup, removal or other remedial action is not completed within ninety (90) days from the date of written notice from Landlord to Tenant, the same shall at the option of the Landlord constitute an Event of Default.
Tenant shall indemnify and hold Landlord, the Ground Lessor, any Superior Lessor and any Mortgagee harmless from and against, and the Tenant hereby agrees to reimburse Landlord, the Ground Lessor, any Superior Lessor and any Mortgagee with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including attorneys, fees and court costs) of any and every kind or character, known or unknown, fixed or contingent, asserted against, incurred by or required to be paid by Landlord, the Ground Lessor, any Superior Lessor and any Mortgagee at any time and from time to time from and after the Commencement Date of this Lease by reason of or arising out of the ownership, construction, occupancy, operation, use or maintenance of the Leased Premises resulting in or giving rise to a breach or violation of any Environmental Laws. This indemnity applies, without limitation, to any violation of any Environmental Law and any and all matters arising out of any act, omissions, event or circumstance existing or occurring (including without limitation, the presence on the Leased Premises or release from the Leased Premises of hazardous substances or solid waste disposed of or otherwise released, regardless of whether the act, omission, event or circumstance constituted a violation of any Environmental Law at the time of its existence or occurrence. The terms "hazardous substance" and "release" shall have the meanings specified in CERCLA and the terms "solid waste" and "disposed" shall have the meanings specified in RCRA. However, in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of the amendment and provided further, to the extent that the laws of the Commonwealth of Massachusetts establish a meaning for "hazardous substance", "release", "solid waste", or "disposed" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply.
35. [INTENTIONALLY DELETED]
36. TRANSFER TAXES.
Tenant agrees that Tenant shall be liable for any and all state and local transfer taxes, payable in connection with this Lease, including, without limitation, by virtue of the fact that this Lease is a lease coupled with the granting of the Option to Purchase. Tenant agrees to deliver to Landlord, simultaneously with the execution of this Lease, applicable state and local transfer tax returns duly executed and acknowledged, together with a check or checks for the applicable transfer taxes. Tenant agrees to indemnify and hold Landlord harmless from and against any losses, costs or expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by Landlord as a result of Tenant's failure to pay the applicable transfer taxes .
37. OPTION TO PURCHASE.
(a) Landlord hereby grants Tenant the option the purchase (the "Option to Purchase") the Entire Parcel, such being Landlord's entire ownership position including assignment of underlying leases, exercisable at any time beginning one year and one day from the date hereof and extending through the Term at Appraised Value. Said Option may be exercised only if Tenant is in compliance in all material respects with the terms and conditions of this Lease at the time of exercise. Appraisals of the Premises shall be obtained by two local recognized MAI appraisers, one chosen by Tenant and one chosen by Landlord, who shall value the Premises at fair market value. Once the appraisals are complete, the parties shall compare the two valuations. If the valuations are within ten percent (10%) of each other, then the valuation of the Premises shall be the average of the two appraisals. If the valuations are more than ten percent [10%] of each other, and the parties cannot agree upon a valuation, then the two appraisers appointed above shall appoint a third MAI appraiser to appraise the Premises at fair
market value. Once the third appraisal is completed, the Appraised Value of the Premises shall be the average of the appraisals. Notwithstanding the foregoing, in the event that all or any part of the Entire Parcel is subject to a first Mortgage, if required by the Mortgagee, the purchase price payable pursuant to the Option to Purchase shall not be less than (i) Landlord's costs associated with the closing of the sale pursuant to the Option to Purchase and (ii) the principal, the accrued interest and any other sums that may then be due and owing to Mortgagee under the Mortgage (including Mortgagee's reasonable attorneys' fees) on the intended date of closing, as set forth in the Exercise Notice, as hereinafter defined. The Option to Purchase is exercisable upon notice (the "Exercise Notice") given by Tenant to Landlord, not less than six months prior to the intended date of closing. If Tenant elects to exercise the Option to Purchase, the Entire Parcel shall be conveyed by Landlord to Tenant by Bargain & Sale Deed with Covenants against Grantor's Acts (or equivalent) and the Entire Parcel will be delivered at the closing thereof in its then "as-is" condition, without representation or warranty by Landlord, and subject to all then-existing title encumbrances, except that Landlord agrees that Landlord will discharge all mortgages, liens and other title encumbrances that are in a liquidated amount only if and to the extent the same encumber the Entire Parcel other than due to the acts or omissions of Tenant or Tenant's agents, servants and employees. The purchase price shall be paid by good certified check of Tenant or official check issued by any bank, savings bank, trust company or savings and loan association having a banking office in the Commonwealth of Massachusetts, unendorsed and payable to the order of Landlord, or as Landlord may otherwise direct. The closing will take place at the offices of Landlord or Landlord's attorneys. The Option to Purchase is personal to Tenant only and may not be assigned by Tenant. Tenant agrees to pay all state and local transfer taxes payable in connection with the transfer of the Entire Parcel pursuant to the Option to Purchase.
