SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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) March 21, 2000
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GATEWAY INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-13803 33-0637631
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
150 East 52nd Street, New York, New York 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (877) 431-2942
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(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
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On March 21, 2000, Gateway Industries, Inc. ("Gateway") completed the
purchase of all of the outstanding common stock of Oaktree Systems, Inc.
("Oaktree"). The purchase was consummated pursuant to a Stock Purchase Agreement
by and among Gateway, Oaktree, Frank C. Mackay, Jr., Thomas Tomaszewski and
Edward W. Testa, Jr. (Messrs. Mackay, Tomaszewski and Testa are hereinafter
referred to collectively as the "Sellers"). The aggregate purchase price paid by
Gateway to the Sellers at the closing consisted of $2,000,000 and 600,000 shares
of Gateway common stock. The Sellers were also granted options to purchase an
aggregate of 200,000 shares of Gateway common stock at an exercise price of
$4.00 per share. The cash portion of the purchase price was funded through cash
on hand. The purchase price was determined based upon negotiations between
Gateway management and the Sellers. In connection with the transaction, Gateway
entered into one-year employment agreements with each of the Sellers.
Oaktree is in the business of database development, consolidation and
management services, and Web site design and maintenance services.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
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(a) Financial Statements of Businesses Acquired.
It is impracticable to provide the required financial statements at
this time. The required financial statements will be filed either as an
amendment to this Form 8-K or as an exhibit to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 as soon as they become
available, but in any event, not later than 60 days after the date that this
Report on Form 8-K must be filed.
(b) Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial
information at this time. The required pro forma financial information will be
filed either as an amendment to this Form 8-K or as an exhibit to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 as soon
as it becomes available, but in any event, not later than 60 days after the date
that this Report on Form 8-K must be filed.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of March 21, 2000 among
Gateway Industries, Inc., Oaktree Systems, Inc., Frank C.
Mackay, Jr., Thomas Tomaszewski, and Edward W. Testa, Jr.
*27.1 Financial Data Schedule.
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*99.1 Financial Statements of Oaktree Systems, Inc.
*99.2 Pro forma financial information with respect to the
Registrant's acquisition of Oaktree Systems, Inc.
99.3 Press Release, dated March 22, 2000.
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* To be filed by amendment or with Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
GATEWAY INDUSTRIES, INC.
Dated: March 30, 2000 By: /s/ Jack L. Howard
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Jack L. Howard, Acting President
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STOCK PURCHASE AGREEMENT
By and Among
Oaktree Systems, Inc.,
Gateway Industries, Inc.,
Frank C. Mackay, Jr.,
Thomas Tomaszewski
and
Edward W. Testa, Jr.
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Dated March 21, 2000
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated March 21,
2000 by and among Oaktree Systems, Inc., a New York corporation (the "Company"),
Gateway Industries, Inc., a Delaware corporation ("Gateway") and Frank C.
Mackay, Jr. ("SH1"), Thomas Tomaszewski ("SH2") and Edward W. Testa, Jr. ("SH3"
and, together with SH1 and SH2, the "Shareholders").
W I T N E S S E T H
WHEREAS, the Company is a New York corporation having an
authorized capital of 2,000 shares of common stock, no par value (the "Shares"),
of which, as of the date hereof, 1,406 shares are issued and outstanding and all
of which are owned of record and beneficially by the Shareholders;
WHEREAS, the Shareholders desire to sell and Gateway desires
to purchase all of the issued and outstanding shares of the Company on the
Closing Date (as defined below);
WHEREAS, Gateway, the Company and the Shareholders desire to
make certain representations, warranties and agreements in connection with the
purchase and sale of the Shares and to prescribe various conditions to the
purchase and sale of the Shares;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto intending to be legally bound, hereby agree as follows:
ARTICLE I
SALE OF SHARES
Section 1.1 Delivery of Shares. On the terms and subject to
the conditions set forth in this Agreement, on the Closing Date, the
Shareholders will transfer, assign, convey and deliver to Gateway certificates
representing the Shares against receipt of the portion of the Purchase
Consideration (as defined below) payable on the Closing Date. Each of the
certificates shall be duly endorsed for transfer or accompanied by appropriate
stock powers duly executed, in either case in favor of Gateway, and each
certificate shall have all necessary stock transfer tax stamps affixed thereto
at the Shareholders' expense.
Section 1.2 Purchase Consideration. The aggregate
consideration to be paid for the Shares and the covenant not to compete set
forth in Section 12.1 (the "Purchase Price") shall consist of the following:
(i) Cash of $2,000,000.00 referred to in Section 1.3
herein; and
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(ii) 600,000 shares of Gateway common stock, $.001
par value ("Gateway Common Stock");
(iii) An additional cash payment to be paid no later
than March 31, 2000 to the Shareholders not to exceed forty percent (40%) of the
Company's taxable income other than income arising from the 338(h)(10) Election
(as defined below), which cash payment shall not exceed the aggregate income tax
obligations of the Shareholders in respect of the Company for the 1999 tax year
and the tax year beginning on January 1, 2000 and ending on the Closing, reduced
by any previous distributions for taxes made by the Company with respect to such
taxable periods; and
(iv) Options (subject to the approval by Gateway's
stockholders of an increase in the number of shares authorized under Gateway's
stock option plan) to purchase an aggregate of 200,000 shares of Common Stock at
an exercise price of $4.00 per share (the "Gateway Options").
Section 1.3 Closing Transactions. At the Closing (as defined
in Section 2.1 hereof), in payment for the Shares, Gateway shall deliver to the
Shareholders an aggregate of Two Million Dollars ($2,000,000), stock
certificates for an aggregate of 600,000 shares of Gateway Common Stock and
Option Agreements in respect of the Gateway Options, in partial consideration
for the purchase of the Shares. The cash portion of the Purchase Consideration
shall be remitted to the Shareholders by wire transfer of immediately available
funds or paid by certified check in accordance with their written instructions
delivered to Gateway prior to the Closing. Gateway shall deliver the Gateway
Common Stock to each of the Shareholders or their designated representative(s)
on the Closing Date, in each case in the respective amounts indicated below
opposite their names:
Shareholder Purchase Consideration
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(Cash) (Gateway Common Stock) (Gateway Options)
SH1 $1,352,800 405,840 shares 135,280 shares
SH2 $ 451,000 135,300 shares 45,100 shares
SH3 $ 196,200 58,860 shares 19,620 shares
For purposes of this Agreement, the parties agree that the
shares of Gateway Common Stock issued pursuant to this Agreement are valued at
$1.33 per share.
Section 1.4 Transfer Taxes. The Shareholders shall pay all
stock transfer taxes, recording fees and other sales, use, purchase or similar
taxes that may result from the sale of the Shares pursuant to this Agreement.
Section 1.5 Code Section 338(h)(10) Election. The Shareholders
(on behalf of themselves and the Company) agree to make the election provided in
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code")
and Treasury Regulations promulgated thereunder and any comparable election
provided by the laws of any State in which the Shareholders and/or the Company
do business or are otherwise required to file Tax Returns (the "338(h)(10)
Election"). The Company and the Shareholders shall execute and furnish at
Closing all necessary
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and appropriate Internal Revenue Service forms (and any forms required by State
taxing authorities, if any), including, but not limited to, Form 8023 or any
successor thereto, which forms shall, if required, be executed on or prior to
Closing by Gateway. Such forms shall be prepared and completed in accordance
with the allocation schedule (the "Allocation Schedule") set forth as Exhibit B
hereto, which Allocation Schedule shall be mutually agreed upon by Gateway, the
Company and the Shareholders at or prior to the Closing Date. Gateway, the
Company and the Shareholders agree to file such forms in a timely manner and
shall prepare their respective Tax Returns consistent with the 338(h)(10)
Election and the Allocation Schedule.
ARTICLE II
CLOSING
Section 2.1 Closing Date The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place simultaneously upon
execution of this Agreement and shall take place at the offices of Olshan
Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York
10022, or at such other time and place as Gateway and the Shareholders shall
agree (the date on which such closing occurs being herein referred to as the
"Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders for good and valuable
consideration, the receipt of which is hereby acknowledged, hereby, jointly and
severally, represent and warrant to Gateway as of the date hereof as follows:
Section 3.1 Corporate Organization; Requisite Authority to
Conduct Business; Certificate of Incorporation and By-Laws. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. The Company has provided Gateway with true and
complete copies of its Articles of Incorporation (certified by the Secretary of
State of New York) and By-laws (certified by its Secretary) as in effect on the
date hereof. Prior to the Closing, the minute books of the Company will be
delivered to Gateway, which minute books shall be accurate and complete in all
material respects. The Company has all corporate power and authority to own,
operate and lease its properties and to carry on its business as the same is now
being conducted. The Company is duly qualified or licensed to do business as a
foreign corporation in each foreign jurisdiction listed in Schedule 3.1, which
constitute all of the foreign jurisdictions in which the conduct its business or
the ownership or leasing of its properties require it to be so qualified or
licensed.
Section 3.2 Capitalization and Shareholdings. The authorized
capital stock of the Company consists of 2,000 shares of common stock, no par
value, of which 1,406 shares are issued
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and outstanding. The Shareholders own all of the Shares free and clear of all
liens, claims or encumbrances of any nature, in the respective amounts set forth
on Schedule 3.2. Each of the Shareholders has full right, power, legal capacity
and authority to transfer and deliver the Shares pursuant to this Agreement. The
Shares have been duly authorized and duly and validly issued and are fully paid
and non-assessable and free of preemptive rights. There are no subscriptions,
options, warrants, calls, rights, contracts, commitments, agreements,
understandings or arrangements to sell or issue any capital stock of the
Company, including any right of conversion or exchange under any outstanding
security or other instrument, and no shares are reserved for issuance for any
purpose.
Section 3.3 Subsidiaries, etc. The Company does not own
(directly or indirectly) any equity interest in any corporation, partnership,
limited liability company, joint venture, affiliate, association or other
entity.
Section 3.4 Authority Relative to and Validity of this
Agreement. The Company and the Shareholders have all requisite power, corporate
or otherwise, and authority to enter into this Agreement, to perform all of its
and their obligations hereunder and to consummate the transactions contemplated
hereby without the approval of any third party. All necessary action including,
without limitation, obtaining the approval of the Board of Directors of the
Company and the Shareholders, has been taken by the Company and the Shareholders
with respect to the execution, delivery and performance by the Company and the
Shareholders of this Agreement and the consummation of the transactions
contemplated hereby and no further authorization will be necessary to authorize
the execution and delivery by them hereof, and the performance of their
respective obligations hereunder. There are no corporate, contractual, statutory
or other restrictions of any kind upon the power and authority of the Company or
the Shareholders to execute and deliver this Agreement and to consummate the
transactions contemplated hereunder and no action, waiver or consent by any
Federal, state, municipal or other governmental department, commission or agency
("Governmental Authority") is necessary to make this Agreement a valid
instrument binding upon the Company and the Shareholders in accordance with its
terms. This Agreement has been duly executed and delivered by the Company and
the Shareholders and constitutes the legal, valid and binding obligations of the
Company and the Shareholders, enforceable against each such party in accordance
with its terms, except (i) as such enforceability may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, (ii) as such obligations are subject to
general principles of equity and (iii) as rights to indemnity may be limited by
Federal or state securities laws or by public policy.
