STOCK PURCHASE AGREEMENT

 

 

Section 5.1 Additional Agreements. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of Buyer and the Company are authorized to take all such necessary action.

 

Section 5.2 Conduct of Business by the Company Pending the Stock Purchase. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, the Company covenants and agrees that, unless Buyer shall otherwise agree in writing or as required or permitted under this Agreement, the Company shall conduct its business only in, and the Company shall not take any action except in the Ordinary Course of Business; and the Company shall use its commercially reasonable efforts to preserve substantially intact the business organization of the Company, to keep available the services of the present officers, employees and consultants of the Company and its subsidiaries and to preserve the present relationships of the Company with customers, suppliers and other persons with which the Company has significant business relations. By way of amplification and not limitation, except as contemplated by this Agreement the Company shall not, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, directly or indirectly do, or propose to do, any of the following without the prior written consent of Buyer (not to be unreasonably withheld):

 

(a) amend or otherwise change the Company’s articles of incorporation or bylaws;

 

(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of Company Stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of Company Stock, or any other ownership interest (including, without limitation, any phantom interest) of the Company, any subsidiary or any of its Affiliates (except the exercise of currently outstanding options and warrants in accordance with their terms);

 

(c) except as otherwise set forth in Section 6.2(n) hereof, sell, pledge, dispose of or encumber any assets or inventory of the Company or of any subsidiary in excess of $25,000 or take any action that would reasonably be expected to result in any damage to, destruction or loss of any material asset of the Company (whether or not covered by insurance);

 

(d) except as is contemplated by this Agreement, or the applicable award agreement or Employee Plan or pursuant to a written contractual agreement with an award recipient set forth on Section 5.2(d) of the Company Disclosure Schedule, accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or restricted stock granted under the Plans (including the Company Stock Option Plan) or authorize cash payments in exchange for any options granted under any of such plans;

 

(e) [(i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its common stock,] (ii) split, combine or reclassify any of its common stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its common stock, (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of a subsidiary, except in accordance with preexisting commitments as of the date hereof, or propose to do any of the foregoing;

 

(f) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any company, corporation, partnership or other business organization or division thereof, or enter into or amend any contract, agreement, commitment or arrangement to effect any such acquisition, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse (other than checks in the Ordinary Course of Business) or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances; (iii) to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any Entity; (iv) to enter into or amend any material agreement or contract which provides for the sale, license, or purchase by the Company or any of its subsidiaries of assets; (v) authorize any capital expenditures or purchase of fixed assets which are individually in excess of $25,000 or, in the aggregate, in excess of $100,000; or (vi) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 5.2(f);

 

 

(g) increase the compensation or fringe benefits payable or to become payable to its officers or employees, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer, or, establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors, officers or employees, except, in each case, as may be required by law or as expressly contemplated by this Agreement, or terminate any employee of the Company;

 

(h) take any action to change accounting policies or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable) (except as required by GAAP);

 

(i) make any material Tax election inconsistent with past practices or settle or compromise any material federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations;

 

(j) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than payment, discharge or satisfaction in the Ordinary Course of Business;

 

(k) enter into discussions regarding material customer contracts in excess of $100,000;

 

(l) engage in any action or enter into any transaction or permit any action to be taken or transaction to be entered into that could reasonably be expected to delay the consummation of, or otherwise adversely affect, any of the Transactions;

 

(m) undertake any revaluation of any of the Company’s or any subsidiary’s assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the Ordinary Course of Business or in accordance with GAAP; and

  

(n) take, or agree in writing or otherwise to take, any of the actions described in Sections 5.2(a) through (m).

For the purpose of obtaining written consent under this Section, the Company shall submit requests for written consent to Larry Shumate, and written consent may be evidenced by facsimile or email. For consents relating to subparagraph (k), above, Buyer shall respond to any request for consent within two, (2) business days of the request, including the day of the request, or consent shall be deemed granted.

 

Section 5.3 No Solicitation.

 

(a) Until the later of Closing Date, the termination of this Agreement pursuant to Article 8 or August 22, 2007, neither the Company or any Stockholder shall, and shall not permit or authorize its respective officers, directors, employees, affiliates, agents or other representatives (including without limitation any investment banker, financial advisor, attorney or accountant retained by it) to initiate, solicit or encourage (including by way of furnishing information or assistance) or take any other action to facilitate, any inquiries or the making of any proposal relating to, or that may reasonably be expected to lead to, any Alternative Transaction, or enter into discussions (except as to the existence of these provisions) or negotiate with any person or entity in furtherance of such inquiries or to obtain an Alternative Transaction, or agree to, or endorse, any Alternative Transaction, or authorize or permit any of the officers, directors, employees or agents of the Company or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company to take any such action and the Company shall promptly (and in any event, within 24 hours) notify Buyer of all relevant terms of any such inquiries or proposals received by the Company or by any such officer, director, employee, agent, investment banker, financial advisor, attorney, accountant or other representative relating to any of such matters and if such inquiry or proposal is in writing, the Company shall promptly (and in any event, within 24 hours) deliver or cause to be delivered to Buyer a copy of such inquiry or proposal and promptly (and in any event, within 24 hours) update Buyer as to any material changes with respect to such inquiry or proposal; provided, however, that nothing contained in this subsection (a) shall prohibit the Company or its Board of Directors from making such disclosure to the Stockholders as, in the good faith judgment of the Company’s Board of Directors after consultation with its outside legal counsel, is required by its fiduciary duties under applicable law.

 

 

(b) The Company and each Stockholder shall immediately cease and cause to be terminated any existing discussions or negotiations with any parties (other than Buyer) conducted heretofore with respect to any Alternative Transaction. The Company and each Stockholder agrees not to release any third party from any confidentiality or standstill agreement to which the Company and each Stockholder is a party.

 

(c) The Company shall inform its officers, directors and employees of the Company and any investment banker or other advisor or representative retained by the Company who are aware of, and require such person to agree to abide by, the restrictions described in this Section 5.3.

 

Section 5.4 Consents; Approvals. The Company and Buyer shall coordinate and cooperate with one another and shall each use their reasonable best efforts to obtain (and shall each refrain from taking any willful action that would impede obtaining) all consents, waivers, approvals, authorizations or orders (including, without limitation, all rulings, decisions or approvals by any Governmental Body), and the Company and Buyer shall make all filings (including, without limitation, all filings with governmental bodies) required in connection with the authorization, execution and delivery of this Agreement by the Company and Buyer and the consummation by them of the Transactions, excepting only those merger notification filings with foreign jurisdictions for which the failure to file would not have a Company Material Adverse Effect or a material adverse effect on the transactions contemplated hereby. The Company and Buyer shall furnish all information required to be included in any application or other filing to be made pursuant to the rules and regulations of any Governmental Body in connection with the Transactions. Except where prohibited by applicable statutes and regulations, and subject to the Confidentiality Agreement, each party shall coordinate with one another in preparing and exchanging such information, and shall promptly provide the other (or its counsel) with copies of all filings, presentations or submissions made by such party with any Governmental Body in connection with this Agreement or the Transactions.

