UNIT PURCHASE AGREEMENT
EXHIBIT
99
EXECUTION
COPY
THIS
UNIT PURCHASE AGREEMENT
is made
and entered into as of this 15th
day of
March, 2007, by and among TELKONET, INC. a Utah corporation (“Purchaser”),
ETHOSTREAM, LLC, a Wisconsin limited liability company (the “Company”),
Xxxxx
Xxxxxx (“Xxxxxx”),
Xxxx
Xxxxxxxx (“Xxxxxxxx”),
Xxxxx
Xxxxx (“Xxxxx”),
Xxxxx
Xxx (“Xxx”),
Clocktower Properties, LLC (“Clocktower”),
Xxxxxx Xxxxx (“Xxxxxx”),
Xxxxxxxxx Xxxxx (“Xxxxxxxxx”),
Xxxx
Xxxx (“Xxxx”)
and
Xxxxx Xxxxxxxx (“Xxxxxxxx,”
together with Tienor, Sobieski, Burns, Lau, Clocktower, Andrew, Christina
and
Maul, the “Members”).
Capitalized terms used herein and not otherwise defined herein shall have
the
meanings given to such terms in Section 1.1 hereof.
RECITALS
WHEREAS,
the
Company is engaged in the business of providing wireless and wired network
technologies for hospitality and other commercial and residential properties
(the “Business”);
WHEREAS,
the
Members own, in the aggregate, 100% of the issued and outstanding membership
units of the Company;
WHEREAS,
the
Members desire to sell, and Purchaser desires to purchase, all of the issued
and
outstanding membership units (the “Units”)
of the
Company on the terms and subject to the conditions set forth
herein.
NOW,
THEREFORE,
in
consideration of the mutual covenants, representations, warranties and
agreements hereinafter set forth, and intending to be legally bound hereby,
the
parties hereto agree as follows:
ARTICLE
I
Definitions
1.1 Definitions.
As used
in this Agreement, the following terms shall have the following
meanings:
“409A
Plans”
is
defined in Section 3.20(m).
“Adjustment
Period”
is
defined in Section 2.5.
“Affiliate”
means,
with respect to any specified Person, any other Person which, directly or
indirectly, controls, is under common control with, or is controlled by,
such
specified Person.
“Agreement”
means
this Agreement and the Company Disclosure Schedules hereto, as this Agreement
may be amended from time to time.
-1-
“Anniversary
Date”
is
defined in Section 2.3.
“Arbitrator”
has
the
meaning set forth in Section 2.4(c) hereof.
“Baseline
Net Working Capital”
means
an amount equal to the amount outstanding on the Line of Credit on the Closing
Date plus $200,000.
“Benefit
Plan”
means
any collective bargaining agreement, any Pension Plan or any bonus, profit
sharing, deferred compensation, incentive compensation, performance, retirement,
vacation, severance or termination, disability, death benefit, employment,
consulting, independent contractor, member, retention, hospitalization, fringe
benefit, medical, dental, vision or other material plan, program, policy,
arrangement or Contract (whether or not subject to the Laws of the United
States) established, maintained, contributed to or required to be established,
maintained or contributed to by the Company or any ERISA Affiliate, in each
case, providing benefits to any employee of the Company, and in each case
whether written or oral, informal or formal, subject to ERISA or not.
“Business
Day”
means
any day other than (i) a Saturday or Sunday, or (ii) a day on which banking
institutions located in Wisconsin are permitted or required by Law, executive
order or decree of a Governmental Entity to remain closed.
“Cash
Consideration”
is
defined in Section 2.2.
“Certificate
of Formation”
means
the certified Articles of Organization of the Company, as filed with the
Department of Financial Institutions of Wisconsin, as amended.
“Closing”
is
defined in Section 7.1.
“Closing
Date”
is
defined in Section 7.1.
“Closing
Date Net Working Capital”
is
defined in Section 2.4.
“Closing
Date Price”
is
defined in Section 2.2.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“Commission”
means
the Securities and Exchange Commission, or any other federal agency at the
time
administering the Securities Act.
“Common
Stock”
is
defined in Section 2.2.
“Company”
has
the
meaning set forth in the Recitals.
-2-
“Company
Certificate”
is
defined in Section 6.2(a).
“Company
Indemnified Party”
is
defined in Section 9.3.
“Company
Intellectual Property”
means
all Intellectual Property owned, used, under development or filed by or licensed
to the Company.
“Constitutive
Documents”
means
the Company’s Certificate of Formation and Operating Agreement.
“Contract”
means
any loan or credit agreement, bond, debenture, note, mortgage, indenture,
guarantee, lease or other contract, commitment, agreement, instrument,
obligation, undertaking, concession, franchise, license or legally binding
arrangement or understanding, whether written or oral.
“Controlled
Group Liability”
means
any and all liabilities under (i) Title IV of ERISA, (ii) Section 302 of
ERISA,
(iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code,
(v)
the portability and nondiscrimination requirements of Section 701 et seq.
of
ERISA and Section 9801 et seq. of the Code, and (vi) Section 4975 of the
Code.
“Copyright”
means
any registered copyright (i) licensed from any third party (other than
“shrink-wrap” software), or (ii) assigned, registered or applied
for.
“Current
Assets”
means
the aggregate value of the accounts receivable of the Company, as determined
in
accordance with the Company’s historic accounting methods consistently applied
in accordance with past practice.
“Current
Liabilities”
means
the aggregate value of the accounts payable of the Company, which shall include
the following line items appearing on the Most Recent Balance Sheet (i) accounts
payable, (ii) accounts payable, credit card, (iii) hotel use fees payable,
(iii)
accrued insurance payable, and (iv) sales tax payable, each determined in
accordance with the Company’s historic accounting methods consistently applied
in accordance with past practice.
“Delivery
Date”
is
defined in Section 2.4(a).
“Disclosure
Schedule”
means
a
schedule of exceptions to the representations and warranties of the Company
and
the Members set forth in Article III, delivered contemporaneously with this
Agreement.
“Disputed
Matters”
is
defined in Section 2.4(c).
“Employee
Members”
is
defined in Section 2.3.
-3-
“Employment
Agreements”
means
the employment agreements to be executed at or prior to the Closing between
Purchaser and each of Xxxxxx and Xxxxxxxx.
“Encumbrances”
is
defined in Section 3.5.
“Environment”
means
any and all environmental media, including, but not limited to, ambient air,
surface water, ground water, drinking water supply, land surface, subsurface
strata,
wetlands or sediments.
“Environmental
Law”
means
any and all federal, state, local or foreign statutes, laws, codes, regulations,
rules, orders, judgments, binding judicial decisions, permits, writs, decrees,
licenses, approvals, injunctions, written policies, ordinances and binding
directives pertaining to or relating to protection or restoration of the
Environment, pollution, health and safety, noise, radiation, or the manufacture,
generation, handling, storage, use, emission, discharge, release,
transportation, treatment, disposal or remediation of any Hazardous Material
and
the health or safety of employees in the workplace environment with respect
to
Hazardous Material, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, the Occupational Safety and Health
Act, the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the Federal Insecticide, Fungicide, and Rodenticide Act,
the
Safe Drinking Water Act, the Hazardous Materials Transportation Act and any
similar federal, state or local law, as each is in effect as of the date
hereof.
“ERISA”
means
the Employee Retirement Income Security Act of 1974.
“ERISA
Affiliate”
means
any Person which is (or at any relevant time was) a member of a “controlled
group of corporations” with, under “common control” with, or a member of an
“affiliate service group” with the Company as such terms are defined in Section
414(b), (c), (m) or (o) of the Code.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, or any similar successor
United
States statute, and the rules and regulations of the Commission issued under
such act, as they each may, from time to time, be in effect.
“Financial
Statements”
are
defined in Section 3.9(a).
“First
Tail Period”
is
defined in Section 5.12.
“Fourth
Tail Period”
is
defined in Section 5.12.
“Governmental
Entity”
means
any nation, state, province, county, city or political subdivision and any
official, agency, arbitrator, authority, court, department, commission, board,
bureau, instrumentality or other governmental or regulatory authority of
any
thereof, whether domestic or foreign.
-4-
“Hazardous
Material”
means,
whether alone or in combination, whether solid, liquid or gaseous: (i) any
pollutant, contaminant, substance, chemical or material that is listed,
classified or regulated pursuant to any Environmental Law; (ii) any petroleum,
petroleum product, waste oil, crude oil and its fractions, asbestos and
asbestos-containing material, urea formaldehyde, nuclear material, natural
or
synthetic gas, pesticide, or polychlorinated biphenyl; (iii) any pollutant,
contaminant, substance, material, chemical or waste that is explosive or
radioactive; or (iv) any hazardous chemical, pollutant, contaminant, hazardous
waste, toxic chemical, all as defined as hazardous under the Environmental
Law.
“Holdback”
shall
be an amount held back from the Purchase Price determined in accordance with
Section 2.3.
“Holdback
Shares”
is
defined in Section 2.3.
“Indebtedness” of
any
Person means, without duplication: (i) all indebtedness of such Person for
borrowed money, with respect to deposits or advances of any kind or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the Ordinary Course of Business and payable in
accordance with customary practices or being disputed in good faith); (ii)
all
principal, interest, prepayment penalties and premiums and other obligations
of
such Person evidenced by bonds, debentures, notes or similar instruments;
(iii)
all Indebtedness of third parties secured by (or for which the holder of
such
Indebtedness has an existing right, contingent or otherwise, to be secured
by)
any Lien or other claim on property owned or acquired by such Person, whether
or
not the obligations secured thereby have been assumed; and (iv) all guarantees
by such Person of Indebtedness of third parties.
“Indemnified
Party”
means
either a Purchaser Indemnified Party or a Company Indemnified
Party.
“Indemnifying
Party”
means
the party from which indemnification is sought pursuant to Article
IX.
“Intellectual
Property”
means
any (i) Patents, (ii) Marks, (iii) Copyrights, (iv) trade secrets, as defined
in
the Uniform Trade Secrets Act, including confidential research and development,
know-how, formulas, compositions, manufacturing and production processes
and
techniques, methods, schematics, technology, technical data, designs, drawings,
flowcharts, block diagrams, specifications, customer and supply lists, pricing
and cost information, and business and marketing plans and proposals, (v)
software or computer programs, (vi) licenses and agreements pursuant to which
a
Person has acquired rights in or to any of the foregoing or licenses or
agreements pursuant to which a Person has licensed or transferred the right
to
use any of the foregoing, or (vii) domain names, and (viii) unregistered
rights
in copyright to print or electronic publications and content.
“Issued
Patent”
means
a
Patent which has been granted by the PTO, or any patent office of any other
country, which is unexpired and which has not been held invalid by a decision
of
a court or other appropriate body of competent jurisdiction.
“IRS”
means
the United States Internal Revenue Service.
-5-
“Judgment”
means
any judgment, order or decree of, or issued by, any Governmental
Entity.
“Knowledge”
means,
with respect to any matter in question, the actual knowledge of Xxxxx Xxxxxx
and
Xxxx Xxxxxxxx after reasonable inquiry. Known has a correlative
meaning.
“Law”
means
any constitution, act, statute, law, ordinance, treaty, rule or regulation
of
any Governmental Entity.
“Legal
Proceeding”
means
any action, suit, proceeding, claim, arbitration or investigation before
any
Governmental Entity or before any arbitrator or mediator or similar party,
or
any investigation or review by any Governmental Entity.
“Lien” means
any
lien, pledge, claim, charge, mortgage, encumbrance or other security interest
of
any kind, whether arising by Contract or by operation of Law.
“Line
of Credit”
means
that certain line of credit between the Company and F & M Bank-Wisconsin,
dated as of February 10, 2004.
“Losses”
means
any debts, obligations and other liabilities (whether known or unknown, absolute
or contingent, liquidated or unliquidated, due or to become due, accrued
or not
accrued, asserted or unasserted or otherwise), losses, claims, damages, Taxes,
interest obligations, deficiencies, Judgments, assessments, fines, fees,
penalties, expenses (including amounts paid in settlement, interest, court
costs, costs of investigators, fees and reasonable expenses of attorneys,
accountants, financial advisors, consultants and other experts, and other
expenses of litigation). Losses shall not include any incidental or
consequential damages, including, but not limited to, lost profits or business
opportunities or amounts with respect to which specific reserves have been
created on the Most Recent Balance Sheet.
“Xxxx”
means
any trademark, trade name, trade dress, service xxxx or domain
name.
“Master
Escrow Agreement”
means
that certain Master Escrow Agreement to be entered into on the Closing Date
by
and among Purchaser, the Escrow Agent (as therein defined) and the Members
substantially in the form of Exhibit
A
hereto.
“Material
Adverse Change”
means
any change, circumstance, development, state of facts, event or effect (i)
that
has had or would reasonably be expected to have a material adverse change
or
effect (taken alone or in the aggregate with any other adverse change or
effect)
in or with respect to the business, properties, assets, condition (financial
or
otherwise), liabilities (contingent or otherwise) or results of operations
of
the Business in an amount in excess of $100,000, or (ii) that would reasonably
be expected to prevent or materially impede, interfere with, hinder or delay
the
consummation by the Company of the transactions contemplated by this Agreement;
provided that none of the following shall be deemed to constitute, and none
of
the following shall be taken into account in determining whether there has
been
or will be a Material Adverse Change: (a) any change relating to the United
States economy or securities markets in general, so long as any impact on
the
Business is not disproportionate, (b) any adverse change, effect, event,
occurrence, state of facts or development described in clause (i) or (ii)
above
resulting from conditions generally affecting the industry in which the Company
participates, (c) the
announcement or consummation of the closing of the transactions contemplated
hereby, and (d) changes in any applicable Law.
