AdvisorShares Investments, LLC Purchase and Contribution Agreement
Exhibit
10.1
AdvisorShares
Investments, LLC
THIS
PURCHASE AND CONTRIBUTION AGREEMENT (this “Agreement”) is made
as of October 31, 2008, between AdvisorShares Investments, LLC, a Delaware
limited liability company (the “Company”), and
Xxxx.xxx Inc., a Delaware corporation (“Xxxx.xxx”), and
joined by Xxxxxx Xxxx Group, LLC, a Delaware limited liability company (“Founder LLC”) and
Xxxx Xxxxxx (the “Founder”).
THE
PARTIES HEREBY AGREE AS FOLLOWS:
Section
1. Purchase and Sale of
Units.
1.1 Sale and Issuance of
Units.
(a) On or
prior to the Closing (as defined below), the Company shall have authorized the
sale and issuance to Xxxx.xxx of Units of the Company (the “Units”). The
Units shall have the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Limited Liability Company Agreement of the Company,
in the form attached as Exhibit A (the “LLC
Agreement”).
(b) Subject
to the terms and conditions of this Agreement, Xxxx.xxx agrees to purchase at
the Closing, and the Company agrees to sell and issue to Xxxx.xxx at the
Closing, 6,000,000 Units (the “Purchased Units”)
(representing 60% of the outstanding Units of the Company) for the purchase
price of $0.0458333 per Unit (the total aggregate amount, the “Purchase
Price”).
1.2 Closing. (a)
The purchase and sale of the Units to be purchased by Xxxx.xxx pursuant to
Section 1.1(b) hereof shall take place at the offices of Pillsbury Xxxxxxxx Xxxx
Xxxxxxx LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00 A.M., on October 31,
2008, or at such other time and place as the Company and Xxxx.xxx mutually agree
upon orally or in writing (which time and place are designated as the “Closing”).
(b) At the
Closing, the Company shall deliver to Xxxx.xxx an executed copy of the LLC
Agreement indicating Xxxx.xxx’s ownership of the Purchased Units against payment
of $275,000 (the “Initial Payment”) by
check or wire transfer or any combination thereof. At the Closing,
the Company shall become a party to (i) this Agreement, (ii) the LLC Agreement
and (iii) that certain Employment Agreement, dated the date hereof, between the
Company and the Founder, the form of which is attached hereto as Exhibit B (the
“Employment
Agreement” and, collectively with the LLC Agreement, the
“Ancillary
Agreements”).
(c) Upon the
Closing and receipt by Xxxx.xxx of the Purchased Units, Xxxx.xxx shall pledge,
and grant a security interest in, the Purchased Units to the Company to secure
Xxxx.xxx’s capital contribution obligations under subsections (d) – (g) of this
Section 1.2 (the “Contribution
Obligations”). Upon a default of Xxxx.xxx’s Contribution
Obligations, the Company shall exercise its rights in its security interest in
the Purchased Units, as provided in Section 5.07 of the LLC
Agreement.
(d) Upon the
issuance by the Securities and Exchange Commission (the “SEC”) of its notice
(the “SEC Exemptive
Order”) regarding the approval of the application of the Company and
AdvisorShares Trust for exemptive relief (“Milestone A”), within
30 days following written notice by the Company to Xxxx.xxx of the achievement
of Milestone A, Xxxx.xxx shall effect payment to the Company of $1,000,000 by
check or wire transfer or any combination thereof.
(e) Upon the
Company’s total assets under management reaching US$150,000,000 (“Milestone B”), within
30 days following delivery by the Company to Xxxx.xxx of a statement from the
Company’s independent auditor verifying the achievement of Milestone B, Xxxx.xxx
shall effect payment to the Company of $725,000 by check or wire transfer or any
combination thereof.
(f) Upon the
Company’s total assets under management reaching US$250,000,000 (“Milestone C”), within
30 days following delivery by the Company to Xxxx.xxx of a statement from the
Company’s independent auditor verifying the achievement of Milestone C, Xxxx.xxx
shall effect payment to the Company of $1,000,000 by check or wire transfer or
any combination thereof.
(g) Upon the
Company’s total assets under management reaching US$450,000,000 (“Milestone D” and,
collectively with Milestone A, Milestone B and Milestone C, the “Milestones”), within
30 days following delivery by the Company to Xxxx.xxx of a statement from the
Company’s independent auditor verifying the achievement of Milestone D, Xxxx.xxx
shall effect payment to the Company of $1,000,000 by check or wire transfer or
any combination thereof.