Section 3.5 Required Filings and Consents; No Conflict.
Neither the Company nor any of the Shareholders is required to submit any
notice, report or other filing with any Governmental Authority in connection
with the execution, delivery or performance of this Agreement. Except as set
forth on Schedule 3.5, the execution, delivery and performance of this Agreement
by the Company and the Shareholders and the consummation of the transactions
contemplated hereby do not and will not (a) conflict with or violate any law,
regulation, judgment, order or decree binding upon the Company or Shareholders,
(b) conflict with or violate any provision of the Articles of Incorporation or
By-laws of the Company or (c) conflict with or result in a breach of any
condition or provision of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company, pursuant to, or cause or permit
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the acceleration prior to maturity of any amounts owing under, any indenture,
loan agreement, mortgage, deed of trust, lease, contract, license, franchise or
other agreement or instrument to which the Company is a party or which is or
purports to be binding upon the Company, or by which any of its properties are
bound. Except as set forth or Schedule 3.5, The execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation of the transactions contemplated hereby will not result in the loss
of any license, franchise, legal privilege or permit possessed by the Company or
give a right of termination to any party to any agreement or other instrument to
which the Company is a party or by which any of its properties are bound.
Section 3.6 Financial Statements. The audited balance sheets
of the Company as of December 31, 1998 and 1999 and the related statements of
operations, cash flow and changes in shareholder's equity for the twelve-month
period ended December 31, 1998 and 1999, together with the notes thereto, and
the unaudited balance sheet of the Company as of February 29, 2000 and the
related income statement and statement of cash flow for the two-month period
ended February 29, 2000, respectively (collectively, the "Financial
Statements"), which are attached hereto as Exhibits A-1 & A-2, respectively,
have been prepared from and are in accordance with the books and records of the
Company and are in conformity with GAAP consistently applied, except that the
unaudited balance sheet of the Company as of February 29, 2000 and the related
income statement and statement of cash flow for the two-month period ended
February 29, 1999 do not include notes and normal year-end adjustments customary
of audited financial statements. The Financial Statements fairly present the
financial condition of the Company as at the date stated and the results of
operations of the Company for the period then ended and all information
submitted to Gateway by the Company in connection with the Financial Statements
was true and correct as of the date or dates submitted and as of the date
hereof.
Section 3.7 Liabilities. Except as set forth on Schedule 3.7,
the Company has no liability, debt or obligation of any nature (whether
liquidated, unliquidated, direct, accrued, absolute, contingent or otherwise and
whether due or to become due) other than:
(a) those set forth or reflected in the Financial Statements
that have not been paid or discharged since the date thereof;
(b) those arising under agreements or other commitments
expressly identified in any Schedule hereto including, but not limited to, real
property leases, personal property leases and material contracts; and
(c) current liabilities arising in the ordinary and usual
course of the business of the Company subsequent to February 29, 2000 that are
either (A) identified on Schedule 3.7 or (B) are accurately reflected on its
books and records in a manner consistent with past practice and do not
individually or in the aggregate exceed $5,000.
Section 3.8 Absence of Certain Changes and Events. Since
December 31, 1998, there has not been, with respect to the Company, (i) any
damage, destruction or loss (whether or not covered by insurance) with respect
to any assets or properties; (ii) any entry into any commitment or transaction
(including, without limitation, any borrowing or capital expenditure) other than
commitments and/or transactions (A) described in Schedule 3.8, (B) entered into
in the ordinary
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course of business in an amount not to exceed $10,000 in the aggregate or (C) as
contemplated by this Agreement; (iii) any transfer, assignment or sale of, or
rights granted under, any material leases, licenses, agreements, patents,
trademarks, trade names, copyrights or other assets other than those
transferred, assigned, sold or granted in the ordinary course of business and
consistent with past practice; (iv) any mortgage, pledge, security interest or
imposition of any other encumbrance on any assets or properties except in the
ordinary course of business; any payment of any liabilities of any kind other
than liabilities currently due; any cancellation of any debts or claims or
forgiveness of amounts owed to the Company; (v) any change in accounting
principles or methods (except insofar as may have been required by a change in
GAAP); (vi) to the best knowledge of the Company and the Shareholders, any
change in any New York state or local law, rule or regulation applicable to or
binding upon the business of the Company; (viii) any dividend or distribution to
the Shareholders other than as disclosed in Schedule 3.8; or (ix) any increase
in the compensation payable to any Shareholder or any executive employee of the
Company other than as disclosed in Schedule 3.8. Since December 31, 1998, the
Company has conducted its business only in the ordinary course and in a manner
consistent with past practice and has not made any material change in the
conduct of its business or operations, other than as disclosed in Schedule 3.8.
Section 3.9 Taxes and Tax Returns. (a) The Company and any
affiliated, consolidated, combined, unitary or similar group of which it is or
has been a member have filed or caused to be filed in a timely manner all
returns, declarations, reports, estimates, information returns and statements
with respect to Taxes ("Tax Returns") required to be filed under any United
States federal, state or local or any foreign law pertaining to Taxes and such
Tax Returns are in all respects true, complete and correct. The Company has
paid, within the time and in the manner prescribed by law, all Taxes required to
be shown on such Tax Returns. No claim has ever been made by an authority in a
jurisdiction where either of the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. "Tax" or "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, value
added, ad valorem, transfer, franchise, profits, alternative (or add-on)
minimum, license, withholding, employment, environmental, payroll, disability,
excise, estimated, severance, stamp, occupation, property or other taxes,
customs duties, fees, assessments or charges of any kind whatsoever, whether
computed on a consolidated, unitary, combined, separate or any other basis,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority.
(b) The Company has paid or accrued on its books and records
amounts that are adequate for the payment of all Taxes, whether or not required
to be shown on any Tax Return, not yet due and payable, including Taxes for any
period that ends on or before the Closing Date and for any period that begins
before the Closing Date and ends after the Closing Date to the extent such Taxes
are attributable to the portion of any such period ending on the Closing Date.
(c) The Company has complied in all respects with all
applicable laws, rules and regulations to the payment and withholding of Taxes
and has, within the time and in the manner prescribed by law, withheld from
employees and any other third parties and paid over to the proper governmental
authorities, all amounts required to be so withheld and paid under all
applicable laws.
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(d) There are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns that have been given by the Company and the Company is not
the beneficiary of any extension to file any Tax Return.
(e) No Federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company and no deficiencies for any
Taxes have been asserted or assessed against the Company that have not been
resolved or paid in full. There are no tax liens or similar encumbrances with
respect to any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax. No material issue is currently
being asserted by the Internal Revenue Service (the "IRS") or other relevant
taxing authority in any audit or examination of the Tax Returns of the Company.
The Company has not filed with respect to any item a disclosure statement
pursuant to Section 6662 of the Code, or any comparable disclosure with respect
to Federal, state and/or local tax statutes.
(f) No currently effective power of attorney has been granted
by the Company with respect to any matter relating to Taxes which is currently
in force.
(g) The Company has not at any time been included in a
consolidated, affiliated, combined, unitary or similar Tax Return nor was any
such inclusion required or has any liability on Taxes of any other person as a
transferee, successor, by contract or otherwise.
(h) The Company is an S corporation as defined in Section
1361(a)(1) of the Code and has qualified as an S corporation for each and every
taxable year since inception in each tax jurisdiction in which it is subject to
income taxation and will continue to be an S corporation in all such
jurisdictions up to the Closing.
Section 3.10 Employee Benefit Plans; Employees. (a) Schedule
3.10 contains a list of all plans, agreements or arrangements of any kind
relating to deferred compensation, pension, profit sharing, money purchase or
other retirement benefits, stock purchase, stock grant, stock option, stock
appreciation rights, and other equity-based compensation or benefits, salary,
bonus, commission, incentive, severance, parachute or change in control payments
or benefits, health and welfare benefits, life, disability or other insurance
benefits, layoff or unemployment benefits, or any other employee benefits or
fringe benefits maintained or contributed to by the Company, or under which the
Company has any liabilities or obligations including, but not limited to, any
employee benefit plan within the meaning of Section 3(3) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively
referred to as the "Plans"). For purposes of this Section 3.10, references to
the Company include any entity affiliated with the Company under Sections
414(b), (c) and (m) of the Code or Section 4001(b) of ERISA (excluding any
foreign affiliate of the Company). The Company is not required to contribute to,
and has no liability under or with respect to, any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA. The Company has previously delivered to
Gateway true and complete copies of (i) each written Plan, including all
amendments to date, (ii) the most recent Form 5500 and schedules thereto for
each Plan required to file the same, (iii) where applicable, trust or other
funding agreements or policies under each Plan, (iv) where applicable,
investment management or other service agreements in respect of each Plan, (v)
where applicable, the most recent actuarial reports and financial statements
relating
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to each Plan, (iv) where applicable, the most recent determination letter from
the Internal Revenue Service regarding each Plan intended to be qualified under
Section 401(a) of the Code, (vii) summary plan descriptions and any other
material employee communications with respect to each Plan and (viii) all
employment or personal handbooks, policies or manuals.
(b) All material obligations of the Company existing on or
prior to the date hereof, whether arising by operation of law, by contract or by
past custom, for payments to trusts or other funds or to any governmental agency
or to or in respect of any Plan have been paid, or adequate accruals for such
payments have been made by the Company on its books of account.
(c) Each Plan has been administered and operated in all
material respects in accordance with its terms and applicable law. Each Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code is
so qualified and each related trust is exempt from tax under Section 501(a) of
the Code. None of the Plans, nor any trust created thereunder, has engaged in
any non-exempt material "prohibited transaction" as such term is defined in
Section 4975 of the Code and Section 406 of ERISA.
(d) Each of the Plans is, and in administering each of the
Plans, the Company is, in material compliance with all applicable laws
including, without limitation, ERISA and the Code. The Company has not incurred
any liability under Title IV of ERISA, Section 412 of the Code or Section 302 of
ERISA, with respect to any employee benefit plan subject to any of those
provisions, and there exists no facts, conditions or circumstances which would
make it reasonable to anticipate that the Company will incur any such liability.
