UNITED STATES
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) January 5, 2006
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Alliance Distributors Holding Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 000-32319 33-0851302
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(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
15-15 132nd St., College Point, New York 11356
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(Address of Principal Executive Offices) (Zip Code)
(718) 747-1500
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Registrant's telephone number, including area code
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2 (b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4 (c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On January 2, 2006, the Company executed a Stock Purchase Agreement (the
"Acquisition Agreement") with Emerich Goldstein, his son Benjamin Goldstein and
three other Goldstein family members (the "Sellers"), who together own all of
the issued and outstanding capital stock of Foto Electric Supply Co., Inc., a
New York corporation ("FESCO"). The Acquisition Agreement became effective on
January 5, 2006.
Pursuant to the Acquisition Agreement, the Sellers agreed to sell all of their
shares of capital stock of FESCO to the Company for a total purchase price (the
"Purchase Price") of up to a maximum of $78,000,000 determined as follows:
(a) $70 million; plus
(b) 6.67 times the amount (if any) by which FESCO's earnings before
interest, tax, depreciation and amortization in 2005 ("2005 EBITDA")
exceeds $10,500,000, up to a total 2005 EBITDA of $11,250,000 (provided,
however, that the portion of the purchase price calculated under this
clause (b) shall not be greater than $5,000,000); plus
(c) 5 times the amount (if any) by which FESCO's 2005 EBITDA exceeds
$11,250,000, up to a total 2005 EBITDA of $11,450,000; plus
(d) 4 times the amount (if any) by which FESCO's 2005 EBITDA exceeds
$11,450,000, up to a total 2005 EBITDA of $11,700,000; plus
(e) 3 times the amount (if any) by which FESCO's 2005 EBITDA exceeds
$11,700,000, up to a total 2005 EBITDA of $12,033,333.
EBITDA will be calculated in accordance with generally accepted accounting
principles, subject to certain adjustments set forth in the Acquisition
Agreement.
The Purchase Price is payable to the Sellers as follows:
(a) $50 million in cash to Sellers at the closing of the Acquisition
(the "Cash Purchase Price");
(b) The issuance to the Sellers at the closing of the Acquisition of
3-year subordinated promissory notes of the Company (the "Acquisition
Notes") in the aggregate principal amount of $12.5 million. The
Acquisition Notes will be subordinated to any outstanding indebtedness to
the Company's senior lenders. Interest will accrue on the Acquisition
Notes at prime plus 1%; provided, however, that during any period that
principal or interest is not paid to the holders of the Acquisition Notes
due to subordination, then during such period the Acquisition Notes shall
accrue interest at the lesser of (i) 15% per annum or (ii) prime plus
4.25%. The outstanding principal amount of the Acquisition Notes will be
payable in 36 equal monthly installments of $347,222. Accrued interest
will be payable monthly. So long as the Acquisition Notes are outstanding,
the Company will leave undrawn at least $500,000 of its credit
availability under its senior credit facilities, except that the Company
may draw this amount to make payments on the Acquisition Notes;
(c) The issuance to Sellers of equity securities ("Restricted Equity
Securities") that have an aggregate value equal to the balance of the
purchase price. These securities will be valued at the valuation
applicable to equity securities ("investor equity securities") that are
purchased by any investors who provide financing for the Cash Purchase
Price, and will have the same terms (including registration rights and
restrictions) as the investor equity securities.
The Company and FESCO will after the closing of the Acquisition (the
"Acquisition Closing Date") prepare a balance sheet for FESCO as of the
Acquisition Closing Date. The aggregate principal amount of the Notes will be
reduced by the amount, if any, that FESCO's net worth (as defined in the
Acquisition Agreement), as of such closing date, is less than $13 million
subject to certain adjustments. If FESCO's net worth as of such closing date is
more than $13 million, the Company will issue to the Sellers additional notes in
an aggregate principal amount equal to the amount by which FESCO's net worth
exceeds $13 million subject to such adjustments. These additional notes will
contain the same terms and conditions as the Acquisition Notes, except that the
principal amount shall be paid in 12 equal monthly installments instead of 36.