-6-
“Material
Contract”
is
defined in Section 3.14(a).
“Members’
Representative”
is
defined in Section 11.7.
“Most
Recent Balance Sheet”
is
defined in Section 3.9(a).
“Most
Recent Balance Sheet Date”
means
December 31, 2006.
“Nonemployee
Members”
is
defined in Section 2.3.
“Notice
of Disagreement”
is
defined in Section 2.4(c).
“Operating
Agreement”
means
the Operating Agreement of the Company, dated November 11, 2004, as
amended.
“Ordinary
Course of Business”
means
any action taken if: (i) such action is consistent with past practice including
as to amount and frequency and is taken in the course of normal day-to-day
operations and (ii) such action complies with Law.
“Party”
means
a
party to this Agreement.
“Patent”
means
any United States or foreign patent, any application for a United States
or
foreign patent, or any continuation, continuation-in-part, division, renewal,
extension (including any supplemental protection certificate), reexamination
or
reissue thereof.
“Pension
Plan”
means
any “employee pension benefit plan,” as defined in Section 3(2) of
ERISA.
“Permit”
means
any federal, state or local, domestic or foreign, governmental consent,
approval, order, authorization, certificate, filing, notice, permit, concession,
registration, franchise, license or right.
“Permitted
Liens”
means
the following, to the extent not securing Indebtedness: (i) statutory Liens
for
Taxes not yet due or payable or being contested in good faith by appropriate
proceedings; (ii) Liens for assessments and other governmental charges or
Liens
of landlords, carriers, warehousemen, mechanics and repairmen incurred in
the
Ordinary Course of Business, in each case for sums not yet due and payable
or
due but not delinquent or being contested in good faith by appropriate
proceedings; (iii) Liens incurred in the Ordinary Course of Business in
connection with workers’ compensation, unemployment insurance and other types of
social security; and (iv) any
interest or title of a lessor under an operating lease or capitalized lease
or
of any licensor under a license.
“Person”
means
an individual, corporation, partnership, limited liability company, joint
venture, association, trust, Governmental Entity, unincorporated organization
or
other entity.
“PTO”
means
the United States Patent and Trademark Office.
-7-
“Purchase
Price”
is
defined in Section 2.2.
“Purchase
Price Adjustment”
is
defined in Section 2.4(b).
“Purchase
Shares”
means
the shares of Common Stock issued as the Stock Consideration.
“Purchaser”
has
the
meaning set forth in the Recitals.
“Purchaser
Certificate”
is
defined in Section 6.3(a).
“Purchaser
Indemnifiable Loss”
is
defined in Section 9.2.
“Purchaser
Indemnified Party”
is
defined in Section 9.2.
“Put
Option”
is
defined in Section 5.12.
“Quarterly
Release”
is
defined in Section 2.3(b).
“Real
Property”
is
defined in Section 3.13.
“Representatives”
means,
with respect to a Person, such Person’s legal, financial, internal and
independent accounting and other advisors and representatives.
“Rule
144”
shall
mean Rule 144 promulgated under the Securities Act.
“Second
Tail Period”
is
defined in Section 5.12.
“Securities
Act”
means
the Securities Act of 1933, as amended, or any similar successor United States
statute, and the rules and regulations of the Commission issued under such
act,
as they each may, from time to time, be in effect.
“Stock
Consideration”
is
defined in Section 2.2
“Subsidiary”
means,
with respect to any Person, another Person (i) of which 50.0% or more of
any
class of capital stock is owned or controlled, directly or indirectly, by
such
first Person, or (ii) of which such first Person is a general
partner.
“Tail
Period”
is
defined in Section 5.12.
“Tax”
means
any United States federal, state, local and foreign income, profits, franchise,
license, capital, transfer, ad
valorem,
wage,
severance, occupation, import, custom, gross receipts, payroll, sales,
employment, use, stamp, alternative or add-on minimum, environmental,
withholding and any other tax, duty, assessment or governmental tax charge
of
any kind whatsoever, imposed or required to be withheld by any taxing authority,
including any interest, additions to tax, or penalties applicable or related
thereto.
-8-
“Tax
Return”
means
any return, declaration, report, claim for refund, or information return
or
statement or other form relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
“Third
Party Claim”
means
any suit, proceeding, claim or demand by a Person other than a Person from
which
indemnification may be sought under Article IX.
“Third
Tail Period”
is
defined in Section 5.12.
“Trading
Market”
means
whichever of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on
which
Common Stock is listed or quoted for trading on the date in
question.
“Triggering
Event”
is
defined in Section 5.12.
“Twenty-Day
VWAP”
is
defined in Section 2.5(a)
“Units”
has
the
meaning set forth in the Recitals.
“WARN
Act”
means
the Worker Adjustment and Retraining Notification Act of 1991.
ARTICLE
II
Purchase
and Sale of UNITS
2.1 Purchase
and Sale of Units.
Upon
the terms and conditions set forth in this Agreement, at the Closing, the
Members shall sell to Purchaser, and Purchaser shall purchase from the Members,
the Units.
2.2 Purchase
Price.
The
purchase price for the Units shall be $11,756,097 (the “Purchase
Price”).
The
Purchase Price shall be payable by Purchaser through the delivery to the
Members
of Cash (the “Cash
Consideration”)
and
shares (the “Stock
Consideration”)
of
Purchaser’s common stock, par value $0.001 per share (the “Common
Stock”),
subject to the Holdback set forth in Section 2.3 and to adjustment pursuant
to
Sections 2.4 and 2.5. The Members may elect to receive the Purchase Price
entirely in shares of Common Stock or a combination of cash and Common Stock,
provided that,
no
Member shall have the right to receive more than 20% of such Member’s pro rata
portion of the Purchase Price in cash and in no event shall the aggregate
amount
of cash paid by Purchaser to all Members exceed $2,000,000. The number of
shares
of Common Stock issuable as the Stock Consideration shall be determined assuming
a per share price equal to the closing price of the Common Stock on the American
Stock Exchange on the trading day immediately preceding the Closing Date
(the
“Closing
Date Price”).
The
Cash Consideration shall be paid at the Closing, by wire transfer to such
bank
account(s) designated in writing by the Members, in immediately available
United
States Dollars.
-9-
2.3 Holdback.
Purchaser shall withhold from the Purchase Price the entire amount of the
Stock
Consideration (the “Holdback
Shares”).
The
Holdback Shares shall be maintained in an escrow account (the “Escrow
Account”)
pursuant to the Master Escrow Agreement. The Holdback Shares then remaining
in
the Escrow Account, minus that number of Holdback Shares having a value equal
to
the total of all demanded (and unpaid and unresolved) obligations of the
Company
or the Members required to be funded from the Holdback (collectively, the
“Holdback
Obligations”),
shall
be released:
(a)
to
those
Members who are not employees of the Company on the Closing Date (the
“Nonemployee
Members”)
on the
first anniversary of the Closing Date (the “Anniversary
Date”);
and
(b) to
those
Members who are employees of the Company on the Closing Date (the “Employee
Members”),
which
Employee Members are listed on Schedule
2.3(b),
pro
rata in twelve equal installments, the first four installments of which shall
be
payable on the Anniversary Date and the remaining installments of which shall
be
payable quarterly (each subsequent installment, a “Quarterly
Release”),
beginning on the last day of the third month following the Anniversary Date
and
on the last day of each third month thereafter. The Holdback shall be the
sole
remedy to fund any of the obligations of the Company or the Members pursuant
to
Section 9.2 hereof.
2.4 Purchase
Price Adjustment.
(a) Within
sixty (60) days of the Closing (the “Delivery
Date”),
Purchaser shall deliver to the Members a calculation as of the Closing Date,
prepared in accordance with the Company’s historic accounting methods
consistently applied in accordance with past practice, of the amount, if
any, by
which the combined Current Assets of the Company exceed the combined Current
Liabilities of the Company (“Closing
Date Net Working Capital”).
(b) In
the
event Closing Date Net Working Capital is less than Baseline Net Working
Capital, the Members shall be required to refund to Purchaser the amount
by
which Baseline Net Working Capital exceeds Closing Date Net Working Capital.
In
the event Closing Date Net Working Capital is more than Baseline Net Working
Capital, Purchaser shall be required to pay to the Members the amount by
which
Closing Date Net Working Capital exceeds Baseline Net Working Capital. Any
amounts owed pursuant to this Section 2.4(b) shall be due and payable within
thirty (30) days of the Delivery Date, unless disputed in accordance with
Section 2.4(c). The adjustment to the Purchase Price provided for in this
Section is hereinafter referred to as the “Purchase
Price Adjustment.”
-10-
(c) The
Members’ Representative shall have ten (10) business days from the Delivery Date
to deliver a written notice of disagreement to Purchaser (a “Notice
of Disagreement”).
During such period, Purchaser shall make the books and accounting records
relating to the Business (including work papers) and appropriate accounting
personnel reasonably available to the Members’ Representative. Any such Notice
of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. If no Notice of Disagreement is delivered within
such
ten (10) business day period, the Closing Date Net Working Capital amount
shall
become final and binding upon the parties. Following delivery of a Notice
of
Disagreement, the parties shall attempt to resolve any differences that they
may
have with respect to any matter specified in the Notice of Disagreement.
If the
parties fail to reach a written agreement with respect to all such matters
within 60 days of the Notice of Disagreement, then all such matters as specified
in the Notice of Disagreement as to which such written agreement has not
been
reached (the “Disputed
Matters”)
shall
be submitted to and reviewed by an arbitrator (the “Arbitrator”),
who
shall be selected by the Members’ Representative and Purchaser. The Arbitrator
shall act promptly (in no event to exceed 20 days) to resolve all Disputed
Matters and his or her decision with respect to all Disputed Matters shall
be
final and binding upon the parties. The fees and expenses of the Arbitrator
incurred in resolving the Disputed Matters shall be borne equally by the
Members
and Purchaser. Any adjustment required pursuant to this Section 2.4(c) shall
be
paid by the Members or Purchaser, as appropriate, by wire transfer to such
bank
account(s) designated by the Members or Purchaser, as appropriate, within
five
(5) days of final determination thereof in immediately available United States
Dollars.
2.5 Adjustment
to Number of Shares Issued as Stock Consideration.
(a) If
during
the twelve months following the Closing (the “Adjustment
Period”),
the
Common Stock has a volume-weighted average trading price, rounded to the
nearest
one-hundredth of one cent (the “Twenty
Day VWAP”),
of at
least $4.50, as reported on the American Stock Exchange, for twenty (20)
consecutive trading days, the aggregate number of shares of Common Stock
issuable to the Members as the Stock Consideration shall be adjusted such
that
the number of shares of Common Stock issuable as the Stock Consideration
shall
be determined assuming a per share price equal to $4.50. For purposes of
this
Agreement, the Twenty Day VWAP shall be calculated using the default criteria
for the function known as “Bloomberg VWAP” of the AQR function for the Common
Stock on the automated quote and analytical system distributed by Bloomberg
Financial LP.
(b) If
Purchaser, at any time during the Adjustment Period, (i) pays a stock dividend
on its Common Stock or otherwise makes a distribution of any class of capital
stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines
outstanding shares of Common Stock into a smaller number of shares, then
an
equitable adjustment shall be made to the number of shares of Common Stock
issuable as Stock Consideration and the calculation of the volume-weighted
average trading price of the Common Stock.
-11-
ARTICLE
III
Representations
and Warranties of the Company and THE
MEMBERS
Except
as
set forth in the Company Disclosure Schedule delivered to Purchaser
simultaneously with the execution hereof, the Company and the Members jointly
and severally represent and warrant to Purchaser for its reliance in the
execution, delivery and performance of this Agreement that all of the statements
contained in this Article III are true and correct as of the date of this
Agreement (or, if made as of a specified date, as of such date).
3.1 Organization
and Standing.
The
Company: (a) is a limited liability company duly organized, validly existing
and
in current status under the Laws of the State of Wisconsin; (b) has all
requisite limited liability company power and authority to own its properties,
carry on its business as now being conducted; and (c) is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, which jurisdictions
are listed in Section
3.1
of the
Disclosure Schedule, except to the extent that the failure to be so qualified
or
licensed would not reasonably be expected to result in a Material Adverse
Change. The Company has made available to Purchaser complete and correct
copies
of its Constitutive Documents, as amended, to date. The Company is not in
violation of any of the provisions of its Constitutive Documents.
3.2 Power
and Authority; Binding Agreement.
The
Company and each Member have all requisite power and authority to execute
and
deliver this Agreement, to consummate the transactions contemplated hereby
and
to perform their respective obligations hereunder. This Agreement has been
duly
executed and delivered by the Company and each Member and, assuming due
execution and delivery by the other parties hereto, constitutes a valid and
binding obligation of the Company and each Member, enforceable against each
of
them in accordance with its terms, subject in each case to bankruptcy,
reorganization, insolvency or similar laws affecting the enforcement of
creditors’ rights in general and to general principles of equity (regardless of
whether considered in a proceeding in equity or an action at law).
3.3 Noncontravention.
(a) Other
than as set forth in Section
3.3(a)
of the
Disclosure Schedule, the execution and delivery by the Company of this
Agreement, the consummation of the transactions contemplated by this Agreement
and the compliance by the Company and the Members with the provisions of
this
Agreement do not and will not conflict with, or result in any violation or
breach of, or default (with or without notice or lapse of time or both) under,
or give rise to a right of, or result in, termination, cancellation or
acceleration of any obligation or to a loss of a material benefit under,
or
result in the creation of any Lien in or upon any of the properties or assets
of
the Company under, or give rise to any increased, additional, accelerated
or
guaranteed rights or entitlements under, any provision of: (i) the Constitutive
Documents; (ii) assuming all consents set forth in Section
3.14(b)
of the
Disclosure Schedule are obtained, any indebtedness, loan or credit agreement,
bond, debenture, note, mortgage, indenture, guarantee, lease or other Material
Contract to which the Company or any Member is a party or bound by or its
properties or assets are bound by or subject to or otherwise under which
the
Company or any Member has rights or benefits; or (iii) any (A) Law, or (B)
Judgment, in each case, applicable to the Company or any Member, its properties
or assets other than in the cases of (ii) and (iii) above, any such conflicts,
violations, breaches, defaults, rights, entitlements, losses or Liens that
have
not given rise to, or would not reasonably be anticipated to give rise to,
an
event constituting a Material Adverse Change.