 

Section 5.5 Notification of Certain Matters. The Company and each Stockholder shall give prompt notice to Buyer, and Buyer shall give prompt notice to the Company, of (i) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty contained in this Agreement to be materially untrue or inaccurate such that the conditions to closing set forth in Section 6.2(a) and 6.3(a), as the case may be, shall not be met and (ii) any failure of the Company, a Stockholder, or the Buyer, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder such that the conditions to closing set forth in Section 6.2(a) and 6.3(a), as the case may be, shall not be met; provided, however, that the delivery of any notice pursuant to this Section 5.5 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

 

Section 5.6 Public Announcements. No party will issue or make or cause the publication of, any press release or other public announcement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other parties hereto; provided, however, that for the purposes of this Section, the Company shall be entitled to give such prior written consent on behalf of the Stockholders. Buyer may elect at any time after the Closing Date issue a press release or make a public statement with respect to the Stock Purchase or this Agreement; provided, further, that the Buyer may issue a press release or make a public statement with respect to the Stock Purchase or this Agreement prior to the Closing Date. It is understood and agreed that Buyer will disclose the terms of this Agreement in connection the Announcing 8-K and with procurement of the Financing referred to in Section 6.2(i) hereto. If required under applicable securities laws and the rules of the Over-the-Counter Bulletin Board; Buyer and the Company shall make all necessary filings with governmental bodies and shall promptly provide the other party with copies of filings made by such party between the date hereof and the Closing Date.

 

Section 5.7 Conveyance Taxes. Buyer and the Company shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications, or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Closing Date.

 

 

Section 5.8 Non Competition Agreement. Concurrently herewith, the Company will use commercially reasonable efforts to have C. Frank Scantlin execute and deliver to Buyer a Noncompetition Agreement in the form attached hereto as Exhibit E (the “Non Competition Agreement”)).

 

Section 5.9 Employment Agreements. Concurrently herewith, the Company will use commercially reasonable efforts to have Craig Scantlin and Brent Scantlin execute and deliver to Buyer an Employment and Noncompetition Agreement in the form attached hereto as Exhibit F (the “Employment Agreement”).

 

Section 5.10 Access to Information.

 

(a) Subject to currently existing contractual and legal restrictions applicable to the Company or any of its subsidiaries, the Company shall, and shall cause each of its subsidiaries to, afford to the accountants, counsel, financial advisors and other representatives of Buyer reasonable access to, and permit them to make such inspections as they may reasonably require of, during the period from the date of this Agreement through the Closing Date, all of their respective properties, books, contracts, commitments and records (including accounting records and Tax Returns and the work papers of independent accountants, if available and subject to the consent of such independent accountants). During such period, the Company shall (i) furnish promptly to Buyer a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws, (ii) furnish promptly to Buyer all other information within its possession concerning its business, properties and personnel as Buyer may reasonably request and (iii) promptly make reasonably available to Buyer all personnel of the Company and its subsidiaries knowledgeable about matters relevant to such inspections. No investigation pursuant to this Section 5.10(a) shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto.

 

(b) All information obtained by Buyer pursuant to this Section 5.10 shall be kept confidential in accordance with the Confidentiality Agreement.

 

Section 5.11 Lease Agreements. Buyer agrees to lease the properties located at (i) 13410 Redfish Lane, Stafford Texas 77477 and (ii) 13411 Redfish Lane, Stafford Texas 77477, on the terms on and conditions set forth in the lease agreement attached hereto as Exhibit G (the “Lease Agreements”).

 

Section 5.12  Satisfaction of Conditions Precedent. The parties hereto shall use all commercially reasonable efforts to satisfy or cause to be satisfied all of the conditions precedent which are set forth in Article 6, and shall use all commercially reasonable efforts to cause the Stock Purchase and other transactions contemplated by this Agreement to be consummated in accordance with the terms of this Agreement.

Section 5.13 Exclusivity of Remedies. The parties hereto have voluntarily agreed to define their rights, liabilities and obligations respecting the subject matter of this Agreement exclusively in contract pursuant to the express terms and provisions of this Agreement. Furthermore, the parties each hereby acknowledge that this Agreement embodies the justifiable expectations of sophisticated parties derived from arm’s length negotiations; all parties to this Agreement specifically acknowledge that no party has any special relationship with another party that would justify any expectations beyond that of any ordinary buyer and an ordinary seller in an arm’s length transaction. The remedies for any breach of the terms and provisions of this Agreement (including any representations and warranties ser forth herein) shall be those remedies available at law or in equity for breach of contract.

Section 5.14 No Third Party Liability. This Agreement may only be enforced against the named parties hereto. All claims or causes or action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement (including any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), may be made only against the entities that are expressly identified as parties hereto; and no officer, director, shareholder, employee or affiliate of any party hereto (including any person negotiating or executing this Agreement on behalf of a party hereto) shall have any liability or obligation with respect to this Agreement or with respect to any claim or cause of action (whether in contract or tort) that may arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement (including a representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement).

 

 

Section 5.15 SEC Reports. From and after the date of this agreement Buyer shall, so long as any Stockholder owns any of the Buyer Common Stock, use its reasonable best efforts to:

 

(a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act;

 

(b) file with the Securities and Exchange Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

 

(c) furnish to each holder of Buyer Common Stock forthwith upon request a written statement by the Buyer as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Buyer as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Buyer Common Stock with out registration.

 

(d) the Buyer shall, at all times during which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, use reasonable efforts to provide in writing, upon the written request of any Stockholder, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act (“Rule 144A Information”). The Buyer also shall, upon the written request of any Stockholder, use reasonable efforts to cooperate with and assist such Stockholder or any member of the National Association of Securities Dealers, Inc. PORTAL system in applying to designate and thereafter maintain the eligibility of the shares of Buyer Common Stock, as the case may be, for trading through PORTAL. The Buyer’s obligations under this Section 5.15 shall at all times be contingent upon the relevant Stockholder’s obtaining from the prospective buyer of shares of Buyer Common Stock, a written agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than a person who will assist such buyer in evaluating the purchase of any shares of Buyer Common Stock.

 

Section 5.16 Piggy-Back Registration Rights.

 

(a) If Buyer determines to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans on Form S-8 (or any successor form) or (ii) a registration relating solely to a Commission Rule 145 transaction on Form S-4 (or any successor form), the Company will: include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Buyer Common Stock delivered pursuant to this Agreement, subject to any reductions in the Buyer Common Stock to be registered made at the request of the Placement Agent or any other reductions required due to the Securities and Exchange Commission’s (the “SEC”) recent interpretation of Rule 415 of the Securities Act. The Sellers understand that the SEC is currently taking the position that Rule 415 is not available to an issuer that attempts to register on behalf of security holders approximately 30% or more of the number of issued and outstanding shares held by non-affiliates of that issuer. Accordingly, the Sellers agree that such rights are subordinate to the registration rights of investors in the Financing described in Section 6.2(g). Sellers agree, if requested by the Placement Agent for the Financing, to execute a lock up agreement in connection with any such registration for a period of the date of filing of such registration statement and ending 90 days after effectiveness of said registration statement.