(b) Notwithstanding the foregoing provisions of this Paragraph 37, if on the date that Tenant exercises the Option to Purchase, or if on any subsequent date up to and including the date upon which the closing on the sale of the Entire Parcel occurs, there is an Event of Default (beyond any cure period) of the nature which would adversely affect Landlord subsequent to the transfer of the Entire Parcel to Tenant, Tenant's exercise of the Option to Purchase shall, at the option of Landlord exercised by written notice to Tenant, be rendered null and void and shall be of no further force and effect and Tenant shall have no other additional right to exercise such Option to Purchase, which shall be deemed waived by Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed and delivered this Lease as of the day and year first above written.
Landlord:
WM REALTY MANAGEMENT, LLC
By: /s/ Andrew A. Levy
------------------------------------
Name: Andrew A. Levy
Title: President
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Tenant:
RANOR, INC.
By: /s/ James G. Reindl
------------------------------------
Name: James G. Reindl
Title: Chairman
|
EXHIBIT A
Leased Premises - Legal Description
Beginning at a Massachusetts Highway Bound on the northeasterly sideline of Massachusetts Highway Route 2, the same being a point on the southwesterly line of the property herein described:
Thence running N 67 degrees 11' 12" E a distance of one hundred eighty three and 14/100 feet (183.14') to a point;
Thence running along a curve to the right with a radius of nine thousand, six hundred eighty and 00/100 feet (9,680') and an arc length of three hundred thirty eight and 84/100 feet (338.84') to a point;
Thence turning and running S 51 degrees 15' 52" E a distance of eight Hundred Five and 00/100 feet (805.00') to a point, the previous three courses running along said Route 2;
Thence turning and running N 43 degrees 29' 19" E a distance of three hundred seventy three and 45/100 feet (373.45') to a point;
Thence turning and running N 43 degrees 20' 01" W a distance of four hundred ten and 55/100 feet (410.55') to a point;
Thence turning and running N 43 degrees 42' 52" W a distance of three hundred fifty two and 99/100 feet (352.99') to a point;
Thence turning and running N 44 degrees 39' 47" W a distance of one hundred sixty eight and 27/100 feet (168.27') to a point;
Thence turning and running N 43 degrees 32' 02" E a distance of three hundred forty two and 95/100 feet (342.95') to a point;
Thence turning and running S 47 degrees 05' 15" E a distance of one hundred thirty two and 91/100 feet (132.91') to a point;
Thence turning and running N 41 degrees 21' 42" E a distance of one hundred ten and 29/100 feet (110.29') to a point;
Thence turning and running S 56 degrees 08' 09" E a distance of two hundred twenty and 97/100 feet (220.97') to a point;
Thence turning and running S 40 degrees 26' 57" E a distance of three hundred thirty five and 45/100 feet (335.45') to a point, the previous ten courses running along land now or formerly of Elizabeth Ann Nyman;
Thence turning and running N 41 degrees 38' 44" E a distance of two hundred ninety one and 02/100 feet (291.02') along land now or formerly of Michael and Judith Denzer to a point;
Thence turning and running N 29 degrees 33' 07" W a distance of two hundred five and 15/100 feet (205.15') to a point;
Thence turning and running N 40 degrees 35' 11" W a distance of one hundred four and 07/100 feet (104.07') to a point;
Thence turning and running N 42 degrees 28' 54" W a distance of one hundred twenty nine and 16/100 feet (129.16') to a point;
Thence turning and running N 35 degrees 39' 06" W a distance of one hundred eighty eight and 65/100 feet (188.65') to a point;
Thence turning and running N 31 degrees 06' 51" W a distance of two hundred fifty one and 14/100 feet (251.14') to a point;
Thence turning and running N 27 degrees 26' 04" W a distance of sixty one and 15/100 feet (61.15') to a point;
Thence turning and running N 22 degrees 54' 11" W a distance of one hundred forty eight and 62/100 feet (148.62') to a point;
Thence turning and running N 26 degrees 52' 49" W a distance of one hundred eleven and 39/100 feet (111.39') to a point, the previous eight courses running along the westerly sideline of Town Farm Road;
Thence turning and running S 66 degrees 40' 26" W a distance of eighty nine and 96/100 feet (89.96') to a point;