(h) Notwithstanding
Sections 1.2(c)-(f) hereof, upon the earlier to occur of (i) any merger,
consolidation or reorganization of the Company with or into any other entity, or
disposition of all or substantially all of the Company’s Units or assets, in a
transaction that results in a change of control of the Company, (ii) (unless the
Milestones have been achieved) the third anniversary of the launch date of the
first product issued under the SEC Exemptive Order and (iii) a forfeiture of
Units held by Xxxx.xxx pursuant to Section 5.07(a) of the LLC Agreement,
Xxxx.xxx shall be released from any of the Contribution Obligations, and shall
not be in default, under subsections (d) - (g) of this Section 1.2, and Xxxx.xxx
shall not be required to contribute any additional capital to the Company under
this Agreement.
(i) Notwithstanding
any other provision of this Agreement and the LLC Agreement, (i) the parties
agree to treat the Contribution Obligations as property contributed to the
Company by Xxxx.xxx with a fair market value of $3,750,0000, and the capital
account of Xxxx.xxx shall be credited with such amount and the amount of the
Initial Payment (total of $4,000,000) upon Xxxx.xxx being admitted as a member
of the Company, and (ii) any actual payments pursuant to any of the Contribution
Obligations shall not be treated as additional capital contributions under the
LLC Agreement.
(j) Notwithstanding
any provision of the LLC Agreement, any payments pursuant to any of the
Contribution Obligations shall not trigger or be subject to the provisions of
Section 4.04(e) of the LLC Agreement.
Section
2. Representations
and Warranties of the Company. The Company
hereby represents and warrants to Xxxx.xxx that, except as set forth on the
Disclosure Schedule attached as Exhibit C to this
Agreement, which exceptions shall be deemed to be part of the representations
and warranties made hereunder, the following representations are true and
complete as of the date of the Closing, except as otherwise
indicated. The Disclosure Schedule shall be arranged in sections
corresponding to the numbered and lettered sections and subsections contained in
this Section 2, and the disclosures in any section or subsection of the
Disclosure Schedule shall qualify other sections and subsections in this Section
2 only to the extent it is readily apparent from a reading of the disclosure
that such disclosure is applicable to such other sections and
subsections.
2.1 Organization, Good Standing
and Qualification. The Company is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite limited liability company power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is
in good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on the business (as such business is currently
conducted and as it is currently proposed to be conducted), assets, liabilities,
prospects, financial condition or results of operations of the Company (a “Material Adverse
Effect”).
2.2 Capitalization and Voting
Rights.
(a) Founder
LLC is the sole member of the Company and owns all of the issued and outstanding
limited liability company interests of the Company.
(b) The
outstanding limited liability company interests of the Company are all duly and
validly authorized and issued, fully paid and nonassessable, except as such non-assessability may
be affected by Section 18-607 of the Delaware Limited Liability Company
Act, and were issued in accordance with the registration or qualification
provisions of the Securities Act of 1933, as amended (the “Act”) and any
relevant state securities laws, or pursuant to valid exemptions
therefrom.
(c) There are
no outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any of
its Units. Notwithstanding the foregoing, the Company intends to
reserve Units equal to ten percent (10%) of the authorized capital of the
Company for purchase upon exercise of options or warrants to be granted in the
future under incentive compensation plans.
2.3 Subsidiaries. The
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association or other business entity. The
Company is not a participant in any joint venture, partnership or similar
arrangement.
2.4 Authorization. All
limited liability company action on the part of the Company, its officers,
managers and members necessary for the authorization, execution and delivery of
this Agreement and the Ancillary Agreements, the performance of all obligations
of the Company hereunder and thereunder, and the authorization, issuance, sale
and delivery of the Units being sold hereunder has been
taken or will be taken prior to the Closing, and each of this Agreement and the
Ancillary Agreements constitutes valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors’ rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.5 Valid Issuance of
Units. The Units that are being purchased by Xxxx.xxx
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable (except as such non-assessability may be
affected by Section 18-607 of the Delaware Limited Liability Company
Act), and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the LLC Agreement, the Unit
Restriction Agreement, and under applicable state and federal securities
laws.
2.6 Governmental
Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except for customary “blue sky” and Regulation D filings under
state and federal securities laws.
