UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 15, 2003
LINCOLN LOGS LTD.
(Exact name of small business issuer as specified in its charter)
New York 0-12172 14-1589242
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
5 Riverside Drive, Chestertown, New York 12817
(Address of principal executive offices)
(518) 494-5500
(Issuer's telephone number)
Neither name, address nor fiscal year has changed since last report
(Former name, former address, and former fiscal year, if changed since last
report)
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Item 2. Acquisition or Disposition of Assets.
(a) On August 29, 2003, Lincoln Logs Ltd., a New York corporation (the
"Company"), through its wholly-owned subsidiary, completed the acquisition of
all of the outstanding stock of Hart & Son Industries Ltd. ("Hart"), and True-
Craft Log Structures, Ltd., ("True Craft"), two privately-held, affiliated
companies. Both Hart and True-Craft are companies organized under the laws of
British Columbia, Canada. The stock acquisition was effected pursuant to a
Stock Purchase Agreement, dated June 27, 2003, (the "Stock Purchase Agreement")
by and among, the Company, Lincoln Logs Canada Ltd., a wholly-owned subsidiary
of the Company incorporated in British Columbia, Canada (the "Buyer"), True-
Craft, Hart, and the shareholders of Hart and True-Craft referenced therein (the
"Shareholders"). The Company, through Buyer, purchased all of the outstanding
shares of Hart and True Craft from the Shareholders for consideration of
approximately Cdn$2,865,000, subject to adjustments contained in the Stock
Purchase Agreement. The consideration paid by Buyer to the Shareholders
consists of the following: cash payment, promissory notes by the Buyer to the
Shareholders, and common shares of the Company conveyed to select Shareholders.
The Stock Purchase Agreement and the purchase price referenced therein was
negotiated at arm's length between representatives of Buyer and the Company and
representatives of the Shareholders. Except for the transactions described in
the Stock Purchase Agreement, there is no material relationship between the
Company, True Craft and/or Hart, their respective directors, officers,
affiliates, or associates thereof.
The source of funds is from general corporate funds and unregistered shares of
the Company's common stock.
(b) The primary business of True-Craft and Hart is the designing, manufacturing
and marketing of a line of log and panelized homes targeted for purchase and
assembly by custom builders and "do-it-yourself" consumers. Any plant assets,
equipment or other physical property acquired as part of this transaction will
continue to be used for those purposes.
A copy of the Stock Purchase Agreement is attached hereto as Exhibits 2.1 and
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Audited financial statements of the acquired businesses covering the 5
month period ended August 31, 2003, will be filed by amendment to this Form 8-K
no later than 60 days after the date that the initial report on Form 8-K must be
filed.
(b) The pro forma financial information required by this item will be filed by
amendment to this Form 8-K no later than 60 days after the date that the initial
report Form 8-K must be filed.
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(c) Exhibits. The following documents are filed as exhibits to this report:
Exhibits No. Description of Exhibit
2.1 Stock Purchase Agreement, dated as of June 27, 2003, by and
among Lincoln Logs Ltd., 666764 B.C. Ltd., True-Craft Log
Structures Ltd., Hart & Son Industries, Ltd., Robert Gordon
Hart, Judith A. Hart, Matthew Joseph Mellof and Shelley L.
Mellof
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Exhibit 2.1
STOCK PURCHASE AGREEMENT
BETWEEN
LINCOLN LOGS, LTD.
666764 B.C. LTD.
TRUE-CRAFT LOG STRUCTURES LTD.
HART & SON INDUSTRIES LTD.
ROBERT GORDON HART
JUDITH ANNE HART
MATTHEW JOSEPH MELLOF
AND
SHELLEY L. MELLOF
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT 1
TABLE OF CONTENTS i
1. Purchase and Sale of the Shares 1
1.1. Purchase and Sale of the Shares 1
1.2. Further Assurances 1
1.3. Purchase Price for the Shares 1
1.4. Excluded Liabilities 3
1.5. Purchase Price Adjustment 4
1.6. Stockholders' Representative 5
1.7. Closing 6
2. Representations of the Stockholders regarding the Shares 6
2.1. Title 6
2.2. Conveyance 6
2.3. Authority 7
2.4. Residence of Stockholders
7
2.in Parent Shares 7
3. Representations of the Companies and the Stockholders regarding
the Companies 7
3.1. Organization 7
3.2. Capitalization 8
3.3. Authorization 8
3.4. Ownership of the Companies' Assets 9
3.5. Assets Complete 9
3.6. Financial Statements 9
3.7. Inventory 9
3.8. Absence of Undisclosed Liabilities 10
3.9. Litigation 10
3.10. Insurance 10
3.11. Intangible Property 10
3.12. Fixed Assets 11
3.13. Leases 11
3.14. Accounts Receivable 12
3.15. Tax Matters 12
3.16. Books and Records 12
3.17. Contracts and Commitments 13
3.18. Compliance with Agreements and Laws 14
3.19. Employee Relations 15
3.20. Employee Benefit Plans 15
3.21. Indebtedness to and from Officers, Directors and Shareholders 16
3.22. Powers of Attorney and Suretyships 16
3.23. Customers 17
3.24. Suppliers 17
3.25. Real Property 17
3.26. Environmental Matters 17
3.27. Warranty and Product Liability Claims 19
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3.28. Prepayments and Deposits 19
3.29. Bank Accounts and Facilities 19
3.30. Accounts Payable 19
3.31. Disclosure 19
4. Representations of the Buyer and the Parent 19
4.1. Organization and Authority 19
4.2. Authorization 20
5. Access to Information; Public Announcements 20
5.1. Access to Management, Properties and Records 20
5.2. Confidentiality 21
5.3. Public Announcements 21
6. Pre-Closing Covenants of the Companies and the Stockholders 21
6.1. Conduct of Business 21
6.2. Absence of Material Changes 21
6.3. Continued Truth of Representations and Warranties 22
6.4. Reports, Taxes 22
6.5. Communications with Customers and Suppliers 22
7. Best Efforts to Obtain Satisfaction of Conditions 22
8. Conditions to Obligations of the Buyer and the Parent 22
8.1. Continued Truth of Representations and Warranties of each of the
Companies and the Stockholders; Compliance with Covenants and
Obligations 23
8.2. Corporate Proceedings 23
8.3. Governmental Approvals 23
8.4. Consent of Third Parties 23
8.5. Adverse Proceedings 23
8.6. Opinion of Counsel 23
8.7. Due Diligence 23
8.8. Update 24
8.9. Material Adverse Change 24
8.10. Lease Agreements 24
8.11. Financing Arrangements 24
8.12. Employment Agreements 24
8.13. Trademark Assignment 24
8.14. Assumption of Excluded Liabilities 25
8.15. Product Agreement 25
8.16. Closing Deliveries 25
9. Conditions to Obligations of the Stockholders 26
9.1. Continued Truth of Representations and Warranties of the Buyer
and the Parent; Compliance with Covenants and Obligations 26
9.2. Company Proceedings 26
9.3. Governmental Approvals 26
9.4. Consents of Third Parties 26
9.5. Adverse Proceedings 27
9.6. Opinion of Counsel 27
9.7. Line of Credit and Guaranties 27
9.8. Closing Deliveries 27
10. Indemnification 28
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10.1. By the Stockholders 28
10.2. By the Buyer and the Parent 28
10.3. Claims for Indemnification 29
10.4. Defense by the Indemnifying Party 29
10.5. Payment of Indemnification Obligation 30
10.6. Survival of Representations; Claims for Indemnification 31
10.7. Limitation on Indemnification Obligations 31
11. Post-Closing Agreements 31
11.1. Proprietary Information 31
11.2. Limitation on Use of Name 31
11.3. Non-Competition Agreement 31
11.4. Cooperation of the Stockholders 32
12. Termination of Agreement; Option to Proceed; Damages 32
12.1. Termination by Lapse of Time 32
12.2. Termination by Agreement of the Parties 33
12.3. Termination by Reason of Breach 33
12.4. Available Remedies; Liquidated Damages 33
12.5. Escrow Agent 33
13. Dispute Resolution 34
13.1. General 34
13.2. Consent of the Parties 34
13.3. Arbitration 35
14. Brokers 35
14.1. For the Companies and the Stockholders 36
14.2. For the Buyer and the Parent 36
15. Notices 36
16. Successors and Assigns 37
17. Entire Agreement; Amendments; Attachments 37
18. Severability 37
19. Expenses 37
20. Legal Fees 38
21. Governing Law 38
22. Section Headings 38
23. Counterparts 38
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of the 27th day
of June, 2003 by and among Lincoln Logs, Ltd., a New York corporation (the
"Parent"), and 666764 B.C. Ltd., a British Columbia corporation and a wholly-
owned subsidiary of Parent (the "Buyer"), on the one hand, and True-Craft
Structures Ltd., a British Columbia company ("True-Craft"), Hart & Son
Industries, Ltd., a British Columbia company ("Hart & Son" and together with
True-Craft, the "Companies"), Robert Gordon Hart ("Gordon Hart"), Judith A.
Hart, Matthew Joseph Mellof ("Joe Mellof") and Shelley L. Mellof (each a
"Stockholder" and together the "Stockholders"), on the other hand.
WHEREAS, (the "Stockholders") own all of the issued and outstanding shares
of capital stock in the Companies (the "Shares") and desire to sell such Shares
for the consideration set forth below, subject to the terms and conditions of
this Agreement;
WHEREAS, the Buyer desires to purchase such Shares, subject to the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of the Shares.
1.1. Purchase and Sale of the Shares. Subject to and upon the terms and
conditions of this Agreement, at the Closing (as defined in Section 1.7), each
Stockholder will sell, transfer, convey, assign and deliver to the Buyer, and
the Buyer will purchase, acquire, accept and pay for, all the Shares owned by
such Stockholder, as set forth opposite such Stockholder's name on Schedule I
attached hereto. At the Closing, each Stockholder will deliver to the Buyer
certificates evidencing the Shares owned by such Stockholder duly endorsed in
blank or with stock powers duly executed by such Stockholder in blank.
1.2. Further Assurances. At any time and from time to time after the Closing,
at the Buyer's request and without further consideration, each of the
Stockholders shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take all such other
action as the Buyer may reasonably request, more effectively to transfer,
convey and assign to the Buyer, and to confirm the Buyer's title to, all of the
Shares owned by such Stockholder and to assist the Buyer in exercising all
rights with respect thereto and to carry out the purpose and intent of this
Agreement.
1.3. Purchase Price for the Shares. The aggregate purchase price to be paid by
the Buyer for the Shares shall be the sum of Canadian Two Million Eight Hundred
Sixty Five Thousand Dollars (Cdn$2,865,000) (the "Purchase Price"), to be
delivered by the Buyer to the Stockholders' Representative on behalf of the
Stockholders as set forth below. The Purchase Price shall be payable at the
Closing upon receipt of certificates evidencing the Shares by the Buyer and
shall be subject to adjustment as set forth in Section 1.5 below. The Purchase
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Price shall consist of the Cash Payment, the Deposit, the Parent Shares and the
Notes and shall be allocated so that Canadian Eight Hundred Sixty Five Thousand
Dollars (Cdn$865,000) is allocated to the purchase of Shares in True-Craft from
the Harts, Canadian One Million Dollars (Cdn$1,000,000) is allocated to the
purchase of Shares in Hart & Son from the Harts and Canadian One Million Dollars
(Cdn$1,000,000) is allocated to the purchase of Shares in Hart & Son from the
Mellofs.
(a) Cash Payment. The aggregate sum of Canadian Seven
Hundred Fifteen Thousand Dollars (Cdn$715,000) shall be payable in cash by the
Buyer in two installments (collectively, the "Cash Payment"). The Parent has
previously delivered to Epstein Becker & Green, P.C., as escrow agent (the
"Escrow Agent"), the sum of Canadian One Hundred Thousand Dollars (Cdn$100,000)
as a good faith deposit (the "Deposit") to be held in escrow pursuant to the
provisions of Section 12. At the Closing, the Deposit and the balance of the
Cash Payment (i.e., Cdn$615,000) shall be delivered by the Escrow Agent and the
Buyer, respectively, to the Stockholders' Representative by cashier's or
certified check or by wire transfer of immediately available funds to an account
designated by the Stockholders' Representative. Of the aggregate Cash Payment,
Canadian Six Hundred Fifteen Thousand Dollars (Cdn$615,000) is allocated as
partial payment to Gordon and Judith Hart for their Shares in True-Craft and
Canadian One Hundred Thousand Dollars (Cdn$100,000) is allocated as partial
payment to Joe and Shelley Mellof for their Shares in Hart & Son; provided,
however, that such partial payment to Joe and Shelley Mellof must be utilized to
repay all indebtedness owed by them in connection with their ownership of Shares
in Hart & Son simultaneously with the Closing.
