STOCKPURCHASE AGREEMENT ISLANDENVIRONMENTAL SERVICES, INC.

1.

2.

Purchase Price and Purchase Price Adjustment. 

 

(a)

BUYER shall pay SELLERS the sum of $1,912,500.00 at Closing by check or wire transfer of readily available funds.

 

(b)

BUYER shall pay NCT the sum of $337,500.00 at Closing by check or wire transfer of readily available funds.

 

(c)

The balance of the Purchase Price shall be paid pursuant to the terms of two (2) Promissory Notes of BUYER (each, a “Note” and collectively, the “Notes”) the first of which shall be payable to SELLERS in the amount of $1,062,500.00 and the second of which shall be payable to NCT in the amount of $187,500.00.  The Notes shall bear interest at eight percent (8%) with interest only payments payable quarterly and the entire balance of interest and principal shall be all due and payable thirty six (36) months after the Closing.  The Notes shall have a Due on Sale clause relative to any sale of all or substantially all of the assets or stock of BUYER or BUYER’s parent, GENERAL ENVIRONMENTAL MANAGEMENT, INC., a Nevada corporation (“GEM NEVADA”), or BUYER’s sale of ISLAND stock to an entity in which BUYER or its affiliates do not have a controlling interest.  The Notes shall provide that there shall be a partial principal payment at the end of the Contingent Period (as defined in Section 3 below) of up to (i) $637,500 with respect to the Note in favor of the SELLERS and (ii) $112,500 with respect to the Note in favor of NCT.  The Notes shall be guaranteed by GEM NEVADA.  The Note in favor of SELLERS shall be in the form of Exhibit A attached hereto and GEM NEVADA’s Guarantee of such Note shall be in the form of Exhibit B attached hereto.  The Note in favor of NCT shall be in the form of Exhibit A-1 attached hereto and GEM NEVADA’s Guarantee of such Note shall be in the form of Exhibit B-1 attached hereto.

3.

 

(a)

If the amount of the Contingent Earn-Out is zero then (i) the amount of the Accelerated Note Payment payable to SELLERS shall be $637,500 and (ii) the amount of the Accelerated Note Payment payable to NCT shall be $112,500.

 

(b)

If the amount of the Contingent Earn-Out is between zero and $3,750,000 then (i) the amount of the Accelerated Note Payment payable to SELLERS shall be equal to eight-five percent (85%) of the aggregate Accelerated Amount (as defined below) and (ii) the amount of the Accelerated Note Payment payable to NCT shall be equal to fifteen percent (15%) of the aggregate Accelerated Amount.

 

(c)

If the Contingent Earn-Out is $3,750,000 then the amount of the Accelerated Note Payments shall be zero.

 

(x)

BUYER shall pay the Accelerated Note Payments to SELLERS and NCT by certified funds check or wire transfer of immediately available funds and, following SELLERS’ and NCT’s receipt of such payments, the outstanding principal amount of the Notes described in Sections 2(b) and 2(c) above shall be reduced by the amount of the applicable payment;

 

(y)

BUYER shall pay the Contingent Earn-Out to SELLERS and NCT as follows:

 

(i)

A cash payment (to be paid by certified funds check or wire transfer of immediately available funds) in an aggregate amount equal to the result obtained by subtracting (A) the aggregate amount of the Accelerated Note Payments payable to SELLERS and NCT under clause (x) above from (B) $750,000.  The amount of any cash payment payable pursuant to this Section 3(y)(i) shall be paid eighty-five percent (85%) to SELLERS and fifteen percent (15%) to NCT.

 

(ii)

The remainder pursuant to the terms of a promissory note issued by BUYER to each of SELLERS and NCT (the each, a “Contingent Note” and, together, the “Contingent Notes”) in substantially the form attached hereto as Exhibit C.  The aggregate amount payable to SELLERS and NCT pursuant to the Contingent Notes shall be paid eighty-five percent (85%) to SELLERS and fifteen percent (15%) to NCT.  The Contingent Notes (if any) shall include the following terms:

 

(A)

Each Contingent Note shall bear interest at eight percent (8%) per year with interest only payments payable quarterly;

 

(B)

The entire balance of principal and interest under each Contingent Note shall all be due and payable thirty six (36) months after the end of the Contingent Period.

 

(C)

The Contingent Notes shall each have a Due on Sale clause relative to any sale of all or substantially all of the assets or stock of GEM NEVADA or BUYER or the sale of ISLAND stock to an entity in which BUYER or its affiliates do not possess a controlling interest.

