AGREEMENT OF PURCHASE AND SALE OF STOCK

 

Exibit 99.1

 

AGREEMENT OF PURCHASE AND SALE OF STOCK

 

1. Identification and Parties: This Agreement is dated December 1, 2006 for identification purposes only and it is made and entered into by and among WLG (USA)LLC, an Illinois limited liability company (“Buyer”); Wako Logistics Group, Inc., a Delaware corporation (“Guarantor”); Janice Williams and Daniel Sanchez (sometimes collectively referred to as “Shareholders”); Mares-Shreve & Associates, Inc., a Washington corporation (“Corporation”) ; and Sea Systems Ocean Line, Inc., a Washington corporation (“Subsidiary”). Corporation and Subsidiary are collectively referred to as “MR Group”. In this Agreement, Shareholders, Corporation, and Subsidiary are collectively referred to as “Selling Parties”.

 

2. Recitals of Fact:

 

2.1 Buyer is an Illinois limited liability company engaged in the freight forwarding business. It is a subsidiary of Guarantor, a Delaware corporation. Guarantor’s common stock is publicly traded under the symbol of WKOL.OB.

 

2.2 Shareholders have represented that Corporation is a Washington corporation engaged in the freight business and customs clearance; that Corporation is in good standing with 50,000 shares of common stock duly authorized of which 20,000 shares are issued and outstanding (“Shares”) and which represent the only securities outstanding; and that each of the Shareholders owns 10,000 shares. Buyers have further represented that Subsidiary is also a Washington corporation in good standing; that it is wholly-owned by Corporation; and that it is engaged in the freight forwarding business.

 

2.3 Selling Parties have provided Buyer with certain documents as set forth in the Disclosure Schedule attached hereto as Exhibit A. The Disclosure Schedule provides a summary of disclosures and documents previously delivered to Buyer.

 

2.4 Selling Parties desire that Shareholders sell their entire interests in Corporation to Buyer on the terms set forth below and Buyer desires to purchase same.

 

 

THEREFORE, IT IS AGREED AS FOLLOWS:

 

3. Agreement to purchase and sell shares: Subject to the terms and conditions set forth in this Agreement, on the closing date, Shareholders will transfer and convey the Shares to Buyer, and Buyer will acquire the Shares from Shareholders. Guarantor guarantees Buyer’s payment of the moneys and delivery of the shares due or to become due hereunder.

 

4. Purchase Price: In addition to the following Purchase Price adjustments and payment terms, Selling Parties warrant that as of Closing, which is expected to be November 30, 2006, the Consolidated Net Worth of Corporation and Subsidiary shall be an amount equal to $1,050,000 (the “Target Net Worth”). Any excess over the Target Net Worth may be distributed prior to Closing, or accrued and distributed after Closing as Shareholders determine (and Buyer shall cooperate with such choice by Shareholders). If actual Net Worth at Closing is less than the Target Net Worth, such shortfall will reduce the Maximum Deferred Payment Amount.

 

4.1 Purchase Price: The “Purchase Price at Closing” for all of the Corporation’s Shares is $2,000,000, which is the lesser of $2,000,000 or four times the adjusted net earnings before taxes of the MR Group for fiscal year ending August 31, 2005 as warranted by Seller (“2005 EBT”). Adjustments to net earnings shall be made in accordance with a written understanding of the parties (“2006 EBT Adjustment Agreement”), a copy of which is attached as Exhibit B. The Purchase Price at Closing and other payments, if any, shall be divided into separate accounts for each Shareholder (50% to each) and paid in accordance with this Agreement.

 

(a) At closing, Buyer has paid to Shareholders $1,150,000 ($1,200,000 less $50,000 escrow deposit) receipt of which is acknowledged.

 

(b) At closing, Buyer shall deposit $50,000 in an escrow fund at Designated Escrow, Inc., Lakewood, Washington (“Escrow Holder”). Interest earned shall become part of the “Escrow Fund” and shall accrue to the benefit of the Shareholders or the Buyer, as the case may be, in the same proportion as the Escrow Fund is eventually distributed to the parties. This Escrow Fund is partial security for the Shareholders’ indemnities and other obligations hereunder. It is not a limitation on Shareholders’ liability; nor shall the Escrow Fund be considered liquidated damages.

 

 

 

Six (6) months after execution of this Agreement, Shareholders shall receive all or any portion of the Escrow Fund which remains in the account and is not the subject of a pending claim by Buyer.