(e) The projected benefit obligation, within the meaning of
Statement of Financial Accounting Standards No. 87 of the Financial Accounting
Standards Board, under each Plan which is subject to Title IV of ERISA,
determined on the basis of actuarial assumptions ordinarily used under such Plan
as of the most recent actuarial valuation date for such Plan and as of December
31, 1998, does not exceed the current value of all of the assets of such Plan.
(f) All reports relating to the Plans required to be filed
with or furnished to any governmental body, agency or court, Plan participants
or beneficiaries prior to the date hereof have been timely filed or furnished in
accordance with applicable law.
(g) The Company has not (i) experienced any reportable event
within the meaning of ERISA or other event or condition which presents a
material risk of the termination of any pension Plan by the Pension Benefit
Guaranty Corporation ("PBGC"); (ii) had any tax imposed on it by the IRS for any
violation under Section 4975 of the Code; and (iii) engaged in any transaction
which could reasonably be expected to subject any of them or any Plan to any
liability for any tax under Section 4975 of the Code.
(h) There is no matter involving any Plan maintained or
established for employees of the Company which is pending before the IRS, the
Department of Labor or any other governmental agency or court.
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(i) As to any Plan subject to Title IV of ERISA, (i) there has
been no reportable event within the meaning of Section 4043 of ERISA; (ii) no
notice of intent to terminate the Plan has been given under Section 4041 of
ERISA; (iii) no proceeding has been instituted under Section 4042 of ERISA to
terminate any Plan; (iv) no liability to the PBGC has been incurred (other than
PBGC insurance premiums); and (v) as to any Plan intended to be qualified under
Section 401 of the Code, to the best of the Company's and the Shareholders'
knowledge, there has been no termination or partial termination of any such Plan
within the meaning of Section 411(d)(3) of the Code.
(j) Each Plan which is a "welfare plan" (as defined in Section
(3)(1) of ERISA) is either (i) unfunded or (ii) funded through insurance
contracts.
(k) The Company does not provide medical or life insurance
benefits to or in respect of employees beyond the date of retirement or other
termination of employment, other than as required under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or other applicable law, nor does
it have any current or projected liability for any unfunded post-retirement
medical or life insurance benefits in respect of any employee or former
employee.
(l) No Plan (including any agreement with any employee or
former employee) provides for benefits by reason of severance or change in
control. Other than as provided under this Agreement, the consummation of the
transactions contemplated under this Agreement and as contemplated hereby will
not cause the payment, acceleration, vesting or funding of any compensation,
benefit or other entitlement with respect to any employee of the Company under
any Plan.
(m) No employer securities, employer real property or other
employer property is included in the assets of any Plan.
(n) The Company is not party to any written or oral deferred
or incentive compensation, employment, severance, consulting or other similar
contract, arrangement or policy or labor contracts or collective bargaining
agreements relating to its employees.
(o) Schedule 3.10 also sets forth the salary or wage and bonus
arrangements for each current employee of the Company as of the date hereof and
for the last two calendar years, and all accrued vacation time for each current
employee.
(p) Set forth on Schedule 3.10(p) is the name, title and job
description of each current employee of the Company who has signed a proprietary
and non-disclosure agreement which provides among others, that the Company owns
any work related output produced by such employee in the course of his
employment, that such employee shall not disclose any work related information
to non-employees of the Company during and after his employment with the
Company, and that such employee shall return all work related documents and
materials in his possession immediately prior to the termination of his
employment; provided, however, such information may be disclosed if made public
by the Company or as required by law.
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(q) There are no pending, or to the best knowledge of the
Company and the Shareholders, threatened actions, suits or claims by former or
present employees (or their beneficiaries) of the Company.
Section 3.11 Title to Property. (a) On the Closing Date, the
Company has and will have good and marketable title, or valid leasehold rights
(in the case of leased property), to all personal property, including any and
all motor vehicles, purported to be owned or leased by them or used in the
operation of their businesses (the "Property"), free and clear of all liens,
claims and encumbrances of any nature, except as set forth on Schedule 3.11(a).
The Company does not own any real property. On the Closing Date, the Company
will have good and marketable title, or valid leasehold rights (in the case of
leased Property) to all personal property set forth on Schedule 3.11(a), free
and clear of all liens, claims and encumbrances of any nature. Schedule 3.11(a)
sets forth a complete and accurate list of (i) all motor vehicles owned or
leased by the Company, (ii) all personal property owned by the Company and used
in connection with the business of the Company, including without limitation,
all inventory, machinery, equipment, tooling, parts, furniture, supplies, office
equipment with a value in excess of $5,000, (iii) all leases of equipment or
other personal property used in the conduct of the business of the Company and
(iv) all other owned or leased property with an individual value in excess of
$5,000. All equipment and other property used in the conduct of the business of
the Company are owned by the Company, are held free and clear of all mortgages,
pledges, liens, security interests, claims, encumbrances and restrictions of any
nature whatsoever, except those obligations which will be paid at Closing and
any liabilities identified on Schedule 3.11(a) as "Permitted Liabilities."
Except as set forth in Schedule 3.11(a), no financing statement under the
Uniform Commercial Code or similar law naming the Company as debtor has been
filed in any jurisdiction in respect of the Property, and neither the Company
nor any of the Shareholders is a party to or bound under any agreement or legal
obligation authorizing any party to file any such financing statement, except
those financing statements that will be terminated at Closing.
(b) Schedule 3.11(b) sets forth each lease of real estate
property to which the Company is a party and the commencement date, termination
date, renewal options, if any, and annual base rents relating thereto. Except as
disclosed, no real property is leased or used by the Company. Each lease
identified in Schedule 3.11(b) is valid and enforceable in accordance with its
terms in all material respects and is in full force and effect. No consent or
approval of any landlord or other third party in connection with any such lease
is necessary for the Company or the Shareholders to enter into and execute this
Agreement and consummate the transactions contemplated hereby. To the best
knowledge of each Shareholders, no other party to any lease is in default of its
obligations thereunder, and the Company (or any other party to any such lease)
has not at any time delivered or received any notice of default which remains
uncured under any such lease and no event has occurred which, with the giving of
notice or the passage of time, or both, would constitute a default under any
such lease. The Company has furnished or made available to Gateway, copies of
all engineering, geologic and environmental reports prepared by or for the
Company, if any, with respect to the real property leased or used by the
Company.
Section 3.12 Trademarks, Patents and Copyrights. (a) For
purposes of this Agreement, the term "Proprietary Rights" shall mean all
worldwide industrial and intellectual property rights, including, without
limitation, each patent, patent rights, license, patent application,
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trade name, trademark, trade name and trademark registration, trademark
applications, copyright, copyright registration, copyright application, service
mark, brand mark and brand name, domain name, trade secrets relating to or
arising from any proprietary process, formula, source or object code, and all
other proprietary rights owned or possessed by the Company, or the renewal
rights therein. The Company owns or has the right to use, sell or license all
Proprietary Rights and such Proprietary Rights are sufficient for the conduct of
the businesses of the Company as they are currently being conducted as of the
date hereof. Schedule 3.12 hereto lists each patent, patent right, patent
application, tradename registration, trademark registration, copyright
registration, copyright application, domain name, source and object code owned
or possessed by the Company;
(b) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not constitute
a material breach of any instrument or agreement governing any Proprietary
Rights, will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any Proprietary Rights or impair the right of the
Company to use, sell or license any Proprietary Rights or any portion thereof;
(c) Neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by the Company or
currently under development by the Company violates any license or agreement
between any of the Company and any third party relating to such product or
infringes any intellectual property right of any other party, and there is no
pending or, to the best knowledge of the Company and the Shareholders,
threatened claim or litigation contesting the validity and ownership by the
Company or right to use, sell, license or dispose of any Proprietary Right nor,
to the best knowledge of the Company and the Shareholders is there any basis for
any such claim, nor has any of the Company received any notice asserting that
any Proprietary Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of the Company and the Shareholders, is there any basis for any such
assertion; and
(d) None of the Company nor any of the Shareholders has
received any notice, and no current or prior officers, employees or consultants
of the Company claim an ownership interest in any Proprietary Rights as a result
of having been involved in the development of such property while employed by or
consulting to the Company or otherwise.
Section 3.13 Legal Proceedings, Claims, Investigations, etc.
There is no legal, administrative, arbitration or other action or proceeding or
governmental investigation pending, or to the knowledge of the Shareholders,
threatened, against the Company (or any director, officer or employee of the
Company) relating to the business or assets of the Company. Neither the Company
nor the Shareholders has been informed of any violation of or default under, any
laws, ordinances, regulations, judgments, injunctions, orders or decrees
(including without limitation, any immigration laws or regulations) of any
court, governmental department, commission, agency, instrumentality or
arbitrator applicable to the Company or the business thereof. The Company is not
currently subject to any material judgment, order, injunction or decree of any
court, arbitral authority, administrative agency or other governmental
authority.
Section 3.14 Insurance. Schedule 3.14 hereto sets forth a list
and brief description of all existing insurance policies maintained by the
Company pertaining to its business properties,
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personnel or assets. The Company is not in default with respect to any provision
contained in any insurance policy, and has not failed to give any notice or
present any claim under any insurance policy in due and timely fashion. Copies
of all such policies have been delivered to Gateway. All such policies are in
full force and effect and following the Closing will continue to be in full
force and effect. All payments with respect to such policies are current and the
Company has not received any notice threatening a suspension, revocation,
modification or cancellation of any such policy.
Section 3.15 Material Contracts. Schedule 3.15 sets forth a
complete and accurate list as of the Closing Date of all contracts or agreements
that (a) obligate the Company to pay or to receive an annual amount of $5,000 or
more, (b) have an unexpired term as of September 30, 1999 in excess of one year
and that obligate the Company to pay or to receive an amount in any year in
excess of $5,000, (c) contain a covenant not to compete or otherwise
significantly restrict the Company's business activities, (d) provide for a
guaranty or indemnity by the Company, (e) grant a power of attorney, agency or
similar authority by the Company to another person or entity, (f) provide for
the grant by the Company to any person of any preferential rights to purchase
any of the properties or assets of the Company, (g) involve a transaction
between any of the Company and any affiliate, employee, officer or director
thereof, (h) constitute a collective bargaining agreement or provides for
severance benefits to any officer, director or employee, or (i) are in writing,
to which the Company is a party and the non-performance of which by any party
thereto can reasonably be expected to have a material adverse effect on the
Company (collectively, "Material Contracts"). Any purchase order, written or
oral, in receipt of the Company requiring the provision by the Company of
products or services the value of which exceeds $10,000 constitutes a Material
Contract. Copies of all written contracts and a description of the terms of all
other oral contacts to which the Company is a party, including any and all
amendments and modifications thereto, have been delivered to Gateway prior to
the date hereof.