Upon the closing of the Acquisition:
(a) The Company will enter into an employment agreement with
Benjamin Goldstein under which he will be employed for a term of 30 months
as President at compensation equal to the compensation provided by the
Company from time to time to Jay Gelman (the Company's Chief Executive
Officer) and benefits substantially equal to the benefits provided by the
Company from time to time to Mr. Gelman, provided that Mr. Goldstein's
annual salary will in no event be less than $450,000. If Mr. Goldstein is
terminated other than for cause (as defined in his employment agreement),
or if he resigns because the Company shall have defaulted on the
Acquisition Notes or for other good reason (as defined in his employment
agreement), the Company will be obligated to pay Mr. Goldstein, in one
lump sum payment, a pro rata share of his bonus for the year of
termination and three times his base salary.
(b) The Company will enter into an employment agreement with Emerich
Goldstein under which he will be employed on a part-time basis for two
years at a salary at the rate of $150,000 per year. The Company will also
pay or reimburse Mr. Goldstein for family health insurance coverage of his
choice and for lease and maintenance payments for one automobile.
(d) Each of Benjamin and Emerich Goldstein will enter into a
non-solicitation and non-competition agreement in favor of the Company for
a term ending on the later of (i) the fifth anniversary of the Acquisition
Closing Date or (ii) the third anniversary of the termination of their
employment with the Company for whatever reason.
(e) The Company will enter into a five-year lease with one five-year
renewal option with an affiliate of the Sellers for FESCO's headquarters
building at 1 Rewe Street, Brooklyn, New York. The lease will initially
cover only the space currently used by FESCO as described above, but after
six months will also include 17,000 additional square feet of warehouse
space and 9,000 additional square feet of office space. The additional
space is currently occupied by another affiliate of Sellers. The monthly
fixed rental under the lease will be $67,500 during the first six months,
and $90,000 thereafter, except that the fixed rent will increase 2.5% on
the first day of the fourth year of the lease term and on the first day of
each year thereafter, both during the initial lease term and during the
option period, if any.
The closing under the Acquisition Agreement is to occur no later than February
28, 2006 unless extended by the parties, and is subject to the Company's raising
$50 million in equity financing, the consummation of the debt financing referred
to in the next paragraph, the repayment by the Company of FESCO bank financing
that is currently guaranteed by the Sellers, consent by the landlord's mortgagee
to the lease described above, and other conditions. The Acquisition Agreement
also contains representations, warranties and covenants by the Sellers and the
Company, and provides for indemnification to the extent that they breach any of
such representations and warranties, but only to the extent that such damages
exceed $100,000. The aggregate indemnity obligations of the Sellers will in no
event exceed $62,500,000, less any amounts paid by Sellers to the Company in
respect of a shortfall in Net Worth as described above. Indemnification by the
Sellers in any amount will be satisfied by first offsetting such amounts against
the outstanding amounts payable under the Acquisition Notes, next by the
cancellation of Restricted Equity Securities held by the Sellers, and then by
cash payments from the Sellers.
The Company will after the closing enter into an employment agreement with David
Goldstein under which he will be employed for two years at a salary at the
annual rate of $250,000, provided that Mr. Goldstein advises the Company within
180 days after the closing that he is available to be hired as an employee. If
Mr. Goldstein is hired, the Company will also pay or reimburse him for family
health insurance coverage.
The Company has no commitment for the debt and equity financings necessary to
consummate this transaction.
The foregoing summary is qualified by reference to the Acquisition Agreement
filed as an exhibit to this Report.
ITEM 9.01. Financial Statements and Exhibits
(d) Exhibits
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Exhibit Description
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10.1 Stock Purchase Agreement, dated January 2, 2006,
filed herewith
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SIGNATURES
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 thereunto duly authorized.
ALLIANCE DISTRIBUTORS HOLDING INC.
Registrant
Date: January 10, 2006
By /s/ Jay Gelman
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Jay Gelman, CEO
EXHIBIT INDEX
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Exhibit Description
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10.1 Stock Purchase Agreement, dated January 2, 2006,
filed herewith
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