 

More specific provisions relating to the Escrow Fund and Escrow Holder are set forth in Exhibit C hereto and are incorporated into this Section 4.1(b) by this reference.

 

(c) The parties will act in good faith to determine the adjusted net earnings before taxes for the MR Group for the fiscal year ending August 31, 2006 (“2006 EBT”) not later than January 15, 2007. The 2006 EBT Adjustment Agreement shall apply to the determination of 2006 EBT, which means that 2006 EBT is the GAAP calculation adjusted as set forth on Exhibit B. After 2006 EBT is determined, the “Purchase Price” shall be the lesser of (i) $2,000,000 or (ii) four times the 2006 EBT which shall be divided into individual accounts for each Shareholder. The Purchase Price for each Shareholder shall be further adjusted if the Shareholder fails to satisfy the condition relating to employment set forth in 4.1.6 (c) below.

 

If the Purchase Price is different than the Purchase Price at Closing, such difference shall be added to or subtracted from the Maximum Deferred Payment as defined in paragraph 4(d).  

 

(d) The parties anticipate that the MR Group will change to a calendar year for accounting purposes from a fiscal year ending on August 31. Buyer shall pay Deferred Payments to Shareholders in three annual installments on April 15, 2008, April 15,2009 and April 15,2010 based on adjusted net earnings of the MR Group for the year ending on the December 31 immediately preceding the installment payment date. Deferred Payments shall be made if, and to the extent, that the conditions below are satisfied. Notwithstanding anything to the contrary, the sum of such Deferred Payments shall not exceed an amount equal to the Purchase Price less the sum of $1,200,000 and the amount of any shortfall in the Target Net Worth (“Maximum Deferred Payment Amount”).

 

(1) If adjusted net earnings before taxes for the MR Group for the calendar year ending December 31, 2007 are greater than an amount equal to 2006 EBT minus $25,000 (“Acceptable Target EBT”), the Deferred Payment for that year shall be one-third of the Maximum Deferred Payment Amount (“Maximum Annual Deferred Payment Amount”). Buyer and Seller agree that the payment as calculated under this paragraph shall be reduced by 10% as a holdback, pending the final calculation of the Maximum Deferred Payment at the end of calendar year 2009.

 

 

 

 

If the adjusted net earnings before taxes for calendar year 2007 are less than the Acceptable Target EBT, the amount of that shortfall shall be calculated. That shortfall shall be divided by 25,000 and rounded to the next higher whole number (“First Multiplier”). The First Multiplier shall be subtracted from ten and the difference shall be referred to as the “First Factor”. If the First Factor is zero or less, no payment shall be due or owing. Otherwise, the April 15, 2008 Deferred Payment shall be the Maximum Annual Deferred Payment Amount multiplied by a fraction, the numerator of which is the First Factor and the denominator of which is ten. Notwithstanding anything to the contrary, no Deferred Payment is due or owing in respect of calendar year 2007, if the adjusted net earnings before taxes are less than one-half of 2006 EBT. Buyer and Seller agree that the payment as calculated under this paragraph shall be reduced by 10% as a holdback, pending the final calculation of the Maximum Deferred Payment at the end of calendar year 2009.

 

(2) If adjusted net earnings before taxes for the MR Group for the calendar year ending December 31, 2008 are greater than an amount equal to 2006 EBT minus $25,000 (“Acceptable Target EBT”), the Deferred Payment for that year shall be one-third of the Maximum Deferred Payment Amount (“Maximum Annual Deferred Payment Amount”. Buyer and Seller agree that the payment as calculated under this paragraph shall be reduced by 10% as a holdback, pending the final calculation of the Maximum Deferred Payment at the end of calendar year 2009.

 

If the adjusted net earnings before taxes for calendar year 2008 are less than the Acceptable Target EBT, the amount of that shortfall shall be calculated. That shortfall shall be divided by 25,000 and rounded to the next higher whole number (“ Second Multiplier”). The Second Multiplier shall be subtracted from ten and the difference shall be referred to as the “Second Factor”. If the Second Factor is zero or less, no payment shall be due or owing. Otherwise, the April 15, 2008 Deferred Payment shall be the Maximum Annual Deferred Payment Amount multiplied by a fraction, the numerator of which is the Second Factor and the denominator of which is ten. Notwithstanding anything to the contrary, no Deferred Payment is due or owing in respect of calendar year 2008, if the adjusted net earnings before taxes are less than one-half of 2006 EBT. Buyer and Seller agree that the payment as calculated under this paragraph shall be reduced by 10% as a holdback, pending the final calculation of the Maximum Deferred Payment at the end of calendar year 2009.