(b) Promissory Notes. At the Closing, the Buyer shall
deliver to the Stockholders' Representative for further distribution to the
Stockholders as appropriate(1) a seven year promissory note in the principal
amount of Canadian One Million Two Hundred Fifty Thousand Five Hundred Dollars
(Cdn$1,250,000) payable to Gordon Hart and Judith Hart, jointly, in
substantially the form attached hereto as Exhibit A (the "Hart Note") and (2)
a five year promissory note in the principal amount of Canadian Four Hundred
Thousand Dollars (Cdn$400,000) payable to Joe Mellof and Shelley Mellof,
jointly, in substantially the form attached hereto as Exhibit B (the "Mellof
Note" and together with the Hart Note, the "Notes"). Payment of amounts due
under the Notes shall be subject to the provisions of Section 1.3(d) below and
shall be secured pursuant to the terms of the Mortgages referred to in Section
8.16 herein.
(c) Parent Shares. At the Closing, the Buyer shall deliver
to each of Joe Mellof and Shelley Mellof a stock certificate, each representing
One Hundred Forty Three Thousand Seven Hundred Fifty (143,750) shares of the
Parent's Common Stock, registered in the names of Joe Mellof and Shelley Mellof
respectively (collectively, the "Parent Shares"), which Parent Shares represent
the balance of the Purchase Price.
(d) Advances. Commencing on March 1, 2003 and on the first
day of April, May, June, July and August of 2003, the Parent shall pay, or shall
have paid, to (i) Gordon and Judy Hart an amount equal to Canadian Fourteen
Thousand Eight Hundred Eighty Dollars and Ninety Five Cents (Cdn$14,880.95) and
(ii) Joe and Shelley Mellof an amount equal to Canadian Six Thousand Six Hundred
Sixty Six Dollars and Sixty Seven Cents (Cdn$6,666.67), each of which payments
represents an advance of the payments due under the Hart Notes or the Mellof
Notes, as applicable (collectively, the "Advances"). The obligation of Parent
to make such Advances shall terminate upon the earlier of the Closing or the
termination of this Agreement pursuant to Section 12. From and after the
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Closing, all amounts paid as Advances by the Parent shall be credited against
the first payments due under the Hart Notes and the Mellof Notes, as applicable.
In the event the Closing does not occur, the Advances shall be repaid by the
Sellers to the Parent within three (3) business days after written notice of
termination of the Agreement, if such notice is sent by the Parent or the Buyer,
or such Advances shall be repaid to the Parent simultaneously with the written
notice of termination of the Agreement, if such notice is sent by the
Stockholders' Representative, the Companies or the Sellers as set forth in
Section 12.
(e) Further Consideration. Robert Hart and Judith Hart
shall, during the term of the Hart Notes be entitled to purchase, at cost, any
of the products offered for sale by the Companies as of the date hereof pursuant
to the terms of the Product Agreement set forth in Section 8.16 herein.
Additionally, the Companies shall pay, immediately prior to the Closing, the
aggregate sum of Canadian One Hundred Thirty Five Thousand Dollars
(Cdn$135,000), split evenly among Robert and Judith Hart, as a retirement
allowance (the "Retirement Allowance"). The Parent and/or the Buyer shall,
immediately prior to the Closing, advance to Hart & Sons the Retirement
Allowance for payment hereunder, which Retirement Allowance shall be in addition
to the Purchase Price.
1.4. Excluded Liabilities. Notwithstanding the purchase by the Buyer of the
Shares hereunder, the Buyer shall not at the Closing assume nor shall the Buyer,
Parent or the Companies agree to perform, pay or discharge from and after the
Closing, and the Stockholders shall assume and be unconditionally liable for,
all obligations, liabilities and commitments, fixed or contingent, known or
unknown, of the Companies or the Stockholders, as the case may be, related to
(i) any inter-company payables, inter-company loans, other inter-company
indebtedness or inter-company receivables of the Companies; (ii) any accrued or
deferred income taxes of either of the Companies; (iii) brokers or other third
parties acting on behalf of either of the Companies or the Stockholders in
connection with the sale of the Shares; (iv) any contingent liability of either
of the Companies whether or not such liabilities are known or can be established
as of the Closing Date, including, without limitation, any contingent
liabilities arising out of, related to or in connection with any litigation
involving either of the Companies, (v) any product or warranty claims arising
out of, related to or in connection with the sale of goods or services on or
prior to the Closing Date, (vi) any claim arising from, relating to or made in
connection with employment or consulting relationships existing prior to the
Closing Date, or (vii) any claim arising from, relating to or made in connection
with any Environmental Law (defined in Section 3.26 below) based on any event,
action or inaction by the Companies and/or its Stockholders on or prior to the
Closing Date (collectively, the "Excluded Liabilities"). The Stockholders
acknowledge and agree that all Excluded Liabilities of the Companies shall be
discharged by the Stockholders prior to the Closing Date, and evidence of such
discharge, in a form reasonably satisfactory to the Buyer, shall be delivered to
the Buyer at the Closing. The Stockholders further agree to indemnify and hold
harmless the Buyer and the Parent (and the Companies after the Closing) for any
losses, damage, claims, liabilities, obligations or encumbrances related to or
arising out of the Excluded Liabilities. Notwithstanding the foregoing, the
Buyer acknowledges and agrees that it shall assume, as of the Closing, the
liabilities and obligations related to that certain loan incurred by Hart & Son
in its prior acquisition of a planer in an amount not to exceed Canadian Thirty
Thousand Dollars (Cdn$30,000) and that certain loan incurred by the Companies in
connection with the real estate owned by Legacy Windows and Doors Ltd., a sister
company of the Companies owned by the Stockholders ("Legacy"), and to be leased
to the Buyer pursuant to Section 8.10 below, in an amount not to exceed Canadian
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Thirty Thousand Dollars (Cdn$30,000). All inter-company receivables shall be
paid in full at or prior to the Closing.
1.5. Purchase Price Adjustment. The Purchase Price set forth in Section 1.3
above shall be subject to adjustment as follows:
(a) At the Closing, the Companies shall deliver to the Buyer
a balance sheet and related asset schedule itemizing all assets of the Companies
(together, the "Closing Balance Sheet"), together with a calculation of the
combined Companies' Minimum Asset Value (as defined below), all as of the close
of business on the business day immediately prior to the Closing Date (the
"Determination Time") (such Minimum Asset Value, the "Closing MAV Number"). The
Closing Balance Sheet and related asset schedule shall be prepared in accordance
with generally accepted accounting principles ("GAAP") applied in a manner
consistent with the Companies' past practices and in accordance with clause (f)
below. If the Closing Balance Sheet shows that the Closing MAV Number is less
than Cdn$1,500,000, the Purchase Price shall be decreased by an amount equal to
Cdn$1,500,000 minus the Closing MAV Number (the "Deficient Amount"). The
Deficient Amount, if any, shall be deducted on a dollar-for-dollar basis from
the principal amount of and prorated among the Notes delivered by the Buyer at
the Closing in accordance with Section 1.3 above; provided, however, that no
such deduction shall be made to the Notes if the Deficient Amount is equal to or
less than Cdn$20,000.
(b) Immediately after the Closing, the Buyer may retain, at
its option and its own expense, an independent public accountant (the "Buyer
Accountant") to audit the Closing Balance Sheet and determine the Companies' MAV
Number as of the Determination Time (such Buyer Accountant's MAV determination,
the "Buyer MAV Number"). In connection with calculating the Buyer MAV Number,
the Buyer Accountant shall prepare a closing balance sheet (the "Buyer Closing
Statement"), which shall be prepared in accordance with GAAP applied in a manner
consistent with the Companies' past practices and in accordance with clause (f)
below. If the Buyer elects to retain a Buyer Accountant, the Buyer shall
require that the Buyer Accountant deliver the Buyer Closing Statement, together
with the calculation of the Buyer MAV Number, to the Buyer not later than sixty
(60) days after the Closing Date, with simultaneous overnight delivery to the
Stockholders' Representative.
(c) If the Stockholders' Representative disagrees with the
Buyer Closing Statement, the Stockholders' Representative shall notify the
Buyer in writing (the "Dispute Notice") of the amount, nature and basis of such
dispute, within fifteen (15) business days after the Stockholders'
Representative's receipt of the Buyer Closing Statement. In the event of such
a dispute, the parties shall first use their best efforts to resolve such
dispute among themselves. If the parties are unable to resolve the dispute
within fifteen (15) business days after delivery of the Dispute Notice, the
disputing party shall be entitled to submit this matter to Lemieux Deck Miller
& Bond, Chartered Accountants, in Langley, British Columbia (the "Dispute
Auditor") for final resolution. The Dispute Auditor shall be required to
resolve the dispute by calculating the combined MAV of the Companies as of the
Determination Time, which shall be calculated in accordance with GAAP applied in
a manner consistent with the Companies' past practices and in accordance with
the definitions set forth in clause (f) below (such calculation, the "Final MAV
Number"). The Dispute Auditor shall determine the Final MAV Number within
thirty days after the submission of the dispute and such Final MAV Number shall
4
be binding on the parties. The costs of the Dispute Auditor shall be shared
equally by the Buyer and the Stockholders; provided that if the Dispute Auditor
finds that the Final MAV Number is within Cdn$20,000 of the Closing MAV Number,
the Buyer shall be required to pay the full cost of the Dispute Auditor.
(d) If the Stockholders' Representative does not dispute the
Buyer Closing Statement and no Dispute Notice is given in such fifteen day
period the Buyer MAV Number shall be deemed to be the Final MAV Number for
purposes of clause (e) below. If the Final MAV Number is less than the Closing
MAV Number, the principal amount of the Notes shall be reduced on a dollar-for-
dollar basis in an amount equal to the Closing MAV Number minus the Final MAV
Number (the "Final Adjustment Amount").
(e) Immediately upon expiration of the fifteen business day
period for giving the Dispute Notice, if no Dispute Notice is given, or
immediately upon the resolution of the dispute, if any, pursuant to clause (c)
above, the Stockholders' Representative shall surrender to the Buyer the Notes
delivered at the Closing if the Final Adjustment Amount is a positive number as
calculated pursuant to clause (d) above. The Buyer shall cancel such Notes and
reissue such promissory notes in the same form but with the principal amount
reduced by the Final Adjustment Amount as set forth in clause (d) above. The
Buyer shall deliver the new Notes to the Stockholders' Representative within
five (5) business days after it is first surrendered to the Buyer and,
thereafter, such new notes shall be the "Notes" for all purposes of this
Agreement.
(f) For purposes of this Section 1.5, Minimum Asset Value
shall mean the sum of the replacement cost for all of the assets of both
Companies set forth on the asset schedule delivered as part of the Closing
Balance Sheet, which assets shall include, at a minimum, the assets set forth in
the appraisal completed by Universal Appraisals in 2002 and which assets are
deemed to be Schedule 1.5.
1.6. Stockholders' Representative. By execution of this Agreement, each of the
Stockholders hereby appoints Gordon Hart to act as his or her agent,
representative and attorney-in-fact for all purposes and with respect to all
matters arising under this Agreement (the "Stockholders' Representative"). The
powers and authority of the Stockholders' Representative shall include, but not
be limited to, the power and authority to (a) give and accept notices as
provided hereunder, (b) accept the Purchase Price and any other deliveries at
the Closing on behalf of the Stockholders for further distribution to the
Stockholders, (c) settle or compromise any disputes arising out of the Closing
Balance Sheet and/or the Buyer Closing Statement, (d) bring, settle, compromise
or pursue any indemnification claims pursuant to Section 10, (e) bring, settle,
compromise or pursue any arbitration claims or other disputes pursuant to
Section 13, (f) execute and deliver any documents necessary or advisable to
facilitate the Closing and (g) take any actions otherwise necessary or desirable
to carry out the purposes and intent of this Agreement. It is hereby agreed
that delivery of any document, notice or other instrument set forth herein from
the Buyer or the Parent to the Stockholders' Representative shall be deemed
delivery of such document, notice or other instrument to any or all of the
Stockholders. The Stockholders' Representative shall be entitled to rely on any
communication or document that he believes to be genuine. Neither the
Stockholders' Representative nor any of the Companies' employees, attorneys and
other agents shall be liable to any Stockholder for any action or omission on
their respective parts except for gross negligence or willful misconduct. In
his capacity as a Stockholders' Representative, Gordon Hart will be acting for
5
the convenience of the Stockholders, without compensation, and, in such
capacity, he shall have no duties or liabilities beyond those expressly assumed
by him in this Agreement. As the Stockholders' Representative, Mr. Hart shall
not be required to make any inquiry or investigation concerning any matter other
than those expressly contemplated hereunder, nor shall he, in such capacity, be
deemed to have made any representation or warranty of any kind to any person.
The Stockholders' Representative shall be indemnified against any liabilities
resulting from his role as Stockholders' Representative by the Stockholders,
except to the extent caused by or arising out of the Stockholders'
Representative's gross negligence or willful misconduct. In the event of the
death, resignation or incapacity of Mr. Hart, Joe Mellof shall serve as a
successor stockholders' representative and he shall have all of the rights,
powers and duties of the Stockholders' Representative set out herein.