2.7 Offering. Subject
in part to the truth and accuracy of Xxxx.xxx’s representations set forth in
Section 4 hereof, the offer, sale and issuance of the Units as contemplated by
this Agreement are exempt from the registration requirements of any applicable
state and federal securities laws, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
2.8 Litigation. There
is no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company that questions the validity
of this Agreement or any Ancillary Agreements, or the right of the Company to
enter into such agreements, or to consummate the transactions contemplated
hereby or thereby, or that might result, either individually or in the
aggregate, in any Material Adverse Effect, or any change in the current equity
ownership of the Company. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or involving the prior
employment of any of the Company’s employees, their use in connection with the
Company’s business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 Compliance with Other
Instruments. The Company is not in violation or default of any
provision of its Certificate of Formation or Limited Liability Company
Agreement, or in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to the Company.
The
execution, delivery and performance of this Agreement and the Ancillary
Agreements, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
material contract or an event that results in the creation of any lien, charge
or encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
2.10 Agreements;
Actions.
(a) Except
for the Ancillary Agreements, there are no agreements, understandings,
instruments, contracts or proposed transactions to which the Company is a party
or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $25,000, (ii) the
license of any patent, copyright, trademark, trade secret or other proprietary
right to or from the Company, (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other Person
that limit the Company’s exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(b) The
Company has not (i) authorized or made any distribution upon or with
respect to any Units, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $25,000 or in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any Person,
other than for ordinary expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights.
(c) The
Company is not a guarantor or indemnitor of any indebtedness of any other
Person.
(d) For the
purposes of subsections (b) and (c) of this Section 2.10, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same Person (including Persons the Company has reason
to believe are affiliated with each other) shall be aggregated for the purpose
of meeting the individual minimum dollar amounts of such
subsection.
2.11 Title to Properties and
Assets, Liens, etc. The Company has good and marketable title
to its properties and assets, and has good title to all its leasehold interests,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (i) the lien of current taxes not yet due and payable, and (ii)
possible minor liens and encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and which have not arisen otherwise than in the
ordinary course of business. With respect to the property and assets
it leases, the Company is in compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.12 Intellectual Property
Rights. To the knowledge of the Company, the
operation by the Company of its business as now conducted and as proposed to be
conducted does not infringe the patents, copyrights, trademarks, service marks,
patent and trademark applications, trade names, licenses, information, trade
secrets and other proprietary rights, data, processes and know-how
(collectively, “Proprietary Rights”)
of others, and the Company owns, has the right to use or can acquire in the
ordinary course of business, all Proprietary Rights necessary to conduct it
business as now conducted and proposed to be conducted. Except for
software and other similar items used in the ordinary course of its business,
there are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the Proprietary Rights of any other
person or entity. Except for (1) off-the-shelf software and other
similar items used in the ordinary course of its business and (2) advertising
spending with various medium, including internet search engines, the Company is
not obligated to pay any royalties or other payments to third parties with
respect to the marketing, sale or distribution of any Company services or
products or the license or use of any of its Proprietary Rights. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with his or her ability to promote the interests of
the Company or that would conflict with the business of the Company as currently
proposed to be conducted. Neither the execution nor delivery of this
Agreement or the other Transaction Documents, nor the carrying on of the
business of the Company by the employees of the Company, nor the conduct of the
business of the Company as proposed to be conducted, will, to the Company’s
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. The
Company is not aware of any infringement or violation by a third party of any of
the Company’s Proprietary Rights.
2.13 Certain
Transactions. The
Company is not indebted, directly or indirectly, to any of its directors,
officers or employees or to their respective spouses or children or to any
Affiliate of any of the foregoing, other than in connection with expenses or
advances of expenses incurred in the ordinary course of
business. None of the Company’s directors, officers or employees, or
any members of their immediate families, or any Affiliate of the foregoing are,
directly or indirectly, indebted to the Company or, to the Company’s knowledge,
have any (i) material commercial, industrial, banking, consulting, legal,
accounting, charitable or familial relationship with any of the Company’s
customers, suppliers, service providers, joint venture partners, licensees and
competitors, (ii) direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company except that directors, officers or employees or stockholders of the
Company may own stock in (but not exceeding two percent (2%) of the outstanding
capital stock of) publicly traded companies that may compete with the Company or
(iii) financial interest in any contract with the Company.
2.14 Registration
Rights. The Company is not under any contractual obligation to
register under the Securities Act of 1933, as amended (the “Act”), any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
2.15 Limited
Operations. Prior to the Closing, the Company’s activities
have been limited to (1) organizational matters, including the execution,
delivery and performance of this Agreement and the Ancillary Agreements and (2)
developmental activities with respect to the business.