 

 

 

(3) If the sum of adjusted net earnings before taxes for the MR Group for calendar years 2007, 2008 and 2009 is greater than three times the Acceptable Target EBT, the April 15, 2010 Deferred Payment shall be an amount equal to three times the Maximum Annual Deferred Payment Amount minus the sum of Deferred Payments previously earned by Shareholders, and increased for amounts heldback pursuant to paragraphs 4.1(d)(1)and(2). If the sum of adjusted net earnings before taxes for calendar years 2007, 2008 and 2009, is less than three times the Acceptable Target EBT, the amount of the shortfall shall be calculated. That shortfall shall be divided by 75,000 and rounded to the next higher whole number (“Third Multiplier”). The Third Multiplier shall be subtracted from ten and the difference shall be referred to as the “Third Factor”. If the Third Factor is zero or less, no Deferred Payment shall be due or owing. Otherwise, the April 15, 2010 Deferred Payment shall be the result of subtracting Deferred Payments previously earned from an amount equal to three times the Maximum Annual Deferred Payment Amount multiplied by a fraction, the numerator of which is the Third Factor and the denominator of which is ten, and increased for amounts heldback pursuant to paragraphs 4.1(d)(1) and (2). Notwithstanding anything to the contrary, no April 15, 2010 Deferred Payment is due or owing if the sum of the adjusted net earnings before taxes for calendar years 2007, 2008 and 2009 is less than one hundred fifty percent (150%) of 2006 EBT. However, in no case shall the Shareholders be liable for payment under this subparagraph of more than the amounts heldback pursuant to paragraphs 4.1(d)(1)and (2) following completion of the 2009 calculations hereunder.

 

(4) Notwithstanding anything to the contrary, Buyer may offset any payment due it as a result of one or both Shareholders’ breach(es) of this Agreement against any Deferred Payment.

 

(5) For purposes of determining the adjusted net earnings before taxes in connection with calculation of Deferred Payments and the Earn-Out Purchase Price, net earnings before taxes means the consolidated net income calculated by accountants selected by Buyer in accordance with the standards set forth in paragraph 4.3 Accounting .

 

(6) If either Shareholder’s employment with Corporation is terminated by the shareholder or the Corporation during the initial three-year term of the employment agreements being executed herewith, the Purchase Price in the account of such Shareholder shall be adjusted and paid as follows:

 

 

 

 

a. If a Shareholder is terminated by the Corporation without cause as such term is defined in the employment contract section 5.d, the Purchase Price for his or her Shares shall be deemed to be the entire Purchase Price regardless of the actual earnings of MR Group during the calendar years 2007, 2008 and 2009. Said Shareholder shall receive Maximum Annual Deferred Payments on the dates set forth in 4.1(d). If one or more Deferred Payments have already been made which were less than the Maximum Annual Deferred Payment, such shortfall shall be paid with the final Annual Deferred Payment.

 

b. If a Shareholder(s) voluntarily terminates his or her employment without cause as such term is defined in the employment contract section 5.d, that shareholder(s) shall receive a payout based on the actual earnings of the MR Group for calendar years 2007, 2008 and 2009. Such payments shall be made on the dates set forth in 4.1(d) and calculated in accordance with this Agreement.

 

c. If a Shareholder is terminated for cause as such term is defined in the employment contract, adjusted net profits for the calendar year in which such termination occurs will be calculated to the date of termination, which shall be deemed to be the adjusted net profits for that year for purposes of calculating the amount of the Annual Deferred Payment, if any. Payment of the amount calculated under this paragraph shall be paid within 90 days of the determination of the amount of such Annual Deferred Payment. The Purchase Price for said Shareholder(s)' Shares shall be reduced by the sum of Maximum Annual Deferred Payments for calendar years after the year in which termination occurs so that no Deferred Payments shall be due or owing by Buyer to said Shareholder(s) for the calendar years after termination.

 

d. In addition, at the time of each Deferred Payment, Buyer shall pay Shareholders accrued interest on that Deferred Payment at the United States prime rate as published in the Wall Street Journal in effect from time to time but in no event more than eight percent (8%) per annum or less than four percent (4%) per annum. If the Wall Street Journal does not publish such rate for any reason, Buyer shall determine the comparable rate in good faith.