1.7. Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Epstein Becker & Green, P.C.,
111 Huntington Avenue, Boston, Massachusetts 02199 at 10:00 a.m., Boston Time,
on June 30, 2003 (the "Closing Date") or at such other place, time or date as
may be mutually agreed upon in writing by the parties, but in no event later
than the Termination Date set forth in Section 12.1. The transfer of the Shares
to the Buyer shall be deemed to occur at 10:01 a.m., Boston time, on the Closing
Date.
2. Representations of the Stockholders regarding the Shares.
Each Stockholder, jointly and severally, represents and warrants to the
Buyer and the Parent as follows:
2.1. Title. Each Stockholder has good and marketable title to the Shares which
are to be transferred to the Buyer by such Stockholder pursuant hereto. Such
Shares are free and clear of any and all covenants, conditions, restrictions,
voting trust agreements, liens, charges, encumbrances, options and adverse
claims or rights whatsoever. Each Stockholder has the full right, power and
authority to enter into this Agreement and to transfer, convey and sell to the
Buyer at the Closing the Shares to be sold by such Stockholder hereunder and,
upon consummation of the purchase contemplated hereby, the Buyer will acquire
from such Stockholder good and marketable title to such Shares, free and clear
of all covenants, conditions, restrictions, voting trust arrangements, liens,
charges, encumbrances, options and adverse claims or rights whatsoever.
Schedule I attached hereto sets forth a true and correct description of all
Shares owned by such Stockholder.
2.2. Conveyance. Each Stockholder is not a party to, subject to or bound by
any agreement or any judgment, order, writ, prohibition, in junction or decree
of any court or other governmental body which would prevent the execution or
delivery of this Agreement by each Stockholder or the transfer, conveyance and
sale of the Shares to be sold by each Stockholder to the Buyer pursuant to the
terms hereof. No broker or finder has acted for any of the Stockholders in
connection with this Agreement or the transactions contemplated hereby, and no
broker or finder is entitled to any brokerage or finder's fee or other
commissions with respect to such transactions based upon agreements,
arrangements or understandings made by or on behalf of any of the Stockholders.
6
2.3. Authority. Each Stockholder has the full and absolute legal right,
capacity, power and authority to execute and deliver this Agreement and the
agreements, instruments and documents contemplated herein, to which such
Stockholder is a party, to perform such Stockholder's obligations thereunder and
to consummate the transactions contemplated thereby. This Agreement has been
validly executed and delivered by each Stockholder, and constitutes a valid and
binding obligation of such Stockholder, enforceable against him in accordance
with its terms. Each other agreement, instrument or document to be executed and
delivered by any of the Stockholders, when executed and delivered in accordance
with the provisions thereof, shall be a valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its
respective terms.
2.4. Residence of Stockholders. None of the Stockholders is a non-resident of
Canada within the meaning of the Income Tax Act (Canada).
2.5. Investment in Parent Shares. Each of the Stockholders acquiring Parent
Shares is acquiring as principal Parent Shares with a value in excess of
Cdn$97,000. Each of the Stockholders acquiring the Parent Shares is acquiring
such Parent Shares for investment and not with a view to, or for sale in
connection with, any distribution thereof nor with any present intention of
distributing or selling such Parent Shares. Each of the Stockholders acquiring
Parent Shares acknowledges that such Parent Shares shall not be transferable in
the absence of (i) registration under the Securities Act of 1933, as amended to
date, the rules promulgated thereunder or an exemption therefrom and/or (ii)
registration or qualification under the provisions of any applicable blue sky
laws or an exemption therefrom. Each certificate representing Parent Shares
shall bear a legend to such effect, and such further legends as the Parent may
require to be placed on the certificates representing such Parent Shares to
reflect resale restrictions under the applicable Canadian securities laws.
3. Representations of the Companies and the Stockholders regarding the
Companies. The Companies and the Stockholders, jointly and severally, represent
and warrant to the Buyer and the Parent as follows:
3.1. Organization. Each of the Companies is a corporation duly incorporated,
validly existing and in good standing under the laws of the Province of British
Columbia, and has all requisite power and authority (corporate and otherwise) to
own its properties, to carry on its business as now being conducted, to execute
and deliver this Agreement and the agreements contemplated herein, and to
consummate the transactions contemplated hereby and thereby. Each of the
Companies is duly qualified, licensed or registered to do business and in good
standing in all jurisdictions in which its ownership of property or the
character of its business requires such qualification, licensing or
registration. A list of the jurisdictions where the Companies are so qualified
is set forth on Schedule 3.1 attached hereto. Certified copies of the Articles
of Incorporation and Bylaws of each of the Companies, each as amended to date,
are included as Item 3.1 to that certain Disclosure Memorandum delivered by the
Companies to the Buyer and the Parent on even date herewith (the "Memorandum"),
and the documents comprising Item 3.1 are complete and correct, and no
amendments have been made thereto or have been authorized since the date
thereof. Neither of the Companies has any subsidiaries and has no advances to,
or investment in, any securities of, or other equity interest in, any
corporation, partnership, business entity, enterprise or organization, public or
private.
7
3.2. Capitalization. The authorized capital stock of True-Craft consists of
10,000 shares of Common Stock and no shares of Preferred Stock, of which 7,500
shares of Common Stock are issued and outstanding. The authorized capital stock
of Hart & Sons consists of 10,000 shares of Common Stock and no shares of
Preferred Stock, of which 101 shares of Common Stock are issued and outstanding.
All of the capital stock of the Companies is held of record and beneficially as
set forth on Schedule I. All Shares have been, and on the Closing Date will be,
duly and validly issued and are, or will be on the Closing Date, fully paid and
non-assessable. There are not, and on the Closing Date there will not be,
outstanding (i) any options, warrants or other rights to purchase from the
Companies any capital stock of either of the Companies; (ii) any securities
convertible into or exchangeable for shares of such stock; or (iii) any other
commitments of any kind for the issuance of additional shares of capital stock
or options, warrants or other securities of either of the Companies.
3.3. Authorization. The execution and delivery by the Companies of this
Agreement and the agreements provided for herein, and the consummation by the
Companies of all transactions contemplated hereunder and thereunder, have been
duly authorized by all requisite corporate and shareholder action. This
Agreement has been duly executed by each of the Companies. This Agreement and
all other agreements and obligations entered into and undertaken in connection
with the transactions contemplated hereby to which the Companies are a party
constitute the valid and legally binding obligations of the Companies,
enforceable against each of them in accordance with their respective terms.
The execution, delivery and performance by the Companies of this Agreement and
the agreements provided for herein, and the consummation by the Companies of
the transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to either of the Companies; (b) violate
the provisions of the by-laws or articles of either of the Companies; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; (d) will not result in the breach of or cause the termination of
any permit, license or authorization held by the Companies or the Stockholders
or necessary to the ownership of the Shares or the operation of the business of
either of the Companies; or (e) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of either of the Companies pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to which
such Company is a party or by which either of the Companies is or may be bound,
except as set forth on Schedule 3.3. Schedule 3.3 attached hereto sets forth a
true, correct and complete list of all consents and approvals of third parties
that are required in connection with the consummation by the Companies of the
transactions contemplated by this Agreement. Other than as set forth on
Schedule 3.3, there is no requirement to make any filing with, give any notice
to or obtain any permit, license or authorization of, any federal, provincial,
state, municipal, local or other governmental, quasi-governmental or public
department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, as a condition to the consummation of the
transactions contemplated herein.
3.4. Ownership of the Companies' Assets. Schedule 3.4 attached hereto sets
forth a true, correct and complete list of all claims, liabilities, security
interests, mortgages, liens, pledges, charges, encumbrances and equities of any
kind affecting the combined assets of the Companies (collectively, the
"Encumbrances"). The Companies are, and at the Closing will be, the true and
lawful owners of such assets, free and clear of all Encumbrances of any kind.
8
3.5. Assets Complete. The combined assets of the Companies set forth on the
asset schedule attached hereto as Schedule 1.5 are, and the assets to be
delivered to the Buyer and set forth on the asset schedule attached to the
Closing Date will be, when utilized by a labor force substantially similar to
that employed by the Companies on the date hereof, adequate to conduct the
business operations currently conducted by the Companies and as currently
proposed to be conducted by the Companies in the future.
3.6. Financial Statements. Item 3.6 to the Memorandum contains the combined
balance sheets of the Companies as of June 30, 2001 and June 30, 2002 (the
"Year End Balance Sheets") and the related statements of income of the Companies
for the fiscal years then ended (collectively, the "Year End Financial
Statements") that have been delivered by the Companies to the Parent. Item 3.6
to the Memorandum also contains the unaudited balance sheet of the Companies
(the "Current Balance Sheet") as of March 31, 2003 (the "Current Balance Sheet
Date") and the related statements of income of the Companies for the nine-month
period then ended (collectively, the "Current Financial Statements") that have
been delivered by the Companies to the Parent. The Year End Financial
Statements and the Current Financial Statements are herein collectively
referred to as the "Financial Statements." The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied
consistently with past practices, are complete and correct in all material
respects and present fairly as of their respective dates the financial
condition, retained earnings, assets and liabilities of the Companies and the
results of operations of the Companies' business for the periods indicated,
except, in the case of the Current Financial Statements, for year-end
adjustments and footnotes.
3.7. Inventory. Item 3.7 of the Memorandum contains a true, correct and
complete list of the inventory of the Companies as of March 31, 2003, including
a detailed listing and the book value thereof. Such list, as updated as of the
Closing Date, shall set forth a true, correct and complete list of inventory as
of the Closing Date, including a detailed description and valuation thereof.
Except as set forth on Schedule 3.7 attached hereto, the inventory consists of
items of a quality and quantity which are usable and saleable without discount
in the ordinary course of business conducted by the Companies. The valuation
of the inventory has been determined in a manner consistent with good inventory
record-keeping practices and consistent with the Companies' past inventory
valuation practices. The Financial Statements fairly present the value of the
Companies' inventory as of the dates thereof and, other than transactions in
the ordinary course of business, there has been no change in the Companies'
inventory that would have a material adverse effect on the Companies' business
since November 30, 2002. For purposes of this Section 3.7, "material" means any
amount in excess of Cdn$10,000.
3.8. Absence of Undisclosed Liabilities. Except as and to the extent (a)
reflected and reserved against in the Current Balance Sheet, (b) set forth on
Schedule 3.8 attached hereto or (c) incurred in the ordinary course of business
after the Current Balance Sheet Date and not material in amount, either
individually or in the aggregate, the Companies have no liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, which is material to the condition (financial or
otherwise) of the assets, business operations, condition (financial or
otherwise) or prospects of the Companies and there has been no change which
materially and adversely affects the business, properties, assets, condition
(financial or otherwise) or business prospects of the Companies. Neither the
Companies nor the Stockholders have any knowledge of any existing or threatened
9
occurrence, event or development which, as far as can be reasonably foreseen,
could have a material adverse effect on the Companies or their business,
properties, assets, condition (financial or otherwise) or prospects. For
purposes of this Section 3.8, "material" means any amount in excess of
Cdn$10,000.
3.9. Litigation. Except as set forth on Schedule 3.9 attached hereto, (a)
there is no action, suit or proceeding to which either of the Companies is a
party pending or, to the Companies' or the Stockholders' knowledge, threatened
before any court or governmental agency, authority, body or arbitrator; (b)
neither of the Companies has been permanently or temporarily enjoined by any
order, judgment or decree of any court or any governmental agency, authority or
body from engaging in or continuing any conduct or practice in connection with
the business, assets, or properties of the Companies; and (c) there is not in
existence on the date hereof any order, judgment or decree of any court,
tribunal or agency naming either of the Companies or enjoining or requiring
either of the Companies to take any action of any kind with respect to its
business, assets or properties.
3.10. Insurance. Schedule 3.10 attached hereto sets forth a true, correct and
complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies maintained by the Companies,
specifying the type of coverage, the amount of coverage, the insurer and the
expiration date of each such policy (collectively, the "Insurance Policies")
and all claims under such Insurance Policies since January 1, 2000. The
Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Companies' business. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default under any of the Insurance Policies. Neither of the
Companies has received any notice or other communication from any issuer of the
Insurance Policies since January 1, 2000 canceling or materially amending any
of the Insurance Policies, materially increasing any deductibles or retained
amounts thereunder, and, to the best knowledge of the Companies and the
Stockholders, no such cancellation, amendment or increase of deductibles,
retainages or premiums is threatened. Copies of all Insurance Policies are
included as Item 3.10 of the Memorandum.