 

(b) If, in connection with the underwritten public offering by the Buyer the managing underwriter(s) advise the Buyer in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner in such offering within a price range acceptable to the Buyer, the Buyer will include in such registration (i) first, the securities proposed to be sold by the Buyer; and (ii) second, the common stock requested to be included in such registration, pro rata among the Stockholders and the other selling stockholders based on the ratio of the number of shares of common stock that each such selling stockholder has requested that the Buyer include in such registration over the total number of shares of common stock requested to be included in such registration.

 

 

 

Section 6.1 Conditions to Obligations of Each Party to Effect the Stock Purchase. The respective obligations of each party to effect the Stock Purchase shall be subject to the satisfaction at or prior to the Closing Date of the following conditions:

 

(a) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Stock Purchase shall be in effect; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Stock Purchase, which makes the consummation of the Stock Purchase illegal.

 

Section 6.2 Additional Conditions to Buyer’s Obligation to Consummate the Stock Purchase. Buyer’s obligations to consummate the Stock Purchase and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

 

(a) the Exchange Agent shall have received the certificates representing the Shares duly endorsed for transfer (or accompanied by a duly executed stock power) together with the Letter of Transmittal;

(b) Buyer shall have received the following documents:

 

(i) the opinion letter from Shanks Law Firm, counsel to the Company, in substantially the form attached hereto as Exhibit H;

 

(ii) a certificate, duly executed by the Company, certifying that (A) each of the representations and warranties made by the Company in this Agreement and in the other Transactional Agreements is accurate in all respects as if made as of the date of Closing, (provided that such representations and warranties which are by their express provisions made as of a specific date need to be accurate only as of such specific date), except to the extent that any failures of such representations and warranties to be accurate, in the aggregate, would not have, or reasonably be expected to have, a Company Material Adverse Effect (disregarding for these purposes any materiality or material adverse effect qualifications therein contained), (B) each of the covenants and obligations that the Company is required to have complied with or performed pursuant to this Agreement or any of the other Transactional Agreements at or prior to the Closing has been duly complied with and performed in all material respects, and (C) each of the conditions set forth in this Section 6.2 has been satisfied in all respects; and

 

(iii) a certificate, duly executed by the Stockholders’ Agent, certifying that each of the representations and warranties made by the Stockholders in this Agreement and in the other Transactional Agreements is accurate in all respects as if made as of the date of Closing, (provided that such representations and warranties which are by their express provisions made as of a specific date need to be accurate only as of such specific date);

(iv) copies of resolutions of the board of directors of the Company, certified by the Secretary of the Company, authorizing the execution, delivery and performance of the Transactional Agreements to which the Company is a party and the Transactions;

(v) a certificate of good standing of the Company from the State of Texas as of the most recent practicable date: and

(vi) written resignations of Craig Scantlin as Secretary and Brent Scantlin as Treasurer of the Company effective as of the Closing Date in form satisfactory to the Buyer;

(vii) written resignations of C. Frank Scantlin and Brent Scantlin as directors of the Company, effective as of the Closing Date in form satisfactory to the Buyer

 

 

(viii) resolutions of the board of directors of the Company appointing Larry C. Shumate and Matthew C. Flemming to the board of directors to fill the vacancies created by the resignations of C. Frank Scantlin and Brent Scantlin

(ix) such other documents as Buyer may reasonably request in good faith for the purpose of (i) evidencing the accuracy of any representation or warranty made by the Company or the Stockholders, (ii) evidencing the compliance by the Company, or the performance by the Company of, any covenant or obligation set forth in this Agreement, (iii) evidencing the satisfaction of any condition set forth in Section 6.1 or this Section 6.2, or (iv) otherwise facilitating the consummation or performance of any of the Transactions.

 

(c) Since the date of this Agreement, there shall not have occurred a Company Material Adverse Effect.

 

(d) The consents identified on Section 2.22 of the Company Disclosure Schedule (“Material Consents”) for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby shall have been obtained and made by the Company and copies thereof shall have been delivered to Buyer.

 

(e) Each of the representations and warranties made by the Company and the Stockholders in the Agreement are true and accurate in all respects as of the Closing (provided that such representations and warranties which are by their express provisions made as of a specific date need be accurate only as of such specific date), except to the extent that any failures of such representations and warranties to be accurate, on the aggregate, would not have, or reasonably be expected to have, a Company Material Adverse Effect (disregarding for these purposes any materiality or material adverse effect qualifications therein contained); and all covenants and obligations that the Company is required to have complied with or performed pursuant to this Agreement or any of the Transaction Documents at or prior to Closing have been duly complied with or performed in all material respects.

 

(f) The Company shall have executed and delivered all Transactional Agreements to which the Company it is a party.

 

(g) Buyer shall have completed the sale of its debt and/or equity securities in a private placement which is exempt from registration under the Securities Act in which the gross proceeds to Buyer equal or exceed fourteen million dollars ($14,000,000.00) (the “Financing”);

 

(h) The Escrow Agent and the Stockholders Agent (as define in Section 7.4) shall have executed and delivered the Escrow Agreement in substantially the form attached hereto as Exhibit I (the “Escrow Agreement”);

(i) Craig Scantlin and Brent Scantlin shall have entered into an Employment Agreement with Buyer.

 

(j)  C. Frank Scantlin shall have entered into a Non Competition Agreement with Buyer 

(k)  Each Employment and Noncompetition Agreement and the Escrow Agreement shall be in full force and effect.

 

(l)  Buyer’s due diligence investigation of the Company shall have been completed to Buyer's sole satisfaction; provided, however, that if Buyer has not notified the Company of the failure of this condition within fifty (50) days after the date of this Agreement, the condition set forth in this section shall be deemed to have been

satisfied.

(m) The Company Audited Financial Statements shall have been completed;

 

(n) The business of the Company shall have been conducted in all material respects only in the Ordinary Course of Business consistent with past practice and the Company shall not have taken any of the actions set forth in Section 5.2 hereof except as contemplated by this Agreement or with the prior written consent of the Buyer.

 

(o) The Company shall have delivered the Closing Date Balance Sheet (as defined in Exhibit A hereto).

 

(p)  The Company shall have provided evidence satisfactory to Buyer that it has distributed and disposed of the assets set forth on Section 6.2(p) of the Company Disclosure Schedule.