Thence turning and running N 45 degrees 34' 34" W a distance of thirty two and 83/100 feet (32.83') to a point;
Thence turning and running N 55 degrees 49' 30" W a distance of one hundred thirty five and 24/100 feet (135.24') to a point;
Thence turning and running N 63 degrees 22' 02" W a distance of one hundred seven and 27/100 feet (107.27') to a point;
Thence turning and running N 15 degrees 12' 22" W a distance of one hundred ninety two and 38/100 feet (192.38') to a point;
Thence turning and running N 17 degrees 50' 41" W a distance of seventy seven and 59/100 feet (77.59') to a point;
Thence turning and running N 17 degrees 27' 14" W a distance of thirty two and 14/100 feet (32.29') to a point, the previous seven courses running along land now or formerly of John and Donna Menger:
Thence turning and running N 52 degrees 28' 25" W a distance of one hundred two and 96/100 feet (102.96') to a point;
Thence turning and running N 40 degrees 22' 19" W a distance of two hundred sixty one and 03/100 feet (261.03') to a point, the previous two courses running along land now or formerly of Charles Smith, III.;
Thence turning and running S 42 degrees 58' 02" W a distance of ninety five and 70/100 feet (95.70') along land now or formerly of Diane Hubbard, to a point;
Thence turning and running S 45 degrees 45' 11" W a distance of five hundred seventy nine and 39/100 feet (579.39') along land now or formerly of Von Alan and Carol Saimi, to a point;
Thence turning and running S 42 degrees 41' 35" W a distance of sixty six and 93/100 feet (66.93') to a point;
Thence turning and running S 47 degrees 25' 31" E a distance of three hundred eighty and 54/100 feet (380.54') to a point, the previous two courses running along land now or formerly of Von Alan and Carol Saimi and land now or formerly of Dorothy Hicks;
Thence turning and running S 44 degrees 18' 02" W a distance of two hundred eighty four and 79/100 feet (284.79') to a point;
Thence turning and running S 43 degrees 45' 40" W a distance of two hundred ninety seven and 48/100 feet (297.48') to a point, the previous two courses running along land now or formerly of John Trembley Trustee;
Thence turning and running S 43 degrees 11' 23" W a distance of two hundred forty three and 10/100 feet (243.10') along land now or formerly of Keith Honkala, to a point;
Thence turning and running S 28 degrees 07' 12" W a distance of three hundred twenty six and 61/100 feet (326.61') along land now or formerly of Robert and Dorothy Sands, to a point on the northeasterly sideline of said Route 2;
Thence turning and running S 53 degrees 12' 03" E a distance of one hundred ninety seven and 00/100 feet (197.00') to a point;
Thence turning and running N 36 degrees 47'57" E a distance of ten and 00/100 feet (10.00') to a point;
Thence turning and running N 53 degrees 12' 03" E a distance of two hundred thirty eight and 95/100 feet (238.95') to a point;
Thence turning and running along a curve to the left with a radius of nine thousand eight hundred twenty five and 00/100 feet (9825.00') with an arc length of sixty one and 05/100 feet (61.05') to a point;
Thence turning and running S 36 degrees 47' 57" W a distance of ten and 00/100 feet (10.00') to a point;
Thence turning and running along a curve to the left with a radius of nine thousand eight hundred thirty five and 00/100 feet (9835.00') with an arc length of one hundred ninety eight and 00/100 feet (198.00') to the point of beginning. The previous six courses running along said Route 2.
Above locus is subject to and with the benefit of any and all easements, rights, restrictions and encumbrances of record in so far as the same are still in force and applicable.
The parcel herein described contains 2,662,834 square feet (61.1303 acres).
Said locus is shown on a plan entitled "Plan of Property for Robert A.
Normandin, Westminster, Mass." dated June 1973 and revised August 1973, by
Allen G. Davis, C.E., and recorded with Worcester Northern District
Registry of Deeds in Plan Book 180, Page 21. For Normandin title see deed
of Virginia Arcangeli and Anna P. Mailloux to Robert A. Normandin and
Bella J. Normandin dated July 19, 1973 and recorded in Worcester Northern
District Registry of Deeds Book 1115, Page 4 and Deed of Mary B. Smith,
Trustee of Smith Realty Trust to Robert A. Normandin and Bella J.