2.16 Tax Returns and
Payments. There
are no federal, state, county, local or foreign taxes due and payable by the
Company which have not been timely paid. There are no accrued and
unpaid federal, state, country, local or foreign taxes of the Company which are
due, whether or not assessed or disputed. There have been no
examinations or audits of any tax returns or reports by any applicable federal,
state, local or foreign governmental agency. The Company has duly and
timely filed all federal, state, county, local and foreign tax returns required
to have been filed by it and there are in effect no waivers of applicable
statutes of limitations with respect to taxes for any year.
2.17 SEC Exemptive
Order. The Company has no reason to believe that the SEC will
not issue the SEC Exemptive Order to the Company by December 31,
2008.
2.18 Budget. Until
the issuance by the SEC of the SEC Exemptive Order, the current budget of the
Company is attached hereto as Exhibit D.
2.19 Organizational
Documents. The LLC Agreement is in the form made available to
Xxxx.xxx. The books of the Company made available to Xxxx.xxx contain
a complete summary of all meetings of the members of the Company since the time
of formation and reflect all transactions referred to in such minutes accurately
in all material respects. To the Closing Date, the Company has
operated as a single member limited liability company.
2.20 Financial
Statements. The
Company has delivered to Xxxx.xxx its unaudited management accounts for the
fiscal year ended December 31, 2007 and its unaudited management accounts
(including balance sheet and income statement) as of and for the eight-month
period ended August 31, 2008 (collectively, the “Financial
Statements”) as set forth on Section 2.20 of the Disclosure
Schedule. The Financial Statements fairly present in all material
respects the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein. Except as set forth in
the Financial Statements, the Company has no material liabilities or
obligations, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to August 31, 2008
(ii) obligations under contracts and commitments incurred in the ordinary
course of business and (iii) liabilities and obligations of a type or nature not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in all such cases, individually and in the
aggregate would not have a Material Adverse Effect.
2.21 Disclosure. The
Company has provided Xxxx.xxx with all the information that Xxxx.xxx has
reasonably requested (including all correspondence between the Company and the
SEC in connection with the SEC Exemptive Order) for deciding whether to purchase
the Units and all information that the Company believes is reasonably necessary
to enable Xxxx.xxx to make such decision. Neither this Agreement
(including all the exhibits hereto), the Ancillary Agreements, nor any other
statements or certificates made or delivered in connection herewith
(collectively, the “Company Information”)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading in light
of the circumstances under which they were made.
Section 3. Representations
and Warranties of the Founder and Founder LLC. The Founder and
Founder LLC hereby represent and warrant that:
3.1 Transfer of
Assets. As of the Closing, the Founder has assigned, licensed,
pledged or otherwise transferred to the Company all right, title and interest in
any contracts, properties and assets that are necessary for the operation and
conduct of the business of the Company as proposed to be conducted.
3.2 Conflicting
Agreements. The Founder is not obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with his ability to perform his obligations under
any employment or consulting agreement with the Company or any Ancillary
Agreement to which he is a party. Neither the execution nor delivery
of this Agreement or the Ancillary Agreements, nor the carrying on of the
business of the Company by the Founder and Founder LLC, nor the conduct of the
business of the Company as proposed to be conducted, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which the Founder or
Founder LLC is now obligated.
3.3 Litigation. There
is no action, suit or proceeding, or governmental inquiry or investigation,
pending or, to the Founder’s knowledge, threatened against the Founder or
Founder LLC, and, to the knowledge of the Founder and Founder LLC, there is no
basis for any such action, suit, proceeding or governmental inquiry or
investigation that would result in a Material Adverse
Effect.
3.4 Agreements. Except
as contemplated by or disclosed in the Ancillary Agreements, neither the Founder
nor Founder LLC is a party to or has knowledge of any agreements, written or
oral, relating to the acquisition, disposition, registration under the Act or
voting of the securities of the Company.
3.5 Representations and
Warranties of the Company. To the knowledge of the Founder and
Founder LLC, all of the representations and warranties of the Company set forth
in Section 2 are true and complete in all material respects.
3.6 Prior Legal
Matters. During the previous five (5) years, neither the
Founder nor Founder LLC has been (a) subject to voluntary or involuntary
petition under the federal bankruptcy laws or any state insolvency law or the
appointment of a receiver, fiscal agent or similar officer by a court for his
business or property; (b) convicted in a criminal proceeding or named as a
subject of a pending criminal proceeding (excluding traffic violations and other
minor offenses); (c) subject to any order, judgment or decree (not subsequently
reversed, suspended or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining him or it from engaging, or otherwise
imposing limits or conditions on his engagement in any securities, investment
advisory, banking, insurance or other type of business or acting as an officer
or director of a public company; or (d) found by a court of competent
jurisdiction in a civil action or by the SEC or the Commodity Futures Trading
Commission to have violated any federal or state securities, commodities or
unfair trade practices law, which such judgment or finding has not been
subsequently reversed, suspended or vacated.