 

 

 

 

 

The number of shares of Guarantor’s common stock shall be determined by dividing the agreed per-share value of Guarantor’s common stock into the amount of such additional compensation. The agreed per-share value of Guarantor’s common stock will be the volume weighted average price of Guarantor’s common shares traded on the principal exchange that such shares are traded (or the bulletin board if not listed on an exchange) during the last five trading days on which it traded prior to December 31, 2007. Notwithstanding the foregoing, Buyer may, at its sole discretion, pay cash in lieu of shares if such volume weighted average price is $1.00 or less per share. Additionally, Buyer may, at its option, offset any amount owed by one or both Shareholders on account of a breach of any provision of this Agreement against any obligation to give shares or money to Shareholders as part of the Earn-out Purchase Price.

 

 

 

The parties recognize and agree that these shares are subject to Securities and Exchange Commission Rule 144 which restricts sale or other disposition of those shares. In addition, the parties agree that the shares are subject to the following contractual restrictions on the disposition, sale, trade or collateralization of all or any portion of them.

 

In addition to any restriction imposed by statute, regulation or rule, such as SEC Rule 144, the parties agree that prior to October 15, 2009, neither Shareholder may sell, transfer, assign, make any short sale of, loan, grant any option for the purchase of, pledge, or otherwise dispose of, trade or collateralize (the foregoing are hereinafter collectively called “Sale”) all or any portion of, or interest in, the shares; except that one or both Shareholders may make a Sale of not more than fifty percent (50%) of Shares owned by said Shareholder during the period from April 15, 2009 to October 15, 2009 provided that such Sale does not violate Rule 144 or any other statute, regulation or rule. This Agreement shall not apply to any Sale which is part of a sale or exchange of all of the Guarantor’s outstanding stock or which has been otherwise authorized by the Board of Directors of Guarantor, in its sole and absolute discretion.

 

4.3 Accounting: “Net earnings before taxes” means the consolidated net income as computed using United States GAAP without any deduction for any federal, state, or other income taxes of MR Group. Net earnings for each fiscal year will be computed by independent public accountants selected by Buyer and a copy of this computation will accompany each payment to Shareholders. Unless Shareholders deliver a written, detailed objection (“notice of objection”) to the computation of net earnings before taxes, or any subsequent adjustment thereto, within thirty (30) days of receipt by Shareholders, the calculations set forth therein will be final and conclusive and binding on Shareholders and Buyer for purposes of this Agreement.

 

If Shareholders deliver a timely notice of objection, the parties shall attempt to resolve such dispute in good faith for a period of thirty (30) days before either party initiates dispute resolution proceedings in accordance herewith. The parties expressly agree that any management fees or other intercompany surcharges or general assessments will be added back and not taken into consideration in the determination of earnings before taxes.

 

5. This paragraph is intentionally omitted

 

 

 

6. Shareholders’ representations and warranties: Shareholders, jointly and severally, represent and warrant as follows:  

 

(a) Corporation and Subsidiary are corporations duly organized, validly existing, and in good standing under the laws of Washington; have all necessary corporate powers to own their properties and to carry on their business as now owned and operated; are duly qualified to do intrastate and interstate business; and are in good standing in California. These are the only jurisdictions in which the nature of their business or of their properties makes such qualification necessary.

 

Corporation and Subsidiary have all valid licenses and permits necessary to conduct their respective businesses as currently conducted. They are not in default under any of those licenses or permits. The Disclosure Schedule lists all licenses and permits and the names of any persons specifically listed therein as responsible parties or otherwise. Neither Corporation nor Subsidiary has its own customs brokerage license; such licenses are issued to individuals. In the Seattle and Long Beach offices this customs brokerage licenses are held by David Roberts (Seattle) and Daniel Sanchez (Long Beach).

 

(b) The authorized capital stock of Corporation consists of 50,000 shares of common stock, of which 20,000 shares are issued and outstanding. The authorized capital stock of Subsidiary consists of 1,000 shares of common stock, of which 1,000 shares are issued and outstanding. All the issued and outstanding shares of Corporation and Subsidiary are validly issued, fully paid, and nonassessable, and such shares have been so issued in full compliance with all federal and state securities laws. There are no outstanding subscriptions, options, rights, warrants, convertible securities, or other agreements or commitments obligating Corporation or Subsidiary to issue or to transfer from treasury any additional shares of capital stock of any class or any other security.