 

(D)

The Contingent Notes shall each be guaranteed by GEM NEVADA and each such Guarantee shall be in the form of Exhibit D attached hereto.

4.

5.

6.

7.

8.

9.

 

(a)

Documents to be Delivered by SELLERS and NCT to BUYER at Closing.

 

(1)

At the Closing, SELLERS will deliver to BUYER the following documents:

 

(A)

Stock Certificates for the Shares held by SELLERS free and clear of all liens claims charges, restrictions, equities or encumbrances of any kind which Certificates shall be accompanied by duly executed stock powers or assignments separate from certificate in form reasonably satisfactory to BUYER;

 

(B)

The corporate records and documentation described in Section 11 of this Agreement;

 

(C)

The written resignations of RANDY and DODIE from their positions as officers and directors of ISLAND;

 

(D)

The Agreement Not to Compete (in the form attached hereto as Exhibit F) executed by RANDY and DODIE; and

 

(E)

Such other certificates and documents executed by SELLERS as BUYER or their counsel may reasonably request.

 

(2)

At the Closing, NCT will deliver to BUYER the following documents:

 

(A)

Stock Certificates for the Shares held by NCT free and clear of all liens claims charges, restrictions, equities or encumbrances of any kind arising by, under or through NCT, which Certificates shall be accompanied by duly executed stock powers or assignments separate from certificate in form reasonably satisfactory to BUYER; and

 

(B)

Such other certificates and documents executed by NCT as BUYER or their counsel may reasonably request.

 

(b)

Documents and Payments to be Delivered by BUYER to SELLERS and NCT.

 

(1)

At the Closing BUYER will deliver to SELLERS the following documents and payments:

 

(A)

The $1,912,500.00 cash payment described in Section 2(a) of this Agreement, which amount shall be paid by certified funds check or wire transfer of immediately available funds;

 

(B)

The original of the Note for $1,062,500.00 (in the form attached as Exhibit A) properly executed by BUYER;

 

(C)

The properly executed Corporate Guarantee of GEM NEVADA (in the form attached as Exhibit B) with respect to the $1,062,500 Note;

 

(D)

A cash payment in an amount equal to the balance of all accounts payable of BUYER to ISLAND as of the Closing Date (less the amount of any accounts receivable owing by ISLAND to BUYER as of such date), which amount shall be paid by certified funds check or wire transfer of immediately available funds;

 

(E)

The Employment Agreement between ISLAND and RANDY (in the form attached as Exhibit E) properly executed by ISLAND;

 

(F)

The Lease for the Premises (in the form attached has Exhibit G) properly executed by ISLAND;

 

(G)

The Guarantee of BUYER and GEM NEVADA with respect to the Lease (in the form attached to the Lease) properly executed by BUYER and GEM NEVADA; and

 

(H)

Such other certificates and documents as SELLERS and or their counsel may reasonably request.

 

(2)

At the Closing BUYER will deliver to NCT the following documents and payments:

 

(A)

The $337,500.00 cash payment described in Section 2(b) of this Agreement, which amount shall be paid by certified funds check or wire transfer of immediately available funds;

 

(B)

The original of the Note for $187,500.00 (in the form attached as Exhibit A-1) properly executed by BUYER;

 

(C)

The original of the properly executed Corporate Guarantee of GEM NEVADA (in the form attached as Exhibit B-1) with respect to the $187,500 Note; and

 

(D)

Such other certificates and documents as NCT and or its counsel may reasonably request.

10.

11.

12.

13.

14.

15.

16.

 

SELLERS and ISLAND represent, warrant and agree as set forth in the following Sections 16(a)-(ab).  NCT represents, warrants and agrees as set forth in the following Sections 16(ac)–(af).

 

(a)

ISLAND is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and all of the shares of the outstanding stock of ISLAND have been duly authorized and validly issued.  ISLAND has the corporate power and authority to carry on its business and to own or lease its property as and in the places where such business is now conducted and such properties are now owned, leased or operated and ISLAND is duly qualified to do business and is in good standing in California.

 

(b)

The authorized capital stock of ISLAND consists of one hundred thousand (100,000) shares of common stock, without par value, ten thousand (10,000) shares of which have been validly issued and are outstanding as specified previously herein.

 

(c)

ISLAND does not have any commitments for issuance or sale of shares under options, warrants or other rights.  Other than as described in Section 5 of this Agreement, at the Closing hereof, ISLAND had no undisclosed liabilities, absolute or contingent.  With respect to the contracts and agreements described in Section 16(h) below, ISLAND is not and will not be subject to any claims resulting from price redetermination or from renegotiation with respect to amounts paid prior to the date of this Agreement for work completed under any such agreement prior to such date.