Each of the Material Contracts is valid and binding, in full
force and effect and enforceable against the parties thereto in accordance with
their respective provisions. The Company has not assigned, mortgaged, pledged,
encumbered, or otherwise hypothecated any of its respective right, title or
interest under any of the Material Contracts. Neither the Company nor any other
party thereto is in violation of, in default in respect of, nor has there
occurred an event or condition which, with the passage of time or giving of
notice (or both), would constitute a violation or a default of or under the
Material Contracts. No written or oral notice has been received by the Company
or the Shareholders claiming any default by the Company or indicating the desire
or intention of any other party thereto to amend, modify, rescind or terminate
any Material Contract.
Section 3.16 Inventories. All Inventories reflected in the
Financial Statements are stated at the lower of cost or market on a
first-in-first-out basis in accordance with GAAP, with adequate reserves for
obsolete, obsolescent and slow moving items consistently applied in conformity
with past practices. Schedule 3.16 contains a true and complete list of all
inventory (including work in progress) of the Company as of September 30, 1999.
All inventory of the Company is in good and marketable condition and otherwise
fit for sale. Since September 30, 1999, none of such Inventory has been sold or
otherwise disposed of except in the ordinary course of business. On the Closing
Date, the Company will have Inventory sufficient in quantity, type and quality
for the conduct of their respective business in accordance with past practice.
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Section 3.17 Customers. There are no pending or, to the best
knowledge of the Company and the Shareholders, threatened disputes between the
Company and any of its locations, vendors, suppliers, customers or other parties
that in any way relate to the operation of the business of the Company. Schedule
3.17 lists all locations, vendors, suppliers, customers or other parties that
have commercial dealings with the Company relating to the businesses of the
Company, and a description of the nature of such dealings.
Section 3.18 Accounts Receivable. All accounts receivables of
the Company have arisen from bona fide transactions by the Company in the
ordinary course of business. To the knowledge of the Company and the
Shareholders, there are no defenses, claims of disabilities, offsets, refusals
to pay or other rights of offset against any such accounts receivable. Any
allowances that the Company has established specifically for doubtful accounts
has been established on a basis consistent with the Company's respective prior
practice, credit experience and GAAP consistently applied.
Section 3.19 Certain Transactions. Except as set forth on
Schedule 3.19, none of the Shareholders, any officer, director or any employee
of any of the Company, or any member of any such person's or any Shareholder's
family is presently a party to any transaction with the Company relating to the
business of any of the Company, including without limitation, any contract,
agreement or other arrangement (i) providing for the furnishing of services by,
(ii) providing for the rental of real or personal property from, or (iii)
otherwise requiring payments to (other than for services as officers, directors
or employees of the Company), any such person or any corporation, partnership,
trust or other entity in which any such person has a substantial interest as a
shareholder, officer, director, trustee or partner.
Section 3.20 Broker. No broker, finder or investment banker is
entitled to any brokerage or finder's fee or other commission in connection with
the transactions contemplated hereby based on the arrangements made by or on
behalf of the Company or the Shareholders.
Section 3.21 Environmental Matters. (a) The Company is not the
subject of, or being threatened to be the subject of (i) any enforcement
proceeding, or (ii) any investigation, brought in either case under any Federal,
state or local environmental law, rule, regulation, or ordinance at any time in
effect or (iii) any third party claim relating to environmental conditions on or
off the properties of the Company. The Company has not been notified that it
must obtain any permits and licenses or file documents for the operation of the
business under Federal, state and local laws relating to pollution protection of
the environment. Neither the Company nor the Shareholders has been notified of
any conditions on or off the properties of the Company that will give rise to
any material liabilities, known or unknown, under any Federal, state or local
environmental law, rule, regulation or ordinance, or as the result of any claim
of any third party. For the purposes of this Section 3.21, an investigation
shall include, but is not limited to, any written notice received by the Company
or the Shareholders that relates to the onsite or offsite disposal, release,
discharge or spill of any waste, waste water, pollutant or contaminants.
(b) There are no toxic wastes or other toxic or hazardous
substances or materials, pollutants or contaminants that the Company (or, to the
best knowledge of the Company and the Shareholders, any previous occupant of the
facilities of any of the Company) has used, stored or
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otherwise held in or on any of the facilities of any of the Company, that are
present at or have migrated from the Company's facilities, whether contained in
ambient air, surface water, groundwater, land surface or subsurface strata. The
facilities of the Company have been maintained by the Company in material
compliance with all environmental protection, occupational, health and safety or
similar laws, ordinances, restrictions, licenses, and regulations. The Company
has not disposed of or arranged (by contract, agreement or otherwise) for the
disposal of any material or substance that was generated or used by the Company
at any off-site location that has been or is listed or proposed for inclusion on
any list promulgated by any Governmental Authority for the purpose of
identifying sites which pose a danger to health and safety. Except as described
in Schedule 3.21, there have been no environmental studies, reports and analyses
made or prepared in the last five years relating to the facilities of the
Company. The Company has not installed any underground storage tanks in any of
its respective facilities and, to the best of the Shareholders' knowledge, none
of such facilities contains any underground storage tanks.
Section 3.22 Illegal Payments. Neither the Company nor any of
the Shareholders has, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, government official or other party, in the United States or
any other country, which is in any manner related to the business or operations
of the Company, that the Shareholders know or have reason to believe to have
been illegal under any Federal, state or local laws or the laws of any other
country having jurisdiction. The Company has not participated, directly or
indirectly, in any boycotts affecting any of its actual or potential customers.
Section 3.23 Licenses. The Company is the holder of all state,
Federal and local licenses, permits and approvals required to conduct its
business as it is presently being conducted (the "Licenses"). All of the
Licenses are in good standing, valid and effective, and free and clear of any
liens, conditions or restrictions which might limit their full utilization as
authorized by any governmental authority. Schedule 3.23 lists each License so
held and its date of expiration.
Section 3.24 Compliance with Law. To the best knowledge of the
Company and the Shareholders, except as disclosed in Schedule 3.24, the Company
has complied in all material respects with all laws, rules, regulations,
arbitral determinations, orders, writs, decrees and injunctions that are
applicable to or binding upon the Company, its business and properties, and
neither the Company nor any of the Shareholders has received any notice or has
knowledge of any violations, whether actual, claimed or alleged, thereof.
Section 3.25 Labor Matters. Neither the Company nor the
Shareholders has received any notice from any labor union or group that it
represents or intends to represent the employees of the Company. The Company has
complied in all material respects with all applicable laws affecting employment
and employment practices, terms and conditions of employment and wages and
hours. The Company has not received any notice of and there is no complaint
alleging unfair labor practices against it pending, or to the best knowledge of
the Company and the Shareholders, threatened before the National Labor Relations
Board or any other charges or complaints pending, or to the best knowledge of
the Company and the Shareholders, threatened before the Equal Employment
Opportunity Commission, any state or local Human Rights Commission or any other
state or local agency in respect of labor or employment matters. No labor
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strike, material dispute, slowdown or stoppage has occurred with respect to the
employees of the Company and there is no labor strike, material dispute,
slowdown or stoppage pending or threatened with respect to their employees.
There are no pending grievances or arbitration proceedings against the Company
with respect to the operation of their respective businesses.
Section 3.26 Books of Account; Records. The general ledgers,
books of account and other records of the Company in respect of its business are
complete and correct in all material respects and have been maintained in
accordance with good business practices and on a consistent basis from period to
period reflected therein.
Section 3.27 Complete Disclosure. No representation or
warranty made by the Company and/or the Shareholders in this Agreement and no
exhibit, schedule, statement, certificate or other writing furnished to Gateway
by or on behalf of the Company or the Shareholders pursuant to this Agreement or
in connection with the transactions contemplated hereby contains or will
contain, any untrue statement of a material fact or omits or will omit to state
a material fact necessary to make the statements contained herein and therein
not misleading.
Section 3.28 Condition of the Assets. All property used in the
operation of the business of the Company and in good working order and
condition, reasonable wear and tear and obsolescence excepted. The Company has
no assets with a value in excess of $5,000 in the aggregate, used in, related in
any way to, or required for the conduct of their respective businesses that are
not owned or leased by the Company.
Section 3.29 Investments in Competitors. None of the
Shareholders nor any of their affiliates owns directly or indirectly any
interests or has any investment in any person that is a competitor of any of the
Company other than the securities of any issuer that are listed for trading on a
national securities exchange or are traded in the over-the-counter market which
do not, in the case of any shareholder, constitute more than 2.0% of the total
amount of such securities that are outstanding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant
to Gateway as of the date hereof as follows:
Section 4.1 Investment Representations.
(a) The shares of Gateway Common Stock received by each of the
Shareholders pursuant to Article I hereof will be acquired by each of the
Shareholders for investment solely for the accounts of each of the Shareholders
and not for distribution, transfer or sale to others in connection with any
distribution or public offering.
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(b) Each of the Shareholders has such knowledge, experience
and skill in business and financial matters that each of the Shareholders is
capable of evaluating the merits and risks of an investment in the shares of
Gateway Common Stock to be acquired by them.
(c) Each of the Shareholders (i) has received all information
that each of the Shareholders deems necessary to make an informed investment
decision with respect to an investment in the shares of Gateway Common Stock;
(ii) has had the opportunity to make such investigation as each of the
Shareholders desires pertaining to Gateway and an investment therein and (iii)
has had the opportunity to ask questions of representatives of Gateway
concerning Gateway.
(d) Each of the Shareholders understands that each of the
Shareholders must bear the economic risk of an investment in Gateway for an
indefinite period of time because (i) the shares of Gateway Common Stock have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws and (ii) the shares of
Gateway Common Stock received by each of the Shareholders pursuant to Article I
hereof may not be sold, transferred, pledged or otherwise disposed of except if
they are subsequently registered in accordance with the provisions of the
Securities Act and applicable state securities laws or registration under the
Securities Act or any applicable state securities laws is not required.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GATEWAY
Gateway hereby represents and warrants to the Company and the
Shareholders as of the date hereof as follows:
Section 5.1 Corporate Organization; Requisite Authority to
Conduct Business. Gateway is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Gateway has the
necessary corporate power and authority to own, operate and lease its properties
and to carry on its business as the same is now being conducted, to enter into
this Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized and
approved by Gateway's Board of Directors and no further action on the part of
Gateway will be necessary to authorize the execution and delivery by it of, and
the performance of its obligations under, this Agreement. There are no
corporate, contractual, statutory or other restrictions of any kind upon the
power and authority of Gateway to execute and deliver this Agreement and to
consummate the transactions contemplated hereunder and no action, waiver or
consent by any Governmental Authority is necessary to make this Agreement a
valid instrument binding upon Gateway in accordance with its terms.