 

 

Section 6.3 Additional Conditions to the Company’s Obligation to Consummate the Stock Purchase. The Company’s and the Stockholders’ obligation to consummate the Stock Purchase and to take the other actions required to be taken by the Company and the Stockholders at the Closing shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Company and the Stockholders, in whole or in part):

 

(a) The Exchange Agent shall have received the Cash Consideration, the Note Consideration and the Stock Consideration;

(b) The Company and the Stockholders shall have received the following documents:

 

(i) a certificate, duly executed by Buyer, certifying that (A) each of the representations and warranties made by Buyer in this Agreement and in the other Transactional Agreements is accurate in all respects as if made as of the date of the Closing (provided that such representations and warranties which are by their express provisions made as of a specific date need to be accurate only as of such date specific date), except to the extent that any failures of such representations and warranties to be accurate, in the aggregate, would not have, or reasonably be expected to have a material adverse effect on Buyer (disregarding for these purposes any materiality or material adverse effect qualifications therein contained), (B) each of the covenants and obligations that Buyer is required to have complied with or performed pursuant to this Agreement or any of the other Transactional Agreements at or prior to the Closing has been duly complied with and performed in all material respects, and (C) each of the conditions set forth in Section 6.3 has been satisfied in all respects;

(ii) a certificate of good standing of the Buyer from the State of Delaware as of the most recent practicable date: and

 

(iii) such other documents as the Company and the Stockholders may request in good faith for the purpose of (A) evidencing the accuracy of any representation or warranty made by Buyer (B) evidencing the compliance by Buyer with, or the performance by Buyer, any covenant or obligation set forth in this Agreement or any of the other Transactional Agreements, (C) evidencing the satisfaction of any condition set forth in Section 6.1 or this Section 6.3, or (D) otherwise facilitating the consummation or performance of any of the Transactions.

 

(c) All material consents, waivers, approvals, authorizations or orders required to be obtained, and all filings required to be made, by the Buyer for the authorization, execution and delivery of this Agreement and the consummation by each of them respectively of the transactions contemplated hereby shall have been obtained and made by the Buyer.

 

(d) Each of the representations and warranties made by Buyer in the Agreement are true and accurate in all respects as of the Closing (provided that such representations and warranties which are by their express provisions made as of a specific date need to be accurate only as of such date specific date), except to the extent that any failures of such representations and warranties to be accurate, in the aggregate, would not have, or reasonably be expected to have a material adverse effect on Buyer (disregarding for these purposes any materiality or material adverse effect qualifications therein contained), and all covenants and obligations that the Buyer is required to have complied with or performed pursuant to this Agreement or any of the Transaction Documents at or prior to Closing have been duly complied with or performed in all material respects;

(e) Buyer shall have executed and delivered the Lease Agreements; and

(f) Buyer shall have executed and delivered the consent to Closing the Books election for the S. corporation tax return provided in Section 9.3 and Exhibit 9.3.

 

 

 

Section 7.1 Indemnification. From and after the Closing Date and subject to the limitations contained in Sections 7.2, each of the Stockholders (the “Indemnifying Parties”) shall, jointly and severally, indemnify and hold Buyer harmless against any loss, expense, liability or other damage, including reasonable attorneys’ fees, to the extent of the amount of such loss, expense, liability or other damage (collectively, “Damages”) that Buyer has incurred by reason of the breach or alleged breach by the Company of any representation, warranty, covenant or agreement of the Company contained in this Agreement or in any document, schedule or certificate delivered by the Company pursuant hereto but in no event shall any Damages be payable by the Indemnifying Parties under this sentence in excess of $1,250,000 (the “Damages Cap” except as follows: (i) with respect to damages that Buyer has incurred by reason of the breach or alleged breach by the Company of the representations and warranties set out in Section 2.3 (Capitalization; Ownership of Stock) or Section 2.14 (Tax Matters) the Damages Cap shall be $3,000,000). In addition, each Indemnifying Party shall be fully liable to the Buyer for any actual Damages incurred by Buyer relating to such Indemnifying Party’s willful misconduct or fraud in connection with the representations and warranties set forth herein or in any document delivered by such Indemnifying Party to the Buyer, and the transactions contemplated under this Agreement and in connection with the Stock Purchase without limitation to the Damages Cap; provided, however, in no event shall any Indemnifying Party be liable for such willful misconduct or fraud of another Indemnifying Party.

 

 

Section 7.2 Damage Threshold. Notwithstanding the foregoing, the Indemnifying Parties shall have no liability under Section 7.1 unless the amount for any individual claim for Damages exceeds $5,000 (the “Individual Threshold”) and until the aggregate amount of Damages for all such claims in excess of $250,000 has been incurred (the “Damages Threshold”); provided, however, that after the Damage Threshold has been reached, Buyer shall be entitled to indemnification for any and all Damages incurred since the Closing Date.

 

Section 7.3 Indemnification Procedures. Upon Buyer becoming aware of a fact, condition or event that constitutes a claim for Damages under Section 7.1 above, if such a claim is to be made, Buyer will with reasonable promptness and specificity notify the Stockholders’ Agent (as defined below) in writing of such fact, condition or event. The failure to notify the Stockholders’ Agent under this Section 7.3 shall not relieve any of the Stockholders of any liability that it may have to Buyer except and to the extend that such failure to notify shall have resulted in a waiver of any lawful and valid affirmative defense to any third-party claim or otherwise materially prejudices the Stockholders in connection with the administration or defense of such third-party claim

 

Section 7.4 Stockholders’ Agent.

 

(a) Craig Scantlin is constituted and appointed as agent (the “Stockholders’ Agent”) for and on behalf of the Stockholders to give and receive notices and communications, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, 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 Stockholders’ Agent for the accomplishment of the foregoing. Such agency may be changed by the holders of a majority in interest of the Company Stock from time to time upon not less than ten (10) days’ prior written notice to Buyer. No bond shall be required of the Stockholders’ Agent, and the Stockholders’ Agent shall receive reasonable compensation for services, fees and expenses incurred in good faith arising out of or in connection with the acceptance or administration of his duties under this Agreement, such compensation, fees and expenses due from the other Stockholders. Notices or communications to or from the Stockholders’ Agent shall constitute notice to or from each of the Stockholders. If the Stockholders’ Agent shall die, become disabled or otherwise be unable to fulfill his responsibilities as agent of Stockholders, then Stockholders shall, within ten days after such death or disability, appoint a successor agent and, promptly thereafter, shall notify Buyer of the identity of such successor. Any such successor shall become the “Stockholders’ Agent” for purposes of this Agreement. If for any reason there is no Stockholders’ Agent at any time, all references herein to the Stockholders’ Agent shall be deemed to refer to the Stockholders.

 

(b) The Stockholders’ Agent shall not be liable for any act done or omitted hereunder as Stockholders’ Agent while acting in good faith, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Stockholders shall jointly and severally indemnify the Stockholders’ Agent and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Stockholders’ Agent and arising out of or in connection with the acceptance or administration of his duties under this Agreement.

 

(c) The Stockholders’ Agent shall have reasonable access to information about Company and Buyer and the reasonable assistance of Company’s and Buyer’s officers and employees for purposes of performing its duties and exercising its rights under this Article 7, provided that the Stockholders’ Agent shall treat confidentially and not disclose any nonpublic information from or about Company or Buyer to anyone (except on a need to know basis to individuals who agree to treat such information confidentially).