-12-
(b) No
consent, approval, order or authorization of, registration, declaration or
filing with, or notice to, any Governmental Entity is required by or with
respect to the Company in connection with the execution and delivery by the
Company of this Agreement, the consummation by the Company of the transactions
contemplated hereby or the compliance by the Company with the provisions
of this
Agreement, except for such consents, approvals, orders, authorizations,
registrations, declarations, filings and notices, the failure of which to
be
obtained or made individually or in the aggregate would not impair in any
material respect the ability of the Company to perform its obligations under
this Agreement and will not result in a Material Adverse Change.
3.4 Compliance
with Laws.
The
Company is and has been in compliance in all material respects with all
applicable Laws and Judgments of any Governmental Entity applicable to its
businesses or operations. The Company has not received a written notice or
other
written communication (or, to the Knowledge of the Company, any oral notice
or
other communication) that is currently pending alleging a possible violation
by
the Company of any applicable Law or Judgment of any Governmental Entity
applicable to the Company’s businesses or operations.
3.5 Title to
Units.
Except
as set forth in Section
3.5
of the
Disclosure Schedule, the Members have good and marketable title to the Units,
free and clear of all restrictions, Liens, voting trusts, agreements, proxies,
arrangements and encumbrances of any kind whatsoever (collectively,
“Encumbrances”).
Upon
the Closing, the Members shall transfer good and marketable title to the
Units
to Purchaser free and clear of all Encumbrances.
3.6 Capitalization.
All
of
the issued and outstanding Units have been duly authorized, are validly issued,
fully paid and nonassessable, and are held of record and beneficially by
the
Members. As
of the
date hereof, the Units are, and as of the Closing Date will be, all of the
issued and outstanding membership interests of the Company. Except as set
forth
in Section
3.6
of the
Disclosure Schedule, there
are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its membership interests. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Company. There are no voting trusts, proxies,
member
agreements or other agreements or understandings with respect to the voting
of
the membership interests of the Company.
3.7 Subsidiaries.
The
Company has no subsidiaries. The Company does not own or hold the right to
acquire any shares of stock or any other security or interest, directly or
indirectly, of or in any Person.
3.8 Permits.
The
Company validly holds and has in full force and effect, or has taken appropriate
steps to obtain or renew, all material Permits necessary for it to own, lease
or
operate its properties and assets and to carry on its businesses as now
conducted. The Company is in compliance in all material respects with the
terms
and conditions of all such Permits and there has occurred no material default
(with or without notice or lapse of time or both) or material violation of,
or
under, or event giving to any other Person any right of termination, amendment
or cancellation of, any such Permit. None of such Permits will be subject
to
suspension, modification, revocation or nonrenewal as a result of the
consummation of the transactions contemplated hereby or the execution and
delivery of this Agreement. No proceeding is pending or, to the Knowledge
of the
Company, threatened, seeking the revocation or limitation of any Permit.
Section
3.8
of the
Disclosure Schedule lists each Permit of a material nature issued or granted
to
or held by the Company. All of the Permits listed on Section
3.8
of the
Disclosure Schedule are held in the name of the Company, and none are held
in
the name of any Company employee or agent or otherwise on behalf of the
Company.
-13-
3.9 Financial
Statements.
(a) Section
3.9(a)
of the
Disclosure Schedule sets forth the unaudited balance sheet of the Company
as of
December 31, 2006 (the “Most
Recent Balance Sheet”),
December 31, 2005 and December 31, 2004, together with the related statements
of
income for the twelve months ended December 31, 2006, December 31, 2005 and
December 31, 2004 (collectively, the “Financial
Statements”).
The
Financial Statements: (i) are consistent with the books and records of the
Company; (ii) have been prepared in accordance with the Company’s historic
accounting methods consistently applied in accordance with past practice;
and
(iii) present fairly the financial condition and results of operations of
the
Company as of the respective dates thereof and for the periods referred to
therein in all material respects.
(b) All
accounts receivable of the Company, whether reflected on the Most Recent
Balance
Sheet or otherwise, are current and arose from valid transactions in the
Ordinary Course of Business. The Company has received no written (or, to
the
Company’s Knowledge, other) notice or other indication and the Company has no
Knowledge that any of the Company’s accounts receivable will not be collectible
in full, net of any reserves shown on the Most Recent Balance
Sheet.
(c) All
accounts payable of the Company, whether reflected on the Most Recent Balance
Sheet or otherwise, are current and arose from valid transactions in
the
Ordinary Course of Business.
3.10 Absence
of Changes or Events.
Except
as set forth in Section
3.10
of the
Disclosure Schedule, since December 31, 2006:
(a) The
Company has conducted its business only in the Ordinary Course of Business;
(b) there
has
occurred no Material Adverse Change, nor any change, circumstance, development,
state of facts, event or effect that would reasonably be expected to result
in a
Material Adverse Change;
(c) The
Company has not: (i) amended its Constitutive Documents; (ii) issued, sold,
transferred, pledged, disposed of or encumbered any of its membership interests
or any commitments or rights of any kind to acquire any of its membership
interests; or (iii) purchased or otherwise acquired directly or indirectly
any
of its membership interests, or any instrument or security which consists
of or
includes a right to acquire such membership interests;
(d) The
Company has not adopted a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring or other reorganization of the Company;
(e) The
Company has not changed in any material respect any of the accounting policies
or methods used by it;
(f) The
Company has not incurred loss of, or significant injury to, any of its assets
whether as a result of any natural disaster, labor trouble, accident, other
casualty or otherwise;
-14-
(g) The
Company has not mortgaged, pledged or subjected to any Lien (other than
Permitted Liens), any of its assets;
(h) The
Company has not sold, exchanged, transferred or otherwise disposed of any
of its
assets, except in the Ordinary Course of Business;
(i) The
Company has not canceled any debts or claims;
(j) The
Company has not reserved for or written down the value of any assets or written
off as uncollectible any accounts receivable, except in the Ordinary Course
of
Business and none of which, individually or in the aggregate, would result
in a
Material Adverse Change;
(k) The
Company has not made, or committed to make, any capital expenditures in excess
of $100,000 individually or in the aggregate; and
(l) The
Company has not made any agreement to do any of the foregoing, other than
negotiations with Purchaser and its Representatives regarding the transactions
contemplated by this Agreement.
3.11 Undisclosed
Liabilities.
To the
Knowledge of the Company, the Company does not have any liabilities, obligations
or commitments of any nature (whether known or unknown, absolute, accrued,
contingent, liquidated or otherwise), except: (i) liabilities, obligations
or
commitments which are appropriately reflected or reserved against on the
Most
Recent Balance Sheet; (ii) liabilities, obligations or commitments which
have
been incurred in the Ordinary Course of Business and consistent with past
practice since the Most Recent Balance Sheet Date; (iii) liabilities,
obligations or commitments disclosed in the Disclosure Schedule; and (iv)
express performance obligations under the contracts and agreements of the
Company.
3.12 Assets
other than Real Property.
(a) Section
3.12(a)
of the
Disclosure Schedule sets forth a list of each tangible personal property
asset
owned or leased by the Company that is material to the Company’s business,
specifying for each asset whether such asset is owned or leased. The Company
is
the true and lawful owner or lessee of and has good and valid title to, or
a
valid leasehold interest in, all personal property (tangible or intangible)
reflected on the Most Recent Balance Sheet or thereafter acquired, except
inventory that has been sold or otherwise disposed of in the Ordinary Course
of
Business since the Most Recent Balance Sheet Date and not in violation of
this
Agreement, in each case, free and clear of all Liens (other than Permitted
Liens).
(b) Except
as
set forth in Section
3.12(b)
of the
Disclosure Schedule, all material tangible personal property of the Company
is
located at the offices of the Company at 00000 Xxxxxxxxxx Xxxxx, Xxxxxxxxx,
XX
00000. Except as set forth in Section
3.12(b)
of the
Disclosure Schedule, all material personal property of the Company is free
from
material defects and is in good working order, ordinary wear and tear excepted.
All material tangible leased personal property of the Company is in good
working
order, ordinary wear and tear excepted.
-15-
3.13 Real
Property.
Section
3.13
of the
Disclosure Schedule lists all real property and interests in real property
owned
or leased by or to the Company (each, a “Real
Property”).
The
Company has delivered to Purchaser complete and accurate copies of all leases,
including any subleases, and any operating agreements relating to any leased
Real Property. With respect to each Real Property, except as set forth in
Section
3.13
of the
Disclosure Schedule: (i) the Company has good and valid title to such Real
Property or the leasehold estate relating to any leased Real Property, free
and
clear of all Liens (other than Permitted Liens and Liens which would not
reasonably be expected to materially impair the current uses or the occupancy
by
the Company of such Real Property), leases, assignments, subleases, easements,
covenants, rights of way and other similar restrictions of any nature
whatsoever, other than those identified in the leases and operating agreements
provided to Purchaser; (ii) any lease relating to any leased Real Property
is in
writing and is legal, valid, binding, in full force and effect and enforceable
against the Company in accordance with its terms; (iii) any lease relating
to
any leased Real Property will, immediately following the Closing Date, continue
to be legal, valid, binding, in full force and effect and enforceable in
accordance with its terms as in effect on the date hereof; (iv) the Company
is
not and, to the Knowledge of the Company, no other party to any lease relating
to a leased Real Property is, in breach or violation of, or in default under,
such lease; (v) all facilities included in any leased Real Property are supplied
with utilities and other services adequate for the operation of such facilities
in the manner currently used by the Company; (vi) all rents and additional
rents
due on any lease relating to a leased Real Property have been paid; (vii)
to the
Knowledge of the Company, the current use by the Company of the facilities
located on all Real Property does not violate any local zoning or similar
land
use requirement or other Law in any material respect;
and
(viii) all necessary third party consents, approvals, filings and registrations
required to be obtained by the Company with respect to any leases in connection
with the transactions contemplated by this Agreement or otherwise, have been
made or obtained or will be made or obtained as of the Closing
Date.
3.14 Contracts.
(a) Section
3.14(a)
of the
Disclosure Schedule lists the following Contracts to which the Company is
a
party or by which it is bound (each such Contract, whether or not set forth
in
such section of the Disclosure Schedule, a “Material
Contract”):
(i) employment
or consulting Contract, or any employee collective bargaining agreement or
other
Contract with any labor union or any Company employee;
(ii) Contract
not to compete or otherwise restricting the development, manufacture, marketing,
distribution or sale of any products or services by the Company;
(iii) Contract
containing any “non-solicitation” or “no-hire” provision that restricts the
Company in any manner;
(iv) Contract
containing any provision that purports to apply to or restrict the Company
from
engaging in any line of business anywhere in the world;
(v) Contract
with or involving the Members or any Affiliate of the Members (other than
the
Company);
-16-
(vi) lease,
sublease or similar Contract with any Person under which the Company is a
lessor
or sublessor of, or makes available for use to any Person (other than the
Company), (A) any Real Property, or (B) any portion of any premises otherwise
occupied by the Company;
(vii) lease
or
similar Contract with any Person under which (A) the Company is lessee of,
or
holds or uses, any machinery, equipment, vehicle or other tangible personal
property owned by any Person (other than any Contracts that individually
do not
involve the payment by or to the Company of more than $10,000
in any twelve-month period), or (B) the Company is a lessor or sublessor
of, or
makes available for use by any Person, any tangible personal property owned
or
leased by the Company;
(viii) Contract
for the purchase or sale of products or the furnishing or receipt of services:
(A) calling for performance over a period of more than one (1) year; (B)
requiring or otherwise involving payment by or to the Company of more than
$10,000 in any twelve-month period or more than $40,000 in the aggregate
in any
three year period; (C) in which the Company has granted manufacturing rights,
“most favored nation” pricing provisions or marketing or distribution rights
relating to any products or territory; or (D) in which the Company has agreed
to
purchase or sell a minimum quantity of goods or services or has agreed to
purchase or sell goods or services exclusively from a certain
party;
(ix) Contract
for the disposition of any assets or business of the Company other than sales
of
inventory in the Ordinary Course of Business or any agreement for the
acquisition, directly or indirectly, of the assets or business of any other
Person;
(x) Contract
for any joint venture or partnership;
(xi) Contract
granting a third party any license to any Company Intellectual Property,
or
pursuant to which the Company has been granted by a third party any license
to
any Intellectual Property other than “off the shelf” or other standard widely
commercially available software products, or any other license, option or
other
Contract relating in whole or in part to Company Intellectual Property or
the
Intellectual Property of any other Person;
(xii) Contract
(other than trade debt incurred in the Ordinary Course of Business) under
which
the Company has borrowed any money from, or issued any note, bond, debenture
or
other evidence of Indebtedness to, any Person;
(xiii) Contract
(including so called “take or pay” or “keep well” agreements) under which (A)
any Person has directly or indirectly guaranteed Indebtedness, liabilities
or
obligations of the Company, or (B) the Company has directly or indirectly
guaranteed Indebtedness, liabilities or obligations of any Person (in each
case
other than endorsements for the purpose of collection in the Ordinary Course
of
Business);
(xiv) Contract
(other than trade debt incurred in the Ordinary Course of Business) under
which
the Company has, directly or indirectly, made any advance, loan, extension
of
credit or capital contribution to, or other investment in, any
Person;
-17-
(xv) mortgage
or other Lien upon any Leased Property, other than Permitted Liens and Liens
which would not materially impair the current uses or the occupancy by the
Company of such Leased Property;
(xvi) Contract
providing for indemnification of any Person by the Company other than any
agreement of indemnification entered into in connection with the sale or
license
of software products in the Ordinary Course of Business;
(xvii) Contract
providing that the Company or any Company employee maintain the confidentiality
of any information, or providing for any Person to maintain the confidentiality
of any information material to the Company or the Business;
(xviii) Contract
involving a research or development collaboration or similar arrangement;
(xix) Contract
granting any third party a security interest in any of the Company’s
assets;
(xx) Contract
giving any party the right to renegotiate or require a reduction in price
or
refund of payments previously made in connection with the business of the
Company; and
(xxi) Contract
not entered into in the Ordinary Course of Business and requiring a payment
of
greater than $10,000 in any twelve-month period.