 

(d)

RANDY is the lawful owner of three thousand seven hundred (3,700) of the Shares, DODIE is the lawful owner of four thousand eight hundred (4,800) of the Shares and NCT is the lawful owner of one thousand five hundred (1,500) of the Shares.  Each of RANDY and DODIE (i) has full power and authority to transfer all right, title and interest in and to the Shares held by them without the consent of any other person and (ii) will transfer to BUYER valid title to such Shares, free and clear of all liens, equities, encumbrances and claims of every kind.

 

(e)

Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in a violation or breach of any agreement to which either SELLER is a party or by which the Shares held by either SELLER are bound or give rise to any right in any third party to terminate or modify any contract by which any of the Shares are bound.

 

(f)

Neither of the SELLERS is engaged in or a party to, or has reasonable basis to anticipate, any legal action or other proceeding before any court or administrative agency in connection with his or her Shares or the transactions contemplated by this Agreement.

 

(g)

Attached hereto as Schedule 16(g) is a list of the policies of liability and other forms of insurance held by ISLAND relative to its business operations.  Such policies will be outstanding and duly in force at the Closing.  Complete copies of each such policy have been or will prior to the Closing be made available to BUYER.  SELLERS have no reason to believe that any such policy will be cancelled or subject to a material modification prior to the scheduled expiration thereof.

 

(h)

Schedule 16(h) attached hereto lists all of the contracts and agreements to which ISLAND is a party and which fall into the following categories:

 

(i)

Contracts or agreements involving the performance of services by ISLAND of an amount or value in excess of $100,000 annually;

 

(ii)

Contracts or agreements involving the payment by ISLAND to any other party of more than $25,000 annually, unless terminable by ISLAND on not more than ninety (90) days prior written notice;

 

(iii)

Real property or equipment lease contracts or agreements;

 

(iv)

Contracts or agreements with employees of ISLAND (including employment agreements, agreements relating to bonus or profit sharing obligations and agreements that provide for the payment of bonus or severance upon termination);

 

(v)

Contracts or agreements under which ISLAND is obligated to make any capital expenditure; and

 

(vi)

Contracts or agreements relating to any indebtedness of the business.

 

(i)

Except as listed in Schedule 16(i) attached hereto, there are no actions, suits, proceedings or investigations pending or, to the knowledge of SELLERS, threatened against or affecting ISLAND, at law, or in equity or admiralty, or before or by any federal, state, municipal, or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.  ISLAND is not in default with respect to any order, writ, injunction or decree of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

 

(j)

To the knowledge of SELLERS, ISLAND has complied in all material respects with all laws, regulations and judicial or administrative tribunal orders applicable to its business, except where any lack of such compliance has not had and is not reasonably likely to result in a material adverse change with respect to ISLAND.

 

(k)

All federal, state or local tax obligations of any nature whatsoever required to be paid by ISLAND on or before the date of this Agreement have been duly paid or are being contested in good faith by ISLAND and/or the SELLERS.  Any contested obligations have been disclosed to BUYER.  Moreover, all federal, state and local tax returns required to be filed by ISLAND as of the date of this Agreement have been duly filed.

 

(l)

Except for the leased assets described in Schedule 16(l), ISLAND has good and marketable title to all of the properties and tangible and intangible assets used by it in the conduct of its business, in each case free and clear of all liens, encumbrances, security interests and claims.

 

(m)

ISLAND is not liable as guarantor, surety or endorser with respect to the obligation of any other person or persons.

 

(n)

ISLAND has no equity investments in any other business entities or subsidiaries.

 

(o)

Intentionally Omitted.

 

(p)

The execution and performance of this Agreement will not conflict with, or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets or outstanding stock of ISLAND pursuant to any corporate charter, by-law, indenture, mortgage or lease, or any other material agreement or instrument to which ISLAND or any of its shareholders is a party or by which it is bound.  The execution and carrying out of this Agreement will not violate any provision of applicable law.

 

(q)

To the knowledge of SELLERS, the financial information regarding the Company listed in Schedule 16(q) (which financial information has been previously provided to BUYER) were prepared in good faith and are accurate in all material respects as of the date produced by or for SELLERS.