Section 5.2 Capitalization. The authorized capital stock of
Gateway consists of (i) 10,000,000 shares of Gateway Common Stock, 3,592,024 of
which were issued and outstanding at September 30, 1999 and (ii) 1,000,000
shares of preferred stock, none of which was issued and outstanding at September
30, 1999. The capital stock of Gateway is duly authorized and all issued capital
stock has been duly and validly issued and is fully paid and nonassessable and
free of preemptive rights. Except as set forth in Schedule 5.2 hereto, there are
no subscriptions, options,
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warrants, calls, rights, contracts, commitments, understandings, restrictions or
arrangements of any kind relating to any shares of Gateway's capital stock, and
there are no voting trusts or other agreements or understandings of any kind
with respect to Gateway outstanding capital stock. When issued, the shares of
Gateway Common Stock to be issued in accordance with the terms of this Agreement
shall be duly issued, fully paid, and non-assessable and shall be free and clear
from statutory preemptive rights and any liens or encumbrances other than those
created by, or imposed upon, the Shareholders through no action of Gateway,
other than restrictions on transfer under state and/or federal securities laws
and restrictions set forth in the Stockholders Agreement by and among Gateway
and the Shareholders of even date herewith and attached hereto as Exhibit D.
Section 5.3 SEC Reports. Gateway has made available to the
Shareholders copies of the Gateway's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998 (the "1998 10-KSB") and Gateway's Quarterly Report
on Form 10-QSB for quarter ended March 31, 1999, June 30, 1999 and September 30,
1999 as filed with the Securities and Exchange Commission (the "SEC"). As of its
date, the 1998 10-KSB and all Form 10-QSBs (including without limitation, any
financial statements or schedules included therein) did not contain any untrue
statement of a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the consolidated financial statements
included in the 1998 10-KSB and Form 10-QSBs has been prepared from, and are in
accordance with, the books and records of Gateway, complies in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, has been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of Gateway as of the dates thereof and for the periods presented therein.
The financial statements included in the 1998 10-KSB and the Form 10-QSBs fairly
present the financial condition of Gateway as at the dates stated and the
results of operations of Gateway for the periods then ended and the information
contained therein was true and correct as of the dates stated, the dates on
which they were filed with the SEC.
Section 5.4 Execution and Delivery. Gateway is not required to
submit any notice, report or other filing with any Governmental Authority in
connection with the execution, delivery or performance of this Agreement and
other documents related to this transaction, including but not limited the
Stockholders Agreement (the "Transaction Documents"), other than filings to be
made by Gateway following the closing under applicable Federal and state
securities laws. The Transaction Documents which have been or will have been be
duly executed and delivered on behalf of Gateway, as the case may be, and when
executed will constitute its legal, valid and binding obligations, enforceable
against it in accordance with their respective terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) as such obligations are subject to general principles of equity
and (iii) as rights to indemnity may be limited by Federal or state securities
laws or by public policy.
Section 5.5 Absence of Certain Changes and Events. Since
September 30, 1999, there has not been, with respect to Gateway, (i) any damage,
destruction or loss (whether or not covered by insurance) with respect to any
assets or properties; (ii) any entry into any commitment
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or transaction (including, without limitation, any borrowing or capital
expenditure) other than commitments and/or transactions (A) described in
Schedule 5.5, (B) entered into in the ordinary course of business in an amount
not to exceed $10,000 in the aggregate or (C) as contemplated by this Agreement;
(iii) any transfer, assignment or sale of, or rights granted under, any material
leases, licenses, agreements, patents, trademarks, trade names, copyrights or
other assets other than those transferred, assigned, sold or granted in the
ordinary course of business and consistent with past practice; (iv) any
mortgage, pledge, security interest or imposition of any other encumbrance on
any assets or properties except in the ordinary course of business; any payment
of any liabilities of any kind other than liabilities currently due; any
cancellation of any debts or claims or forgiveness of amounts owed to Gateway;
(v) any change in accounting principles or methods (except insofar as may have
been required by a change in GAAP); (vi) to the best knowledge of Gateway, any
change in any Delaware state or local law, rule or regulation applicable to or
binding upon the business of Gateway; (viii) any dividend or distribution other
than as disclosed in Schedule 5.5; or (ix) any increase in the compensation
payable to any executive employee of Gateway. Since September 30, 1999, Gateway
has conducted its business only in the ordinary course and in a manner
consistent with past practice and has not made any material change in the
conduct of its business or operations, other than as disclosed in Schedule 5.5.
Section 5.6 No Conflicts; Absence of Defaults. The execution,
delivery and performance of the Transaction Documents to which each of them
shall be a party by Gateway and the consummation of the transactions
contemplated hereby and thereby do not and will not conflict with or violate (a)
Gateway's Certificate of Incorporation, as amended, or By-laws or (b) any
material law, administrative regulation or rule or court order, judgment or
decree applicable to Gateway and the execution and delivery of Gateway or the
consummations of the transactions contemplated thereby will not constitute a
material breach of, or any event of default under, any material contract or
agreement to which Gateway is bound, or by which Gateway may be bound or
affected.
Section 5.7 Investment. (a) The Shares to be received by
Gateway pursuant to Article I hereof will be acquired by Gateway solely for
investment and not for distribution, transfer or sale to others in connection
with a view to any distribution or public offering.
(b) Gateway has such knowledge, experience and skill in
business and financial matters such that each it is capable of evaluating the
merits and risks of an investment in the Shares to be acquired by it.
(c) Gateway (i) has received all information that it deems
necessary to make an informed investment decision with respect to an investment
in the Shares; (ii) has had the opportunity to make such investigation as it
desires pertaining to the Company and an investment therein and (iii) has had
the opportunity to ask questions of representatives of the Company concerning
the Company.
(d) Gateway understands that it must bear the economic risk of
an investment in the Company for an indefinite period of time because (i) the
Shares have not been registered under the Securities Act and applicable state
securities laws and (ii) the Shares received by Gateway pursuant to Article I
hereof may not be sold, transferred, pledged or otherwise disposed of except
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if they are subsequently registered in accordance with the provisions of the
Securities Act and applicable state securities laws or registration under the
Securities Act or any applicable state securities laws is not required.
Section 5.8 Liabilities. Gateway has no liability, debt or
obligation of any nature (whether liquidated, unliquidated, direct, accrued,
absolute, contingent or otherwise and whether due or to become due) other than:
(a) those set forth or reflected in the financial statements
included in the 10-KSB and Form 10-QSBs that have not been paid or discharged
since the date thereof;
(b) those arising under agreements or other commitments
expressly identified in any Schedule hereto including, but not limited to, real
property leases, personal property leases and material contracts; and
(c) current liabilities arising in the ordinary and usual
course of the business of the Company subsequent to September 30, 1999 that are
either (A) identified on Schedule 5.8 or (B) are accurately reflected on its
books and records in a manner consistent with past practice and do not
individually or in the aggregate exceed $5,000.
Section 5.9 Legal Proceedings, Claims, Investigations, etc.
There is no legal, administrative, arbitration or other action or proceeding or
governmental investigation pending, or to the knowledge of Gateway, threatened,
against Gateway (or any director, officer or employee of Gateway) relating to
the business or assets of Gateway. Gateway has not been informed of any
violation of or default under, any laws, ordinances, regulations, judgments,
injunctions, orders or decrees (including without limitation, any immigration
laws or regulations) of any court, governmental department, commission, agency,
instrumentality or arbitrator applicable to Gateway or the business thereof.
Gateway is not currently subject to any material judgment, order, injunction or
decree of any court, arbitral authority, administrative agency or other
governmental authority.
Section 5.10 Compliance with Law. To the best knowledge of
Gateway, Gateway has complied in all material respects with all laws, rules,
regulations, arbitral determinations, orders, writs, decrees and injunctions
that are applicable to or binding upon Gateway, its business and properties, and
has not received any notice or has knowledge of any violations, whether actual,
claimed or alleged, thereof.
Section 5.11 Complete Disclosure. No representation or
warranty made by Gateway in this Agreement and no exhibit, schedule, statement,
certificate or other writing furnished to the Company or the Shareholders by or
on behalf of Gateway pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain, any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements contained herein and therein not misleading.
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ARTICLE VI
COVENANTS OF THE COMPANY, THE SHAREHOLDERS AND GATEWAY
Section 6.1 Environmental Audit. Gateway may order a Phase I
environmental audit of the properties owned or leased by the Company, which
audit shall be conducted by a firm selected by Gateway at Gateway's expense. The
Shareholders and the Company shall cooperate with Gateway in the conduct of such
audits. In the event such audit indicates the need for further testing or
evaluation of such properties, Gateway shall have the option to order such
additional testing or evaluation, at its sole expense. Gateway shall notify the
Shareholders in writing of any objections which it has to the environmental
condition of any of such properties and deliver a copy of the environmental
audit to the Shareholders. The cost of remediation, if less than $100,000, shall
be the responsibility of the Shareholders. If the cost of remediation is greater
than $100,000, then the Purchase Price shall be reduced in an amount to be
agreed upon by Gateway and the Shareholders.
Section 6.2 Taxes. (a) Without the prior written consent of
Gateway, neither the Shareholders nor the Company, or any affiliate of the
Company or the Shareholders shall, to the extent it may affect or relate to the
Company, make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax election, change any annual accounting
period, adopt of change any method of tax accounting, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or assessment,
surrender any right to claim a Tax refund, consent to any extension or waiver of
the limitation period applicable to any Tax claim or assessment or take or omit
to take any other action, if any such action or omission would have the effect
of materially increasing the Tax liability or reducing any Tax Asset, of the
Company, Gateway or any affiliate of Gateway.
(b) For purposes of this Agreement, "Tax Asset" shall mean any
net operating loss, net capital loss, investment tax credit, or any other credit
or tax attribute which could reduce Taxes (including, without limitation,
deductions and credits related to alternative minimum taxes).
(c) For purposes of this Agreement, "Tax Liability" shall mean
any net operating income, net capital income, or any other debit or tax
attribute which could increase Taxes (including, without limitation, additions
and debits related to alternative minimum taxes).
(d) Any and all existing tax sharing agreements or
arrangements, written or unwritten, binding the Company shall be terminated as
of the Closing Date. After the Closing Date, neither the Company nor any
subsidiary shall have any rights or liabilities thereunder.
Section 6.3 Additional Covenants. Each of the Company, the
Shareholders and Gateway covenants and agrees as follows:
(a) Confidentiality. (i) The Shareholders agree to hold in
strict confidence all data and information obtained from the other parties
hereto or any subsidiary, division, associate, representative, agent or
affiliate of any such party (unless such information is or becomes publicly
available without the fault of any representative of such party, or public
disclosure of such information is required by law in the opinion of counsel to
such party) and shall insure that such representatives do not disclose
information to others without the prior written consent of the other parties
hereto, and in the event of the termination of this Agreement, to cause its
representatives to
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return promptly every document furnished by the other parties hereto or any
subsidiary, division, associate, representative, agent or affiliate of any such
party in connection with the transactions contemplated hereby and any copies
thereof which may have been made, other than documents which are publicly
available.