 

 

Section 7.5 Actions of the Stockholders’ Agent. A decision, act, consent or instruction of the Stockholders’ Agent shall constitute a decision of all of the Stockholders and shall be final, binding and conclusive upon each such Stockholder, and Buyer may rely upon any decision, act, consent or instruction of the Stockholders’ Agent as being the decision, act, consent or instruction of each and every such Stockholder. The Buyer is hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Stockholders’ Agent.

Section 7.6 Escrow Fund. As partial security for the indemnities in Section 7.1, the Stock Consideration shall be deposited with the Escrow Agent within ten days of the Closing, such deposit to constitute an escrow fund (the “Escrow Fund”) to be governed by the terms set forth in this Article 7 and in the Escrow Agreement. All claims upon the Escrow Fund, objections thereto and resolution of any conflicts related to claims upon to the Escrow Fund shall be governed by and conduction in accordance with Section 4 of the Escrow Agreement

 

Section 7.7 Claims. In the event Buyer becomes aware of a third-party claim which Buyer believes may result in a demand against the Stockholders, Buyer shall notify the Stockholders’ Agent of such claim, and the Stockholders’ Agent and the Stockholders shall be entitled, at their expense, to participate in any defense of such claim. Buyer shall have the right in its sole discretion to settle any such claim; provided, however, that Buyer may not effect the settlement of any such claim without the consent of the Stockholders’ Agent, which consent shall not be unreasonably withheld. In the event that the Stockholders’ Agent has consented to any such settlement, the Stockholders’ Agent shall have no power or authority to object to the amount of any claim by Buyer against the Stockholders for indemnity with respect to such settlement, unless such claim is in an amount in excess of any amount consented to by the Stockholders’ Agent.

 

Section 7.8 Working Capital Adjustment.

 

(a) Immediately prior to the Closing Date, the Stockholders’ Agent shall cause to be prepared and delivered to the Buyer and the Buyer shall have reviewed a statement (the “Working Capital Statement”) setting forth the calculation of the Closing Date Net Working Capital (as defined below). The “Closing Date Net Working Capital” shall mean: (A) the sum of (i) cash and cash equivalents, (ii) prepaid expenses (iii) the Eligible Accounts Receivable (as defined below) of the Company earned prior to the Closing Date and collectible on or after the Closing Date, and (iv) inventory all as reflected on the Closing Date Balance Sheet, (B) with deduction for (i) the accounts payable and (ii) accrued expenses. The Closing Date Net Working Capital shall include adjustments increases or decreases on a dollar for dollar basis, as follows: (a) if the equipment leases and equipment notes designated on Section 2.6(b) of the Company Disclosure Schedule are more or less than $563,000 on the day immediately preceding the Closing Date and (b) to the extent of equipment purchased since January 31, 2007 less cash proceeds on equipment disposed of since January 31, 2007, without regard to excluded assets. The “Elibigle Accounts Receivable” shall mean all receivables due and outstanding 90 days or less from the Closing Date. The Working Capital Target shall mean $3,700,000.

 

(b) In the event that it is determined that the Closing Date Net Working Capital is greater than the Working Capital Target (as defined above), the excess shall be paid to Stockholders on a Pro Rata Basis (the “Stockholder Working Capital Adjustment”). If the Closing Date Net Working Capital is less than the Working Capital Target, then the amount shall be subtracted from the Cash Consideration due Stockholders (the “Buyer Working Capital Adjustment”).

 

(c) It is understood and agreed that with respect to any Working Capital Adjustment discussed in Section (b) above, only 80% of such Adjustment shall be realized by Buyer or Stockholders, as applicable at Closing with the remaining 20% to be realized (i.e. paid by such party which owes a net adjustment to the other party) 60 days after Closing (the “Final Adjustment Date”). Buyer and the Stockholders Agent will jointly determine whether any adjustments are required to the Working Capital Statement resulting in adjustments to the Working Capital Adjustments in Section (b) above.

(d) Collections after the Closing Date of all accounts receivable of the Company earned prior to the Closing Date which are not Eligible Accounts Receivable shall be paid to Stockholders on a Pro Rata Basis, monthly, as collections are received by the Company. The Company shall diligently pursue collection of any such accounts receivable after the Closing Date, and shall not write off, forgive, or otherwise reduce or offset any such accounts receivable without the consent of the Stockholders. The Company, at its option, may assign any such accounts receivable that remain uncollected after the first anniversary of the Closing Date to the Stockholders with full right of collection.

 

 

 

 

Section 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date, as follows:

 

(a) by mutual written consent of Buyer and the Company;

 

(b) by either Buyer or the Company if the Stock Purchase shall not have been consummated by October 16, 2007 (the “Termination Date”), provided that the right to terminate this Agreement under this Section 8.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been a principal cause of or resulted in the failure of the Stock Purchase to occur on or before such date and such action or failure to act constitutes a material breach of this Agreement;

 

(c) by either Buyer or the Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Stock Purchase, except if the party relying on such order, decree or ruling or other action has not complied with its obligations under Section 5.5;

  

(d) by Buyer or the Company, upon a breach of any representation, warranty, covenant or agreement on the part of the Company or Buyer, respectively, set forth in this Agreement such that the conditions set forth in Section 6.2(e) or Section 6.3(d), respectively, would not be satisfied, provided, that if such breach is curable through the exercise of commercially reasonable efforts, then the other party may not terminate pursuant to this Section 8.1(d) in respect of such breach if such breach is curable and shall have been cured within 30 days following notice by the other party of such breach, provided the breaching party continues to use commercially reasonable efforts to cure such breach during the 30 day period (it being understood that (i) the other party may not terminate this Agreement pursuant to this Section 8.1(d) after notice of such breach if such breach shall have been cured within 30 days or the party seeking to terminate shall then be in material breach of this Agreement and (ii) no cure period shall be required for a breach which by its nature cannot be cured).

(e) In the event that the Company directly or indirectly, through any officer, employee, director, representative, parent, affiliate, broker, advisor or agent (i) seeks, solicits, initiates or encourages the submission of any inquiry, proposal or offer from any corporation, or any lender, partnership, person or other entity or group relating to any acquisition or purchase of the assets of the Company, or exchange offer, merger, reverse merger, consolidation, business combination, recapitalization, spin-off, liquidation, dissolution, or similar transaction involving, directly or indirectly, Company (each an "Acquisition Proposal"); or (ii) participates or cooperates in or pursues any discussions or negotiations regarding any Acquisition Proposal or furnishes to any person or entity information concerning the Company for any Acquisition Proposal; the Company shall be obligated to reimburse Buyer for all reasonable out-of-pocket costs and expenses incurred in connection with this transaction up to a maximum of $150,000.

 

Section 8.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto or any of its affiliates, directors, officers or Stockholders except (i) as set forth in Section 8.1 (e) and Section 8.3, and (ii) nothing herein shall relieve any party from liability for any willful breach hereof or willful or intentional misrepresentations.