 

(r)

SELLERS have delivered to BUYER an internally prepared unaudited balance sheet as of December 31, 2007, a related unaudited statement of income for the calendar year ending December 31, 2007, and an unaudited interim statement of income for the six months ending June 30, 2008  (referred to herein as the “Financial Statements”).  To the knowledge of SELLERS, the Financial Statements are complete in all material respects as of the respective dates and for the respective periods above stated, are in accordance with the books and records of ISLAND, have been prepared in accordance with generally accepted accounting principles consistently applied, and fairly present the financial position of ISLAND as of the dates thereof and the results of operations for the periods indicated.  [Copies of the Financial Statements are attached hereto as Schedule 16(r)].

 

(s)

Except as required by or disclosed in this Agreement and its exhibits and schedules, since June 30, 2008 (the “Balance Sheet Date”) (i) there has been no material adverse change in or to the business of ISLAND or to its operations, earning, prospects, liabilities or relationships with suppliers, distributors or customers, (ii) ISLAND has not entered into or performed any material transaction other than in the ordinary course of business and consistent with past practices and (iii) ISLAND has not cancelled, terminated, amended or granted a waiver of any material agreement or of any rights or claims of ISLAND arising thereunder.

 

(t)

Intentionally Omitted.

 

(u)

SELLERS have no knowledge of any fact that is reasonably likely to result in a material adverse change with respect to ISLAND or its business, operations, assets, or financial condition.

 

(v)

To the knowledge of SELLERS, the business of ISLAND as currently conducted does not violate in any material respect, and as conducted during the five years prior to the date hereof did not violate in any material respect any applicable law, ordinance, rule, prohibition or regulation relating, respectively, to air quality, water quality, or noise pollution, or the production, storage, labeling or disposition of any wastes or of hazardous or toxic substances (collectively, “Environmental Laws”), or the health, safety or environmental conditions on, beneath, or about any of the properties used, owned, or leased by ISLAND.  ISLAND has timely filed all required reports, obtained all required data, documentation and records under any applicable Environmental Laws.  To the knowledge of SELLERS, with respect to the operation of ISLAND’s business there has been no unreported release of any Hazardous Material in violation of any applicable Environmental Laws or Licenses, including any “Hazardous Wastes,” “Hazardous Substances,” “Hazardous Materials,” “Pollutants,” “Toxic Substance,” “Solid Wastes” or “Contaminants” (as such terms are defined in any applicable Environmental Laws, including but not limited to the Comprehensive Environmental Response, Compensation an Liability Act of 1980, as amended (“CERCLA”); the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act; and the Toxic Substances Control Act; from any storage tanks, surface impoundments, septic tanks, pits, sumps or lagoons or any other location at the Premises.  Except as set forth above, such inventories and wastes, if any, were stored or disposed of in accordance with applicable laws and regulations and in a manner such that there was no release of any such chemicals into the environment which could cause the incurrence of material clean-up or other response costs under CERCLA or any other applicable laws or regulations.  ISLAND has not received any notice from any governmental agency or private or public entity advising it that it is or may be responsible, or potentially responsible, for response costs with respect to a release, a threatened release or clean-up of materials produced by, or resulting from, any business, commercial or industrial activities, operations, or processes, including but not limited to Hazardous Wastes, Hazardous Substances, Hazardous Materials, Toxic Substances, Solid Wastes, Pollutants or Contaminants.  To the knowledge of SELLERS, there is no asbestos or asbestos-containing material that requires current abatement or encapsulation under Environmental Laws at the Premises.

 

(w)

No Environmental Remediation.  Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will result in the requirement that ISLAND conduct any removal, response, or remediation activities pursuant to any applicable Environmental Law or under any permit issued to ISLAND.

 

(x)

Environmental Reports.  SELLERS have made available to BUYER copies of any environmental assessment or audit reports or other similar studies or analyses relating to the Premises which reports have been prepared by, or on behalf of, or are otherwise in the possession of SELLERS.

 

(y)

Permits.  Set forth on Schedule 16(y) is a list of all permits, licenses, franchises or other authorizations held by ISLAND as of the date of this Agreement.  To knowledge of SELLERS, such permits, licenses, franchises and other authorizations constitute all such authorizations as are necessary for the operation of ISLAND’s business as presently conducted.  To knowledge of SELLERS, ISLAND is not in default under, or in violation of the terms of, any such authorization.  To the knowledge of Sellers, all such permits, licenses, franchises and other authorizations will remain in effect after the sale of the Shares to BUYER.

 

(z)

Labor Controversies.  ISLAND is not a party to any collective bargaining agreement.  There are not any controversies between ISLAND and any of its employees which might reasonably be expected to materially adversely affect the conduct of its business, or any unresolved labor union grievances or unfair labor practice or labor arbitration proceedings pending or, to the knowledge of SELLERS, threatened relating to ISLAND’s business and, to the knowledge of SELLERS, there are not any organizational efforts presently being made or threatened involving any of ISLAND’s employees.  ISLAND has not received notice of any claim that it has not complied with any laws relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining, the payment of social security and similar taxes, equal employment opportunity, employment discrimination and employment safety, or that ISLAND is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing.