(xxii) Each
Contract is in full force and effect, and is legal, valid, binding and
enforceable against the Company in accordance with its terms. True and complete
copies of each Material Contract (and a written summary of the terms of any
oral
Material Contracts) have been delivered to Purchaser. Except as set forth
in
Section
3.14(b)
of the
Disclosure Schedule, there is no material default, material violation or
material breach under any Contract by the Company or, to the Company’s
Knowledge, by any other party thereto, and no event has occurred or condition
exists that with the lapse of time or the giving of notice or both would
constitute a material default, material violation or material breach thereunder
by the Company or, to the Company’s Knowledge, any other party thereto, except
to the extent such default, violation or breach would not individually or
in the
aggregate cause a Material Adverse Change. Except as set forth in Section
3.14(b)
of the
Disclosure Schedule, no notice, waiver, consent or approval is required (or
the
lack of which would give rise to a right of termination, cancellation or
acceleration of, or entitle any party to accelerate, whether after the giving
of
notice or lapse of time or both, any obligation under the Contracts) under
or
relating to any Contract in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
3.15 Intellectual
Property.
(a) Section
3.15(a)
of the
Disclosure Schedule sets forth a true and complete list of all Company
Intellectual Property as defined in parts (i) through (vi) of the definition
of
Intellectual Property and a true and accurate description or summary of the
Intellectual Property as defined in parts (vii) through (viii) of such
definition.
-18-
(b) Except
as
set forth in Section
3.15(b)
of the
Disclosure Schedule, the Company owns or has valid licenses to use, free
and
clear of all Liens or any other claims, including, without limitation, any
claim
of ownership or other right by any inventor on any Patent, all Company
Intellectual Property that is material to the Company or the operation of
its
business as currently conducted. There are no claims or demands by any other
Person pertaining to any Company Intellectual Property, and no proceedings
have
been instituted, or are pending or, to the Knowledge of the Company, threatened,
which challenge the rights of the Company in respect thereof.
(c) Except
as
set forth in Section
3.15(c)
of the
Disclosure Schedule, all Company Intellectual Property, other than that which
is
licensed to the Company and other than Company Intellectual Property under
development, has been properly assigned to the Company.
(d) Except
as
set forth in Section
3.15(d)
of the
Disclosure Schedule, the Company does not pay or receive any royalty to or
from
anyone with respect to any Company Intellectual Property, nor has the Company
licensed anyone to use any Company Intellectual Property.
(e) Except
as
set forth in Section
3.15(e)
of the
Disclosure Schedule, all rights of the Company in and to Company Intellectual
Property will be unaffected by the transactions contemplated hereby. Except
as
set forth in Section
3.15(e)
of the
Disclosure Schedule, the Company has not given or received any written (or,
to
the Company’s Knowledge, other) notice of any pending conflict with, or
infringement of the rights of others with respect to, any Intellectual Property
or with respect to any license of the Company Intellectual
Property.
(f) Except
as
set forth in Section
3.15(f)
of the
Disclosure Schedule, the Company is not subject to any Judgment with respect
to,
nor has it entered into or is it a party to any Contract which restricts
or
impairs the use of, any Company Intellectual Property. To the Knowledge of
the
Company, no Company Intellectual Property, and no services or products sold
by
the Company, conflicts with or infringes upon any Issued Patent of any third
party, the Company is not infringing any Issued Patent owned by any third
party
and none of the activities presently being conducted by the Company is
infringing the Issued Patent rights of any third party.
(g) Except
as
set forth in Section
3.15(g)
of the
Disclosure Schedule, the Company has not entered into any consent,
indemnification, forbearance to xxx or settlement agreement with respect
to
Intellectual Property and no claims have been asserted in writing (or, to
the
Company’s Knowledge, other than in writing) by any Person with respect to the
validity or enforceability of, or the Company’s ownership of or right to use,
the Company Intellectual Property.
(h) To
the
Company’s Knowledge, the Company has the right to use without infringing on the
rights of others, all customer lists, designs, manufacturing or other processes,
computer software, systems, data compilations, research results and other
information or trade secrets, domain names and print and electronic publications
required for or incident to its products, services, or its business as presently
conducted and foreseeably conducted.
-19-
(i) The
Company has obtained work-for-hire agreements and intellectual property
assignments from all contractors of the Company necessary to establish and
preserve, for the benefit of the Company, any Company Intellectual Property
and
exercises reasonable care with respect to the dissemination of any Company
Intellectual Property.
(j) To
the
Company’s Knowledge, no third party has infringed upon or misappropriated any
Company Intellectual Property.
(k) No
written or oral, formal or informal notice of any proceeding charging the
Company with infringement of any intellectual property rights of any other
Person has been received by the Company and, to the Company’s Knowledge, no such
proceeding is threatened. To the Knowledge of the Company, the Company is
not
making any unauthorized use of any confidential information or trade secrets
of
any Person, including, without limitation, any customer of the Company, or
any
Company employee.
3.16 Litigation.
There
is no Legal Proceeding that is pending (or, to the Company’s Knowledge,
threatened) against the Company. The Company is not operating under and is
not
subject to any Judgment, writ, injunction or award of any Governmental Entity,
court, judge, justice, magistrate, or arbitrator, including any bankruptcy
court
or judge. There are no unsatisfied Judgments outstanding against the
Company.
3.17 Taxes.
(a) All
Tax
Returns required to be filed by the Company have been timely filed and all
Taxes
owed by the Company (whether or not shown on any Tax Return) have been timely
paid.
Except
as set forth in Section
3.17(a)
of the
Disclosure Schedule, no Tax Return of the Company is required to be filed
on or
before the date that is ninety (90) days after the Closing. The Company is
not
delinquent in the payment of any assessment or governmental charge with respect
to such Tax Returns.
(b) All
Tax
Returns filed by the Company are true, correct and complete in all material
respects. The Company will not have any liability for any Taxes in excess
of the
charges, accruals and reserves reflected on the Most Recent Balance Sheet.
The
Tax Returns of the Company have never been examined by the IRS and the Company
is not the subject of any Tax audit with respect to such Tax Returns nor
has any
Governmental Entity conducted an investigation or audit of, or any claim
or
proceeding in respect of, the Company in respect of Taxes within the past
four
(4) years and, to the Company’s Knowledge, no such audits, claims or proceedings
are threatened. No Liens for Taxes have been filed against the Company (other
than for Taxes not yet due and payable).
(c) Section
3.17(c)
of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to the Company, including all Tax Returns filed
on a
consolidated, combined or unitary basis, along with a list of entities whose
activities are included in such filings for the last four (4) years. There
are
no actions, suits, proceedings, audits, investigations or claims now proposed
or
pending against the Company concerning the Tax liability of the Company.
No
issue has been raised in any examination by any Governmental Entity with
respect
to the Company which, by application of similar principles, would reasonably
be
expected to result in a proposed deficiency or increase in Taxes for any
other
period not so examined and no deficiencies for any Tax, assessment or
governmental charge have been proposed in writing, asserted or assessed
(tentatively or definitively), or, to the Knowledge of the Company, are
threatened, by any taxing Governmental Entity against the Company or any
Person
that has filed Tax Returns with the Company with respect to such Tax
Returns.
-20-
(d) Except
as
set forth in Section
3.17(d)
of the
Disclosure Schedule, there are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax assessment or
deficiency with respect to the Company, and the Company has not requested
any
extension of time within which to file any Tax Return, which Tax Return has
not
yet been filed. Except as set forth in Section
3.17(d)
of the
Disclosure Schedule, the Company has not, within the last seven (7) years,
paid
or become liable to pay any material penalty, fine, surcharge or interest
relating to Tax. There are no Liens with respect to Taxes upon any of the
properties or assets, real or personal, tangible or intangible of the Company
(other than for Taxes not yet due and payable).
(e) The
Company has withheld and paid all Taxes required by Law to have been withheld
and paid and has complied in all respects with all rules and regulations
relating to the withholding or remittance of Taxes (including, without
limitation, employee related Taxes).
(f) The
Company is not a party to any Contract that, individually or collectively,
would
give rise to any payment (whether in cash or property) that would not be
deductible pursuant to Sections 162(a)(1), 162(m), 162(n) or 280G of the
Code.
(g) [Intentionally
Deleted]
(h) The
Company is not, and has never been, a real property holding company within
the
meaning of Section 897 of the Code.
(i) No
claim
has ever been made in writing (or, to the Company’s Knowledge, other than in
writing) that is currently pending by an authority in a jurisdiction where
the
Company, or any Person that files Tax Returns with the Company, does not
file
Tax Returns that the Company or such Person is or may be subject to Tax in
that
jurisdiction.
(j) The
Company is not a party to any Tax allocation, indemnity or sharing Contract.
(k) The
Company does not have any liability for Taxes of any Person (i) under Treasury
Regulation Section 1.1502-6, (ii) as transferee or successor, (iii) by Contract,
or (iv) otherwise. The Company has not been a member of an “affiliated group”
(as that term is defined in the Code). The Company is not now, nor during
the
last four (4) years has it been a party to or bound by any Contract, agreement,
governing document or other arrangement (whether or not written and including
any arrangement required or permitted by Law), other than the Operating
Agreement, which (i) affords any other Person the benefit of any net operating
loss, net capital loss, investment Tax credit, foreign tax credit, charitable
deduction, or any other Tax credit or tax attribute (including deductions
and
credits relating to alternative minimum Taxes), (ii) requires or permits
the
transfer or assignment of income, revenues, receipts or gains, or (iii) grants
any power of attorney with respect to any matter relating to Taxes.
(l) The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Section 6662 of the Code.
-21-
(m) Section
3.17(m)
of the
Disclosure Schedule sets forth: (i) a list of all jurisdictions (whether
foreign
or domestic) to which any Tax is or has been properly payable by or with
respect
to the Company during the past five (5) years; (ii) all rulings or
determinations obtained by or with respect to the Company from any Governmental
Entity responsible for the imposition of any Tax that may affect the Company
from or after the Closing Date; (iii) all Tax Returns of the Company for
periods
ending after December 31, 2002 and all other Tax Returns with respect to
which
the applicable period for assessment under applicable Laws, after giving
effect
to extensions or waivers, has not expired; (iv) all material items of income,
gain, deduction or loss, or similar items, whether or not recognized or
incurred, resulting from any intercompany transaction to which the Company
is
party; (v) a list of all pending Tax audits or inquiries; and (vi) any Tax
reserves included in the “Deferred Taxes” or similar line item in any balance
sheets of the Company included in the Financial Statements, separately
identified and itemized by dollar amount.
(n) The
Company’s inventory and receivables are valued on a reasonable basis for Tax
purposes.
(o) The
Company has not participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code or been requested to do so
in
connection with any transaction or proposed transaction.
(p) Section
3.17(p)
of the
Disclosure Schedule lists all Tax abatement, Tax reduction, or similar
agreements or programs to which the Company is a party. The transactions
contemplated by this Agreement will not result in any recoupment, claw-back,
or
increase in Tax abatement, Tax reduction, or similar benefit for periods
prior
to the Closing.
(q) The
Company is not a foreign person within the meaning of Section 1445 of the
Code.
(r) Except
as
set forth in Section
3.17(r)
of the
Disclosure Schedule, the Company has not (i) participated or engaged in any
transaction, or taken any Tax return position, described in Treasury Regulation
section 301.6111-2(b)(2) (or any corresponding or similar provision of state,
local or foreign Tax law); or (ii) participated or engaged in any “reportable
transaction” within the meaning of Treasury Regulation section 1.6011-4 (or any
corresponding or similar provision for state, local or foreign Tax
law).
(s) [Intentionally
Deleted]
(t) [Intentionally
Deleted]
3.18 Insurance.
The
insurance policies owned and maintained by the Company and the coverage amounts
thereunder are listed on Section
3.18
of the
Disclosure Schedule. The insurance policies maintained by the Company comply
with any requirements to maintain insurance set forth in any contract or
agreement to which the Company is a party. Except as set forth on Section
3.18
of the
Disclosure Schedule, there is no claim pending under any such policy as to
which
coverage has been questioned, denied or disputed by the underwriter of such
policy. To the Knowledge of the Company, there has been no notice of
cancellation or termination (or any other threatened termination) of, or
premium
increase with respect to, any such policy.
-22-
3.19 Warranty
and Product Liability Matters.
(a) Section
3.19
of the
Disclosure Schedule sets forth (i) a list of all product liability claims
made
against the Company since January 1, 2004; and (ii) a summary of warranty
claims
made against the Company, together with the annual cost associated with such
warranty claims, for each of the three (3) immediately preceding fiscal
years.