Section
4. Representations
and Warranties of Xxxx.xxx. Xxxx.xxx hereby
represents and warrants that:
4.1 Organization, Good Standing
and Qualification. Xxxx.xxx is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all corporate power and authority to carry on its business
as now conducted and as proposed to be conducted. Xxxx.xxx is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business (as such business is currently conducted and as it is currently
proposed to be conducted), assets, liabilities, prospects, financial condition
or results of operations of Xxxx.xxx.
4.2 Authorization. All
corporate action on the part of Xxxx.xxx necessary for the authorization,
execution and delivery of this Agreement and the LLC Agreement and the
performance by Xxxx.xxx of all obligations of Xxxx.xxx hereunder and thereunder,
has been taken or will be taken prior to the Closing, and each of this Agreement
and the LLC Agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors’ rights generally and
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
4.3 Purchase Entirely for Own
Account. This Agreement is made with Xxxx.xxx in reliance upon
Xxxx.xxx’s representation to the Company, which by Xxxx.xxx’s execution of this
Agreement Xxxx.xxx hereby confirms, that the Units to be received by Xxxx.xxx
will be acquired for investment for Xxxx.xxx’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Xxxx.xxx has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing
this Agreement, Xxxx.xxx further represents that Xxxx.xxx does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Units.
4.4 Disclosure of
Information. Xxxx.xxx believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Units. Xxxx.xxx further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Units and the business, properties,
prospects and financial condition of the Company.
4.5 Investment
Experience. Xxxx.xxx is an investor in securities of companies
in the development stage and acknowledges that it is able to fend for itself,
can bear the economic risk of his investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Units.
4.6 Accredited
Investor. Xxxx.xxx is an “accredited investor” within the
meaning of SEC Rule 501 of Regulation D, as presently in
effect.
4.7 Restricted
Securities. Xxxx.xxx understands that the Units it is
purchasing are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection,
Xxxx.xxx represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Act.
4.8 Filings with
SEC. Each registration, report, statement, notice or other
filing required to be filed by Xxxx.xxx (but not by or on behalf of any
predecessor company of Xxxx.xxx) with the SEC under the Act or The Securities
Exchange Act of 1934, as amended, has been filed, and complies with applicable
law in all material respects. None of such registrations, reports,
statements, notices or other filings contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.9 Litigation. There
is no action, suit, proceeding or investigation pending or, to Xxxx.xxx’s
knowledge, currently threatened against Xxxx.xxx that questions the validity of
this Agreement or the LLC Agreement, or the right of Xxxx.xxx to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse effect on Xxxx.xxx, or any change in the current equity ownership of
Xxxx.xxx. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or involving the prior employment of any
of Xxxx.xxx’s employees, their use in connection with Xxxx.xxx’s business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior
employers. Xxxx.xxx is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or
investigation by Xxxx.xxx currently pending or that Xxxx.xxx intends to
initiate.
4.10 Compliance with Other
Instruments. Xxxx.xxx is not in violation or default of any
provision of its constitutive documents, or in any material respect of any
instrument, judgment, order, writ, decree or contract to which it is a party or
by which it is bound, or, to its knowledge, of any provision of any federal or
state statute, rule or regulation applicable to Xxxx.xxx. The
execution, delivery and performance of this Agreement and the LLC Agreement, and
the consummation of the transactions contemplated hereby and thereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or material contract
or an event that results in the creation of any lien, charge or encumbrance upon
any assets of Xxxx.xxx or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to Xxxx.xxx, its business or operations or any of its assets or
properties.
Section
5. Conditions
of Xxxx.xxx’s Obligations at Closing. The obligations
of Xxxx.xxx under Section 1.2 of this Agreement is subject to the
fulfillment, or waiver by Xxxx.xxx, on or before the Closing of each of the
following conditions:
5.1 Representations and
Warranties. The representations and warranties of the Company
contained in Section 2 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the date of the Closing.
5.2 Performance. The
Company shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
5.3 Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Units pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
5.4 LLC
Agreement. The Company and Xxxx.xxx shall have entered into
the LLC Agreement in the form attached as Exhibit A.