(ii) Gateway agrees to hold in strict confidence all
personal data and information obtained from the Shareholders (unless such
information is or becomes publicly available, or public disclosure of such
information is required by law in the opinion of counsel to such party), and in
the event of the termination of this Agreement, to promptly return every
document furnished by the Shareholders containing such personal data and
information.
(b) Announcements. All public announcements, statements and
press releases concerning the transactions contemplated by this Agreement shall
be mutually agreed to by the Company, on one hand, and Gateway, on the other
hand, before the issuance or the making thereof and, subject to the advice of
counsel, no party shall issue any such press releases or make any such public
statement prior to such mutual agreement, except as may be required by law
(including Federal securities laws). Notwithstanding the foregoing, the parties
hereto acknowledge that Gateway may be required to describe transactions
contemplated by this Agreement and/or file a copy of this Agreement, including
all exhibits and schedules hereto, with the Securities and Exchange Commission
in connection with related disclosure obligations under applicable securities
laws.
Section 6.4 Shareholder Expenses. The Shareholders agree to
pay their legal expenses incurred on or after January 1, 2000 in connection with
this Agreement and the Transaction Documents to which they are a party.
ARTICLE VII
CONDITIONS TO OBLIGATIONS
OF THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders under this
Agreement are subject to the satisfaction, on or prior to the Closing Date,
unless waived in writing by the Company and the Shareholders, of each of the
following conditions:
Section 7.1 Conditions Precedent to Obligations of the Company
and the Shareholders.
(a) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Gateway shall have been performed and complied with in all material
respects on or prior to the Closing including the delivery of funds and stock
certificates and the fully executed instruments and documents in accordance with
this Agreement.
(b) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or administrative,
or governmental investigation against Gateway, the Shareholders, or the Company
for the purpose of enjoining or preventing the
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consummation of this Agreement, or otherwise claiming that this Agreement or the
consummation hereof is illegal.
(c) Certificates. Gateway shall have delivered to the
Shareholders (i) a certificate, dated the Closing Date, executed by executive
officers of Gateway to the effect that the conditions set forth in subsections
(a) and (b) of this Section 7.1 have been satisfied and (ii) a certificate dated
the Closing Date, executed by Gateway's Secretary, to the effect that (A) the
Certificate of Incorporation and By-laws of Gateway shall have not been amended
since the date upon which certified copies of each had been delivered to the
Shareholders and remain in full force and effect and (B) the officers executing
the Agreement on behalf of Gateway are duly elected and hold the offices set
forth therein, with resolutions approved by the Board of Directors of Gateway
attached as an exhibit thereto.
(d) Release of Guaranties. Gateway shall either obtain a
release of all personal guaranties of the Shareholders listed on Schedule 7.1(d)
or enter into indemnification agreements therefor with the Shareholders in a
form satisfactory to the Shareholders in respect of bank loans and major
equipment leases of the Company, as listed on Schedule 7.1(d).
(e) Consents and Approvals. All filings and registrations
with, and notifications to, all Federal, state, local and foreign authorities
required for consummation of the transactions contemplated by this Agreement
shall have been made, and all consents, approvals and authorizations of all
Federal, state, local and foreign authorities and parties to material contracts,
licenses, agreements or instruments required for consummation of the
transactions contemplated by this Agreement shall have been received and shall
be in full force and effect.
(f) Employment. Gateway shall have entered into an employment
agreement with Frank C. Mackay, Jr., Thomas Tomaszewski and Edward W. Testa, Jr.
having an initial term of one year and providing among other things, a base
salary and benefits and perquisites substantially similar to those received by
the Shareholder from the Company prior to the transaction, and in the form
attached hereto as Exhibits C-1, C-2 and C-3, respectively (the "Employment
Agreements").
(g) The Shareholders shall have received the opinion of Olshan
Grundman Frome Rosenzweig & Wolosky LLP, counsel to Gateway, dated the Closing
Date, in form and substance reasonably satisfactory to the Shareholders and in
the form attached hereto as Exhibit E.
(h) Gateway shall have entered into the Stockholders Agreement
by and among Gateway and the Shareholders and in the form hereto attached hereto
as Exhibit D.
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(i) Gateway shall have entered into an Option Agreement with
Frank C. Mackay, Jr., Thomas Tomaszewski and Edward W. Testa, Jr. and in the
forms attached hereto as Exhibits G- 1, G-2 and G-3.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF GATEWAY
The obligations of Gateway under this Agreement are subject to the
satisfaction, unless waived in writing by Gateway, of each of the following
conditions:
Section 8.1 Conditions Precedent to Obligations of Gateway.
(a) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by the Company and the Shareholders shall have been performed and complied
with in all material respects on or prior to the Closing in accordance with this
Agreement.
(b) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or administrative,
or governmental investigation against Gateway, the Shareholders or any of the
Company for the purpose of enjoining or preventing the consummation of this
Agreement, or otherwise claiming that this Agreement or the consummation hereof
is illegal.
(c) Certificates. The Company shall have delivered to Gateway
(i) certificates, dated the Closing Date, executed by the President of the
Company, to the effect that the conditions set forth in subsections (a) and (b)
of this Section 8.1 have been satisfied by the Company (and the Shareholders
shall have delivered to Gateway a certificate, dated the Closing Date, executed
by each of the Shareholders to the effect that the conditions set forth in
subsections (a) and (b) of this Section 8.1 have been satisfied by the
Shareholders) and (ii) certificates dated the Closing Date, executed by the
Secretary of the Company, to the effect that (A) the Certificate of
Incorporation and By-laws of the Company shall have not been amended since the
date upon which certified copies of each had been delivered to Gateway and
remain in full force and effect and (B) the officers executing this Agreement on
behalf of each of the Company are duly elected and hold the offices set forth
therein, with copies of resolutions approved by the respective Board of
Directors of the Company and the Shareholders attached as an exhibit thereto.
(d) Consents and Approvals. All filings and registrations
with, and notifications to, all Federal, state, local and foreign authorities
required for consummation of the transactions contemplated by this Agreement
shall have been made, and all consents, approvals and authorizations of all
Federal, state, local and foreign authorities and parties to material contracts,
licenses, agreements or instruments required for consummation of the
transactions contemplated by this Agreement shall have been received and shall
be in full force and effect.
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(e) Opinion of Counsel to the Company and the Shareholders.
Gateway shall have received the opinion of Lawrence Brochin, Esq., counsel to
the Company and the Shareholders, dated the Closing Date, in form and substance
reasonably satisfactory to Gateway and substantially in the form attached hereto
as Exhibit F.
(f) Each of the Shareholders shall have entered into an Option
Agreement.
(g) Stockholders Agreement. Each of the Shareholders shall
have entered into the Stockholders Agreement.
(h) W-9 Forms. Shareholders shall have provided to Gateway
duly executed I.R.S. Form W-9's.
(i) Employment. Each Shareholder shall have entered into an
Employment Agreement.
(j) Outstanding Loans.
(i) Frank C. Mackay, Jr. shall have repaid to the
Company an outstanding loan in the amount of $79,165.
(ii) The Company shall have repaid to Jean Testa a
loan in the amount of
$15,000.
ARTICLE IX
TAX MATTERS
Section 9.1 Certain Tax Matters. (a) The Shareholders hereby
indemnify and hold harmless Gateway with respect to any and all Taxes that may
be imposed on Gateway, if any, (i) resulting from a breach of any representation
or warranty set forth in Section 3.9 or this Article IX (a "Breach"), (ii) with
respect to all taxable periods of the Company ending on or prior to the Closing
Date, (iii) allocated to the Shareholders pursuant to Section 9.1(b) hereof or
(iv) arising from the 338(h)(10) Election (and any comparable election under
state, local or foreign tax law). Gateway hereby indemnifies the Shareholders
with respect to any and all Taxes that may be imposed on the Shareholders with
respect to all taxable periods of the Company commencing after the Closing Date
to the extent such taxes are attributable to events occurring after the Closing
Date.
(b) The Company and the Shareholders covenant and agree that:
(i) the Shareholders have duly included, or will duly include, in their own Tax
Returns their own allocable share of items of income, gain, loss, deduction or
credit attributable to the Seller Year or any prior period (or that portion of
any period during which the Company was an S corporation) as required by
applicable law; (ii) such Tax Returns shall include the Shareholders' allocable
share of taxable income of the Company from all sources for the period
commencing with the effective date of the election to be taxed as an S
corporation through and including the close of business on the last day
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of the Seller Year ("S Corporation Taxable Income"), (iii) the Shareholders
shall pay any and all taxes attributable to S Corporation Taxable Income that
they are required to pay for all taxable periods (or that portion of any period)
ending on or prior to the Closing, and (iv) the Shareholders shall pay all Taxes
incurred in connection with the 338(h)(10) Election (and each election under the
comparable provisions of state, local or foreign tax laws).
(c) The Shareholders shall make any payment under this Article
IX within thirty (30) days after the final determination (as such term is
defined in Section 1313(a) of the Code) of any Tax Liability provided that
whenever a taxing authority asserts a claim, makes an assessment or otherwise
disputes the amounts of Taxes payable with respect to tax periods ending on or
before the Closing, Gateway shall notify the Shareholders within ten (10) days
and thereafter the Shareholders shall have the right to control any resulting
proceedings and to determine when, whether and to what extent to settle any such
claim, assessment or dispute. Notwithstanding the foregoing, the failure of
Gateway to give notice under the preceding sentence shall not relieve the
Shareholders of any obligations hereunder unless such failure shall preclude the
defense of such claim. The Shareholders shall agree to no adjustment or
adjustments that would have the effect of increasing the Tax Liability with
respect to any period after the Closing Date without obtaining the prior written
consent of Gateway.
(d) If, for any United States federal, state, local or foreign
tax purposes, the taxable period of the Company does not terminate on the
Closing Date, Taxes, if any, attributable to the taxable period of the Company
that includes the Closing Date shall be allocated to (i) the Shareholders for
the period up to and including the Closing Date, and (ii) Gateway for the period
subsequent to the Closing Date. For purposes of the preceding sentence, Taxes
for the period up to and including the Closing Date and for the period
subsequent to the Closing Date shall be determined on the basis of an interim
closing of the books as of the close of business on the Closing Date as if such
taxable period consists of one taxable period ending on the Closing Date
followed by a taxable period beginning on the day following the Closing Date.
For purposes of this subparagraph (e), exemptions, allowances or deductions that
are calculated on an annual basis, such as the deduction for depreciation, shall
be apportioned on a daily basis.
(e) The Shareholders shall prepare or cause to be prepared,
and file or cause to be filed, all Tax Returns of the Company for all taxable
periods of the Company that end on or prior to the Closing Date. All such
returns shall be prepared on a basis that is consistent with the manner in which
the Shareholders prepared or filed such Tax Returns for prior periods.