(b) The
Company’s products have no known design or manufacturing defects which
individually or in the aggregate would result in a Material Adverse Change
to
the Company or its assets and such products comply in all material respects
with, and meet the current standards of, federal, state, local and foreign
codes, laws, regulations and statutes dealing with such products. Other than
as
set forth in Section
3.19(b)
of the
Disclosure Schedule, no claims, including, but not limited to, product or
service warranty, liability, strict liability or negligence claims, in respect
of the Company’s products or services are pending or, to the Company’s
Knowledge, threatened.
3.20 Benefit
Plans.
(a) Section
3.20(a)
of the
Disclosure Schedule contains a list of all Benefit Plans, with a description
of
any Benefit Plans not in writing, maintained or contributed to by the Company
or
any ERISA Affiliate. The Company has delivered to Purchaser true and complete
copies of: (i) each Benefit Plan (including amendments since the most recent
restatement); (ii) the annual report (Form 5500) filed with the IRS or the
Department of Labor with respect to each Benefit Plan (if any such report
was
required) for the preceding plan year; (iii) the most recent determination
letter issued to, or opinion letter issued with respect to, each Pension
Plan
that is intended to be qualified under Section 401(a) of the Code and any
pending applications for a determination letter for such plans; (iv) the
most
recent summary plan description (and any summary of material modifications
since
the most recent summary plan description) for each Benefit Plan for which
such a
summary plan description is required and any summaries or other material
communications distributed to participants for each Benefit Plan whether
or not
required to provide a summary plan description; (v) all personnel, payroll,
and
employment manuals and policies; (vi) each trust agreement, recordkeeping
or
other third-party agreement and group annuity Contract relating to any Benefit
Plan; (vii) all written notices that were given by the Company or any Benefit
Plan to the IRS, the Pension Benefit Guaranty Corporation, the Department
of
Labor, the Securities and Exchange Commission, the Equal Employment Opportunity
Commission, or any other Governmental Entity relating to a Benefit Plan;
and
(viii) all written notices that were given by the IRS, the Pension Benefit
Guaranty Corporation, the Department of Labor, the Securities and Exchange
Commission, the Equal Employment Opportunity Commission, or any other
Governmental Entity to the Company relating to any Benefit Plan.
(b) Each
Benefit Plan has been operated and administered in all material respects
in
accordance with its terms and applicable laws, including, but not limited
to,
ERISA and the Code.
-23-
(c) Except
as
set forth on Section
3.20(c)
of the
Disclosure Schedule, all Pension Plans intended to be qualified and exempt
from
federal income Taxes under Sections 401(a) and 501(a) of the Code, respectively,
have received determination letters from the IRS to the effect that such
Pension
Plans are so qualified and exempt from federal income Taxes, and no such
determination letter has been revoked nor has revocation of any such
determination letter been threatened in writing (or, to the Knowledge of
the
Company, other than in writing). No such Pension Plan has been amended since
the
date of its most recent determination letter or application therefor in any
respect, nor, to the Knowledge of the Company, has any other circumstance
or
event occurred, that would reasonably be expected to adversely affect its
qualification or materially increase its cost.
(d) No
Benefit Plan is or has ever been (or has ever been the successor or transferee
of) a “multiemployer plan” (as defined in Section 3(37) of ERISA) or a “defined
benefit plan” (as defined in Section 3(35) of ERISA). The Company does not have
any actual or potential, secondary, or contingent liability to any Person
under
Title IV of ERISA and no Pension Plan is subject to Title IV of ERISA. The
Company has not contributed to, been required to contribute to, or withdrawn
from any “multiemployer plan” (as defined in Section 3(37) of
ERISA).
(e) The
Company has never established, maintained or contributed to, or had an
obligation to maintain or contribute to or has or had any liability with
respect
to, any “voluntary employees’ beneficiary association” (within the meaning of
Section 501(c)(9) of the Code), any organization or trust described in Sections
501(c)(17) or 501(c)(20) of the Code or any “welfare benefits fund” described in
Section 419(e) of the Code.
(f) Except
as
set forth in Section
3.20(f)
of the
Disclosure Schedule, the Company has not offered to provide health or life
insurance coverage to any individual, or to the family members of any
individual, for any period extending beyond the termination of the individual’s
employment by the Company, except to the extent required by the health care
continuation (also known as “COBRA”) provisions of ERISA and the Code or similar
state benefit continuation Laws. Each Benefit Plan that is a group health
plan,
as such term is defined in Section 5000(b)(1) of the Code, complies in all
material respects with Sections 601 et seq. and 701 et seq. of ERISA and
Section
4980B and Subtitle K of the Code.
(g) Except
as
set forth on Section
3.20(g)
of the
Disclosure Schedule, neither the execution and delivery of this Agreement,
nor
the consummation of the transactions contemplated hereby will: (i) result
in the
payment, vesting, or acceleration of any bonus, interest-based award,
retirement, severance, job security or similar benefit or any enhanced benefit
to any Person; (ii) give rise to any obligation to fund any payment or benefit
by the Company; (iii) give rise to any limitation on the ability of the Company
to amend or terminate any Benefit Plan; or (iv) result in any payment or
benefit
that would be characterized as an “excess parachute payment,” within the meaning
of Section 280G of the Code under any Benefit Plan.
(h) Except
as
set forth on Section
3.20(h)
of the
Disclosure Schedule, the Company does not have any Benefit Plan in which
non-United States employees participate and is not required to maintain any
such
plan.
-24-
(i) Since
the
Company’s formation, no Person is or has been an ERISA Affiliate.
(j) The
Company has never been subject to the jurisdiction of the WARN Act.
(k) To
the
Knowledge of the Company, the Company has not engaged in a transaction in
connection with which it could be subject either to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code.
(l) Each
Benefit Plan maintained by the Company may be unilaterally amended or terminated
by the Company (with respect to Company employees), without material liability
or penalty, subject to the vested rights of existing participants under the
Benefit Plans (with respect to Company employees).
(m) The
Company does not have any Benefit Plan or any other agreement or arrangement
under which the Company has any liability under a “nonqualified deferred
compensation plan” within the meaning of Section 409A of the Code and applicable
Treasury guidance thereunder (the “409A
Plans”)
which
does not comply with the requirements of Section 409A of the Code. None of
the
409A Plans has been materially modified within the meaning of Notice 2005-1
and
each 409A Plan has been operated in good faith compliance with the provisions
of
Section 409A of the Code and the Internal Revenue Service Notice 2005-1 during
calendar year 2006.
(n) All
contributions to, and any payments from, each Benefit Plan that may have
been
required to be made in accordance with the terms of such Benefit Plan, and,
where applicable, the laws of the jurisdiction that govern such Benefit Plan,
through the date hereof have been made in a timely manner. There are no unfunded
benefit obligations under any Benefit Plan which have not been accounted
for by
reserves, or otherwise fully accrued on the Most Recent Balance
Sheet.
(o) There
is
not now, and, to the Knowledge of the Company, there are no existing
circumstances that could give rise to, any requirement for the posting of
security with respect to a Benefit Plan or the imposition of any Lien on
the
assets of the Company under ERISA or the Code.
(p) There
does not now exist, and, to the Knowledge of the Company, there are no existing
circumstances that could result in, any Controlled Group Liability that would
be
a liability of the Company following the Closing. Without limiting the
generality of the foregoing, the Company has not engaged in any transaction
described in Section 4069 of ERISA or any transaction that constitutes a
withdrawal under Section 4201 et seq. of ERISA.
(q) There
are
no pending or, to the Company’s Knowledge, threatened claims (other than routine
claims for benefits in the Ordinary Course of Business), lawsuits or
arbitrations which have been asserted or instituted against the Benefit Plans,
any fiduciaries of the Benefit Plans with respect to their duties to the
Benefit
Plans or the assets of any of the trusts under any of the Benefit Plans which
could reasonably be expected to result in any material liability of the
Company.
-25-
(r) Section
3.20(r)
of the
Disclosure Schedule contains a description, as of the date hereof, of the
severance benefits that each of the former employees of the Company are eligible
to receive, including the amount payable to each former employee, under the
severance arrangement described therein.
(s) The
Company is not a party to any oral or written agreement with any Company
employee (i) the benefits of which are contingent, or the terms of which
are
materially altered, upon the occurrence of a transaction involving the Company
of the nature of any of the transactions contemplated by this Agreement,
or (ii)
providing any term of employment or compensation guarantee.
(t) There
has
been no amendment to, written interpretation of or announcement of the Company
relating to, or change in employee participation or coverage under, any Benefit
Plan that would result in a material increase in the expense of maintaining
such
Benefit Plan above the level of the expense incurred in respect thereof for
the
fiscal year of the Company ended prior to the date hereof. The Company has
no
plan or commitment, whether legally binding or not, to create any additional
Benefit Plan, or to modify or change any existing Benefit Plan that would
affect
any employee or terminated employee of the Company.
3.21 Employee
and Labor Matters.
(a) The
Company’s employees are not members of any union. There are no pending charges
against the Company or any current or former Company employees (based on
conduct
relating to their employment by the Company) before the Equal Employment
Opportunity Commission or any other Governmental Entity responsible for the
prevention of unlawful employment practices nor, to the Knowledge of the
Company, does any basis exist therefor. The Company has not received notice
of
the intent of any Governmental Entity responsible for the enforcement of
labor
or employment Laws to conduct an investigation of the Company and, to the
Knowledge of the Company, no such investigation is in progress.
(b) The
Company has complied in all material respects with all applicable Laws relating
to employment and governing payment of minimum wages and overtime rates,
the
withholding and payment of Taxes from compensation of employees and the payment
of premiums and/or benefits under applicable worker compensation Laws. The
Company has complied in all material respects with all laws governing the
employment of personnel by United States companies and the employment of
non-United States nationals in the United States, including, but not limited
to,
the Immigration and Nationality Act and its implementing
regulations.
(c) There
is
no labor strike, slowdown, stoppage or lockout actually pending or to the
Company’s Knowledge, threatened against the Company. The Company is not a party
to any collective bargaining or other similar labor Contracts with respect
to
any Company employee and there is not pending any demand for recognition
or any
other request or demand from a labor organization for representative status
with
respect to any Company employee. No labor union has been certified by the
National Labor Relations Board as bargaining agent for any Company employee.
The
Company has not experienced a material work stoppage or other material labor
difficulty during the two-year period ended on the date
hereof.
-26-
(d) To
the
Knowledge of Company, no activity of any employee of the Company as or while
an
employee of the Company has caused a material violation of any employment
Contract, confidentiality agreement, patent disclosure agreement or the
violation of which resulted or could be reasonably expected to result, in
a
Material Adverse Change.
(e) Section
3.21
of the
Disclosure Schedule contains a true and complete list of the names, positions
and rates of compensation of all officers, directors, employees and consultants
of the Company, as of the date hereof, showing each such person’s name,
positions, and annualized remuneration for the current fiscal year.
(f) As
of the
date hereof, the Company has not been notified in writing by any of its
employees that such employee intends to, or is considering, terminating such
employee’s employment with the Company, including in connection with or as a
result, in part or in whole, of the transactions contemplated hereby or any
other sale of the Company or its assets.
(g) To
the
Knowledge of the Company, the Company has not engaged in any unfair labor
practice within the meaning of the National Labor Relations Act and has not
violated any legal requirement prohibiting discrimination of any kind or
nature,
including, but not limited to, on the basis of race, color, national origin,
sex, religion, age, marital status, sexual orientation, current or former
military service or physical or mental disability in its employment conditions
or practices that would result in any material liability to the
Company.
3.22 Environmental
Matters.
(a) The
Company is and has been in compliance in all material respects with all
applicable Environmental Laws. No property (including soils, groundwater,
surface water, buildings or other structures) currently or formerly operated
or
leased by the Company is or was contaminated with any Hazardous Material
in
violation of Environmental Laws as a result of or in connection with the
operations or activities of the Company or, to the Knowledge of the Company,
any
other Person. To the Company’s Knowledge, there are no conditions existing on
the property currently leased by the Company that would reasonably be expected
to give rise to any material violation of any Environmental Law by the Company
or result in any material liability under any Environmental Law to the Company.
The Company has generated, manufactured, received, handled, used, processed,
stored, treated, released, refined, discharged, emitted, transported, imported
and disposed of all Hazardous Materials in compliance with all applicable
Environmental Laws.
(b) The
Company has received no written notice of any pending, or to its Knowledge,
threatened, and to the Knowledge of the Company, there is no basis for any
action, demand, claim, notice of noncompliance, suit, investigation, inquiry
or
proceeding relating to any liability under any Environmental Law, including,
but
not limited to, any liability arising from or relating to the presence,
generation, manufacture, receipt, production, transportation, importation,
use,
treatment, refinement, processing, handling, storage, discharge, release,
emission or disposal of any Hazardous Material. The Company is not subject
to
any order, decree or injunction of any Governmental Entity and is not a party
to
any indemnity agreement or other Contract with any third party relating to
liability under any Environmental Law other than the lease for the Leased
Property. To the Knowledge of the Company, there are no circumstances involving
activities and operations conducted by the Company that would result in any
material claims, liability, investigations, costs or restrictions on the
ownership, use or transfer of any property under any Environmental Law. Copies
of all environmental reports, studies, assessments, sampling data and other
written documentation in the possession of the Company relating to the Company’s
compliance with Environmental Laws have been made available to Purchaser.