  

Section 8.3 Fees and Expenses.  Except as other in set forth in Section 8.1(e) above, whether or not the Stock Purchase is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses; provided, however, that 50% of the fees charged by the Company’s auditor in connection with the preparation of the Company Audited Financial Statements shall be paid for by Buyer and provided further that if the Closing Date of the Stock Purchase occurs after August 22, 2007 then Buyer shall be responsible for 100% of the fees charged by the Company’s auditor in connection with preparation of the Company Audited Financial Statements. Further, Sellers and Company agrees that all professional fees and expenses related to the Stock Purchase shall be paid on or before the Closing Date.

 

 

Section 8.4 Termination Fee.

(a) In the event the Stock Purchase is not consummated within 61 days of the date of this Agreement for any reason other than (i) termination of this Agreement pursuant to Section 8.1(a), or (ii) termination of this Agreement by Buyer pursuant to Section 8.1(c), Section 8.1(d) or Section 8.1(e), Buyer shall pay the Company a termination fee of $150,000, provided the Company is not material breach of this Agreement and the Company has exercised its right of termination under this Agreement pursuant to Section 8.1(b). Such termination fee shall be paid in four equal installments of $37,500, with the first installment due and payable within 4 business days of termination of the Agreement and the remaining installments to be paid on the four, eight and twelve month anniversary of the termination date.

(b) In the event the Stock Purchase is not consummated within 61 days of the date of this Agreement for any reason other than (i) termination of this Agreement pursuant to Section 8.1(a), or (ii) termination of this Agreement by the Company pursuant to Section 8.1(c), the Company shall pay Buyer a termination fee of $150,000, provided the Buyer is not in material breach of this Agreement and Buyer has exercised its right of termination under this Agreement pursuant to Section 8.1(b). Such termination fee shall be paid in four equal installments of $37,500, with the first installment due and payable within 4 business days of termination of the Agreement and the remaining installments to be paid on the four, eight and twelve month anniversary of the termination date.

 

 

Section 9.1 Survival of Representations and Covenants. All representations, warranties, covenants and agreements of the Company and the Stockholders contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of Buyer until the end of the [twelfth] month following the Closing Date (the “Expiration Date”), except for fraud provided that such survival for fraud shall be specific to each incident and shall otherwise vitiate the Expiration Date, and provided further that the representations and warranties set out in Section 2.14 (Tax matters) shall survive until the expiration of the statute of limitations applicable thereto. All representations, warranties, covenants and agreements of Buyer contained in this Agreement shall survive until the Closing Date, except for covenants and agreements which by their terms must be performed after the Closing Date.

 

 

Section 9.2 Transfer Taxes. Each Stockholder shall be individually responsible for his, her or its respective sales, use and transfer taxes, including but not limited to any value added, stock transfer, gross receipts, stamp duty and real, personal or intangible property transfer taxes, due by reason of the consummation of the Transactions, including but not limited to any interest or penalties in respect thereof.

 

 

Section 9.3 Tax Returns. Each Stockholder and Buyer shall cooperate in connection with the preparation, execution and filing of all Tax Returns and shall make themselves available in a timely manner to execute such Tax Returns. Stockholders and Buyer agree to consent to and join in filing an Election To Close Books Upon S-Corporation Termination pursuant to Code §1362(e)(3) and Regs. §1.1362-6(b)(1), substantially in the form set out as Exhibit 9.3, for the federal income tax returns of the Company for 2007 which shall consist of a an S-corporation tax return for the period from January 1, 2007 to the Closing Date and a C-corporation tax return for the period from the Closing Date to the end of the tax year. Stockholders shall prepare the S corporation tax return at their expense and Buyer shall prepare the C corporation tax return at Buyer’s expense.

 

 

Section 9.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

if to the Company:

 

Sunbelt Machine Works Corporation

13411 Redfish Lane

Stafford, Texas

Attention: President

Telefax: (650) 596-0503

 

with a copy to:

 

The Shanks Law Firm

5300 Memorial Dr., Suite 800

Houston, Texas  77007-8248

Attention: Rick Shanks, Esq

Telefax: (713) 803-1091

And

Isaacks & Associates, Ltd., L.L.P.

12777 Jones Road, Suite 100

Houston, TX 77070-4624

Attention: Wayne Isaacks, Esq.

Telefax: (281) 807-6173

 

if to Buyer:

 

Shumate Machine Works, Inc.

12060 FM 3083

Conroe, Texas 77301

Attention: Chief Executive Officer

Telefax: (936) 539-9396

 

with a copy to:

 

Spectrum Law Group LLP

1900 Main Street, Suite 125

Irvine, California 92614

Attention: Marc Indeglia, Esq.

Telefax: (949) 851-5940

if to the Stockholders:

 

at each of their addresses set forth in Schedule 1.

 

Section 9.5 Time of the Essence. Time is of the essence in the performance of each of the terms hereof with respect to the obligations and rights of each party hereto.

 

Section 9.6 Headings. The headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

 

Section 9.7 Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement.

 

 

Section 9.8 Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Texas without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Texas to the rights and duties of the parties.

 

Section 9.9. Arbitration. The parties agree that any dispute, controversy or claim, whether based on contract, tort, statute, discrimination, retaliation, or otherwise, relating to, arising from or connected in any manner to this Agreement, or to the alleged breach of this Agreement, shall, upon timely written request of either party be submitted to and resolved by binding arbitration. The arbitration shall be conducted in Houston, Texas. The arbitration shall proceed in accordance with the National Rules of the American Arbitration Association ("AAA") in effect at the time the claim or dispute arose, unless other rules are agreed upon by the parties. Unless otherwise agreed to by the parties in writing, the arbitration shall be conducted by one arbitrator who is a member of the AAA and who is selected pursuant to the methods set out in the National Rules of the AAA. Any claims received after the applicable/relevant statute of limitations period has passed shall be deemed null and void. The award of the arbitrator shall be a reasoned award with findings of fact and conclusions of law. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement, to enforce an arbitration award, and to vacate an arbitration award. However, in actions seeking to vacate an award, the standard of review to be applied by said court to the arbitrator's findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury. Each party will pay its own attorneys fees and other costs incurred by their respective attorneys.

Section 9.10 Waiver.

 

(a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise or waiver of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

 

(b) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

 

Section 9.11 Amendments. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of Buyer, the Company and the Stockholders.

 

Section 9.12 Severability. In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law.

 

Section 9.13 Entire Agreement. The Transactional Agreements (including Schedules and Exhibits thereto) set forth the entire understanding of the parties relating to the subject matter thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter thereof.

 

Section 9.14 Indemnification of Officers and Directors. All rights to indemnification existing in favor of those Persons who are officers and directors of the Company as of the date of this Agreement (the “Indemnified Officers and Directors”) for their acts and omissions occurring prior to the Closing Date (other than any obligations arising in connection with the Stock Purchase and this Agreement), as provided in the articles of incorporation or bylaws of the Company and as provided in the indemnification agreements between the Company and the Indemnified Officers and Directors (as in effect as of the Closing Date) in the forms disclosed by the Company to the Buyer, or adopted by agreement between the Company and the Buyer prior to Closing, shall survive the Closing and shall be observed by the Company, and the Buyer to the fullest extent available under Texas law for a period of twelve months from the Closing Date.