 

(aa)

Intellectual Property.  The term “Intellectual Property” includes all patents and patent applications, trademarks, service marks, trade names, trademark, service mark and trade name registrations (and applications therefore), copyrights, trade secrets, inventions, know-how and formulations (and all licenses for any of the foregoing).  ISLAND has no registered copyrights, trademarks, or service marks.  To the knowledge of SELLERS, ISLAND’s Intellectual Property is sufficient to conduct its business as presently conducted and its rights under such Intellectual Property will not be altered, limited or impaired by the sale of the Shares under this Agreement.  None of the past or present employees, officers, directors, shareholders or affiliates of ISLAND has any rights in any such Intellectual Property.  ISLAND has not granted any outstanding license or other rights to Intellectual Property owned by or licensed to it, and is not liable, and has not made any contracts or arrangement whereby it may become liable, to any person for any royalty or other compensation for the use of any Intellectual Property.  To the knowledge of SELLERS, ISLAND’s business, as presently conducted, does not infringe any Intellectual Property rights of others, and ISLAND has not been charged or threatened to be charged with any such infringement.  Specifically, SELLERS acknowledge that the trade name “Island Environmental Services” is a valuable asset of ISLAND and agree not to use that name or any similar name in an environmental waste management related business so long as BUYER operates ISLAND’s business under that trade name.

 

(ab)

No Powers of Attorney.  ISLAND does not have any powers of attorney or comparable delegations of authority outstanding.

 

(ac)

NCT is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and is the sole Trustee of NCF Charitable Trust (the “TRUST”) on whose behalf NCT holds its Shares.  The TRUST is a wholly charitable trust duly organized, validly existing and in good standing under the laws of the State of Florida.

 

(ad)

Effective August 29, 2008, NCT received one thousand five hundred (1,500) of the Shares as a gift from RANDY and, to its knowledge, is the lawful owner of such Shares as of the date of this Agreement.  NCT (i) has full power and authority to transfer all of its right, title and interest in and to the Shares held by it without the consent of any other person and (ii) will transfer to BUYER all of its title to such Shares, free and clear of all liens, equities, encumbrances and claims of every kind arising by, under or through NCT.

 

(ae)

Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in a violation or breach of any agreement to which NCT is a party or, to the knowledge of NCT, by which the Shares held by NCT are bound or give rise to any right in any third party to terminate or modify any contract by which any of the Shares are bound.

 

(af)

NCT is not engaged in or a party to, nor does NCT have any reasonable basis to anticipate, any legal action or other proceeding before any court or administrative agency in connection with the Shares held by it or the transactions contemplated by this Agreement.

17.

 

SELLERS hereby covenant and agree that from and after the date of execution hereof, to and including the Closing, except as otherwise permitted or required by this Agreement, SELLERS shall not, without the prior written consent of BUYER (which consent shall not be unreasonably withheld), cause ISLAND to:

 

(a)

Dispose of any of its properties or assets or waive any of its rights except in the ordinary course of business;

 

(b)

Fail to keep ISLAND's property and assets insured consistent with its prior practice.

 

(c)

Suffer or incur any liabilities or encumbrances except in the ordinary course of business.

 

(d)

Fail to keep the business assets of ISLAND in good repair and order (subject to ordinary wear and tear).

 

(e)

Amend the Articles of Incorporation or Bylaws of ISLAND.

 

(f)

Change the authorized capital of ISLAND or the equity ownership of ISLAND or grant any options, warrants, puts, calls, conversion rights or commitments relating to the equity interests of ISLAND.

 

(g)

Declare or pay any dividend of ISLAND or indirectly purchase, redeem, or otherwise acquire or retire for value or issue any shares of stock of ISLAND.

 

(h)

Enter into any contract or commitment or incur or agree to incur any liability or make any capital expenditures in excess of an aggregate of Fifty Thousand Dollars ($50,000.00).

 

(i)

Increase the compensation payable or to become payable to any officer, director, stockholder, employee, consultant or agent, or make any bonus or management fee payable to any such person other than in connection with any regularly schedule annual employment and/or salary reviews and in amounts consistent with past practice.

 

(j)

Create, assume, or permit to exist any mortgage, pledge or other lien or encumbrance upon any assets or properties whether now owned or hereafter acquired.