3.11. Intangible Property. Schedule 3.11 attached hereto sets forth a true,
correct and complete list and, where appropriate, a description of, all items
of intangible property owned by, or used in the business of, the Companies,
including, without limitation, patents, patent applications, trademarks,
trademark applications, copyrights and material trade secrets (the "Intangible
Property"). Such list, as updated as of the Closing Date, shall set forth a
true, correct and complete list of each of the Companies' Intangible Property
as of the Closing Date. True, correct and complete copies of all licenses,
registrations and other agreements relating to the Intangible Property are
included as Item 3.11 of the Memorandum. The Intangible Property owned or
licensed by each of the Companies is sufficient to conduct the Companies'
business as presently conducted. Except as otherwise disclosed in Schedule
3.11: (i) either True-Craft or Hart & Son is the sole and exclusive owner of
all right, title and interest in and to the Intangible Property (excluding any
intangible property which such Company licenses or otherwise has rights to use)
and all designs, permits, labels and packages used on or in connection
therewith, free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims; (ii) the Companies have the
right and authority to use the Intangible Property in connection with the
10
conduct of its business in the manner presently conducted, and to the best
knowledge of the Companies and/or the Stockholders, such use does not conflict
with, infringe upon or violate any rights of any other person, corporation or
entity; (iii) neither of the Companies has received notice of a pleading or
threatened claim, interference action or other judicial or adversarial
proceeding alleging that any of the Companies' operations, activities, products,
services or publications infringes any patent, trademark, trade name, copyright,
trade secret or other property right of a third party, or that it is illegally
or otherwise using the trade secrets, formulae or property rights of others; and
(iv) to the Companies' or the Stockholders' knowledge, there are no outstanding,
disputes or other disagreements with respect to any licenses or similar
agreements or arrangements described in Schedule 3.11 or with respect to
infringement by a third party of any of the Intangible Property.
3.12. Fixed Assets. Item 3.12 of the Memorandum contains a true, correct and
complete list of all fixed assets of the Companies, as such term is generally
understood pursuant to generally accepted accounting principles (the "Fixed
Assets"), as of March 31, 2003, including a description of each asset, its
original cost, the depreciation taken since its date of acquisition and the net
book value thereof. The Fixed Assets include, at a minimum, the fixed assets
set forth on Schedule 1.5 attached hereto. Such list, as updated at the
Closing, shall set forth a true, correct and complete list of all Fixed Assets
as of the Closing Date, including a description of each asset, its original
cost, the depreciation taken since its date of acquisition and the net book
value thereof, which list shall include, at a minimum, the Fixed Assets set
forth on the asset schedule delivered with the Closing Balance Sheet. All of
the Fixed Assets, including those set forth on the updated schedule delivered
as of the Closing Date, are in good operating condition and repair, normal
wear and tear excepted, are currently used by the Companies in the ordinary
course of business of the Companies, and normal maintenance has been
consistently performed with respect to such Fixed Assets.
3.13. Leases. Schedule 3.13 attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases of real property to which
either of the Companies is a party (collectively, the "Leases"). True, correct
and complete copies of the Leases, and all amendments, modifications and
supplemental agreements thereto, are included as Item 3.13 of the Memorandum.
Neither of the Companies is obligated to pay any leasing or brokerage commission
relating to any Lease. No material construction, alteration or other leasehold
improvement work with respect to any of the Leases remains to be paid for or to
be performed by either of the Companies. The real property subject to the
Leases is, and as of the Closing Date will be, in compliance with all federal,
provincial, state and local laws, regulations, orders and ordinances.
3.14. Accounts Receivable. Schedule 3.14 attached hereto sets forth a true,
correct and complete list of the accounts and notes receivable of both of the
Companies (the "Accounts Receivable"), including the aging thereof, as of March
31, 2003. Such list, as updated at the Closing, shall represent a true, correct
and complete list of the Accounts Receivable of the Companies, including the
aging thereof, as of the Closing Date, which shall be consistent in amount and
aging with the amount and aging of the Accounts Receivable set forth on Schedule
3.14. All Accounts Receivable arose out of the sales of inventory or services
in the ordinary course of business. All Accounts Receivable set forth on
Schedule 3.14 are collectible in the face value thereof within 90 days of the
date of invoice, using normal collection procedures.
11
3.15. Tax Matters. All tax returns and reports of the Companies required by law
to be filed have been filed and are complete and correct in all respects, and
all taxes and levies of every kind, character or description upon the Companies
or upon any of its properties, assets, income or franchises (together, "Taxes"),
which are due and payable, have been paid, other than those currently payable
without penalty or interest or currently under appeal and each as set forth in
Schedule 3.15. No tax lien has been filed against any of the assets of the
Companies and no claim is being asserted with respect to any Taxes. Except as
set forth on Schedule 3.15 attached hereto, no deficiencies have been asserted
or assessed as a result of any audit by any federal, provincial, state or local
taxing authority and no such deficiency or audit has been proposed or
threatened. Adequate provision has been made in the Financial Statements for
all taxes, governmental charges and assessments, whether relating to income,
sales, real or personal property, or other types of taxes, governmental charges
or assessments, including interest and penalties thereon, payable with respect
to the business or assets of the Companies or otherwise for all periods set
forth in the Financial Statements. The Companies have withheld or collected
and remitted all amounts required to be withheld or collected and remitted by
it with respect to any taxes, governmental charges or assessments. Correct and
complete copies of all federal, provincial, local and state income tax returns,
including schedules thereto, filed by the Companies for the tax years 1999,
2000 and 2001 and all written communications relating thereto have been provided
to the Parent. For purposes of this representation, the term "Taxes" shall
include, without limitation, all income, gross receipts, sales, use, employment,
unemployment, social security, Medicare, payroll, employee withholding,
franchise, profits, property or other taxes, fees, excise taxes, stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and penalties, additions to tax
or additional amounts imposed by any taxing authority with respect thereto.
The Companies are each registrants for the purposes of the tax imposed under
Part IX of the Excise Tax Act (Canada) and have been since January 1, 1991.
3.16. Books and Records. The general ledgers and books of account of the
Companies and all other books and records of the Companies are in all material
respects complete and correct and have been maintained in accordance with good
business practice and all applicable procedures required by law or regulation.
3.17. Contracts and Commitments.
(a) Schedule 3.17 attached hereto contains a true, complete and correct
list and description of the following contracts and agreements, whether written
or oral (collectively, the "Contracts"):
(i) all loan agreements, indentures, mortgages and guaranties to
which either of the Companies is a party or by which either of the Companies is
bound;
(ii) all pledges, conditional sale or title retention agreements,
security agreements (including but not limited to maintenance agreements),
equipment leases and other equipment obligations, other personal property leases
and lease purchase agreements to which either of the Companies is a party or by
which either of the Companies or any of their property is bound, and all
material leases of personal property, whether operating, capital or otherwise,
under which either of the Companies is lessor or lessee;
12
(iii) all contracts, agreements, commitments, purchase orders or
other understandings or arrangements to which either of the Companies is a
party or by which either of the Companies or any of its property is bound which
either involve payments or receipts by the Companies of more than Cdn$10,000
in the case of any single contract, agreement, commitment, understanding or
arrangement under which full performance (including payment) has not been
rendered by all parties thereto, or may materially adversely effect the
condition (financial or otherwise) or the properties, assets, business or
prospects of the Companies;
(iv) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, pension plans, retirement plans, employee stock option or stock
purchase plans and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which either of the
Companies is a party;
(v) all agency, distributor, sales representative, franchise or
similar agreements to which either of the Companies is a party;
(vi) all contracts, agreements or other understandings or
arrangements between either of the Companies and any of its affiliates (as such
term is defined in the Securities Act of 1933 and the regulations promulgated
thereunder);
(vii) all contracts, agreements and other documents or information
relating to past disposal of waste (whether or not hazardous);
(viii) all repair or maintenance contracts; and
(ix) any other material agreements or contracts entered into by
either of the Companies.
(b) Except as set forth on Schedule 3.17:
(i) each Contract is a valid and binding agreement of the
respective Company, enforceable against such Company in accordance with its
terms, and neither of the Companies' has any knowledge that any Contract is not
a valid and binding agreement of the other parties thereto;
(ii) each of the Companies has fulfilled all material obligations
required pursuant to the Contracts to have been performed by it prior to the
date hereof, and neither of the Companies has reason to believe that it will
not be able to fulfill, when due, all of its obligations under the Contracts
which remain to be performed after the date hereof;
(iii) neither of the Companies is in material breach of or material
default under any Contract, and no event has occurred which with the passage of
time or giving of notice or both would constitute such a material breach or
material default, result in a loss of rights or result in the creation of any
lien, charge or encumbrance thereunder or pursuant thereto;
(iv) to the best knowledge of the Companies and/or the Stockholders,
there is no existing breach or default by any other party to any Contract and no
13
event has occurred which with the passage of time or giving of notice or both
would constitute a default by such other party, result in a loss of rights or
result in the creation of any lien, charge or encumbrance thereunder or pursuant
thereto;
(v) neither of the Companies is restricted by any Contract from
carrying on its business anywhere in the world; and
(vi) neither of the Companies has written or oral Contracts to
sell products or perform services which are expected to be performed at, or to
result in, a loss.
(c) Except as set forth on Schedule 3.3 or Schedule 3.17, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer of the Shares to the Buyer under this Agreement. True and
correct copies of each Contract are included as Item 3.17 of the Memorandum.
3.18. Compliance with Agreements and Laws. Each of the Companies has all
material licenses, permits and certificates, including, without limitation,
environmental, health and safety permits, from federal, state and local
authorities necessary to conduct its business and own and operate its assets
(collectively, the "Permits"). Schedule 3.18(a) attached hereto sets forth a
true, correct and complete list of all such Permits, copies of which are
included as Item 3.18 of the Memorandum. Except as set forth on Schedule
3.18(b), the business of each of the Companies as conducted on the date hereof
does not, and as conducted on the Closing Date will not, violate any federal,
state, provincial, local, municipal or foreign laws, regulations, ordinances or
orders (including, but not limited to, any of the foregoing relating to
employment discrimination, occupational safety, hazardous waste, conservation,
or corrupt practices but excluding those relating to environmental protection).
Neither of the Companies has had notice or communication from any federal,
state, provincial, municipal or local governmental or regulatory authority
since January 1, 2000 of any such violation or noncompliance and, to the best
knowledge of the Companies and/or the Stockholders, there are no other
outstanding notices of any such violation or noncompliance which have not been
cured.
3.19. Employee Relations. Each of the Companies is in compliance in all
material respects with all federal, state, provincial, local and municipal laws
with respect to employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes. None of the Companies' employees are represented by a union and there
have been no union organizing efforts conducted at either of the Companies and
none are now being conducted. Neither of the Companies has had at any time,
nor, to the knowledge of the Companies or the Stockholders, is there now
threatened, any strike or other labor trouble. Schedule 3.19 sets forth a true,
correct and complete list as of March 31, 2003 of each employee of the Companies
showing each employee's base compensation, bonuses and other cash compensation,
and all amounts due or accrued due for all salary, wages, bonuses, commissions,
vacations with pay, pension benefits or other employee benefits are reflected
in the books and records of the Companies. For purposes of this Section 3.20,
the term "employee" shall be construed to include sales agents and other
independent contractors who spend a majority of their working time on the
Companies' business.
3.20. Employee Benefit Plans.
14
(a) Schedule 3.21 attached hereto contains a true, correct
and complete list and description of all employee benefit, fringe benefit,
supplemental unemployment benefit, bonus, incentive, profit sharing,
termination, change of control, pension, retirement, stock option, stock
purchase, stock appreciation, health, welfare, medical, dental, disability, life
insurance and similar plans, programmes, arrangements or practices relating to
the current or former employees, officers or directors of the Companies
maintained, sponsored or funded by the Companies, whether written or oral,
funded or unfunded, insured or self-insured, registered or unregistered
("Employee Plans"). The Stockholders and the Companies have furnished to the
Purchaser true, correct and complete copies of all the Employee Plans as amended
as of the date hereof, together with all related documentation including,
without limitation, funding and investment management agreements, summary plan
descriptions, the most recent actuarial reports, financial statements and asset
statements, all material opinions and memoranda (whether externally or
internally prepared) and all material correspondence with all regulatory
authorities or other relevant persons. No changes have occurred or are expected
to occur which would materially affect the information contained in the
actuarial reports, financial statements or asset statements required to be
provided to the Buyer pursuant to this provision. All of the Employee Plans are
and have been established, registered, qualified, invested and administered, in
all respects, in accordance with their terms and all applicable laws, including
all tax laws where same is required for preferential tax treatment. No fact or
circumstance exists that could adversely affect the preferential tax treatment
ordinarily accorded to any such Employee Plan. All obligations regarding the
Employee Plans have been satisfied, there are no outstanding defaults or
violations by any party to any Employee Plan and no taxes, penalties, or fees
are owing or exigible under or in respect of any of the Employee Plans. The
Companies may unilaterally amend or terminate, in whole or in part, each
Employee Plan and take contribution holidays under or withdraw surplus from each
Employee Plan, subject only to approvals required by applicable laws. No
commitments to improve or otherwise amend any Employee Plan have been made
except as required by applicable laws.