Normandin dated July 7, 1973 and recorded in Worcester Northern District
Registry of Deeds, Book 1114, Page 597.
LESS AND EXCEPTING THE FOLLOWING:
Beginning at the southwesterly corner of said parcel on the westerly side of Town Farm Road, at the northeasterly corner of land of Michael K. and Judith A. Denzer:
Thence running by said Denzer land S 41 degrees 38' 44" W, 291.02 feet to a bolt in a rock at land of Elizabeth Ann Nyman Denzer;
Thence turning and running by said Nyman Denzer land N 40 degrees 26' 57" W, 335.45 feet;
Thence turning and running still along said Nyman Denzer land N 56 degrees 08' 09" W, 170.00 feet to other land of WM Realty Management, LLC;
Thence turning and running N 59 degrees 53' 01" E, 369.94 feet along said WM Realty Management LLC land to the westerly side of Town Farm Road;
Thence turning and running S 35 degrees 39' 06" E, 21.00 feet;
Thence turning and running S 42 degrees 28' 54" E, 129.16 feet;
Thence turning and running S 40 degrees 35' 11" E, 104.07 feet;
Thence turning and running S 29 degrees 33' 07" E, 205.15 feet to the point of beginning, said last 4 courses along the westerly side of Town Farm Road.
Containing 154,601 sq. ft. or 3.55 acres.
EXHIBIT B
Entire Parcel - Legal Description
Beginning at a Massachusetts Highway Bound on the northeasterly sideline of Massachusetts Highway Route 2, the same being a point on the southwesterly line of the property herein described:
Thence running N 67 degrees 11' 12" E a distance of one hundred eighty three and 14/100 feet (183.14') to a point;
Thence running along a curve to the right with a radius of nine thousand, six hundred eighty and 00/100 feet (9,680') and an arc length of three hundred thirty eight and 84/100 feet (338.84') to a point;
Thence turning and running S 51 degrees 15' 52" E a distance of eight Hundred Five and 00/100 feet (805.00') to a point, the previous three courses running along said Route 2;
Thence turning and running N 43 degrees 29' 19" E a distance of three hundred seventy three and 45/100 feet (373.45') to a point;
Thence turning and running N 43 degrees 20' 01" W a distance of four hundred ten and 55/100 feet (410.55') to a point;
Thence turning and running N 43 degrees 42' 52" W a distance of three hundred fifty two and 99/100 feet (352.99') to a point;
Thence turning and running N 44 degrees 39' 47" W a distance of one hundred sixty eight and 27/100 feet (168.27') to a point;
Thence turning and running N 43 degrees 32' 02" E a distance of three hundred forty two and 95/100 feet (342.95') to a point;
Thence turning and running S 47 degrees 05' 15" E a distance of one hundred thirty two and 91/100 feet (132.91') to a point;
Thence turning and running N 41 degrees 21' 42" E a distance of one hundred ten and 29/100 feet (110.29') to a point;
Thence turning and running S 56 degrees 08' 09" E a distance of two hundred twenty and 97/100 feet (220.97') to a point;
Thence turning and running S 40 degrees 26' 57" E a distance of three hundred thirty five and 45/100 feet (335.45') to a point, the previous ten courses running along land now or formerly of Elizabeth Ann Nyman;
Thence turning and running N 41 degrees 38' 44" E a distance of two hundred ninety one and 02/100 feet (291.02') along land now or formerly of Michael and Judith Denzer to a point;
Thence turning and running N 29 degrees 33' 07" W a distance of two hundred five and 15/100 feet (205.15') to a point;
Thence turning and running N 40 degrees 35' 11" W a distance of one hundred four and 07/100 feet (104.07') to a point;
Thence turning and running N 42 degrees 28' 54" W a distance of one hundred twenty nine and 16/100 feet (129.16') to a point;
Thence turning and running N 35 degrees 39' 06" W a distance of one hundred eighty eight and 65/100 feet (188.65') to a point;
Thence turning and running N 31 degrees 06' 51" W a distance of two hundred fifty one and 14/100 feet (251.14') to a point;
Thence turning and running N 27 degrees 26' 04" W a distance of sixty one and 15/100 feet (61.15') to a point;
Thence turning and running N 22 degrees 54' 11" W a distance of one hundred forty eight and 62/100 feet (148.62') to a point;