 

(c) Shareholders are the owners, beneficially and of record, of all the Shares free and clear of all liens, encumbrances, security agreements, equities, options, claims, charges, and restrictions including but not limited to any claim by a spouse, former spouse or putative spouse of a Shareholder or any other person who might, at any time, had any claim to any of the Shares or other security, if any, of Corporation or Subsidiary. Shareholders have full power to transfer the Shares to Buyer without obtaining the consent or approval of any other person (with the exception of the attached consent of spouses) or governmental authority. Corporation is the owner of all of the issued and outstanding shares of Subsidiary, beneficially and of record, free and clear of all liens, encumbrances, security agreements, equities, options, claims, charges and restrictions. Corporation has full power to transfer the shares of Subsidiary to Buyer or at Buyer’s direction without obtaining the approval or consent of any other person or governmental authority.

 

 

 

(d) Corporation does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, business, trust, limited liability company or other entity, except Subsidiary.

 

(e) The Disclosure Schedule includes consolidated and consolidating balance sheets of MR Group as of August 31, 2003, August 31, 2004, and August 31, 2005 and the related consolidated and consolidating statements of income and retained earnings for the three years ending on those dates, compiled by MR Group’s independent public accountants. The aforedescribed financial statements have been prepared in accordance with accounting principles consistently followed by the MR Group throughout the periods indicated, and fairly present the financial position of MR Group on the respective dates of the balance sheets included in the financial statements, and the results of its operations for the respective periods indicated. The financial statements are accurate to the best of Seller’s knowledge and have been presented on a basis consistent with prior practice.

 

(f) Since August 31, 2005, there has not been any change in the financial condition, operations or prospects of Corporation or Subsidiary, except changes in the ordinary course of business, which have not been materially adverse. Without limiting the foregoing, Corporation or Subsidiary has not:

 

(1) Engaged in any transaction by Corporation or Subsidiary except in the ordinary course of business;

 

(2) Made or committed to make a capital expenditure exceeding $5,000;

 

(3) Had any material adverse change in the financial condition, liabilities, assets, business, or prospects of Corporation or Subsidiary;

 

 

 

(4) Suffered destruction, damage to, or loss of any asset of Corporation or Subsidiary(whether insured or uninsured) that materially and adversely affects the financial condition, business, or prospects of Corporation or Subsidiary;

 

(5) Made any change in accounting methods or practices (including, without limitation, any change in depreciation or amortization policies or rates) by Corporation or Subsidiary except as approved in writing by Buyer;

 

(6) Revalued any assets without the written approval of Buyer;

 

(7) Except as disclosed to Buyer and acknowledged in writing by Buyer prior to closing, declared, set aside, or paid a dividend or other distribution in respect to the capital stock of Corporation or Subsidiary, or any direct or indirect redemption, purchase, or other acquisition by Corporation or Subsidiary of any of its shares of capital stock;

 

(8) Increased the salary or other compensation payable or to become payable by Corporation or Subsidiary to any of its officers, directors, or employees or made any promise or undertook any obligation to make a bonus (other than annual or other periodic bonuses to shareholder employees consistent with prior practice, and disclosed to and acknowledged by Buyer in writing prior to closing) or other additional salary or compensation to any such person except as approved in writing by Buyer;

 

(9) Sold or transferred any asset of Corporation or Subsidiary, except in the ordinary course of business;

 

(10) Amended or terminated any contract, agreement, or license to which Corporation or Subsidiary is a party, except in the ordinary course of business;

 

(11) Loaned money to any person or entity, or guaranteed any loan;

 

(12) Mortgaged, pledged, or otherwise encumbered any asset of Corporation or Subsidiary;

 

(13) Waived or released any right or claim of Corporation or Subsidiary, except in the ordinary course of business;

 

(14) Received notice or a threat in any form that civil litigation, arbitration, governmental proceeding or the like has been, or may be commenced against Corporation or Subsidiary or that any of their affairs or conduct is being investigated;

 

 

 

(15) Received notice or a threat in any form that a claim of wrongful discharge, discrimination or harassment or other unlawful labor practice or action may be made against the Corporation or Subsidiary or any of its officers, employees or directors;

 

(16) Issued or sold any shares of its capital stock of any class or any other of its securities;

 

(17) Entered into an agreement to do any of the things described in the preceding clauses (1) through (16); or

 

(18) There has not been any other event or condition of any character that has or could reasonably be expected to have a material and adverse effect on the financial condition, business, assets, liabilities, or prospects of Corporation or Subsidiary.

 

(g) Neither Corporation nor Subsidiary has any debt, liability, or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or specifically reserved against and noted in Corporation’s consolidated balance sheet as o