 

(k)

Sell, assign, lease or otherwise transfer or dispose of any property or equipment other than in the ordinary course of business.

 

(l)

Merge or consolidate or agree to merge or consolidate with or into any other corporation or entity.

 

(m)

Breach or permit a breach of, amend or terminate any material agreement, or any permit (excluding violations cited by inspection), license or other agreement or right to which Company is a party.

 

(n)

Enter into any other transaction outside the ordinary course of its business or otherwise prohibited hereunder.

 

(o)

SELLERS further agree to use their commercially reasonable efforts to prevent from occurring any other action or omission, or series of actions or omissions, by ISLAND or by RANDY and DODIE that would cause a warranty of the SELLERS contained in this Agreement to be untrue on the Closing Date.

18.

 

BUYER represents and warrants to SELLERS and agrees as follows:

 

(a)

BUYER is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all corporate right, power and authority to enter into and perform this Agreement and any other Agreements contemplated by this Agreement.

 

(b)

The execution, delivery and performance by BUYER of this Agreement have been duly authorized by all necessary corporate action.  This Agreement has been duly executed and delivered by BUYER and constitutes a valid and binding agreement of BUYER enforceable against BUYER in accordance with its terms.

 

(c)

The execution, delivery and performance by BUYER of this Agreement and the consummation by BUYER of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental authority other than any applicable requirements of the Securities and Exchange Act of 1934.

 

(d)

The execution, delivery and performance by BUYER of this Agreement and the consummation of the transactions contemplated hereby do not, and will not, (i) contravene or conflict with BUYER’s charter documents, (ii) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of BUYER, (iii) violate any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to BUYER, GEM NEVADA or any of their respective affiliates (iv) constitute a default under (or an event which with notice, the lapse of time or both would become a default) under or give rise to a right of termination, cancellation or acceleration of any right or obligation of BUYER, GEM NEVADA or any of their respective affiliates or to a loss of any benefit to which BUYER, GEM NEVADA or any of their respective affiliates is entitled to under any provision of any agreement, contract or other instrument binding upon BUYER, GEM NEVADA or their respective affiliates.

 

(e)

There is no action, suit, claim, proceeding or other legal process pending or, to the knowledge of BUYER, threatened against or BUYER, GEM NEVADA or any of their respective affiliates that could adversely affect or restrict the ability of BUYER to fully consummate the transactions contemplated by this Agreement or that in any manner draws into question the validity of this Agreement.

 

(f)

Prior to the Closing, BUYER shall have (or shall have secured firm commitments to receive as of the Closing) sufficient funding to pay the portion of the Purchase Price payable at Closing in accordance with the terms of this Agreement.

 

(g)

Investment for Own Account.  BUYER represents to SELLERS and NCT that the shares to be received by it will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that BUYER has no present intention of selling, granting participation in, or otherwise distributing the same, but subject nevertheless to any requirement of law that the disposition of property shall at all times be within its control.  By executing this Agreement, BUYER further represents that it does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to any such person, or to any third person, with respect to any of the shares.

 

(h)

Investor Experience. BUYER represents to SELLERS and NCT that it is experienced in evaluating, investing in and acquiring companies such as ISLAND, is able to fend for itself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of investment, and has the ability to bear the economic risks of the investment.

 

(i)

Personal Guarantees of SELLERS.  BUYER acknowledges that SELLERS have previously executed certain personal guarantees in connection with their ownership of ISLAND and the operation its business (collectively, the “Seller Personal Guarantees”).  Prior to and following the Closing, SELLERS shall have the right to terminate any or all of the Seller Personal Guarantees at any time to the extent permitted by the Seller Personal Guarantees. BUYER agrees indemnify and hold SELLERS harmless from any and all Losses (as defined in Section 19(a) below) they may incur with respect to the Seller Personal Guaranties following the Closing.  In addition, for any time period following the Closing during which any Seller Personal Guarantee is in effect, BUYER shall not (and BUYER shall not permit ISLAND to) undertake or accept any further advance on any line of credit or other obligation secured by any Seller Personal Guarantee without the prior written consent of SELLERS.

19.

 

(a)

By SELLERS.  In addition to any indemnification obligations on the part of SELLERS set forth elsewhere in this Agreement, SELLERS, jointly and severally, agree to indemnify and hold BUYER harmless from any and all claims, demands, actions, losses or liabilities including, without limitation, reasonable attorneys’ fees and costs (collectively, “Losses”) arising out of or resulting from (i) any breach of any representation or warranty made by SELLERS herein or (ii) any breach or default in the performance by SELLERS of any covenant or agreement of SELLERS contained herein.