-27-
(c) The
Company has received no notice that it has, in the course of its business,
sent
or disposed of, otherwise had taken or transported, arranged for the taking
or
disposal of (on behalf of itself, a customer or any other party) or in any
other
manner participated or been involved in the taking of or disposal or release
of
a Hazardous Material to or at a site that is contaminated by any Hazardous
Material or that, pursuant to any Environmental Law, (i) has been placed
on the
“National Priorities List,” the “CERCLIS” list, or any similar state or federal
list, or (ii) is subject to or the source of a claim, an administrative order
or
other request to take “removal,” “remedial,” “corrective” or any other
“response” action, as defined in any Environmental Law, or to pay for the costs
of any such action at the site. To the Knowledge of the Company, any violation
of any Environmental Law caused by the prior ownership, possession or use
of any
third party of any property currently owned, leased or used by the Company
that
required remediation pursuant to the order or directive of any Governmental
Entity, has been remediated to the satisfaction of such Governmental
Entity.
(d) The
Company has, prior to the Closing Date, transported from or disposed of any
and
all Hazardous Materials on the property currently leased by the Company,
in each
case, in compliance with all applicable Environmental Laws.
3.23 Transactions
with Affiliates.
Section
3.23
of the
Disclosure Schedule describes any transaction, since January 1, 2004 between
the
Company, on the one hand, and each of the Members or any Affiliate (other
than
the Company) of the Members, on the other hand. Except as set forth in
Section
3.23
of the
Disclosure Schedule, no Affiliate of the Members: (a) owns or has any interest
in any property (real or personal, tangible or intangible), Company Intellectual
Property or Contract used in or pertaining to the business of, the Company;
(b)
has any claim or cause of action against the Company; or (c) owes any money
to,
or is owed any money by, the Company.
3.24 Brokers.
Except
as set forth in Section
3.24
of the
Disclosure Schedule, the Company has not employed or entered into any Contract
with any investment banker, broker, finder, consultant or intermediary that
would be entitled to any investment banking, brokerage, finder’s or similar fee
in connection with the transactions contemplated by this Agreement.
3.25 Effect
of Transaction.
Except
as set forth in Section
3.25
of the
Disclosure Schedule, to the Company’s Knowledge, no lender, creditor, lessor,
lessee, licensor, licensee, employee, contractor, distributor, vendor, client,
customer, supplier, Affiliate or other Person having a relationship with
the
Company has informed the Company and the Company has no Knowledge that such
Person intends to change such relationship (in part or in whole) because
of the
consummation of the transactions contemplated by this Agreement.
3.26 Certain
Business Practices.
To the
Knowledge of the Company, neither the Company nor any officers, directors,
members or employees of the Company, has: (i) used any funds of the Company
for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to political activity; (ii) made any unlawful payment with the Company’s funds
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the
Foreign
Corrupt Practices Act of 1977; or (iii) made any payment with the Company’s
funds in the nature of criminal bribery.
-28-
3.27 Ownership
of Assets.
Except
as set forth in Section
3.27
of the
Disclosure Schedule, the Company is the sole and exclusive legal and equitable
owner of, and has good and marketable title to, its assets and such assets
are
free and clear of all Liens (other than Permitted Liens). Except as set forth
in
Section
3.27
of the
Disclosure Schedule, no Person or Governmental Entity has an option to purchase,
right of first refusal or other similar right with respect to all or any
part of
the Company’s assets other than in the Ordinary Course of Business. Any assets
material to the business of the Company that are not owned by the Company
or
utilized by the Company pursuant to a lease, license or other agreement are
set
forth in Section
3.27
of the
Disclosure Schedule.
3.28 Customers.
Section 3.28
of the
Disclosure Schedule sets forth for the year ended December 31, 2006, the
ten (10) largest customers of the Company by revenue generated. The Company
has
received no notice that any of the customers set forth on Section 3.28
of the
Disclosure Schedule intend to terminate, materially reduce or otherwise
materially adversely modify its relationship with the Company.
3.29 Disclosure.
No
representations or warranties by the Company or the Members in this Agreement,
and no statement or information contained in the schedules hereto or any
certificate furnished by the Company or the Members pursuant to the provisions
of this Agreement, contain any untrue statement of a material fact or omit
to
state any material fact necessary, in light of the circumstances under which
they were made, to make the statements herein or therein not materially
misleading.
3.30 Accounts;
Powers of Attorney; Officers and Directors.
Section
3.30
of the
Disclosure Schedule sets forth: (i) a true and complete list of all bank
and
savings accounts, certificates of deposit and safe deposit boxes of the Company,
identifying with respect to any Person authorized to sign thereon; and (ii)
true
and complete copies of all corporate borrowing, depository and transfer
resolutions, identifying with respect to each any Person entitled to act
thereunder; (iii) a true and complete list of all powers of attorney granted
by
the Company, identifying with respect to each any Person authorized to act
thereunder.
3.31 Investment
Representations.
The
Members understand that the Purchase Shares have not been registered under
the
Securities Act or the securities laws of any state or other jurisdiction.
The
Members are acquiring the Purchase Shares for their own account for purposes
of
investment and not for the account of any other Person, not for resale to
any
other Person, and not with a view to or in connection with a resale or
distribution of the Purchase Shares. The Members have no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or commitment
for
the disposition of the Purchase Shares by the Members. Except as otherwise
provided herein, the Members will not sell or otherwise dispose of any shares
of
capital stock of Purchaser without registration under the Securities Act
and
under any applicable state or other jurisdiction’s respective securities laws,
or an exemption therefrom.
-29-
ARTICLE
IV
Representations
and Warranties of Purchaser
Purchaser
represents and warrants to the Company and the Members as follows, as of
the
Closing Date:
4.1 Organization
and Standing.
Purchaser is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Utah. Purchaser has all requisite corporate
power
and authority to own its properties and carry on its business as being now
conducted and as contemplated by this Agreement.
4.2 Power
and Authority; Binding Agreement.
Purchaser has all requisite corporate power and authority to execute and
deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder. The execution and delivery by Purchaser
of
this Agreement and the consummation by Purchaser of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action
on the part of Purchaser, and no other proceedings on the part of Purchaser
are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered
by
Purchaser and, assuming the due execution of this Agreement by the other
parties
thereto, constitutes a valid and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, subject to bankruptcy,
reorganization, insolvency or similar laws affecting the enforcement of
creditors’ rights in general and to general principles of equity (regardless of
whether considered in a proceeding in equity or an action at law).
4.3 Noncontravention.
(a) The
execution and delivery by Purchaser of this Agreement, the consummation of
the
transactions contemplated hereby, and the compliance by Purchaser with the
provisions of this Agreement do not and will not conflict with, or result
in any
violation or breach of, or default (with or without notice or lapse of time
or
both) under, or give rise to a right of, or result in, termination, cancellation
or acceleration of any obligation or to a loss of a material benefit under,
or
result in the creation of any Lien in or upon any of the properties or assets
of
Purchaser under, or give rise to any increased, additional, accelerated or
guaranteed rights or entitlements under, any provision of (i) Purchaser’s
Certificate of Incorporation or Bylaws, (ii) any Law or Judgment, with respect
to Purchaser’s properties or assets, other than, in the case of clause (ii), any
such conflicts, violations, breaches, defaults, rights, losses, Liens or
entitlements that individually or in the aggregate are not likely to impair
in
any material respect the ability of Purchaser to perform its obligations
under
this Agreement, or prevent or materially impede or delay the consummation
of the
transactions contemplated hereby.
(b) No
consent, approval, order or authorization of, registration, declaration or
filing with, or notice to, any Governmental Entity is required by or with
respect to Purchaser in connection with the execution and delivery by Purchaser
of this Agreement, the consummation by Purchaser of the transactions
contemplated by this Agreement or the compliance by Purchaser with the
provisions of this Agreement, except for such consents, approvals, orders,
authorizations, registrations, declarations, filings and notices, the failure
of
which to be obtained or made individually or in the aggregate would not impair
in any material respect the ability of Purchaser to perform its obligations
under this Agreement, or prevent or materially impede or delay the consummation
of the transactions contemplated hereby.
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4.4 Brokers.
Purchaser has not employed or entered into any Contract with any investment
banker, broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement, pursuant to which the Company
could
be liable for the fee or commission of such investment banker, broker, finder,
consultant or intermediary, or for any similar fee or commission in connection
with this Agreement or the transactions contemplated hereby.
4.5 Consents.
No
consent, waiver, approval, order, permit or authorization of, or declaration
or
filing with, or notification to, any person or Governmental Entity is required
on the part of the Purchaser in connection with the execution and delivery
of
this Agreement or the compliance by the Purchaser with any of the provisions
hereof.
4.6 Litigation.
There
is no Legal Proceeding pending or, to the knowledge of the Purchaser,
threatened, that seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated by this Agreement or that
questions the validity of this Agreement, or any action taken or to be taken
by
the Purchaser in connection with the consummation of the transactions
contemplated hereby.
4.7 Investment
Representations.
Purchaser understands that the Units have not been registered under the
Securities Act or the securities laws of any state or other jurisdiction.
Purchaser is acquiring the Units for its own account for purposes of investment
and not for the account of any other Person, not for resale to any other
Person,
and not with a view to or in connection with a resale or distribution of
the
Units. Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment for the disposition of
the
Units by Purchaser. Purchaser will not sell or otherwise dispose of any units
of
the Company without registration under the Securities Act and under any
applicable state or other jurisdiction’s respective securities laws, or an
exemption therefrom.
4.8 Securities
Reports.
Purchaser has filed all forms, reports and documents required to be filed
with
the Commission (the “Purchaser Reports”). The Purchaser Reports (a) were
prepared in all material respects in accordance with the requirements of
all
applicable Laws of any Governmental Entity, and (b) did not at the time they
were filed, after giving effect to any amendment thereto filed prior to the
date
hereof, contain any untrue statement of a material fact or omit to state
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, except that information as of a later date (but before the
date
of this Agreement) will be deemed to modify information as of any earlier
date.
There
is
no event or fact affecting Purchaser, its operations or its financial condition
which has not been disclosed in the Purchaser Reports or otherwise to the
Members in writing which materially and adversely affects or is reasonably
likely to materially and adversely affect Purchaser, its operations or its
financial condition.
4.9 Stock
Consideration.
The
Purchase Shares have been duly authorized, and when issued in accordance
with
the terms of this Agreement, will be duly and validly issued, fully paid
and
nonassessable, free and clear of all Liens other than restrictions on transfer
imposed by applicable securities Laws and shall not be subject to preemptive
or
similar rights of shareholders. The Purchase Shares will be issued in compliance
with all applicable federal and state securities Laws.
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4.10 Listing
and Maintenance Requirements.
Except
as specified in the Purchaser Reports, Purchaser has not, in the two (2)
years
preceding the date hereof, received notice (written or oral) from any Trading
Market to the effect that Purchaser is not in compliance with the listing
and
maintenance requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or quoted. The
issuance of the Purchase Shares does not contravene the rules and regulations
of
the Trading Market on which the Common Stock is currently listed or quoted,
and
no approval of the shareholders of Purchaser thereunder is required for
Purchaser to issue and deliver to the Members the Purchase Shares.
ARTICLE
V
Covenants
5.1 [Intentionally
Deleted]
5.2 [Intentionally
Deleted]
5.3 [Intentionally
Deleted]
5.4 [Intentionally
Deleted]
5.5 Confidentiality.
The
Company, the Members and each of their Affiliates shall ensure that all
confidential and proprietary information concerning the Business which the
Company, the Members and each of their Affiliates, any of their respective
employees, attorneys, agents, investment bankers, or accountants may now
possess
or may hereafter create or obtain relating to the financial condition, results
of operations, business, properties, assets, liabilities or future prospects
of
the Business or relating to the assets of the Company or any customer or
supplier of the Company shall not be published, disclosed, or made accessible
by
any of them to any other person or entity at any time or used by any of them
without the prior written consent of Purchaser; provided,
however,
that
the restrictions of this provision shall not apply: (i) as may otherwise
be
required by Law; (ii) as may be necessary or appropriate in connection with
the
enforcement of this Agreement; or (iii) to the extent such information shall
have otherwise become publicly available other than as the result of a breach
by
either of the Company, the Members or each of their respective Affiliates
of
their obligations under this Agreement. The restrictions of this Section
5.5
shall survive for a period of five (5) years following the Closing.
5.6 Publicity.
No
public announcement of this transaction shall be made without the express
written consent of Purchaser.
5.7 Further
Assurances.
From
time to time following the Closing, as and when requested by any Party, the
other Parties shall execute and deliver, or cause to be executed and delivered,
all such documents and instruments and shall take, or cause to be taken,
all
such further or other actions as such other Party may reasonably request
in
order to carry out the intent and accomplish the purposes of this Agreement
and
the consummation of the transactions contemplated hereby.
5.8 Employees.
Nothing
in this Agreement shall be construed as conferring a right to continued
employment on any employee of the Company.
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5.9 Listing
of Securities.
Following the date hereof, Purchaser will use commercially reasonable efforts
to
cause the continued listing and trading of its Common Stock on a Trading
Market
and, in accordance therewith, will comply in all respects with Purchaser’s
reporting, filing and other obligations applicable to issuers whose securities
are listed on such Trading Market.
5.10 Compliance
with Rule 144.
For a
period of two (2) years following the Closing Date (the “Compliance
Period”),
Purchaser covenants to timely file (or obtain extensions in respect thereof
and
file within the applicable grace period) all reports required to be filed
by
Purchaser after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. During the Compliance Period, if the Company is not required
to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Members and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a)
or
15(d) of the Exchange Act, as well as any other information required thereby,
in
the time period that such filings would have been required to have been made
under the Exchange Act. Purchaser further covenants that it will take such
further action as any Member may reasonably request, all to the extent required
from time to time to enable such Member to sell Purchase Shares held by such
Member without registration under the Securities Act within the limitation
of
the exemptions provided by Rule 144, including, without limitation, the removal
of any restrictive legend.