(b) No Employee Plan is subject to any pending
investigation, examination or other proceeding, action or claim initiated by any
regulatory authority, or by any other party (other than routine claims for
benefits), and there exists no state of facts which could reasonably be expected
to give rise to any such investigation, examination or other proceeding, action
or claim or to affect the registration of any Employee Plan required to be
registered. All contributions or premiums required to be paid by the Companies
under the terms of each Employee Plan or by Laws have been made in a timely
fashion in accordance with Laws and the terms of the Employee Plans. Neither
Company has any liability (other than liabilities accruing after the Closing
Date) with respect to any of the Employee Plans. Contributions or premiums for
the period up to the Closing Date have been paid by the Companies even though
not otherwise required to be paid until a later date.
(c) There have been no improper withdrawals, applications or
transfers of assets of any Employee Plan and neither the Companies, nor any of
their respective agents or delegates, has breached any fiduciary obligation with
respect to the administration or investment of any Employee Plan. Each Employee
Plan which is a funded plan is fully funded as of the Closing Date on both a
going concern and a solvency basis pursuant to the actuarial assumptions and
methodology utilized in the most recent actuarial valuation therefor.
15
(d) None of the Employee Plans enjoy any special tax status
under any laws, nor have any advance tax rulings been sought or received in
respect of any Employee Plan. All employee data necessary to administer each
Employee Plan has been provided by the Stockholders and the Companies to the
Buyer and is true and correct as of the date of this Agreement and the
Stockholders and the Companies will notify the Buyer of any changes thereto.
(e) No insurance policy or any other agreement affecting any
Employee Plan requires or permits a retroactive increase in contributions,
premiums or other payments due thereunder. The level of insurance reserves under
each insured Employee Plan is reasonable and sufficient to provide for all
incurred but unreported claims.
(f) None of the Employee Plans (other than pension plans)
provide benefits to retired employees or to the beneficiaries or dependants of
retired employees.
3.21. Indebtedness to and from Officers, Directors and Shareholders. Except as
set forth on Schedule 3.21 attached hereto, neither of the Companies is
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of either of the Companies or any affiliate of any such person in
any amount whatsoever other than for salaries for services rendered or
reimbursable business expenses, all of which have been reflected on the Current
Financial Statements, and no such officer, director, shareholder or affiliate is
indebted to either of the Companies, except for advances made to employees of
the Companies in the ordinary course of business to meet reimbursable business
expenses anticipated to be incurred by such obligor.
3.22. Powers of Attorney and Suretyships. Except as set forth on Schedule 3.22
attached hereto, neither of the Companies has any powers of attorney outstanding
and has no obligation or liability as guarantor, surety, co-signor, endorser,
co-maker, indemnitor or otherwise in respect of the obligation of any person,
corporation, partnership or other entity, except as endorser to makers of checks
or letters of credit, respectively, endorsed or made in the ordinary course of
business.
3.23. Customers. Schedule 3.23 attached hereto sets forth a true, correct and
complete list of the names and addresses of all customers of each of the
Companies who purchased more than Cdn$50,000 worth of product (based on
invoices) from either of the Companies in the twelve-months ended March 31,
2003. None of the customers listed on Schedule 3.23 has notified either of the
Companies that it intends to discontinue its relationship with either of the
Companies.
3.24. Suppliers. Schedule 3.24 attached hereto sets forth a true, correct and
complete list of the names and addresses of the ten suppliers of each of the
Companies which accounted for the largest dollar volume of purchases by the
Companies in the twelve-months ended March 31, 2003. None of the suppliers
listed on Schedule 3.25 has notified either of the Companies that it intends to
discontinue its relationship with either of the Companies.
3.25. Real Property. Neither of the Companies currently owns, and has not in
the past owned, any real property.
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3.26. Environmental Matters.
(a) Each of the Companies has complied and is in compliance
with all applicable Environmental Laws, except for such noncompliance as could
not individually, or in the aggregate, reasonably be expected to have a material
adverse effect on the assets or business of either of the Companies and neither
of the Companies has received written notice, report, communication or
information regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), or any corrective, investigatory or remedial
obligations, arising under any applicable Environmental Laws.
(b) Without limiting the generality of the foregoing, none
of the following exists at the real property subject to the Leases, except as
set forth on Schedule 3.26 hereto:
(i) underground or above-ground storage tanks;
(ii) asbestos-containing material in a form or
condition which, if not removed or encapsulated, would constitute a hazard to
human health or the environment; or
(iii) PCB-containing materials or equipment.
(c) Neither of the Companies now, and in the past the
Companies and their predecessors never did, maintain, store, use, generate,
treat, release, dispose (or cause to be disposed) of Hazardous Substances in,
at, under, upon or from any real property at any time owned, leased, operated
or controlled by either of the Companies, including, without limitation, the
real property subject to the Leases.
(d) There have been no releases of Hazardous Substances in,
at, under, upon or from any other real property not owned, leased, operated or
controlled by either of the Companies that could be reasonably expected to have
an impact on the real property subject to the Leases.
(e) Neither the Companies nor their predecessors have ever
utilized any hazardous waste transporters or any treatment, storage or disposal
facilitators.
(f) Neither of the Companies is subject to, nor has either
received any notice of, any private, administrative or judicial action, or an
intended private, administrative or judicial action relating to the presence or
alleged presence of Hazardous Substances in, at, under or upon the real
property subject to the Leases, and there are no pending or, to the
Stockholders' and/or the Companies' best knowledge, threatened actions or
proceedings (or notices or potential actions or proceedings) against either of
the Companies from any Governmental Authority regarding any matter relating to
any Environmental Laws.
For the purposes of this Agreement, "Environmental Laws" means all
applicable federal, provincial, state, municipal and local laws, rules,
regulations, ordinances, requirements and common law relating to public health
and safety, worker health and safety and pollution and protection of the
environment pertaining to (i) treatment, storage, disposal, generation and
17
transportation of toxic or hazardous substances or solid or hazardous waste;
(ii) air, water and noise pollution, (iii) groundwater and soil contamination,
(iv) the release or threatened release into the environment of toxic or
hazardous substances, or solid or hazardous waste, including, without
limitation, emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals, (v) the protection of wild life, marine
sanctuaries and wetlands, including, without limitation, all endangered and
threatened species, (vi) storage tanks, vessels and containers, (vii)
underground and other storage tanks or vessels, abandoned, disposed or discarded
barrels, containers and other closed receptacles, (viii) health and safety of
employees and other persons and (ix) manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of pollutants,
contaminants, chemicals or toxic or hazardous substances or oil or petroleum
products or solid or hazardous waste, including, without limitation, the
Canadian Environmental Protection Act, the Fisheries Act, the Transportation of
Dangerous Goods Act, the Canada Water Act, the Waste Management Act (British
Columbia) all as amended, and any regulations, rules, ordinances adopted or
publications promulgated pursuant thereto.
"Hazardous Substances" means (i) hazardous materials, hazardous
substances, extremely hazardous substances, toxic substances, hazardous wastes
or words of similar import as defined under any Environmental Laws; (ii)
petroleum, including without limitation, crude oil or any fraction thereof;
(iii) any radioactive material; (iv) asbestos in any form or condition;
(v) polychlorinated byphenyls ("PCBs") or PCB-containing materials; and (vi)
any other material, substance or waste to which liability or standards of
conduct are currently imposed under any Environmental Laws.
"Governmental Authority" means any governmental agency, department,
bureau, commission or similar body.
3.27. Warranty and Product Liability Claims. Schedule 3.27 attached hereto
contains a true, correct and complete (i) list of all product liability claims
made against either of the Companies from January 1, 2000 through the date
hereof, the current status of all such claims and the costs of all actions taken
in satisfaction of such claims and (ii) summary of each of the Companies'
warranty policy. All information relative to such claims and those arising
thereafter shall be available to the Buyer and the Parent from and after the
date hereof.
3.28. Prepayments and Deposits. Schedule 3.28 attached hereto sets forth all
prepayments and deposits, which have been received by either of the Companies
as of the date specified thereon, from customers for products to be shipped or
services to be performed after the Closing Date.
3.29. Bank Accounts and Facilities. Schedule 3.30 sets forth a true, correct
and complete list of: (a) each bank, savings and loan or similar financial
institution in which either of the Companies has an account or safety deposit
box and the numbers of the accounts or safety deposit boxes maintained by
either of the Companies thereat; and (b) the names of all persons authorized to
draw on each such account or to have access to any such safety deposit box
facility, together with a description of the authority (and conditions thereof,
if any) of each such person with respect thereto.
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3.30. Accounts Payable. Schedule 3.31 sets forth a true, correct and complete
list of the Companies' trade accounts payable as of March 31, 2003, including
the vendor name, amount outstanding and the aging thereof. As updated at the
Closing, such list shall be a true, complete and correct list of the Companies'
trade accounts payable as of the Closing Date, which shall be consistent in
amount and aging thereof with Schedule 3.31.
3.31. Disclosure. No representation or warranty by the Companies or the
Stockholders in this Agreement or in any exhibit hereto, or in any list,
statement, document or information set forth in, or attached to any schedule
delivered or to be delivered pursuant to this Agreement, contains or will
contain any untrue statement of a material fact, or omits or will omit any
material fact, necessary in order to make the statements contained therein not
misleading. Copies of all documents heretofore or hereafter delivered or made
available to the Buyer, including, without limitation, the documents contained
in the Memorandum, are complete and accurate copies of such documents.
4. Representations of the Buyer and the Parent
The Buyer and the Parent each represents and warrants to the
Stockholders as follows:
4.1. Organization and Authority. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and the Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the Province of British Columbia. Each of the Parent
and the Buyer has all requisite power and authority to own its properties and to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby and thereby.
4.2. Authorization. The execution and delivery by the Buyer and the Parent
of this Agreement and the agreements provided for herein, and the consummation
by the Buyer and the Parent of the transactions contemplated hereby and thereby,
have been duly authorized by all requisite corporate action. This Agreement and
all such other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which the Buyer or the
Parent is a party constitute the valid and legally binding obligations of it,
enforceable against the Buyer or the Parent in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
agreements provided for herein, and the consummation by the Buyer or the Parent
of the transactions contemplated hereby and thereby, will not, with or without
the giving of notice or the passage of time or both, (a) violate the provisions
of any law, rule or regulation applicable to the Buyer or the Parent, as the
case may be; (b) violate the provisions of the Certificate of Incorporation or
By-Laws, as amended to date, of the Buyer or the Parent, as the case may be;
(c) violate any judgment, decree, order or award of any court, governmental
body or arbitrator; or (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or
cause any acceleration under, or cause the creation of any lien, charge or
encumbrance upon the properties or assets of the Buyer or the Parent, as the
case may be, pursuant to any indenture, mortgage, deed of trust or other
agreement or instrument to which the Buyer or the Parent is a party or by which
the Buyer or the Parent is bound. On or prior to the Closing Date, the Buyer
and the Parent shall have obtained any consent or approvals of third parties
19
that are required in connection with the consummation by the Buyer and the
Parent of the transactions contemplated by this Agreement.
5. Access to Information; Public Announcements
5.1. Access to Management, Properties and Records. From the date of this
Agreement until the Closing Date, each of the Companies shall afford the
officers, attorneys, accountants and other authorized representatives of the
Buyer and the Parent reasonable access upon reasonable prior notice and during
normal business hours to all management personnel, offices, properties, books
and records of the Companies, for the sole purpose of facilitating the Closing
of the transactions contemplated hereunder. Each of the Companies shall
furnish to the Buyer and the Parent such financial and operating data and other
information as to the business of the Companies as the Buyer or the Parent shall
reasonably request. Upon prior approval of the Stockholders' Representative,
which shall not be unreasonably withheld, the Buyer and/or the Parent shall also
have the right to contact the Companies' vendors and customers, and other
persons having business dealings with the Companies for the sole purpose of
facilitating the Closing of the transactions contemplated hereunder. The
activities contemplated by this subsection 5.1 are hereinafter referred to as
"Due Diligence Activities."
5.2. Confidentiality. All information not previously disclosed to the public
or generally known to the persons engaged in the respective businesses of the
Buyer, the Parent or the Companies which shall have been furnished to the other
party hereunder in connection with the transactions contemplated hereby or as
provided pursuant to this Section 5 shall not be disclosed to any other person
other than their respective employees, directors, attorneys, accountants,
lenders or financial advisors or other than as contemplated herein. In the
event that the transactions contemplated by this Agreement shall not be
consummated, all such information which shall be in writing shall be returned
to the party furnishing the same, including, to the extent reasonably
practicable, all copies or reproductions thereof which may have been prepared,
and neither party shall at any time thereafter disclose to any third parties,
or use, directly or indirectly, for its own benefit, any such information,
written or oral, about the business of the other party hereto.
5.3. Public Announcements. Except as otherwise required by law, the parties
agree that prior to the Closing Date any and all general public pronouncements
or other general public communications concerning this Agreement and the
purchase of the Shares by the Buyer, and the timing, manner and content of such
disclosures, shall be subject to the mutual agreement of the Stockholders'
Representative and the Parent.