 

 

Section 9.15 Construction.

 

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

 

(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

 

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

 

(d) Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement.

 

[Signature page follows]

 

IN WITNESS WHEREOF, each of the parties to this Agreement has executed or caused this Agreement to be executed as of the date first above written.

 

 

 

 

 

 

Exhibits: 

 

A.	Certain Definitions
B.	Form of Note
C.	Form of Letter of Transmittal
D.	Unaudited Interim Balance Sheet of the Company
E.	Form of Non-Competition Agreement
F.	Form of Employment Agreement
G.	Form of Lease
H.	Form of Opinion of Company Counsel
I.	Form of Escrow Agreement
J.	Working Capital Statement

 

Schedules: 

 

 

 

 

For purposes of the Agreement (including this Exhibit A):

 

 

Agreement. “Agreement” shall mean the Stock Purchase Agreement to which this Exhibit A is attached (including the Company Disclosure Schedule and all Exhibits), as it may be amended from time to time.

 

Alternative Transaction. means any of the following: (i) a transaction pursuant to which any person (or group of persons) other than Buyer or its affiliates (a “Third Party”) seeks to acquire, directly or indirectly, more than ten percent (10%) of the outstanding shares of capital stock of the Company, whether from the Company or pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or other business combination involving the Company pursuant to which any Third Party acquires more than ten percent (10%) of the outstanding equity securities of the Company or the entity surviving such merger or business combination, (iii) any other transaction pursuant to which any Third Party acquires control of all or substantially all of the assets of the Company (including for this purpose the outstanding equity securities of the Company’s subsidiaries), (iv) the adoption by the Company of a plan of liquidation, the declaration or payment by the Company of an extraordinary dividend on any of its shares of capital stock or the effectuation by the Company of a recapitalization or other type of transaction that would involve either a change in the Company’s outstanding capital stock or a distribution of assets of any kind to the holders of such capital stock, (v) the issuance by the Company of shares of capital stock to the public or (vi) the repurchase by the Company or any of its subsidiaries of shares of the Company’s capital stock representing at least ten percent (10%) or more of the aggregate voting power of all voting securities of the Company; provided, however, that the definition of “Alternative Transaction” shall not include a transaction completed for equity financing purposes.

Buyer.“Buyer” shall have the meaning specified in the first paragraph of the Agreement.

 

Closing.“Closing” shall have the meaning specified in Section 1.5 of the Agreement.

  

Closing Date.“Closing Date” shall have the meaning specified in Section 1.5 of the Agreement.

 

Closing Date Balance Sheet.“Closing Date Balance Sheet” shall mean the unaudited balance sheet of the Company dated as of the Closing Date, that has been prepared in accordance with GAAP (except that the Closing Date Balance Sheet may omit footnotes and other presentation items that may be required by GAAP consistently applied on a basis consistent with the Company Audited Financial Statements (as defined in Section 2.4(a) hereof)) and shall be calculated in a manner consistent with the Working Capital Statement.

 

Code. The Internal Revenue Code of 1986, as amended.

 

Company. The “Company” shall have the meaning specified in the first paragraph of the Agreement and shall also be deemed to include all predecessor entities, including, without limitation, Scantlin Machine Works, Ltd. which was merged with and into Sunbelt Machine Works Corporation on April 18, 2007.

 

Company Common Stock.“Company Common Stock” shall mean shares of Class A common stock, $1.00 par value per share, of the Company.

 

Company Contract.“Company Contract” shall mean any Contract:

 

(a) to which Company is a party;

 

(b) by which the Company or any of its assets is or may become bound or under which the Company has, or may become subject to, any obligation; or

 

(c) under which the Company has or may acquire any right or interest.

 

 

Company Disclosure Schedule. “Company Disclosure Schedule” shall have the meaning specified in Article 2 of the Agreement.

 

Company Material Adverse Effect. shall mean any change, event or effect that is materially adverse to the business, assets (whether tangible or intangible), liabilities, operations, results of operations, condition (financial or otherwise), or capitalization of the Company; provided, however, that any adverse change directly attributable to conditions affecting the industry in which the Company has material operations as a whole or the U.S. economy as a whole shall not be deemed a Company Material Adverse Effect so long as such conditions do not adversely affect the Company in a manner disproportionate to other companies in the same industry. 

Company Returns. “Company Returns” shall have the meaning specified in Section 2.14(b) of the Agreement.

  

Company Stock Options. shall mean all issued and outstanding options (including commitments to grant options, but excluding Company Warrants) to purchase or otherwise acquire Company Common Stock (whether or not vested) held by any person or entity.

 

Company Warrants. shall mean any issued and outstanding warrants to purchase Company Common Stock that are not exercised or cancelled prior to the Closing Date.

 

Confidentiality Agreement.“Confidentiality Agreement” means Section 12 of that certain Letter of Intent dated April 24, 2007 executed between Buyer and the Company.

 

Consent. “Consent” shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).

 

Contract. “Contract” shall mean, with respect to any Person, any legally binding written, oral, implied or other agreement, contract, understanding, arrangement, instrument, note, guaranty, indemnity, representation, warranty, deed, assignment, power of attorney, certificate, purchase order, work order, insurance policy, benefit plan, commitment, covenant, assurance, obligation, promise or undertaking of any nature to which such Person is a party or by which its properties or assets maybe bound or affected or under which it or its business, properties or assets receive benefits.

  

Damages. “Damages” shall have the meaning specified in Section 7.1 of the Agreement.

 

Damages Cap. “Damages Cap” shall have the meaning specified in Section 7.1 of the Agreement.

Damages Threshold. “Damages Threshold” shall have the meaning specified in Section 7.2 of the Agreement.

Defined Benefit Plan. “Defined Benefit Plan” shall mean either a plan described in Section 3(35) of ERISA or a plan subject to the minimum funding standards set forth in Section 302 of ERISA and Section 412 of the Code.

 

Employee Benefit Plan. “Employee Benefit Plan” shall have the meaning specified in Section 3(3) of ERISA.

 

Employment and Noncompetition Agreement.“Employment and Noncompetition Agreement” shall have the meaning specified in Section 5.9 of the Agreement.

 

Encumbrance. “Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, licensee, encroachment, covenant, infringement, interference, Order, proxy, option, right of first refusal, preemptive right, community property interest, legend, defect, impediment, exception, reservation, limitation, impairment, imperfection of title, condition or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

 

 

Entity. “Entity” shall mean any corporation (including any non profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, cooperative, foundation, society, political party, union, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.

 

Environmental Law. “Environmental Law” shall mean any federal, state, local or foreign Legal Requirement relating to pollution or protection of human health or the environment.