 

(b)

By NCT.  NCT hereby agrees to indemnify and hold BUYER harmless from any and all Losses arising out of or resulting from (i) any breach of any representation or warranty made by NCT herein or (ii) any breach or default in the performance by NCT of any covenant or agreement of NCT contained herein.

 

(c)

By BUYER.  In addition to any indemnification obligations on the part of BUYER set forth elsewhere in this Agreement, BUYER hereby agrees to indemnify and hold SELLERS and NCT harmless from any and all Losses arising out of or resulting from (i) any breach of any representation or warranty made by BUYER herein or (ii) any breach or default in the performance by BUYER of any covenant or agreement of BUYER contained herein.

 

(d)

Separate Obligations of SELLERS and NCT.  Notwithstanding any other provision of this Agreement, BUYER acknowledges and agrees that (i) NCT received title its Shares effective August 29, 2008 pursuant to a charitable gift from RANDY, (ii) NCT does not currently, and never has had, any direct or indirect role in the operation of ISLAND or its business, (iii) the respective representations, warranties and covenants of SELLERS and NCT under this Agreement are in all cases being made severally and not jointly and any liability for any breach of such representations, warranties and covenants shall be several not joint with respect to SELLERS and NCT, (iv) in the event of any breach of any representation, warranty or covenant by either SELLERS or NCT, BUYER shall look solely to the breaching party for indemnification pursuant to this Section 19 and (v) NCT’s liability, if any, for Losses under this Agreement shall be limited to, and BUYER covenants that it shall not seek recovery from NCT for any amounts in excess of, the aggregate cash amount actually paid by BUYER to NCT under this Agreement (including amounts paid under the $187,500 Note issued to NCT pursuant to Section 2(c) above) in connection with BUYER’s purchase of NCT’s Shares.  

 

(e)

Survival of Representations, Warranties and Covenants.  The rights of the parties to assert a claim under clause (i) of Section 19(a), clause (i) of Section 19(b) or clause (i) of Section 19(c) above shall survive for a period of twelve (12) months following the Closing and thereafter shall terminate and expire; provided that rights with respect to any claim asserted in writing prior to the expiration of such twelve (12) month period shall continue until such claim has been finally settled, decided or adjudicated; and provided further that rights with respect to any claim under clause (ii) of Section 19(a), clause (ii) of Section 19(b) or clause (ii) of Section 19(c) in connection with a covenant or agreement to be performed after the Closing shall survive until such covenant or agreement has been fully performed.

 

(f)

Limitation on Liability.

 

(1)

As Between SELLERS and BUYER.  The SELLERS shall not have any obligation to indemnify BUYER, nor shall the BUYER have any obligation to indemnify SELLERS pursuant to this Section 19 until the aggregate Losses for which the indemnified party is entitled to indemnity exceed $35,000 (the “Deductible Amount”) whereupon the indemnifying party shall be liable only to the extent that such Losses exceed the Deductible Amount.  In addition, the maximum liability of the indemnifying party to indemnify the indemnified party with respect to any claim for indemnification of Losses under this Agreement shall not exceed the Purchase Price.

 

(2)

As Between NCT and BUYER.  With respect to any claim for indemnity pursuant to this Section 19 as between NCT and BUYER, the maximum liability of the indemnifying party to indemnify the indemnified party with respect to any claim for indemnification of Losses under this Agreement shall not exceed the aggregate cash amount actually paid by BUYER to NCT under this Agreement (including amounts paid under the $187,500 Note issued to NCT pursuant to Section 2(c) above) in connection with BUYER’s purchase of NCT’s Shares.

 

(g)

Claims for Indemnification.  All claims for indemnification under Sections 19(a), 19(b) and 19(c) above shall be handled in accordance with the procedures set forth in Schedule 19(g) attached hereto.

 

(h)

Computation of Losses.  Notwithstanding anything in this Agreement to the contrary, the amount of any Losses otherwise payable under Sections 19(a), (b) or (c) to an indemnified party shall be reduced by the amount of net insurance proceeds actually received by such indemnified party (giving effect to deductibles or self insured or co-insurance payments made) as compensation for the damage or Losses caused by the act, omission, fact or circumstance giving rise to the Losses.