6. Pre-Closing Covenants of the Companies and the Stockholders
6.1. Conduct of Business. Each of the Companies shall carry on its respective
business diligently and substantially in the same manner as heretofore and,
without the consent of the Parent (which shall not be unreasonably withheld or
delayed), shall not (i) make or institute any unusual or new methods of
manufacture, purchase, sale, shipment or delivery, lease, management, accounting
or operation, (ii) accelerate the collection of any accounts receivable outside
the normal course of business or (iii) delay the payment of any trade accounts
payable that are not being disputed by either Company in good faith. All of the
property and equipment of the Companies shall be used, operated, repaired and
20
maintained in a normal business manner consistent with past practice.
6.2. Absence of Material Changes. Without the prior written consent of the
Parent, neither the Companies nor the Stockholders shall: (a) take any action
to amend the charter documents or bylaws of either Company; (b) issue any stock,
bonds or other corporate securities or grant any option or issue any warrant to
purchase or subscribe for any of such securities or issue any securities
convertible into such securities; (c) incur any obligation or liability
(absolute or contingent), except current liabilities incurred and obligations
under contracts entered into in the ordinary course of business; (d) declare or
make any payment or distribution to the Stockholders with respect to its stock
or purchase or redeem any shares of its capital stock or issue any shares of its
capital stock pursuant to options; provided, however that the Companies may
distribute in an aggregate amount of up to Cdn$10,000 jointly to Gordon and
Judy Hart each full calendar month and Joe Mellof may continue to receive his
current base salary related to his performance as the Companies' Chief
Operating Officer; (e) make any loan or other cash distribution to any of the
Stockholders or any affiliate thereof; (f) mortgage, pledge, or subject to any
lien, charge or any other encumbrance (other than purchase money security
interests arising in the ordinary course of business) any of their respective
assets or properties; (g) sell, assign, or transfer any of its assets, except
for sales or licensing in the ordinary course of business; (h) cancel any debts
or claims, except in the ordinary course of business; (i) merge or consolidate
with or into any corporation or other entity; (j) make, accrue or become liable
for any bonus, profit sharing or incentive payment, except for accruals under
existing plans, if any, or increase the rate of compensation payable or to
become payable by it to any of its officers, directors or employees; (k) make
any election or give any consent under any tax statutes of any state, province,
country or other jurisdiction or make any termination, revocation or
cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due; (l) waive any rights of material value; (m)
modify, amend, alter or terminate any of its executory contracts of a material
value or which are material in amount; (n) take or permit any act or omission
constituting a breach or default under any contract, indenture or agreement by
which it or its properties are bound; (o) enter into any lease, contract,
agreement or understanding, other than those entered into in the ordinary
course of business; (p) incur any capital expenditure; (q) materially alter the
terms, status or funding condition of any Employee Plan; (r) change its methods
of inventory valuation; (s) hire or fire any personnel of the Companies; or (t)
commit or agree to do any of the foregoing in the future.
6.3. Continued Truth of Representations and Warranties. Neither the
Stockholders nor the Companies will take any actions which would result in any
of the representations or warranties set forth in Sections 2 or 3 hereof being
untrue.
6.4. Reports, Taxes. Each of the Companies will duly and timely file all
reports or returns required to be filed with federal, state, local and foreign
authorities and will promptly pay all federal, state, provincial, local,
provincial and foreign taxes, assessments and governmental charges levied or
assessed upon them or any of their properties (unless contesting such in good
faith and adequate provision has been made therefor).
6.5. Communications with Customers and Suppliers. Each of the Companies will
continue to accept customer orders in the ordinary course of business and
consistent with past practice for all products offered by the Companies but
21
expected to be shipped after the Closing Date. The Companies, the Parent and
the Buyer will cooperate in communications with suppliers and customers in
connection with the transfer of the Shares to the Buyer on the Closing Date.
7. Best Efforts to Obtain Satisfaction of Conditions
The Companies, the Stockholders and the Buyer each covenant and
agree to use their best efforts to obtain the satisfaction of the conditions
specified in this Agreement.
8. Conditions to Obligations of the Buyer and the Parent
The obligations of the Buyer and the Parent under this Agreement
are subject to the fulfillment, at the Closing Date, of the following conditions
precedent, each of which may be waived in writing in the sole discretion of the
Buyer:
8.1. Continued Truth of Representations and Warranties of each of the Companies
and the Stockholders; Compliance with Covenants and Obligations. The
representations and warranties of each of the Companies and the Stockholders
shall be true on and as of the Closing Date as though such representations and
warranties were made on and as of such date, except for any changes permitted by
the terms hereof or consented to in writing by the Buyer or the Parent. Each of
the Companies and the Stockholders shall have performed and complied with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date. At the Closing, each of the Companies and the Stockholders'
Representative (on behalf of the each of the Stockholders) shall have delivered
to the Buyer and the Parent a certificate signed by the President of each
Company and the Stockholders' Representative as to their respective compliance
with this Section 8.1.
8.2. Corporate Proceedings. All corporate, Board of Directors, shareholder
and other proceedings required to be taken to authorize each of the Companies,
the Parent and the Buyer to carry out this Agreement and the transactions
contemplated hereby, and to convey, transfer, assign and deliver the Shares to
the Buyer, shall have been taken.
8.3. Governmental Approvals. All governmental agencies, department, bureaus,
commissions and similar bodies, the consent, authorization or approval of which
is necessary under any applicable law, rule, order or regulation for the
consummation by each of the Companies, the Parent or the Buyer of the
transactions contemplated by this Agreement and the operation of the business
of the Companies by the Buyer shall have consented to, authorized, permitted or
approved such transactions.
8.4. Consent of Third Parties. Each of the Companies shall have received all
requisite consents and approvals of all lenders, lessors and other third parties
whose consent or approval is required in order for each of the Companies to
consummate the transactions contemplated by this Agreement, including without
limitation, those set forth on Schedule 3.3 attached hereto, and copies of such
consents and approvals shall have been delivered to the Parent and the Buyer.
22
8.5. Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or, to the best knowledge of
the Companies or the Stockholders, threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate the transactions
contemplated by this Agreement or which might affect the right of the Buyer or
the Parent to own or operate either of the Companies after the Closing.
8.6. Opinion of Counsel. The Buyer and the Parent shall have received an
opinion of Norquist Watkins, counsel to the Companies and the Stockholders,
dated as of the Closing Date, as to such matters as may be requested by the
Buyer, the Parent or their counsel.
8.7. Due Diligence. The results of the Parent's and the Buyer's Due Diligence
Activities shall be satisfactory to the Parent and the Buyer, in their sole
discretion.
8.8. Update. The Companies and the Stockholders shall have provided the Buyer
and the Parent with true, correct and complete schedules as of the last business
day immediately preceding the Closing Date with respect to:
(a) the Inventory pursuant to Section 3.7;
(b) the Intangible Property pursuant to Section 3.11;
(c) the Fixed Assets pursuant to Section 3.12;
(d) the Accounts Receivable pursuant to Section 3.14; and
(e) the Accounts Payable pursuant to Section 3.30.
None of the information supplied in such updated schedules shall be
materially adverse from the information previously provided by the Companies and
the Stockholders to the Buyer and the Parent. Any update of a schedule made
pursuant to this Section 8.8 shall not constitute a cure of any breach of any
representation of or warranty made by the Companies and the Stockholders on the
date hereof.
8.9. Material Adverse Change. There shall have been no material adverse change
in the business, operations, employee relations, conditions (financial or
otherwise) or prospects of either of the Companies from and after November 30,
2002 through the Closing Date.
8.10. Lease Agreements. On or prior to the Closing Date, the current landlord,
Legacy, shall have executed new lease agreement with the Buyer for the
manufacturing facility used by the Companies, which is located in Maple Ridge,
Canada, in substantially the form attached hereto as Exhibit C (the "New
Lease").
8.11. Financing Arrangements. On or prior to the Closing Date, the Buyer and
the Parent shall have obtained a line of credit or made other financial
arrangements to replace the Companies' current operating line of credit on such
terms and with such bank as is satisfactory to the Buyer and the Parent, in
their sole discretion.
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8.12. Employment Agreements. On or prior to the Closing Date, each of Joe
Mellof and Shelley Mellof shall have entered into an Employment Agreement with
the Buyer, in substantially the forms attached hereto as Exhibits D-1 and D-2,
respectively.
8.13. Trademark Assignment. On or prior to the Closing Date, Legacy shall have
entered into an Assignment of Trademark with the Buyer, in substantially the
forms attached hereto as Exhibit E, pursuant to which the Buyer shall acquire
all right, title and interest in and to the names "Legacy" and "Legacy Doors
and Windows" or any derivations thereof.
8.14. Assumption of Excluded Liabilities. On or prior to the Closing Date, the
Stockholders shall have entered into an Instrument of Assumption of Liabilities
with respect to the Excluded Liabilities, in substantially the form attached
hereto as Exhibit F.
8.15. Product Agreement. On or prior to the Closing Date, the Buyer and Gordon
Hart shall have entered into a Product Agreement, in substantially the form
attached hereto as Exhibit G.
8.16. Mortgage. On or prior to the Closing Date, the Buyer, on the one hand,
and Judith and Gordon Hart, on the other hand, shall have entered into a
Mortgage, in substantially the form attached hereto as Exhibit H-1 and the
Buyer, on the one hand, and Joe and Shelley L. Mellof, on the other hand, shall
have entered into a Mortgage in substantially the form attached hereto as
Exhibit H-2.
8.17. Closing Deliveries. The Buyer and the Parent shall have received at or
prior to the Closing all documents set forth in this Section 8 and such other
documents, instruments or certificates as the Buyer or the Parent may
reasonably request including, without limitation:
(a) such certificates of the Companies' officers and such
other documents evidencing satisfaction of the conditions specified in this
Section 8 as the Buyer or the Parent shall reasonably request;
(b) a certificate of the Registrar of Companies appointed
pursuant to The Company Act (British Columbia) as to the legal existence and
good standing of each of the Companies in British Columbia;
(c) a certificates of extra-provincial registration for each
jurisdiction in which each of the Companies is qualified to do business as to
the legal existence and good standing of such Company in each such jurisdiction;
(d) a certificate signed by the Secretary of each of the
Companies attesting to the incumbency of its officers, the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the memorandum and articles delivered
pursuant to Section 3.1;
24
(e) a certificate signed by the Chief Financial Officer of
each of the Companies attesting to the fact that the Companies have no
outstanding indebtedness as of the Closing Date and that all inter-company
payables, loans or indebtedness have been forgiven;
(f) a certificate signed by the Chief Financial Officer of
Hart & Son attesting to the fact that all indebtedness owed by Joe and Shelley
Mellof to Hart & Son in connection with their purchase of Shares in Hart & Son
has been paid in full;
(g) a certificate signed by the Chief Financial Officer of
each of the Companies and by the Stockholders' Representative (on behalf of the
Stockholders) attesting to the fact that (i) all balances shown on the Closing
Balance Sheet delivered pursuant to Section 1.5 for accounts receivable (net),
inventory and accounts payable are true, correct, consistent with historical
averages and reflect the normal working capital management practices of each of
the Companies and (ii) all assets set forth on the Closing Balance Sheet and
related asset schedule are in good operating condition, normal wear and tear
excepted.
(h) certificates representing the Shares, together with
stock powers duly executed in blank; and
(i) such other documents, instruments or certificates as the
Buyer or Parent may reasonably request.
9. Conditions to Obligations of the Stockholders
The obligations of the Stockholders under this Agreement are subject
to the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in writing in the sole discretion of the
Stockholders' Representative:
9.1. Continued Truth of Representations and Warranties of the Buyer and the
Parent; Compliance with Covenants and Obligations. The representations and
warranties of the Buyer and the Parent in this Agreement shall be true on and as
of the Closing Date as though such representations and warranties were made on
and as of such date, except for any changes permitted by the terms hereof or
consented to in writing by the Stockholders' Representative. The Buyer and the
Parent shall have performed and complied in all material respects with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date. At the Closing, each of the Buyer and the Parent shall have
delivered to the Stockholders' Representative a certificate signed by the
President of the Buyer as to the Buyer's compliance with this Section 9.1 and
by the President of the Parent as to the Parent's compliance with this Section
9.1.
9.2. Company Proceedings. All corporate, Board of Directors, shareholder and
other proceedings required to be taken to authorize the Buyer, the Parent or
either of the Companies to carry out this Agreement and the transactions
contemplated hereby shall have been taken.
9.3. Governmental Approvals. All governmental agencies, departments, bureaus,
commissions and similar bodies, the consent, authorization or approval of which
is necessary under any applicable law, rule, order or regulation for the
25
consummation by the Buyer, the Parent or either of the Companies of the
transactions contemplated by this Agreement and the operation of the business
of the Companies by the Buyer and the Parent shall have consented to,
authorized, permitted or approved such transactions.