(f) After the Closing Date, Gateway and the Shareholders shall
provide each other with reasonable cooperation in connection with the
preparation of Tax Returns of the Company and shall make available to the other
and to any taxing authority, as reasonably requested, all information, records
or documents relating to Tax Liabilities or potential Tax Liabilities of the
Company for all periods prior to or including the Closing Date and shall
preserve all such information, records and documents until the expiration of any
statute of limitations or extensions thereof.
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Section 9.2 Definitions of Tax Related Terms.
(a) "Seller Year." The 2000 calendar year of the Company shall
be divided into two short taxable years: Seller Year and Buyer Year (as defined
below). The Seller Year of the Company shall be that portion of the Company's
2000 calendar year ending on the Closing Date.
(b) "Buyer Year." That portion of the 2000 calendar year of
the Company beginning on the date immediately after the Closing Date and ending
on the last day of 2000 calendar year shall be the Buyer Year of the Company.
ARTICLE X
INDEMNIFICATION
Section 10.1 Survival of Representations, Warranties and
Agreements. Subject to the limitations set forth in this Article X and
notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of Gateway, on one hand, or the Company or the Shareholders, on the
other hand, all representations, warranties, covenants and agreements of
Gateway, the Company or the Shareholders in this Agreement shall survive the
execution, delivery and performance of this Agreement and shall be deemed to
have been made again by Gateway, the Company and the Shareholders at and as of
the Closing. The representations and warranties contained in this Agreement
shall remain in full force and effect for a period of two (2) years after the
Closing Date; provided, however, that the representations, warranties and
covenants contained in Section 3.9 and Article IX relating to Taxes, Section
3.10(a) through 3.10(m) relating to ERISA, Section 3.12 relating to Trademarks,
Patents and Copyrights, and Section 3.21 relating to Environmental Matters shall
remain in full force and effect until the expiration of their respective
applicable statute of limitations (including any extensions thereof). The
obligation of indemnity provided herein shall survive the Closing. All
statements contained in any Exhibit, Schedule, statement, certificate or other
writing pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties of Gateway,
the Company or the Shareholders, as the case may be, set forth in this Agreement
within the meaning of this Article.
Section 10.2 Indemnification.
(a) Subject to the limitations set forth in this Article X,
each of the Company and the Shareholders shall jointly and severally indemnify
and hold harmless Gateway from and against any and all losses, liabilities,
damages, demands, claims, suits, actions, judgments or causes of action,
assessments, costs and expenses including, without limitation, interest,
penalties, reasonable attorneys' fees, any and all reasonable expenses incurred
in investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred or suffered by Gateway, directly or
indirectly, as a result of or arising from the following (individually an
"Indemnifiable Claim" and collectively "Indemnifiable Claims" when used in the
context of Gateway as the Indemnified Party (as defined below)):
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(i) Any inaccuracy in or breach of any of the
representations, warranties or agreements made in this Agreement of the Company
or the Shareholders or the non-performance of any covenant or obligation to be
performed by any of the Company or the Shareholders under this Agreement;
(ii) Any violation by any of the Company or the
Shareholders of any law, rule, regulation, arbitral determination, order, writ,
decree or injunction on or prior to the Closing Date;
(iii) Any misrepresentation in or any omission from
any Exhibit, Schedule, statement, certificate or other writing furnished or to
be furnished by or on behalf of the Company or the Shareholders under this
Agreement; and
(iv) Any violation arising out of any acts or
omissions of the Company or the failure to comply with the terms of any Employee
Plans or the rules or regulations governing compliance therewith on or prior to
the Closing Date.
(b) Subject to the limitations set forth in this Article X,
Gateway shall indemnify and hold harmless the Company and the Shareholders from
and against any and all Damages asserted against, resulting to, imposed upon, or
incurred or suffered by the Company or the Shareholders, directly or indirectly,
as a result of or arising from the following (individually an "Indemnifiable
Claim" and collectively "Indemnifiable Claims" when used in the context of the
Company or any of the Shareholders as the Indemnified Party):
(i) Any inaccuracy in or breach of any of the
representations, warranties or agreements made by Gateway in this Agreement or
the non-performance of any covenant or obligation to be performed by Gateway
under this Agreement; and
(ii) Any misrepresentation in or any omission from
any Exhibit, Schedule, statement, certificate or other writing furnished or to
be furnished by or on behalf of Gateway under this Agreement.
(c) Without duplication of Damages, Gateway shall be deemed to
have suffered Damages arising out of or resulting from the matters referred to
in subsection (a) above if the same shall be suffered by any parent, subsidiary
or affiliate of Gateway.
(d) Except as it relates to Taxes, neither the Company and the
Shareholders on one hand, nor Gateway, on the other hand, shall be required to
indemnify the other until the aggregate of all indemnifiable claims which the
Company and the Shareholders, on one hand, and Gateway, on the other hand, may
have against the other exceeds $25,000, but after the $25,000 threshold is
reached, each indemnified person shall be entitled to be indemnified for the
full amount of all claims arising hereunder.
(e) The aggregate amount of all Indemnifiable Claims by one
party shall not exceed the equivalent dollar amount of the total Purchase Price
(as defined in Section 1.2 hereto),
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with the Gateway Common Stock valued as of Closing, less any indemnity
previously paid by such party under the terms of this Article X.
Section 10.3 Procedure for Indemnification with Respect to
Third Party Claims. The Indemnified Party shall give the Indemnifying Party
prompt written notice of any third party claim, demand, assessment, suit or
proceeding to which the indemnity set forth in this Article X applies which
notice shall describe said claim in reasonable detail (the "Indemnification
Notice"). Notwithstanding the foregoing, the Indemnified Party shall not have
any obligation to give any notice of any assertion of liability by a third party
unless such assertion is in writing, and the rights of the Indemnified Party to
be indemnified hereunder in respect of any third party claim shall not be
adversely affected by its failure to give notice pursuant to the foregoing
unless and, if so, only to the extent that, the Indemnifying Party is materially
prejudiced thereby. The Indemnifying Party shall have the right to control the
defense or settlement of any such action subject to the provisions set forth
below in the event such claim solely involves an action for monetary damages and
could not affect the Indemnified Party's business going forward, but the
Indemnified Party may, at its election, participate in the defense of any action
or proceeding at its sole cost and expense; provided, specifically, that Gateway
may defend itself against any Indemnification Claim which may affect the
business of the Company going forward. Notwithstanding the foregoing, if there
exists a conflict of interest that would make it inappropriate for the same
counsel to represent both the Indemnified Party, on one hand, and the
Indemnifying Party, on the other hand, in connection with any Indemnifiable
Claim, then the Indemnified Party shall be entitled to retain its own counsel as
is reasonably satisfactory to the Indemnifying Party at the Indemnifying Party's
expense. In the event that such Indemnified Party shall seek indemnification as
provided herein, such Indemnified Party shall make available to the Indemnifying
Party, at its expense, all witnesses, pertinent records, materials and
information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Should the Indemnifying Party fail to defend any such Indemnifiable Claim
(except for failure resulting from the Indemnified Party's failure to timely
give notice of such Indemnifiable claim), then, in addition to any other remedy,
the Indemnified Party may settle or defend such action or proceeding through
counsel of its own choosing and may recover from the Indemnifying Party the
amount of such settlement, demand, or any judgment or decree and all of its
costs and expenses, including reasonable fees and disbursements of counsel.
Except as permitted in the preceding sentence, the Indemnifying Party shall not
be liable for any settlement effected without its written consent, which consent
shall not be unreasonably withheld; provided, however, if such approval is
unreasonably withheld, the liability of the Indemnifying Party shall be limited
to the amount of the proposed compromise or settlement and the amount of the
Indemnified Party's reasonable counsel fees incurred in defending such claim, as
permitted by the preceding sentence, at the time such consent is unreasonably
withheld. Notwithstanding the preceding sentence, the right of the Indemnified
Party to compromise or settle any claim without the prior written consent of the
Indemnifying Party shall only be available if a complete release of the
Indemnifying Party is contemplated to be part of the proposed compromise or
settlement of such third party claim. Shareholders shall agree to no adjustment
or adjustments that would have the effect of increasing Tax Liability with
respect to any period ending after the Closing Date without obtaining the prior
written consent of Gateway.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination. This Agreement may be terminated and
the transactions contemplated by this Agreement abandoned at any time prior to
the Closing:
(a) By mutual written consent of Gateway, on one hand, and the
Company and the Shareholders, on the other hand;
(b) By the Company and the Shareholders if any condition
specified in Article VI hereto has not been met, or waived by the Company and
the Shareholders, at such time as such condition can no longer be satisfied; or
(c) By Gateway if any condition specified in Article VIII of
this Agreement has not been met, or waived by Gateway, at such time as such
condition can no longer be satisfied; or
(d) By Gateway, on one hand, or the Company and the
Shareholders, on the other hand, if a court of competent jurisdiction or
governmental authority shall have issued a final, non-appealable order, decree
or ruling or taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement.
Section 11.2 Effect of Termination. In the event of any
termination of this Agreement in accordance with Sections 11.1(a) or (d) hereof,
this Agreement shall forthwith become void and there shall be no liability under
this Agreement on the part of any party hereto or their respective affiliates,
officers, directors, employees or agents by virtue of such termination. In the
event of any termination of this Agreement in accordance with Sections 11.1(b)
or (c), the parties hereto reserve their rights to take any action permitted by
law, including as provided in Section 12.4 hereof.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Non-Competition; Non-Disclosure;
Non-Solicitation. (a) During the period commencing on the Closing Date and
continuing while the Shareholders are employed by the Company and three (3)
years after termination of each Shareholder's employment with the Company, such
Shareholder shall not, individually or jointly with others (i) directly or
indirectly own, manage, operate, join, control, participate in, invest in, or
otherwise render advice or services to or be connected with, in any manner,
whether as an officer, director, employee, partner, investor or otherwise, any
business entity that is engaged or otherwise involved in any business
competitive with the products or services provided by the Company or are
contemplated to be provided by the Company at any time during the term of each
Shareholder's employment or data processing products or services, database
management products or services provided to third parties, laser and ink jet
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product or services or personalized mailings and fulfilment services, whether
through ownership, leasing or other operations, or operate any businesses under
a name using any derivative of the name "Oaktree" without first obtaining the
prior written consent of Gateway, which may be withheld for any reason in the
sole discretion of the Gateway; provided that such provision shall not apply to
any Shareholder's ownership of Gateway Common Stock or the acquisition by any
Shareholder, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on Nasdaq, so long as such
Shareholder does not own, or control, acquire a controlling interest in or
become a member of a group which exercises direct or indirect control of, more
than two percent (2%) of any class of capital stock of such corporation. The
covenants contained in this Section 12 shall be applicable throughout the world,
which the parties agree is a geographic scope reasonably necessary because the
Company is in the information and data base industries operating, in among other
places, on the Internet, which has no geographic boundaries.