Thence turning and running N 26 degrees 52' 49" W a distance of one hundred eleven and 39/100 feet (111.39') to a point, the previous eight courses running along the westerly sideline of Town Farm Road;
Thence turning and running S 66 degrees 40' 26" W a distance of eighty nine and 96/100 feet (89.96') to a point;
Thence turning and running N 45 degrees 34' 34" W a distance of thirty two and 83/100 feet (32.83') to a point;
Thence turning and running N 55 degrees 49' 30" W a distance of one hundred thirty five and 24/100 feet (135.24') to a point;
Thence turning and running N 63 degrees 22' 02" W a distance of one hundred seven and 27/100 feet (107.27') to a point;
Thence turning and running N 15 degrees 12' 22" W a distance of one hundred ninety two and 38/100 feet (192.38') to a point;
Thence turning and running N 17 degrees 50' 41" W a distance of seventy seven and 59/100 feet (77.59') to a point;
Thence turning and running N 17 degrees 27' 14" W a distance of thirty two and 14/100 feet (32.29') to a point, the previous seven courses running along land now or formerly of John and Donna Menger:
Thence turning and running N 52 degrees 28' 25" W a distance of one hundred two and 96/100 feet (102.96') to a point;
Thence turning and running N 40 degrees 22' 19" W a distance of two hundred sixty one and 03/100 feet (261.03') to a point, the previous two courses running along land now or formerly of Charles Smith, III.;
Thence turning and running S 42 degrees 58' 02" W a distance of ninety five and 70/100 feet (95.70') along land now or formerly of Diane Hubbard, to a point;
Thence turning and running S 45 degrees 45' 11" W a distance of five hundred seventy nine and 39/100 feet (579.39') along land now or formerly of Von Alan and Carol Saimi, to a point;
Thence turning and running S 42 degrees 41' 35" W a distance of sixty six and 93/100 feet (66.93') to a point;
Thence turning and running S 47 degrees 25' 31" E a distance of three hundred eighty and 54/100 feet (380.54') to a point, the previous two courses running along land now or formerly of Von Alan and Carol Saimi and land now or formerly of Dorothy Hicks;
Thence turning and running S 44 degrees 18' 02" W a distance of two hundred eighty four and 79/100 feet (284.79') to a point;
Thence turning and running S 43 degrees 45' 40" W a distance of two hundred ninety seven and 48/100 feet (297.48') to a point, the previous two courses running along land now or formerly of John Trembley Trustee;
Thence turning and running S 43 degrees 11' 23" W a distance of two hundred forty three and 10/100 feet (243.10') along land now or formerly of Keith Honkala, to a point;
Thence turning and running S 28 degrees 07' 12" W a distance of three hundred twenty six and 61/100 feet (326.61') along land now or formerly of Robert and Dorothy Sands, to a point on the northeasterly sideline of said Route 2;
Thence turning and running S 53 degrees 12' 03" E a distance of one hundred ninety seven and 00/100 feet (197.00') to a point;
Thence turning and running N 36 degrees 47'57" E a distance of ten and 00/100 feet (10.00') to a point;
Thence turning and running N 53 degrees 12' 03" E a distance of two hundred thirty eight and 95/100 feet (238.95') to a point;
Thence turning and running along a curve to the left with a radius of nine thousand eight hundred twenty five and 00/100 feet (9825.00') with an arc length of sixty one and 05/100 feet (61.05') to a point;
Thence turning and running S 36 degrees 47' 57" W a distance of ten and 00/100 feet (10.00') to a point;
Thence turning and running along a curve to the left with a radius of nine thousand eight hundred thirty five and 00/100 feet (9835.00') with an arc length of one hundred ninety eight and 00/100 feet (198.00') to the point of beginning. The previous six courses running along said Route 2.
Above locus is subject to and with the benefit of any and all easements, rights, restrictions and encumbrances of record in so far as the same are still in force and applicable.
The parcel herein described contains 2,662,834 square feet (61.1303 acres).
Said locus is shown on a plan entitled "Plan of Property for Robert A.