9.4. Consents of Third Parties. The Buyer and the Parent shall have received
all requisite consents and approvals of all lenders, lessors and other third
parties whose consent or approval is required in order for the Buyer and the
Parent to consummate the transactions contemplated by this Agreement, and
copies of such consents and approvals shall have been delivered to the
Stockholders' Representative.
9.5. Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit
or invalidate the transactions contemplated by this Agreement or which might
affect the right of the Stockholders to transfer the Shares.
9.6. Opinion of Counsel. The Stockholders shall have received an opinion of
Epstein Becker & Green, P.C., counsel to the Buyer, dated as of the Closing
Date, as to such other matters as may be reasonably requested by the Companies,
the Stockholders or their counsel.
9.7. Line of Credit and Guaranties. On or prior to the Closing Date, the
operating line of credit maintained by Hart & Son with the Royal Bank of Canada
shall have been terminated, the personal guaranties of the Stockholders related
thereto shall have been terminated and the security interest in the real estate
owned by Legacy related to such line of credit shall have been released.
9.8. Closing Deliveries. The Stockholders' Representative (on behalf of the
Stockholders) shall have received at or prior to the Closing all documents set
forth in this Section 9 and such other documents, instruments or certificates
as the Stockholders may reasonably request including, without limitation:
(a) such certificates of the Buyer's and the Parent's
officers and such other documents evidencing satisfaction of the conditions
specified in this Section 9 as the Stockholders shall reasonably request;
(b) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing of the Buyer;
(c) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing of the Parent;
(d) a certificate signed by an authorized representative of
the Buyer attesting to the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement and the authenticity and continuing
validity of the Certificate of Incorporation delivered pursuant to Subsection
4.1;
26
(e) a certificate signed by an authorized representative of
the Parent attesting to the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement and the authenticity and continuing
validity of the Certificate of Incorporation delivered pursuant to Subsection
4.1;
(f) the Cash Payment;
(c) fully executed Notes;
(f) fully executed Employment Agreements;
(g) a fully executed New Lease;
(h) a fully executed Assumption of Liabilities;
(i) a stock certificate representing the Parent Shares;
(j) a fully executed Assignment of Trademarks; and
(k) such other documents, instruments or certificates as the
Companies may reasonably request.
10. Indemnification
10.1. By the Stockholders. The Stockholders and the Companies, jointly and
severally if the Closing does not occur, and the Stockholders, jointly and
severally if the Closing does occur, hereby indemnify and hold harmless the
Buyer and the Parent from and against all claims, damages, losses, liabilities,
costs and expenses (including, without limitation, settlement costs and any
reasonable legal, accounting or other expenses for investigating or defending
any actions or threatened actions) (collectively, the "Losses") in connection
with:
(a) any breach of any representation or warranty, or non-
fulfillment or non-performance on the part of the Companies or the Stockholders
of any covenant or agreement, contained in this Agreement, the Schedules hereto
or any other related agreements or transactions contemplated herein or therein,
or any certificates delivered by the Companies or the Stockholders in
connection with this transaction;
(b) any claims, liabilities or obligations arising out of,
in connection with or related to the Excluded Liabilities;
(c) any violation by either of the Companies of, or any
failure by either of the Companies to comply with, any law, ruling, order,
decree, regulation or zoning, environmental or permit requirement applicable
to the Companies which has not been previously disclosed to the Buyer or the
Parent in writing pursuant to this Agreement; or
(d) any claims pertaining to Taxes owed for any period of
time prior to the Closing Date.
27
10.2. By the Buyer and the Parent. The Buyer and the Parent, jointly and
severally, hereby indemnifies and holds harmless the Companies, if the Closing
does not occur, or the Stockholders, if the Closing does occur, from and
against all Losses in connection with any breach of any representation or
warranty, or non-fulfillment or non-performance on the part of the Buyer or the
Parent of any covenant or agreement, contained in this Agreement, the Schedules
hereto or any other related agreements or transactions contemplated herein or
therein, or any certificates delivered by the Buyer or the Parent in connection
with this transaction.
10.3. Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 10, the Buyer or the Parent, on the one hand,
or the Stockholders, on the other hand (the party seeking such indemnification,
the "Indemnified Party"), shall promptly notify the other party or parties
hereto (the party or parties from whom indemnification is sought, the
"Indemnifying Party"), and such Indemnifying Party's counsel pursuant to Section
15 herein, in writing (the "Indemnification Notice") of the claim, which writing
shall include the facts constituting the basis for such claim, the specific
section of this Agreement upon which the claim is based and an estimate, if
possible, of the amount of damages suffered by the Indemnified Party. In the
event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party (a "Third Party
Claim"), the Indemnification Notice shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom and shall attach all
correspondence and demands from such third party. In the event that any claim
for indemnification involves a matter other than a Third Party Claim, the
Indemnifying Party shall have thirty (30) days from receipt of the
Indemnification Notice to object to such claim by delivery of a written notice
of such objection to the Indemnified Party specifying in reasonable detail the
basis for such objection. Failure to timely object shall constitute a final
and binding acceptance of the claim for indemnification by the Indemnifying
Party and the claim shall be paid in accordance with Section 10.5 hereof. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent, which shall not be unreasonably withheld or delayed, of the
Indemnifying Party; provided, however, that if suit shall have been instituted
against the Indemnified Party and the Indemnifying Party shall not have taken
control of such suit within ten (10) days after notification thereof, as
provided in Section 15 of this Agreement, the Indemnified Party shall have the
right to settle or compromise such claim upon giving notice to the Indemnifying
Party, so long as such settlement includes a full release of the Indemnifying
Party from such Third Party Claim. All notices or other communications
required to be given by or delivered to the Stockholders pursuant to this
Section 10 shall be deemed duly given or delivered if given to or delivered by
the Stockholders' Representative, who has the power and authority to bind all
of the Stockholders hereunder.
10.4. Defense by the Indemnifying Party. (a) In connection with any claim
which may give rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at the sole cost and expense of the Indemnifying Party, may,
upon written notice given to the Indemnified Party, assume the defense of any
such claim or legal proceeding if the Indemnifying Party acknowledges to the
Indemnified Party in writing the obligation of the Indemnifying Party to
indemnify the Indemnified Party with respect to all elements of such claim. If
the Indemnifying Party assumes the defense of any such claim or legal
proceeding, the Indemnifying Party shall select counsel to conduct the defense
of such claims or legal proceedings and, at the sole cost and expense of the
Indemnifying Party, shall take all steps it deems necessary or appropriate in
28
the defense or settlement thereof. The Indemnifying Party shall not consent to
a settlement of, or the entry of any judgment arising from, any such claim or
legal proceeding without the prior written consent of the Indemnified Party
(which consent shall not be unreasonably withheld or delayed), unless such
settlement or judgement includes a full release of the Indemnified Party from
such Third Party Claim. The Indemnified Party shall be entitled to participate
in (but not control) the defense of any such action, with its own counsel and at
its own expense. If the Indemnifying Party does not assume the defense of any
such claim or litigation resulting therefrom within ten (10) days after the date
it receives written notice of such claim from the Indemnified Party: (a) the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem necessary or appropriate, including, but not limited to, settling
such claim or litigation (subject to the second to last sentence of Section
10.3), on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third party claim or the amount or nature of
any such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such Third Party Claim in a reasonably prudent manner.
(b) The Indemnifying Party and the Indemnified Party shall
cooperate with each other in all reasonable respects in connection with the
defense of any Third Party Claim, including making available records relating
to such claim and furnishing employees of the Indemnified Party as may be
reasonably necessary for the preparation of the defense of any such Third
Party Claim or for testimony as witnesses in any proceeding relating to a
Third Party Claim.
10.5. Payment of Indemnification Obligation. Upon a final determination of an
indemnification claim made by the Indemnified Party, whereby such final
determination is by reason of (i) a failure of the Indemnifying Party to
timely object to an Indemnification Notice or (ii) the mutual agreement of the
Indemnifying Party and the Indemnified Party, or (iii) a final arbitration
award pursuant to Section 13 hereof, then the amount of the Losses stated in
such claim or otherwise agreed to or awarded, as the case may be, shall be
paid as follows: If the Indemnified Party is the Parent or the Buyer and the
Closing has occurred, first, by a dollar-for-dollar decrease in the principal
amount owed under the Hart Notes, second, by a dollar-for-dollar decrease in
the principal amount owed under the Mellof Notes and third at the Parent's
option either by payment from the Stockholders through a wire transfer of
immediately available funds, or by surrender of that number of Parent Shares
equal to the amount owed to the Buyer or the Parent, or by a combination of
the two methods. If the Indemnified Party is any of the Stockholders or if
the Indemnified Party is the Parent or the Buyer and the Closing has not
occurred, by payment from the Indemnifying Party through a wire transfer of
immediately available funds. If the Buyer or the Parent elect to be paid by
surrender of Parent Shares, the Stockholders shall surrender that number of
Parent Shares equal to the amount of the Losses to be paid when such Parent
Shares are valued at the average of the bid price for such Parent Shares for the
ten trading days immediately preceding the date on which such Final
Determination was made. All indemnification payments to an Indemnified Party
hereunder if the Closing does not occur shall be effected by payment of cash or
delivery of a cashier's check or by wire transfer of immediately available funds
to the Indemnified Party in the amount of the indemnification liability.
29
10.6. Survival of Representations; Claims for Indemnification. Unless otherwise
provided herein, all representations and warranties contained in this Agreement
shall survive until the second anniversary of the Closing Date, except for (i)
claims, if any, asserted in writing prior to such date and identified as a
claim for indemnification pursuant to this Section 10, which shall survive until
finally resolved and satisfied in full, (ii) claims based upon fraud,
intentional misrepresentation or a breach of Section 2, which shall survive
indefinitely, or (iii) claims based upon a breach of Sections 3.15, 3.20 or
3.26 which shall survive until the expiration of the applicable statute of
limitations.
10.7. Limitation on Indemnification Obligations. The Indemnified Party shall
not be entitled to recover from the Indemnifying Party under this Section 10 any
amounts unless and until the aggregate amount of all Losses by the Indemnified
Party under this Section 10 exceeds Cdn$20,000 (the "Threshold"). The parties
hereto agree that once the aggregate amount of all Losses by any Indemnified
Party exceeds the Threshold, such Indemnified Party shall be entitled to
indemnity for the amount of all claims made by the Indemnified Party.
11. Post-Closing Agreements
Each of the parties hereto agrees that from and after the Closing
Date:
11.1. Proprietary Information. The Stockholders shall hold in confidence all
knowledge and information of a secret or confidential nature with respect to the
terms of this Agreement or the business of the Companies and shall not disclose,
publish or make use of the same without the consent of the Buyer, except to the
extent that such information shall have become public knowledge other than by
breach of this Agreement by the Stockholders. The Stockholders each agree that
the remedy at law for any breach of this Section 11.1 would be inadequate and
that the Buyer shall be entitled to injunctive relief in addition to any other
remedy it may have upon breach of any provision of this Section 11.1.
11.2. Limitation on Use of Name. From and after the Closing Date, none of the
Stockholders nor any affiliate thereof shall use the names "Legacy", "Legacy
Doors and Windows", "Hart & Son", "True-Craft" or any derivation thereof in
connection with any business related to, competitive with, or an outgrowth of,
the business of the Companies, as such businesses are conducted on the date
hereof, or in any new venture to which any of the Stockholders, or any
affiliate thereof, is a party.
11.3. Non-Competition Agreement.
(a) For a period equal to the later of five (5) years after the
Closing Date or five (5) years after the termination of such Stockholder's
employment relationship with the Companies (after the Closing Date), none of
the Stockholders, nor any affiliated person or entity, shall, in the United
States and Canada, (i) manufacture, market, sell or otherwise distribute any
product or service in the log home, manufactured housing and related wood
products (including, without limitation, windows and doors) industries or (ii)
engage in any business competitive with the business of the Companies as of the
Closing Date.
(b) The parties hereto agree that the duration and geographic scope
of the non-competition provision set forth in this Section 11.3 are reasonable.
30
In the event that any court determines that the duration or geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one for each and
every county of each and every state of the United States of America and each
and every province and political subdivision of Canada. The Stockholders also
agree that damages are an inadequate remedy for any breach of this provision and
that the Buyer and the Parent shall, whether or not either of them is pursuing
any potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision.
(c) Notwithstanding anything herein to the contrary, if Gordon Hart
shall purchase one (1) log cabin from the Buyer pursuant to the terms of the
Product Agreement (as defined in Section 8.15 herein) in any calendar year, he
shall be entitled to resell such log cabin during the same twelve (12) month
period in which it was purchased from the Buyer without being in breach of the
provisions of this Section 11.3.
11.4. Cooperation of the Stockholders. Each of the Stockholders will cooperate
with the Buyer and the Parent in furnishing information or other assistance
reasonably requested in connection with any actions, proceedings, arrangements
or disputes involving the business of the Companies and based upon contracts,
arrangements, property rights, acts or omissions of the Companies which were in
effect or carried on prior to the Closing Date.