 

(i)

Exclusive Remedy.  From and after the Closing, the rights and remedies of the parties under this Section 19 are the sole and exclusive rights and remedies of the parties with respect to any dispute arising out of this Agreement.  EACH PARTY HEREBY WAIVES RELEASES AND DISCHARGES ALL RIGHTS TO ALL PUNITIVE, SPECIAL, EXEMPLARY OR CONSEQUENTIAL, DIRECT OR INDIRECT OR OTHER DAMAGES, HOWEVER CHARACTERIZED, WHETHER IN CONTRACT OR IN TORT, AT LAW OR IN EQUITY, OTHER THAN THOSE EXPRESSY SET FORTH UNDER THIS SECTION 19.

20.

21.

22.

 

(a)

All the terms, covenants and conditions of this Agreement to be complied with and performed by SELLERS and NCT on or before the Closing shall have been fully complied with and performed in all material respects;

 

(b)

Prior to the expiration of the Due Diligence Period, BUYER shall not have formally objected in writing to any matters of due diligence set forth in Section 10 herein;

 

(c)

The representations and warranties of each of SELLERS and NCT contained herein shall be correct in all material respects on and at the Closing with the same effect as though all such representations and warranties had been made on and as of that date;

 

(d)

SELLERS shall have delivered to BUYER the documents described in Section 9(a)(1) of this Agreement along with such other documents or instruments as in the reasonable opinion of BUYER may be necessary or desirable to effectuate the transaction provided for in this Agreement; and

 

(e)

NCT shall have delivered to BUYER the documents described in Section 9(a)(2) of this Agreement along with such other documents or instruments as in the reasonable opinion of BUYER may be necessary or desirable to effectuate the transaction provided for in this Agreement.

23.

 

(a)

All the terms, covenants and conditions of this Agreement to be complied with and performed by BUYER on or before the Closing Date shall have been fully complied with and performed in all material respects;

 

(b)

The representations and warranties made by BUYER herein shall be correct in all material respects, on and at the Closing, with the same force and effect as though such representations and warranties had been made at the Closing;

 

(c)

BUYER shall have delivered to SELLERS the documents and payments described in Section 9(b)(1) of this Agreement along with such other documents or instruments as in the reasonable opinion of SELLERS may be necessary or desirable to effectuate the transaction provided for in this Agreement; and

 

(d)

BUYER shall have delivered to NCT the documents and payments described in Section 9(b)(2) of this Agreement along with such other documents or instruments as in the reasonable opinion of NCT may be necessary or desirable to effectuate the transaction provided for in this Agreement.

24.

 

(a)

By the mutual written consent of SELLER and BUYER;

 

(b)

By BUYER if there has been a breach of any representation, warranty, covenant or agreement of SELLERS or NCT that has had or is reasonably likely to result in a material adverse effect on the ability of SELLERS or NCT to consummate the transactions contemplated hereby; provided that, as applicable, SELLERS or NCT will have ten (10) days after receiving notice from BUYER thereof to cure such breach;

 

(c)

By SELLERS if there has been a breach of any representation, warranty, covenant or agreement of BUYER that has had or is reasonably likely to result in a material adverse effect on the ability of BUYER to consummate the transactions contemplated hereby; provided that BUYER will have ten (10) days after receiving notice from SELLERS thereof to cure such breach; or

 

(d)

By either BUYER or SELLERS if the sale and purchase of the Shares contemplated by this Agreement shall not have been consummated on or before September 30, 2008; provided, however that the right to terminate this Agreement under this Section 24(d) shall not be available to any party whose breach of any obligation under this Agreement has been the cause of, or resulted in, the failure of such transaction to occur before such date.

25.

26.

27.

28.

Certain Definitions.  

 

(a)

The term “affiliate” when used with respect to a person or entity shall any other person or entity controlling, controlled by or under common control with the indicated person or entity.

 

(b)

The term “control” (including when used in a correlative form such as “controlling,” “controlled by,” or “under common control with”), when used with respect to any person or entity means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting securities or other ownership interest, by contract or otherwise.

 

(c)

The term “material adverse change” when used with respect to ISLAND shall mean any change, effect, circumstance or event that is materially adverse to the business, assets, operations or financial condition of ISLAND other than as a result of (i) changes, conditions or events that are generally applicable to the industry in which ISLAND conducts business, (ii) seasonal fluctuations in the performance of ISLAND or (iii) the effects including, without limitation, effects on relations and business with customers, suppliers and employees, of any of the transactions contemplated by this Agreement.

 

(d)

The term “to the knowledge of” when used (i) with respect to SELLERS shall mean to the actual knowledge of either RANDY or DODIE after reasonable investigation and (ii) with respect to NCT shall mean to the actual knowledge of NCT with no duty of investigation.

29.

30.

31.

32.

33.

34.