(b) In the course of operation of the business of the Company,
the Shareholders have received, and will continue to receive information, that
gives the Company an advantage over their respective competitors, and which is
confidential and proprietary, relating to names and preferences of customers,
the costs and profits of particular lines, products and markets, technological
data, computer programs, know-how, potential acquisitions, sources of financing,
corporate operating and financing strategies, expansion plans and similar
related information (together, the "Confidential Material"). At no time during
the period commencing on the date first written above shall any Shareholder
individually or jointly with others, for the benefit of himself or any third
party, publish, disclose, use, or authorize anyone else to publish, disclose, or
use any Confidential Material provided, however, that any such Confidential
Material may be disclosed as required by law (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, or any informal or formal investigation by any government
or governmental agency or authority or otherwise). In the event that any
Shareholder is requested pursuant to, or are required by, applicable law or
regulation or by legal process to disclose any of the Confidential Material,
such Shareholder shall promptly notify Gateway of any anticipated disclosure
obligation and cooperate with Gateway, at Gateway's expense, in its efforts to
seek an appropriate protective order or other reliable assurance that
confidential treatment will be accorded to that portion of the Confidential
Material that is required to be disclosed. The Shareholders acknowledge that any
disclosure of the Confidential Material would cause material and irrevocable
harm to Gateway and its business.
(c) At no time for two years from the time the Shareholder
terminates his employment with the Company shall such Shareholder, for himself
or on behalf of any other person, firm, corporation or other entity, directly or
indirectly, through an agent or otherwise contact any employee of Gateway or the
Company for the purpose of hiring, diverting or otherwise soliciting such
employee. Upon the termination of the Shareholder of his employment with the
Company, such Shareholder shall not contact any customer, client or business
partner of Gateway or the Company for the purpose of soliciting, diverting or
taking away any customer, client or business partner from Gateway or the
Company.
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(d) The Shareholders acknowledge and agree that Gateway's
remedy at law for any breach of any of the Shareholders' obligations under this
Section 12.1 would be inadequate, and agree and consent that temporary and
permanent injunctive relief may be granted in a proceeding which may be brought
to enforce any provision of this Section 12.1 without the necessity of proof of
actual damage.
Section 12.2 Expenses. Except as otherwise specified in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses regardless of the termination of this Agreement or the
failure to consummate the transactions contemplated hereby.
Section 12.3 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when delivered personally
or three days after being sent by registered or certified mail, return receipt
requested, postage prepaid:
(a) If to Gateway to:
Gateway Industries, Inc.
150 East 52nd Street
New York, New York 10022
Attention: Warren Lichtenstein or Robert Frankfurt
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue, 16th Floor
New York, New York 10022
Attention: Steven Wolosky, Esq.
(b) If to the Shareholders to:
Frank C. Mackay, Jr.
20 Washington Avenue
Miller Place, New York 11764
Thomas Tomaszewski
3275 Aldrich Lane
Laurel, New York 11948
Edward W. Testa, Jr.
37 Woodville Road
P.O. Box 852
Shoreham, New York 11786
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<PAGE>
in each case with a copy (which shall not constitute
notice) to:
Lawrence Brochin, Esq.
445 Northern Boulevard, Suite 36
Great Neck, New York 11021
(c) If to the Company to:
Oaktree Systems, Inc.
4462 Middle Country Road
Calverton, New York 11933
Attention: President
with a copy (which shall not constitute notice) to:
Lawrence Brochin, Esq.
445 Northern Boulevard, Suite 36
Great Neck, New York 11021
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 12.3.
Section 12.4 Specific Performance. All parties hereto
recognize that, because of the nature of the subject matter of this Agreement,
it would be impractical and extremely difficult to determine actual damages in
the event of a breach of this Agreement. Accordingly, if any of the Company or
the Shareholders, on the one hand, or Gateway, on the other hand, commits a
breach, or threatens to commit a breach, of any of the provisions of hereof, as
applicable, of this Agreement, Gateway or the Company and the Shareholders,
respectively, shall have the right to seek and receive a temporary restraining
order, injunction or other equitable remedy relating to the prevention or
cessation of such breach or threatened breach, including, without limitation,
the right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, it being mutually acknowledged and agreed that
any such breach or threatened breach will cause irreparable injury and that
monetary damages will not provide an adequate remedy.
Section 12.5 Entire Agreement. This Agreement, including the
exhibits and schedules attached hereto, and other Transaction Documents dated
the date hereof, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof and supersedes all prior
agreements, representations and understandings among the parties hereto,
including but not limited to that certain letter agreement between Gateway and
the Shareholders dated November 3,1999, as amended.
Section 12.6 Binding Effect, Benefits, Assignments. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns; nothing in this Agreement,
expressed or implied, is intended to confer on any other person, other than the
parties hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
may not be assigned without the prior written consent of the other parties
hereto; provided, however, that Gateway may assign its
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rights and obligations under this Agreement without the consent of the other
parties so long as any such assignee shall also assume the Gateway's obligations
hereunder and Gateway is not released from its obligations hereunder.
Notwithstanding the foregoing, the parties hereto acknowledge that Gateway has
the right to assign and its interest and all of its rights under this Agreement
to its senior bank lender.
Section 12.7 Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of law rules of such state.
Section 12.8 Severability. With respect to any provision of
this Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by law, and all the
parties hereto shall abide by such court's determination. In the event that any
provision of this Agreement cannot be reformed, such provision shall be deemed
to be severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
Section 12.9 Further Assurances. At, and from time to time
after the date first written above, but prior to the third anniversary of the
Closing Date, at the request and expense of Gateway but without further
consideration, the Company and the Shareholders will execute and deliver such
other instruments of conveyance, assignment, transfer, and delivery and take
such other action as Gateway reasonably may request in order more effectively to
convey, transfer, assign and deliver to Gateway, and to place Gateway in
possession and control of, any of the rights, properties, assets and business
intended to be sold, conveyed, transferred, assigned and delivered hereunder, or
to assist in the collection or reduction to possession of any and all of such
rights, properties, and assets or to enable Gateway to exercise and enjoy all
rights and benefits of the Company or the Shareholders with respect thereto.
Section 12.10 No Third Party Beneficiaries. Nothing herein,
expressed or implied, is intended or shall be construed to confer upon or give
to any person, firm, corporation or legal entity, other than the parties hereto,
any rights, remedies or other benefits under or by reason of this Agreement.
Section 12.11 Headings. The headings and captions in this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
Section 12.12 Pronouns and Plurals. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, singular
or plural as the context may require. All references herein to "he," "him" or
"his" or "she," "her" or "hers" shall be for purposes of simplicity and, except
with reference to the Shareholders, are not intended to be a reference to a
particular gender.
Section 12.13 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first set forth.
GATEWAY INDUSTRIES, INC.
By: /s/ Robert Frankfurt
----------------------------------------
Name: Robert Frankfurt
Title:
OAKTREE SYSTEMS, INC.
By: /s/ Frank Mackay, Jr.
----------------------------------------
Name: Frank Mackay, Jr.
Title:President
/s/ Frank Mackay, Jr.
-------------------------------------------
FRANK C. MACKAY, JR.
/s/ Thomas Tomaszewski
-------------------------------------------
THOMAS TOMASZEWSKI
/s/ Edward W. Testa, Jr.
-------------------------------------------
EDWARD W. TESTA, JR.
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FOR IMMEDIATE RELEASE
GATEWAY INDUSTRIES, INC.
GATEWAY INDUSTRIES, INC. ANNOUNCES ITS ACQUISITION OF OAKTREE SYSTEMS, INC., A
DATABASE DEVELOPMENT AND MANAGEMENT COMPANY.
On March 21, 2000, Gateway Industries, Inc. (the
"Company") (OTC Bulletin Board:GWAY) acquired all of the outstanding capital
stock of Oaktree Systems, Inc. ("Oaktree") (WWW.OAKTREESYS.COM), which primarily
provides database development, consolidation and management services, and Web
site design and maintenance services. Oaktree generated approximately $3 million
in revenues for the year ended December 31, 1999 and was profitable. Oaktree
shareholders were paid cash and shares of Gateway's common stock and have
entered into employment agreements; other terms of the acquisition were not
disclosed.
Oaktree was founded 17 years ago by Frank Mackay, its
President and principal shareholder. Oaktree is based in Calverton, New York, on
the North Fork of eastern Long Island and employs 33 people out of Calverton and
St. Paul, Minnesota. Its customer base is predominantly comprised of nationally
recognized non-profit organizations, charities, and publishing companies.
Oaktree offers products in 3 general areas:
Oaktree's DB-Cultivator product is a fully relational,
multi-user database product which provides clients with sophisticated
segmentation and analysis tools necessary to manage a direct marketing database
via the Internet on a real-time basis. Oaktree's award winning product helps
customers consolidate many disparate, multi-platform databases into one PC-based
system that is flexible, customizable and scalable.
Oaktree recently launched Health E Store
(WWW.HEALTHE-STORE.COM) as an online resource for customers interested in
further
developing a healthy lifestyle. The Health E Store is an independent, on-line
merchant that is proud to feature Mayo Clinic Health Information books,
publications and other fine products.
Oaktree also developed NetPlay (WWW.NETPLAYONLINE.COM)
as an Internet-based sports administration package catering to the needs of
communities. NetPlay provides an easy to use and affordable tool for an
administrator to manage all aspects of creating and updating schedules while
tracking and reporting searchable standings and statistics on amateur sports for
athletes and fans to access via the Internet on a real-time basis. Presently,
the NetPlay system is in use in Suffolk County in Long Island, New York.
(WWW.SECTIONXI.ORG)
Frank Mackay, who will continue as President of Oaktree,
stated, "We are excited about joining forces with Gateway to further develop our
<PAGE>
product lines. Gateway's capital and relationships should help us grow our
current markets while providing access to new markets for our products."
Warren Lichtenstein, Chairman of Gateway stated, "After
looking at numerous acquisition candidates over the last 2 years we believe that
Oaktree will provide a solid foundation to grow in an industry which will become
more important as the Internet economy continues to develop. We believe Oaktree
will be the first of a series of transactions designed to increase shareholder
value of Gateway."
For more information, you can contact Rob Frankfurt or
Warren Lichtenstein at Gateway Industries at 212-813-1500.
THIS PRESS RELEASE CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED HEREBY. INVESTORS
ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, AND ASSUMPTIONS COULD BE INACCURATE, AND THEREFORE, THERE CAN BE NO
ASSURANCE THAT FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH
INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY
OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