12. Termination of Agreement; Option to Proceed; Damages
12.1. Termination by Lapse of Time. This Agreement shall terminate at 5:00
p.m., Boston Time, on June 30, 2003 (the "Termination Date"), if the
transactions contemplated hereby have not been consummated, unless such date
is extended by the written consent of the Parent and the Stockholders'
Representative. Notwithstanding the foregoing, the Parent and the Buyer may,
without the consent of any other party hereto, extend the Termination Date to
August 31, 2003 in the event that the Parent and/or the Buyer have not
obtained (i) all approvals or consents to the transactions contemplated herein
from, or completed review by, the Securities and Exchange Commission or (ii)
the approval of the stockholders of the Parent to the transactions
contemplated herein by June 30, 2003.
12.2. Termination by Agreement of the Parties. This Agreement may be terminated
by the mutual written agreement of the Parent and the Stockholders'
Representative. In the event of such termination by agreement, the Buyer and
the Parent shall have no further obligation or liability to either of the
Companies or any of the Stockholders under this Agreement, and the Companies
and the Stockholders shall have no further obligation or liability to the Buyer
or the Parent under this Agreement.
12.3. Termination by Reason of Breach. This Agreement may be terminated by
either of the Companies or the Stockholders' Representative (on behalf of the
Stockholders) if at any time prior to the Closing there shall occur a material
breach of any of the representations, warranties or covenants of the Buyer or
the Parent or the failure by the Buyer or the Parent to perform any condition
31
or obligation hereunder, and may be terminated by the Buyer or the Parent if at
any time prior to the Closing there shall occur a material breach of any of the
representations, warranties or covenants of the Companies or the Stockholders
or the failure of the Companies or the Stockholders to perform any condition
or obligation hereunder.
12.4. Available Remedies; Liquidated Damages. In accordance with Section 1.3(a)
of this Agreement, the Parent and/or the Buyer has paid, as a good faith
deposit, Canadian One Hundred Thousand Dollars (Cdn$100,000) to the Escrow Agent
(the "Deposit"). The Deposit is to be fully credited towards the Cash Payment
at the Closing. Additionally, the Parent has made or will make Advances (as
defined in Section 1.3(d)) to the Sellers. In the event the Closing does not
occur as a result of a breach of this Agreement by the Parent or the Buyer or
the failure of the Parent to obtain the approval of its stockholders to the
transactions contemplated herein by the Termination Date (as so extended), the
Sellers shall be entitled to an amount equal to the Deposit as liquidated
damages, but shall be obligated to return the Advances to the Parent as set
forth in Section 1.3(d), and the Sellers and the Companies shall not have
available to them any other remedies afforded to them by applicable law or in
equity, including, without limitation, claims for losses or damages pursuant
to Section 10 and claims for specific performance and other equitable remedies.
In the event that the Closing does not occur for any other reason, including,
without limitation, the termination of this Agreement by the Parent or the Buyer
as a result of a material adverse change in the business or operations of the
Companies (or any of them), a failure to satisfy all of the closing conditions
set forth in Section 8, a failure to enter into satisfactory Employment
Agreements pursuant to Section 8.13 or a failure to obtain any required
approvals or consents from the Securities and Exchange Commission, the Sellers
shall pay to the Parent all Advances previously paid to the Sellers pursuant to
Section 1.3(d) and shall direct the Escrow Agent to return the Deposit to the
Parent and each of the parties shall have available to them all remedies
afforded to them by applicable law or in equity, including, without limitation,
claims for losses or damages pursuant to Section 10 and claims for specific
performance and other equitable remedies.
12.5. Escrow Agent. Epstein Becker & Green, P.C. shall serve as escrow agent to
hold the Deposit in a non-interest bearing account (the "Escrow Agent"). Upon
written notice signed by the Parent and the Stockholders' Representative, the
Escrow Agent shall pay the Deposit as directed in such notice; provided,
however, that the Parent and the Sellers hereby agree that written notification
from the Parent only shall be required to release the Deposit to the
Stockholders' Representative on behalf of the Sellers in connection with the
Closing pursuant to Section 1.3(a). The Escrow Agent shall have no duties or
responsibilities except for those set forth herein which the parties agree are
ministerial in nature. Except for willful misconduct or gross negligence: (a)
the Escrow Agent shall have no liability of any kind whatsoever for the
performance of any duties imposed upon such Escrow Agent under this Agreement or
for any action or failure to act by such Escrow Agent hereunder; (b) the Escrow
Agent shall not be responsible for the acts or omissions of any other parties
hereto; (c) the Escrow Agent shall not be liable to anyone for damages, losses
or expenses arising out of this Escrow Agreement; and (d) the Escrow Agent may
rely and/or act upon any instrument or document believed by the Escrow Agent in
good faith to be genuine and to be executed and delivered by the proper person
or party, and may assume in good faith the authenticity, validity and
effectiveness thereof and shall not be obligated to make any investigation or
determination as to the truth and accuracy of any information contained therein.
In the event of any dispute among the parties, the Parent and the Buyer, on the
one hand, and Stockholders' Representative on behalf of the Sellers, on the
other hand, shall pay equally the attorneys' fees and other costs incurred by
the Escrow Agent in respect thereof. It is understood and agreed by the
32
parties that Epstein Becker & Green, P.C. may continue to represent the Parent
and/or the Buyer in any and all matters, which representation may include
matters pertaining to this Agreement and the agreements contemplated herein
(including any litigation or arbitration stemming therefrom). The Escrow Agent
shall have no duties except those which are expressly set forth herein, and it
shall not be bound by any notice of a claim, or demand with respect thereto, or
any waiver, modification, amendment, termination or rescission of this
Agreement, unless received by it in writing.
13. Dispute Resolution
13.1. General. In the event that any dispute should arise between the parties
hereto with respect to any matter covered by this Agreement or any agreement,
document, certificate or instrument relating thereto, including, without
limitation, the occurrence of a pre-Closing Breach, the parties hereto shall
resolve such dispute in accordance with the procedures set forth in this
Section 13.
13.2. Consent of the Parties. In the event of any dispute between the parties
with respect to any matter covered by this Agreement, the parties shall first
use their best efforts to resolve such dispute among themselves. If the parties
are unable to resolve the dispute within thirty (30) calendar days after the
commencement of efforts to resolve the dispute, the dispute will be submitted
to arbitration in accordance with this Section 13.
13.3. Arbitration.
(a) Either the Buyer or the Parent (or the Companies, if
after the Closing), on the one hand, or the Stockholders' Representative on
behalf of the Stockholders (or the Companies, if prior to the Closing), on the
other hand, shall submit any matter referred to in Section 13.2 hereof to
arbitration by notifying the other parties hereto, in writing, of such dispute.
Within ten (10) days after receipt of such notice, the Buyer or the Parent, as
applicable, and the Stockholders' Representative shall designate in writing one
arbitrator to resolve the dispute; provided, that if the parties hereto cannot
agree on an arbitrator within such 10-day period, the arbitrator shall be
selected by the American Arbitration Association's New York City office. The
arbitrator so designated shall not be an employee, consultant, officer,
director or stockholder of any party hereto or any Affiliate of any party to
this Agreement.
(b) Within fifteen (15) days after the designation of the
arbitrator, the arbitrator, the Buyer or the Parent, as applicable, and the
Stockholders' Representative shall meet, at which time the Buyer or the Parent,
as applicable, and the Stockholders' Representative shall be required to set
forth in writing all disputed issues and a proposed ruling on each such issue.
(c) The arbitrator shall set a date for a hearing, which
shall be no later than thirty (30) days after the submission of written
proposals pursuant to paragraph (b) above, to discuss each of the issues
identified by the parties. Each such party shall have the right to be
represented by counsel. The arbitration shall be governed by the rules of the
American Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence.
(d) The arbitrator shall use his best efforts to rule on
each disputed issue within thirty (30) days after the completion of the hearings
33
described in paragraph (c) above. The determination of the arbitrator as to the
resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be
delivered to the parties hereto.
(e) Any arbitration pursuant to this Section 13 shall be
conducted in either Vancouver, British Columbia or New York City, New York. Any
arbitration award may be entered in and enforced by any court having
jurisdiction thereover and the parties hereby consent and submit themselves to
the exclusive jurisdiction and venue of the federal, state and provincial courts
located in the State of New York or the Province of British Columbia for
purposes of the enforcement of any arbitration award.
(f) Notwithstanding the foregoing, any party may seek
equitable relief in the nature of a preliminary injunction or temporary
restraining order only by filing for such relief with any court located in the
State of New York or the Province of British Columbia; provided, however, that
upon the resolution of such claim for equitable relief the parties acknowledge
and agree that the underlying dispute shall be resolved pursuant to the
arbitration provisions of this Section 13.
14. Brokers
14.1. For the Companies and the Stockholders. The Companies and the
Stockholders, jointly and severally, agree to indemnify and hold harmless the
Buyer and the Parent against any claims or liabilities asserted against it or
them by any person acting or claiming to act as a broker or finder on behalf of
the Companies or the Stockholders.
14.2. For the Buyer and the Parent. The Buyer and the Parent, jointly and
severally, agree to indemnify and hold harmless the Companies and the
Stockholders against any claims or liabilities asserted against it by any person
acting or claiming to act as a broker or finder on behalf of the Buyer or the
Parent.
15. Notices
Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally, by telecopy, or
sent by federal express, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may have
given notice:
To the Buyer
or the Parent: Lincoln Logs, Ltd.
5 Riverside Drive
P.O. Box 135
Chestertown, NY 12817
Attention: John D. Shepherd
Fax: (518) 494-7495
34
With a copy to: Gabor Garai, Esq.
Epstein Becker & Green, P.C.
111 Huntington Avenue
Boston, MA 02199
Fax: (617) 342-4001
To either of
the Companies
(if prior to the Closing)
or any Stockholder: Gordon Hart
27655 128th Avenue
Maple Ridge, BC
Canada V2W 1N5
Fax: (604) 462-7805
Joe Mellof
11192 286th Street
Maple Ridge, BC
Canada V2W 1L7
With a copy
in each instance to:
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date actually delivered, if delivered personally, by
overnight courier or by telecopy or (b) three business days after being sent, if
sent by registered or certified mail.
16. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Parent, on the one hand, and the Companies and the Stockholders,
on the other hand, may not assign their respective obligations hereunder without
the prior written consent of the other party. Any assignment in contravention
of this provision shall be void. No assignment shall release the Buyer, the
Parent, the Companies or the Stockholders from any obligation or liability under
this Agreement.
35
17. Entire Agreement; Amendments; Attachments
The exhibits and schedules attached hereto or to be attached
hereafter are hereby incorporated as integral parts of this Agreement. This
Agreement, all schedules and exhibits hereto, and all agreements and instruments
to be delivered by the parties pursuant hereto represent the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The parties hereto may amend or modify this Agreement by a written
instrument executed by the Buyer, the Parent, each of the Companies and the
Stockholders' Representative (on behalf of the Stockholders).
18. Severability
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
19. Expenses
Except as otherwise expressly provided herein, the Buyer and the
Parent will pay all fees and expenses incurred by them in connection with the
transactions contemplated hereunder and the Stockholders will pay all fees and
expenses incurred by each of them and each of the Companies in connection with
the transactions contemplated hereunder.
20. Legal Fees
In the event that legal or arbitration proceedings are commenced by
the Buyer, the Parent or the Companies (after the Closing) against any of the
Stockholders, or by any of the Stockholders against the Buyer, the Parent or the
Companies (after the Closing), in connection with this Agreement or the
transactions contemplated hereby, the party or parties which do not prevail in
such proceedings shall pay the reasonable attorneys' fees and other costs and
expenses, including investigation costs, incurred by the prevailing party in
such proceedings.
21. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its conflict of laws
principles.
22. Section Headings
The section headings are for the convenience of the parties and in
no way alter, modify, amend, limit, or restrict the contractual obligations of
the parties.
23. Counterparts
36
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
37
IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly executed
by the parties hereto as of and on the date first above written.
LINCOLN LOGS, LTD.
By: _____________________________
John D. Shepherd, President
666764 B.C. LTD.:
By: _____________________________
John D. Shepherd, President
TRUE-CRAFT LOG STRUCTURES, LTD.
By:
Name:
Title:
HART & SON INDUSTRIES, LTD.
By:
Name:
Title:
_____________________________
Robert Gordon Hart
_____________________________
Judith Anne Hart
_____________________________
Matthew Joseph Mellof
_____________________________
Shelley L. Mellof
38
SCHEDULE I
Name Company Type of Stock No. of Shares
Robert Gordon Hart True-Craft Common 3,750
Hart & Son Common 40
Judith Anne Hart True-Craft Common 3,750
Hart & Son Common 11
Matthew Joseph Mellof Hart & Son Common 25
Shelley L. Mellof Hart & Son Common 25
felder\40402.0\stockpurch.agt
39
Exhibit 99.1
PRESS RELEASE