 

ERISA. “ERISA” shall mean the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate. “ERISA Affiliate” shall mean any Person that is, was or would be treated as a single employer with the Company under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.

 

Escrow Agent. shall mean Signature Bank, or another institution acceptable to Buyer and the Stockholders’ Agent

 

Escrow Agreement. “Escrow Agreement” shall have the meaning specified in Section 6.2(h) of the Agreement.

 

Escrow Fund. “Escrow Fund” shall have the meaning specified in Section 7.6 of the Agreement.

Exchange Agent. “Exchange Agent” shall have the meaning specified in Section 1.3(a) of the Agreement.

 

Expiration Date.“Expiration Date” shall have the meaning specified in Section 9.1 of the Agreement.

  

GAAP. shall mean United States generally accepted accounting principles.

 

Governmental Authorization. “Governmental Authorization” shall mean any:

 

(a) permit, license, certificate, franchise, concession, approval, consent, ratification, permission, clearance, confirmation, endorsement, waiver, certification, designation, rating, registration, qualification or authorization that is issued, granted, given or otherwise delivered by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or

 

(b) right under any Contract with any Governmental Body.

 

Governmental Body.“Governmental Body” shall mean any:

 

(a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature;

 

(b) federal, state, local, municipal, foreign or other government;

 

(c) governmental or quasi governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or Entity and any court or other tribunal);

 

(d) multinational organization or body; or

 

(e) individual, Entity or body exercising, or entitled to exercise, any executive, legislative, Judicial, administrative, regulatory, police, military or taxing authority or power of any nature.

 

Hazardous Material. “Hazardous Material” shall mean any substance, chemical, waste or other material which is listed, defined or otherwise identified as hazardous, toxic or dangerous under any applicable law; as well as any petroleum, petroleum product or by-product, crude oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas useable for fuel, and “source,” “special nuclear,” and “by-product” material as defined in the Atomic Energy Act of 1954, 42 U.S.C. §§ 2011 et seq.

 

 

Leased Premises. “Leased Premises” shall have the meaning specified in Section 2.6(d) of the Agreement.  

 

Legal Requirement.“Legal Requirement” shall mean any federal, state, local, municipal, foreign or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, ruling, directive, pronouncement, requirement, specification, determination, decision, opinion or interpretation that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Body.

 

Letter of Transmittal.“Letter of Transmittal” shall have the meaning specified in Section 1.3(c) of the Agreement.

 

Liability. “Liability” shall mean any debt, obligation, duty or liability of any nature including any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several or secondary liability, regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with GAAP and regardless of whether such debt, obligation, duty or liability is immediately due and payable.

 

Lien. shall mean any lien, pledge, charge, claim, mortgage, security interest or other encumbrance of any sort.

 

Material Consents. “Material Consents” shall have the meaning specified in Section 6.2(c) of the Agreement.

 

Multiemployer Plan. shall mean any Pension Plan (as defined herein) that is a “multiemployer plan,” as defined in Section 3(37) of ERISA.

 

Order. “Order” shall mean any:

 

(a) order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, verdict, sentence, subpoena, writ or award that is issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Body or any arbitrator or arbitration panel; or

 

(b) Contract with any Governmental Body that is entered into in connection with any Proceeding.

 

Ordinary Course of Business. An action taken by or on behalf of the Company shall not be deemed to have been taken in the “Ordinary Course of Business” unless:

 

(a) such type of action is recurring in nature, consistent with the Company’s past practices and taken in the ordinary course of the Company’s normal day to day operations;

 

(b) such action is not required to be authorized by the Company’s Stockholders, the Company’s board of directors or any committee of the Company’s board of directors and does not require any other separate or special authorization of any nature; and

 

Person. “Person” shall mean any individual, Entity or Governmental Body.

 

Plans.“Plans” shall have the meaning specified in Section 2.16(a) of the Agreement.

Proceeding. “Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding and any informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation, commenced, brought, conducted or heard by or before, or otherwise has involved, any Governmental Body or any arbitrator or arbitration panel.

 

 

Proprietary Asset. “Proprietary Asset” shall mean any patent, patent application, trademark (whether registered or unregistered and whether or not relating to a published work), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, trade secret, know how, franchise, system, computer software, invention, design, blueprint, proprietary product, technology, proprietary right or other intellectual property right.

 

Pro Rata Portion. shall mean, with respect to each Stockholder, the quotient obtained by dividing (i) the number of shares held by such Stockholder set forth opposite such Stockholder’s name on Schedule 1 hereto, by (ii) the total number of Shares.

 

Related Party. Each of the following shall be deemed to be a “Related Party”:

 

(a) each individual who is, or who has at any time been, an officer of the Company or a predecessor thereto;

 

(b) each child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law of each of the individuals referred to in clause “(a)” above, including adoptive relationships;

 

(c) any Entity (other than the Company) in which any one of the Persons referred to in clauses “(a)” or “(b)” above holds (or in which more than one of such individuals collectively hold), beneficially or otherwise, a material voting, proprietary or equity interest.

 

Representatives. “Representatives” of a specified party shall mean officers, directors, employees, attorneys, accountants, advisors and representatives of such party. The Related Parties shall be deemed to be “Representatives” of Company.

 

Stockholder. shall have the meaning specified in the first paragraph of the Agreement.

 

Stockholders’ Agent. “Stockholders’ Agent” shall have the meaning specified in Section 7.4(a) of the Agreement.

  

Tax. “Tax” shall mean any tax (including any income tax, franchise tax, capital gains tax, estimated tax, gross receipts tax, value added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll tax), levy, assessment, tariff, impost, imposition, toll, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), (a) imposed, assessed or collected by or under the authority of any Governmental Body, or (b) payable pursuant to any tax sharing agreement or similar Contract.

 

Tax Return. “Tax Return” shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information that is, has been or may in the future be filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

 

Termination Date.“Termination Date” shall have the meaning specified in Section 8.1(b) of the Agreement.

 

Total Consideration. “Total Consideration” shall have the meaning specified in Section 1.2(c) of the Agreement.

 

 

Transactional Agreements. “Transactional Agreements” shall mean:

 

(a) the Agreement;

 

(b) the Note;

 

(c) the Letter of Transmittal;

 

(d) the Employment Agreements;

 

(e) the Lease;

(f)  the Escrow Agreement and

 

(g) the Non Competition Agreement.

 

Transactions. “Transactions” shall mean (a) the execution and delivery of the respective Transactional Agreements, and (b) all of the transactions contemplated by the respective Transactional Agreements, including, without limitation, the Stock Purchase, and the performance by Company, Buyer, the Stockholders, and the other parties to the Transactional Agreements of their respective obligations under the Transactional Agreements.

 

Unaudited Interim Balance Sheet. “Unaudited Interim Balance Sheet” shall have the meaning specified in Section 2.4(b) of the Agreement.

 

Working Capital Statement. “Working Capital Statement” shall have the meaning specified in Section 7.8 of the Agreement.