Normandin, Westminster, Mass." dated June 1973 and revised August 1973, by
Allen G. Davis, C.E., and recorded with Worcester Northern District
Registry of Deeds in Plan Book 180, Page 21. For Normandin title see deed
of Virginia Arcangeli and Anna P. Mailloux to Robert A. Normandin and
Bella J. Normandin dated July 19, 1973 and recorded in Worcester Northern
District Registry of Deeds Book 1115, Page 4 and Deed of Mary B. Smith,
Trustee of Smith Realty Trust to Robert A. Normandin and Bella J.
Normandin dated July 7, 1973 and recorded in Worcester Northern District
Registry of Deeds, Book 1114, Page 597.
Exhibit 10.10
WM Realty Management, LLC
August 22, 2006
Ranor, Inc.
Techprecision Corporation
One Bella Drive
Westminster, Massachusetts 01473
Attention: James Reindl, CEO
Gentlemen:
This letter will acknowledge that Techprecision Corporation
("Techprecision") advanced on behalf of WM Realty Management, LLC ("WM Realty")
$72,535.79 of closing costs, $55,000 of legal fees, $25,000 of environmental
reserve, $50,991.60 of insurance reserve and $23,280.61 of tax reserve, for a
total of $226,808 , relating to the purchase and financing of real property from
Ranor, Inc. on February 24, 2006. WM Realty will pay such amount to
Techprecision, less $43,017.86 due to WM Realty for an arrearage in rent for the
period February 24, through March 31, 2006, at the time it refinances the
present mortgage on such real property, being the mortgage held by Hudson Realty
Capital Fund III LP or its transferee.
Very truly yours,
WM REALTY MANAGEMENT, LLC
By: Claflin LLC, its sole member
By: Renee Westminster Corp.,
Its managing member
By: /s/ Andrew Levy
--------------------------------------
Andrew Levy, President
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Exhibit 11.11 Techprecision Corporation Bella Drive Westminster, MA 01473
August 24, 2006
Barron Partners LP
730 Fifth Avenue; 25th floor
New York, New York 10019
Attention: Mr. Andrew B. Worden
Re: Techprecision Corporation
Dear Andrew:
This letter will confirm our agreement and understanding with respect to the registration rights agreement (the "Agreement") dated February 24, 2006, by and among Techprecision Corporation, a Delaware corporation formerly known as Lounsberry Holdings II, Inc. (the "Company"), and Barron Partners LP, a Delaware limited partnership ("Barron").
Barron hereby agrees that it will waive its rights under the liquidated damages provisions in the Agreement through October 31, 2006 on the condition that one of the two conditions (the "Conditions") hereinafter set forth are met by October 31, 2006.
a. The Company's independent accountants, who shall be members of the PCAOB, shall have confirmed to the Company and Barron in writing that, as of October 31, 2006, the real estate (the "Real Estate") presently owned by WM Realty Management, LLC ("WM") and leased to the Company shall not be treated, under generally accepted accounting principles, including FIN 46, as an asset of the Company and that the mortgage note issued by WM in respect of the mortgage on the Real Estate shall not be treated as a liability of the Company.
b. The Company shall have received and exercised by October 31, 2006, an option to purchase the Real Estate for a purchase price equal to $3.2 million plus any documented out-of-pocket costs incurred by WM in connection with the refinancing of the Real Estate, with the closing by which title is transferred to the Company being completed as soon as possible thereafter, but not later than, the close of business on December 29, 2006, it being understood that the Real Estate may be acquired subject to the then current mortgage on the Real Estate.
Pending the completion of either of the Conditions, no liquidated damages shall be paid pursuant to the Agreement through October 31, 2006. In the event that neither of the Conditions shall have been met, any liquidated damages accrued through October 31, 2006 shall be due and payable at that time. Nothing in this letter agreement shall be construed as a waiver of any liquidated damages which accrue subsequent to October 31, 2006.
Barron Partners LP
August 22, 2006
Except as amended by this letter agreement, the Agreement shall remain in full force and effect.
Very truly yours,
TECHPRECISION CORPORATION
AGREED TO:
BARRON PARTNERS LP By: s/ James Reindl
----------------------------
By: Barron Capital Advisors, LLC, James Reindl, CEO
its General Partner
By: s/ Andrew Barron Worden
-------------------------------------
Andrew Barron Worden, President
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Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
We consent to the use in this Registration Statement on Form SB-2, of our report dated July 26, 2006 with respect to our audit of the financial statements of Techprecision Corporation at March 31, 2006 and for the two years in the period then ended, and to the reference to our firm under the heading "Experts" in the Prospectus.
Bloom & Co., LLP Certified Public Accountants
Hempstead, NY
August 25, 2006