5.11 Injunctive
Relief.
Notwithstanding anything contained herein, Purchaser acknowledges that it
will
be impossible to measure the damages that would be suffered by the Members
if
Purchaser fails to comply with the provisions of Sections 5.10 and that in
the
event of such failure, the Members will not have an adequate remedy at law.
The
Members shall, therefore, be entitled to obtain specific performance of
Purchaser’s obligations under Section 5.10 and to obtain immediate injunctive
relief.
5.12 Put
Rights of Members.
In the
event that a market for the Common Stock ceases to exist at any time during
the
existence of the Holdback (a “Triggering
Event”)
or for
a period of (i) 120 days after the Anniversary Date of the Closing Date (the
“First
Tail Period”);
(ii)
90 days after the first Quarterly Release (the “Second
Tail Period”),
(iii)
60 days after the second Quarterly Release (the “Third
Tail Period”),
(iv)
30 days after the third Quarterly Release (the “Fourth
Tail Period”),
and
(iv) ten days after all Quarterly Releases thereafter (the “Subsequent
Tail Periods,”
together with the First Tail Period, the Second Tail Period, the Third Tail
Period and the Fourth Tail Period, the “Tail
Periods”),
the
Members shall have the option (the “Put
Option”)
to
convert the Purchase Shares then held in the Escrow Account (or if the Put
Option is exercised in any Tail Period, the shares released in the Quarterly
Release to which such Tail Period relates) to cash at a price per share equal
to
(a) if the Triggering Event occurs prior to the first anniversary of the
Closing
Date, the Closing Date Price, or (b) if the Triggering Event occurs after
the
first anniversary of the Closing Date, the lesser of (1) the Twenty-Day VWAP;
or
(2) $4.50. In the event the Put Option is exercised, the cash into which
the
Purchase Shares are converted shall be deposited by Purchaser into the Escrow
Account and released in accordance with the terms of Section 2.3 and the
Purchase Shares so converted shall be returned to the Purchaser or, in the
event
such Put Option is exercised in any Tail Period, the cash into which such
Purchase Shares are converted shall be delivered to the Purchaser immediately
following receipt by Purchaser of certificates evidencing the Purchase Shares
so
converted.
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ARTICLE
VI
CONDITIONS
6.1 Conditions
to Each Party’s Obligations.
The
respective obligation of each party to consummate the transactions contemplated
hereby is subject to the fulfillment, satisfaction or waiver at or prior
to the
Closing of each of the following conditions:
(a) All
authorizations, consents, orders, declarations or approvals of, or filings
with,
or terminations or expirations of waiting periods imposed by any law or
Governmental Entity, necessary or required in order for the consummation
of any
of the transactions contemplated by this Agreement and which, if not obtained,
made or occurring, would make any of the transactions contemplated hereby
illegal or would result in a Material Adverse Change to the Company, shall
have
been obtained, made or occurred.
(b) No
Governmental Entity or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which (i) is in effect, and (ii) has the
effect of making the transactions contemplated hereby illegal or otherwise
prohibiting or preventing the consummation of the transactions contemplated
hereby.
6.2 Conditions
to Purchaser’s Obligations.
Purchaser’s obligation to consummate the transactions contemplated hereby shall
be subject to the fulfillment or satisfaction of the following conditions,
any
of which may be waived in writing by Purchaser in whole or in part:
(a) The
representations and warranties of each of the Company and the Members contained
in this Agreement that are qualified as to materiality or Material Adverse
Change shall be true and correct, and that are not so qualified shall be
true
and correct in all material respects on the date of this Agreement and on
and as
of the Closing Date, as though made on and as of the Closing Date (except
for
representations and warranties made as of a specified date, which need be
true
and correct only as of the specified date). Purchaser shall have received
a
certificate dated as of the Closing Date and signed by an executive officer
of
the Company certifying that the conditions specified in Section 6.2(a) and
(b)
have been satisfied (the “Company
Certificate”).
(b) Each
of
the Company and the Members shall have performed and complied in all material
respects with all the agreements and covenants contained herein that are
required to be performed by them prior to or at the Closing.
(c) There
shall have occurred no effects, events, occurrences, developments or changes
that have resulted in, or are reasonably likely to result in, a Material
Adverse
Change since the date of this Agreement, except for changes expressly
contemplated by this Agreement.
(d) The
Company shall have received all necessary consents, waivers, assignments,
approvals, or transfers in form and substance reasonably satisfactory to
Purchaser, from all Governmental Entities, and all Contracts, leases or
agreements to which the Company is a party, or that concern or relate to
the
Permits held by the Company, except where the failure to receive such consent,
waiver, assignment, approval or transfer would not reasonably be expected,
individually or in the aggregate, to result in a Material Adverse
Change.
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6.3 Conditions
to the Company’s Obligations.
The
Company’s and the Members’ obligation to consummate the transactions
contemplated hereby shall be subject to the fulfillment or satisfaction of
the
following conditions, any of which may be waived in writing by the Company
and
the Members in whole or in part:
(a) The
representations and warranties of the Purchaser contained in this Agreement
that
are qualified as to materiality shall be true and correct, and that are not
so
qualified shall be true and correct in all material respects on the date
of this
Agreement and on and as of the Closing Date, as though made on and as of
the
Closing Date (except for representations and warranties made as of a specified
date, which need be true and correct only as of the specified date). The
Company
shall have received a certificate dated as of the Closing Date and signed
by an
executive officer of Purchaser certifying that the conditions specified in
Section 6.3(a) and (b) have been satisfied (the “Purchaser
Certificate”).
(b) Purchaser
shall have performed and complied in all material respects with all the
agreements and covenants contained herein that are required to be performed
by
it prior to or at Closing.
ARTICLE
VII
Closing
7.1 Closing.
The
transactions contemplated hereby (the “Closing”)
shall
take place at the offices of Xxxxx & Xxxxxxxxx LLP, 0000 Xxxxxxxxxxx Xxxxxx,
XX, Xxxxx 0000, Xxxxxxxxxx, XX 00000, simultaneously with the execution of
this
Agreement, or such other date, time and place as mutually agreed by the parties
(the “Closing
Date”).
7.2 Deliveries.
At the
Closing:
(a) The
Company shall deliver to Purchaser copies of the resolutions of the managers
of
the Company, authorizing the execution, delivery and performance of this
Agreement, and the incumbency of the persons executing this Agreement and
other
documents on behalf of the Company, all certified by an executive officer
of the
Company.
(b) The
Company shall deliver to Purchaser resignations, effective as of the Closing,
of
each of the managers of the Company and each of its executive officers.
(c) The
Members shall deliver to Purchaser the Master Escrow Agreement;
(d) The
Company shall deliver to Purchaser evidence reasonably satisfactory to Purchaser
that either all Indebtedness (all of which is identified in Section
7.2(d)
of the
Disclosure Schedule) has been, or upon Closing will be, repaid; and all Liens
securing such Indebtedness have been released, or upon repayment of such
Indebtedness (which may occur as part of the Closing) will be released, other
than (1) obligations under capital leases, and Liens securing such obligations,
(2) Permitted Liens; and (3) the Line of Credit;
(e) The
Company shall deliver to Purchaser the Employment
Agreements;
-35-
(f) The
Company shall deliver to Purchaser the Noncompetition Agreements by and between
Purchaser and each of the Members;
(g) The
Company shall deliver to Purchaser in a form reasonably satisfactory to
Purchaser a general release from Xxxxxxx Xxxx; and
(h) Purchaser
shall pay to the Members by wire transfer of immediately available funds
the Cash Consideration.
ARTICLE
VIII
[INTENTIONALLY
DELETED]
ARTICLE
IX
Indemnification
9.1 Survival.
The
representations and warranties of the Parties contained in this Agreement,
and
in any certificate, schedule or document delivered pursuant hereto shall
be
deemed to have been relied on by the parties hereto, and shall survive the
Closing for a period of two (2) years; provided,
however,
that:
(i) the
representations and warranties contained in Sections 3.1 (Organization and
Standing), 3.6 (Capitalization), 3.17 (Taxes), 3.20 (Benefit Plans) and 3.22
(Environmental Matters) shall survive the Closing and continue for a period
beginning on the date hereof and ending on
the
date on which the last Holdback Shares are released from the Escrow Account;
and
(ii) the representations and warranties contained in Sections 3.5 (Title
to
Units) and 3.27 (Ownership of Assets) shall survive indefinitely.
9.2 Indemnification
of Purchaser.
(a)
Subject to the limitations set forth herein, the Company and each Member,
jointly and severally, shall indemnify Purchaser, its Affiliates and each
of
their respective officers, directors, employees, stockholders, agents and
Representatives (each, a “Purchaser
Indemnified Party”)
against, and hold each Purchaser Indemnified Party harmless from and against
(and the Purchaser Indemnified Parties shall be indemnified and held harmless
solely from the Holdback, except to the extent any indemnifiable loss is
determined by a court of competent jurisdiction to be the result of material
fraud by the Company or any Member, in which case, Purchaser’s recovery will not
be limited to the Holdback), any and all Losses suffered or incurred by such
Purchaser Indemnified Party, arising from, relating to or otherwise in
connection with the following (collectively, the “Purchaser
Indemnifiable Loss”):
(i) any
breach of any representation or warranty of the Company or any Member contained
in this Agreement or in any other agreement or instrument executed and delivered
by the Company or any Member pursuant to this Agreement; or
(ii) any
breach or failure to perform any covenant or agreement of the Company or
the
Members contained in this Agreement or any agreement or instrument furnished
by
the Company or the Members pursuant to this Agreement.
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(b) Notwithstanding
anything contained in this Agreement, neither the Company nor the Members
shall
be obligated to indemnify any Purchaser Indemnified Party with respect to
any
Purchaser Indemnifiable Losses unless and until the aggregate amount of such
Purchaser Indemnifiable Losses exceed, in the aggregate, $50,000, and then
only
to the extent such Purchaser Indemnifiable Losses exceed $50,000. Purchaser’s
aggregate remedy with respect to any and all Purchaser Indemnifiable Loss,
shall
in no event exceed 30.0% of the Purchase Price. The limitations set forth
in
this Section 9.2(b) shall not apply to the extent such Purchaser Indemnifiable
Loss is determined by a court of competent jurisdiction to be the result
of
material fraud by the Company or any Member, in which case, there shall be
no
limitation on Purchaser’s right of recovery, or to the extent such Purchaser
Indemnifiable Loss is the result of any breach of the representations and
warranties of the Company pursuant to Sections 3.1 (Organization and Standing),
Section 3.5 (Title to Units), 3.6 (Capitalization), 3.17 (Taxes), 3.22
(Environmental Matters) and 3.27 (Ownership of Assets), in which case,
Purchaser’s right of recovery shall be limited to the Stock Consideration (as
adjusted by Sections 2.4 and 2.5).
9.3 Indemnification
of the Company.
Purchaser shall indemnify the Company, the Members and each of their Affiliates
and each of their respective officers, directors, employees, stockholders,
agents and Representatives (each a “Company
Indemnified Party”)
against and hold each Company Indemnified Party harmless from any and all
Losses
suffered or incurred by any such Company Indemnified Party arising from,
relating to or otherwise in connection with:
(a) any
breach, as of the Closing Date, of any representation or warranty of Purchaser
contained in this Agreement or any other agreement or instrument furnished
by
Purchaser to the Company or the Members pursuant to this Agreement;
or
(b) any
failure to perform any covenant or agreement of Purchaser contained in this
Agreement or any agreement or instrument furnished by Purchaser to the Company
or the Members pursuant to this Agreement.
9.4 Indemnification
Claims.
(a) In
order
for an Indemnified Party to be entitled to any indemnification provided for
under Section 9.2 or 9.3 in respect of, arising out of or involving a Third
Party Claim, such Indemnified Party must notify the Indemnifying Party in
writing of the Third Party Claim within twenty (20) Business Days after receipt
by such Indemnified Party of notice of the Third Party Claim; provided,
however,
that
failure to give such notification shall not affect the indemnification provided
under Section 9.2 or 9.3, except to the extent the Indemnifying Party has
been
actually prejudiced as a result of such failure. Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, within ten (10) Business Days
after the Indemnified Party’s receipt thereof, copies of all notices and
documents (including court papers) received by the Indemnified Party relating
to
the Third Party Claim. The Indemnifying Party alone shall conduct and control
the defense of such Third Party Claim and the Indemnified Party shall have
the
right to participate in the defense of such claim at its own expense. The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (such consent not to be unreasonably delayed, withheld
or
conditioned), settle, compromise or offer to settle or compromise any such
claim
or demand on a basis which would result in the imposition of a consent order,
injunction or decree that does not include an unconditional release of the
Indemnified Party for any liability arising out of such claim or demand or
any
related claim or demand.
-37-
(b) In
order
for an Indemnified Party to be entitled to any indemnification provided for
under this Agreement other than in respect of, arising out of or involving
a
Third Party Claim, such Indemnified Party shall deliver notice of such claim
with reasonable promptness to the Indemnifying Party; provided,
however,
that
failure to give such notification shall not affect the indemnification provided
under Section 9.2 or 9.3, except to the extent the Indemnifying Party has
been
actually prejudiced as a result of such failure. If the Indemnifying Party
does
not notify the Indemnified Party within twenty (20) Business Days following
its
receipt of such notice that the Indemnifying Party disputes its liability
to the
Indemnified Party, such claim specified by the Indemnified Party in such
notice
shall be conclusively deemed a liability of the Indemnifying Party under
Section
9.2 or 9.3 and the Indemnifying Party shall pay the amount of the Losses
stated
in such notice to the Indemnified Party on demand (which in the case of a
Purchaser Indemnified Party, the release of Holdback amounts held in escrow
pursuant to the Master Escrow Agreement shall be the sole remedy for any
such
Losses, except to the extent any Purchaser Indemnifiable Loss is determined
by a
court of competent jurisdiction to be the result of material fraud by the
Company or any Member, in which case, Purchaser’s recovery will not be limited
to the Holdback) or, in the case of any notice in which the Losses (or any
portion thereof) are estimated, on such later date when the amount of such
Losses (or such portion thereof) becomes finally determined.
9.5 No
Double Recovery; Use of Insurance.
Notwithstanding anything herein to the contrary, no Indemnified Party shall
be
entitled to indemnification or reimbursement under any provision of this
Agreement for any amount to the extent such Indemnified Party has been
indemnified or reimbursed for such amount under any other provision of this
Agreement or otherwise. The amount of any indemnification payable under this
Agreement will be net of the receipt of any insurance proceeds paid or payable
to the Indemnified Party under any policies of insurance covering the Loss
giving rise to the claim. The Indemnified Party will use commercially reasonable
efforts to collect any such insurance and will account to the Indemnifying
Party
therefor. If, at any time subsequent to the Indemnified Party receiving an
indemnity payment for a claim under this Agreement, the Indemnified Party
receives payment in respect of the Loss underlying such claim through recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by or against another Person,
the
amount of such payment, less any costs, expenses or premiums incurred directly
in connection therewith, will promptly be repaid by the Indemnified Party
to the
Indemnifying Party.
9.6 Mitigation.
Each
party agrees to use reasonable efforts to mitigate any Loss that forms the
basis
of a claim hereunder.
9.7 Exclusive
Remedy.
Except
as otherwise provided in Section 5.11, the exclusive remedy available to
a party
hereto with respect to the matters covered by Sections 9.1 and 9.2 hereof
shall
be to proceed in the manner and subject to the limitations contained in this
Article IX.
-38-
ARTICLE
X
Tax
Matters
The
following provisions shall govern the allocation of responsibility as between
Purchaser and the Members for certain tax matters:
10.1 Tax
Periods Ending on or Before the Closing Date.
The
Members shall prepare or cause to be prepared and file or cause to be filed
all
Tax Returns for the Company for all periods ending on or prior to the Closing
Date which are filed after the Closing Date, including Income Tax Returns
with
respect to periods for which a consolidated, unitary or combined Income Tax
Return of the Members will include the operations of the Company. Such Tax
Returns shall include no elections that were not made in the last similar
Tax
Return and shall be prepared in a manner consistent with the last previous
similar Tax Return and in compliance with Law, except for changes in the
law or
applicable regulations. Purchaser will be given reasonable opportunity to
review
such Tax returns prior to their filing.
10.2 Tax
Periods Beginning Before and Ending After the Closing Date; Straddle Period
Taxes.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for tax periods which begin before the Closing
Date and end after the Closing Date, and remit any amount due on such Tax
Returns. Such Tax Returns shall be prepared on a basis that is consistent
with
the last previous similar Tax Return and in compliance with Law, except for
changes in the law or applicable regulations. Purchaser shall consult the
Members concerning each such Tax Return and shall permit the Members to review
and comment on each such Tax Return described in the preceding sentence prior
to
filing. The Members and Purchaser shall reasonably and in good faith cooperate
regarding the contents and filing of all such Tax Returns.
10.3 Cooperation
on Tax Matters.
(a) Purchaser,
the Company and the Members shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of
tax
returns pursuant to this Article X and any audit, litigation or other proceeding
with respect to taxes. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which
are
reasonably relevant to any such audit, litigation or other proceeding and
making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Purchaser,
the
Company and the Members agree to retain all books and records with respect
to
tax matters pertinent to the Company relating to any taxable period beginning
before the Closing Date until the expiration of the statute of limitations
(and,
to the extent notified by Purchaser or the Members, any extensions thereof)
of
the respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority.
(b) The
Members shall obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby). Purchaser and the Company
shall reasonably and in good faith cooperate with the Members as necessary
to
allow the Members to obtain such items.
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(c) Purchaser,
the Company and the Members further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to Section 6043 of the Code and the regulations promulgated
thereunder.
10.4 Certain
Taxes.
The
Members shall be responsible for the payment of any transfer, documentary,
sales, use, stamp, registration and other Taxes and administrative fees
(including any penalties and interest) incurred in connection with this
Agreement. The Members shall prepare all necessary Tax Returns and other
documentation that they are required to prepare under applicable law with
respect to all Taxes referenced in the previous sentence. If required by
applicable law, the Members will, and will cause their Affiliates to, join
in
the execution of such Tax Returns and other documentation.
ARTICLE
XI
Miscellaneous
11.1 Entire
Agreement.
This
Agreement contains the entire agreement between the parties hereto with respect
to the transactions contemplated herein and shall only be modified or amended
by
an instrument in writing signed by or on behalf of the parties
hereto.
11.2 Section
Headings; Interpretation.
Reference in this Agreement to a Section, Article, or Schedule, unless otherwise
indicated, shall constitute references to a Section or an Article of this
Agreement or a Section of the Disclosure Schedule, as the case may be. The
section headings and article titles contained in this Agreement are for
convenience of reference only and do not form a part thereof and shall not
affect in any way the meaning or the interpretation of this Agreement. Wherever
the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.” The words
“herein,” “hereinafter,” and “hereunder,” and words of similar import used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The singular of a term shall also
include the plural of that term and the plural shall also include the singular
and the masculine shall include the feminine, unless the context clearly
indicates otherwise.
11.3 Notices.
Any
notice hereunder shall be in writing and shall be deemed given if personally
delivered to the other party or if delivered by confirmed facsimile or if
deposited in the United States Mail, postage prepaid, certified or registered,
addressed to the parties as follows:
To
the
Company:
Xxxxx
Xxxxxx
Ethostream
LLC
00000
Xxxxxxxxxx Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
To
Members:
Xxxxx
Xxxxxx
Ethostream
LLC
00000
Xxxxxxxxxx Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
-40-
With
copies
to:
Xxxx
X.
Xxxxxxxxxxx, Esq.
Xxxxxxx
& Xxxx, S.C.
X00
X00000 Xxxxxxxxx Xxxxxxx
Xxxxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
To
Purchaser: Chief
Executive Officer
Telkonet,
Inc.
00000
Xxxxxx Xxxxxxx Xxxxxxx
Xxxxxxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
With
copies
to:
Xxxxx
X.
Xxxxxx, Esq.
Xxxxx
& Xxxxxxxxx LLP
0000
Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxx
0000
Xxxxxxxxxx,
XX 00000
Facsimile
No.: (000) 000-0000
or
to
such other address as any party notifies the other parties of in accordance
herewith.
11.4 No
Presumption Against Drafter.
Each of
the parties hereto has jointly participated in the negotiation and drafting
of
this Agreement. In the event there arises any ambiguity or question of intent
or
interpretation with respect to this Agreement, this Agreement shall be construed
as if drafted jointly by all of the parties hereto and no presumptions nor
burdens of proof shall arise favoring any party by virtue of the authorship
of
any of the provisions of this Agreement.
11.5 Nonassignability.
This
Agreement shall not be assigned, by operation of law or otherwise, except
that
the rights and obligations of the Purchaser hereunder may be assigned to
any
Affiliate of the Purchaser (except that no such assignment shall relieve
the
Purchaser of its obligations hereunder). Subject to the preceding sentence,
this
Agreement shall be binding upon, inure to the benefit of and be enforceable
by
the parties hereto and their respective successors and assigns.
11.6 No
Third Party Beneficiaries.
Except
as otherwise expressly provided in this Agreement, this Agreement is for
the
sole benefit of the Parties and their permitted successors and assigns and
nothing herein expressed or implied shall give or be construed to give to
any
Person, other than the Parties and such successors and assigns, any legal
or
equitable rights hereunder.
-41-
11.7 Members’
Representative.
(a) Each
Member, by his or her execution hereof designates Xxxxx Xxxxxx his or her
agent
and attorney-in-fact (the “Members’
Representative”),
for
and on behalf of such Member. The Members’ Representative shall have full power
and authority to represent all of the Members and their successors with respect
to all matters arising under this Agreement and the Master Escrow Agreement
and
all actions taken by the Members’ Representative hereunder and thereunder shall
be binding upon all such Members and their successors as if expressly confirmed
and ratified in writing by each of them. The Members’ Representative shall take
any and all actions which he believes are necessary or appropriate under
this
Agreement and the Master Escrow Agreement for and on behalf of the Members,
as
fully as if the Members were acting on their own behalf. Without limiting
the
generality of the foregoing, the Members’ Representative shall have full power
and authority to interpret all the terms and provisions of this Agreement
and
the Master Escrow Agreement and to consent to any amendment hereof or thereof
on
behalf of all such Members and such successors.
(b) In
the
performance of his duties hereunder, the Members’ Representative shall be
entitled to rely upon any document or instrument reasonably believed by him
to
be genuine, accurate as to content and signed by any Member. The Members’
Representative may assume that any person purporting to give any notice in
accordance with the provisions hereof has been duly authorized to do
so.
(i) The
Members’ Representative is hereby appointed and constituted the true and lawful
attorney-in-fact of each Member, with full power in his, her or its name
and on
his, her or its behalf to act according to the terms of this Agreement and
the
Master Escrow Agreement in the absolute discretion of the Members’
Representative; and in general to do all things and to perform all acts,
including, without limitation, executing and delivering the Master Escrow
Agreement and any other agreements, certificates, receipts, instructions,
notices or instruments contemplated by or deemed advisable in connection
with
the Master Escrow Agreement. This power of attorney and all authority hereby
conferred is granted and shall be irrevocable and shall not be terminated
by any
act of any Member, by operation of law, whether by such Member’s death,
disability, protective supervision or any other event. Each Member hereby
waives
any and all defenses that may be available to contest, negate or disaffirm
the
action of the Members’ Representative taken in good faith under the Master
Escrow Agreement. Notwithstanding the power of attorney granted in this Section
11.7(b), no agreement, instrument, acknowledgement or other act or document
shall be ineffective by reason only of the Members having signed or given
such
agreement, instrument, acknowledgement, or other act or document directly
instead of the Members’ Representative.
(c) Members
who in the aggregate hold at least a majority of the Members’ interest in the
Holdback shall have the right at any time during the term of the Master Escrow
Agreement to remove a then-acting Members’ Representative and to appoint a
successor Members’ Representative upon such removal, or upon his death,
disability or resignation; provided,
however,
that
neither such removal of such then acting Members’ Representative nor such
appointment of a successor Members’ Representative shall be effective until the
delivery to the Escrow Agent of executed counterparts of a writing signed
by
each such Member with respect to such removal and appointment, together with
an
acknowledgment signed by the successor Members’ Representative appointed in such
writing that he accepts the responsibility of successor Members’ Representative
and agrees to perform and be bound by all of the provisions of this Agreement
applicable to the Members’ Representative. Each successor Members’
Representative shall have all of the power, authority, rights and privileges
conferred by this Agreement upon the original Members’ Representative, and the
term “Members’ Representative” as used herein and in the Master Escrow Agreement
shall be deemed to include any interim or successor Members’
Representative.
-42-
11.8 Governing
Law.
ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT AND EACH OF THE ANCILLARY DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN, WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
11.9 Jurisdiction
and Venue.
ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH
OF
THE ANCILLARY DOCUMENTS SHALL BE BROUGHT IN, AND EACH OF THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS WITH RESPECT THERETO TO THE EXCLUSIVE
JURISDICTION OF, ANY COURT OF THE STATE OF WISCONSIN LOCATED IN MILWAUKEE
COUNTY, WISCONSIN, OR THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
SITTING
IN THE EASTERN DISTRICT OF WISCONSIN, AND ANY APPELLATE COURT THEREFROM.
EACH OF
THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING
OF VENUE IN ANY SUCH COURT OF ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM
TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
11.10 Severability.
If any
term or provision of this Agreement shall, to any extent, be held by a court
of
competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement or the application of such term or provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall not be affected thereby and this Agreement shall be
deemed
severable and shall be enforced otherwise to the full extent permitted by
law;
provided, however, that such enforcement does not deprive any party hereto
of
the benefit of the bargain.
11.11 Counterparts.
This
Agreement may be executed in one or more counterparts each of which shall
be
deemed to constitute an original and shall become effective when one or more
counterparts have been signed by each party hereto and delivered to the other
parties.
[Signature
Page Follows]
-43-
IN
WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their
respective duly authorized representatives as of the date first written
above.
TELKONET,
INC.
By:
/s/ Xxxxxx
X.
Xxxxxxx
Name:
Xxxxxx
X.
Xxxxxxx
Title:
CEO
ETHOSTREAM
LLC
By:
/s/
Xxxxx X.
Xxxxxx
Name:
Xxxxx X. Xxxxxx
Title:
Manager
/s/
Xxxxx
Xxxxxx
Xxxxx
Xxxxxx
/s/
Xxxx
Xxxxxxxx
Xxxx
Xxxxxxxx
/s/
Xxxxx
Xxxxx
Xxxxx
Xxxxx
/s/
Xxxxx
Xxx
Xxxxx
Xxx
/s/
Xxxxxx
Xxxxx
Xxxxxx
Xxxxx
/s/
Xxxxxxxxx
Xxxxx
Xxxxxxxxx
Xxxxx
-44-
CLOCKTOWER
PROPERTIES LLC
By:
/s/
Xxxxxx X.
XxXxxx
Name:
Xxxxxx X. XxXxxx
Title:
Managing Member
/s/
Xxxx
Xxxx
Xxxx
Xxxx
/s/
Xxxxx
Xxxxxxxx
Xxxxx
Xxxxxxxx
-45-