5.5 Employment
Agreement. The Company and the Founder shall each have entered
into the Employment Agreement in the form attached hereto as Exhibit B.
Section
6. Conditions
of the Company’s Obligations at Closing. The obligations
of the Company to Xxxx.xxx under this Agreement are subject to the fulfillment,
or the waiver by the Company, on or before each Closing of each of the following
conditions:
6.1 Representations and
Warranties. The representations and warranties of Xxxx.xxx
contained in Section 4 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the Closing.
6.2 Payment of Purchase
Price. Xxxx.xxx shall have delivered the Initial Payment for
the Units to be purchased at such Closing.
6.3 Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Units pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
Section
7. Miscellaneous.
7.1 Survival of Representations
and Warranties. The representations and warranties of the
Company, the Founder, Founder LLC and Xxxx.xxx contained in Sections 2, 3 and 4
of this Agreement shall survive the execution and delivery of this Agreement and
the Closing for a period of three (3) years, except for the fundamental
representations and warranties set forth in Sections 2.2, 2.4, 2.5,
2.11, 3.1, 3.6 and 4.2 which shall survive without limitation, and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Xxxx.xxx or the Company.
7.2 Survival of Indemnity
Provisions. Notwithstanding anything herein to the contrary,
Section 8 of this Agreement shall survive termination of this Agreement without
limitation.
7.3 Successors and
Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Units). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.4 Governing
Law. This Agreement shall be governed by and construed under
the laws of the State of New York, without giving effect to the choice of law
provisions thereof. The parties agree that any and all claims arising
under this Agreement or relating thereto shall be heard and determined either in
the United States District Court for the Southern District of New York or in the
courts of the State of New York located in the City and County of New York, and
the parties agree to submit themselves to the personal jurisdiction of those
courts and not to raise any objection to venue being had in those
courts.
7.5 Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
7.6 Titles and
Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.7 Notices. Any
notice required or permitted by any provision of this Agreement shall be given
in writing and shall be delivered personally or by courier, or by registered or
certified mail, postage prepaid, addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days’ advance written notice to
the other parties. Notices that are mailed shall be deemed received
five (5) days after deposit in the United States mail. Notices sent
by courier or overnight delivery shall be deemed received two (2) days after
they have been so sent.
7.8 Finder’s
Fee. Each party represents that it neither is nor will be
obligated for any finders’ fee or commission in connection with this
transaction; provided,
however, that the
Founder and Founder LLC shall be liable for compensation due to Xxxxxx Asset
Management, LLC in connection with the transactions contemplated by this
Agreement. Xxxx.xxx agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders’ fee (and the costs and expenses of defending against such liability or
asserted liability) for which Xxxx.xxx or any of its representatives is
responsible.
The
Company agrees to indemnify and hold harmless Xxxx.xxx from any liability for
any commission or compensation in the nature of a finders’ fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives is
responsible.
7.9 Expenses. Irrespective
of whether the Closing is effected, each of the Company and Xxxx.xxx shall bear
its own costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. If the Closing
is effected, the Company shall pay the reasonable fees of counsel for the
Company (and not Xxxx.xxx) from the proceeds of the transaction. If
any action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or any Ancillary Agreement, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
7.10 Amendments and
Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Xxxx.xxx. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.11 Publicity. Neither
the Company nor Xxxx.xxx may issue any public announcement relating to this
Agreement or the transactions contemplated hereby without the prior written
approval of the other party, except as required by law, based on advice of
counsel, in which case the parties will in good faith attempt to agree on any
public announcements or publicity statements. Xxxx.xxx shall have an
opportunity to review and modify any provisions of any government filing which
provision mentions it, and the Company agrees to confer with Xxxx.xxx in advance
of any material public disclosure that mentions Xxxx.xxx, provided Xxxx.xxx will
not unreasonably withhold or delay consent to such disclosure.
7.12 Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.13 Entire
Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
Section
8. Indemnification.
8.1 Indemnification of the
Company and Xxxx.xxx. The Founder and Founder LLC, severally
and jointly, agree to defend, indemnify and hold harmless each of the Company
and Xxxx.xxx and any of their affiliates (each, an “Indemnified Party”),
against and in respect of any and all actions, suits, proceedings, losses,
damages, claims, liabilities, demands, assessments, judgments, costs and
expenses, including reasonable attorneys’ fees (“Damages”), whether or
not incurred by an Indemnified Party, in connection with the matters set forth
on Section 8.1 of the Disclosure Schedule.
8.2 Notice and Opportunity to
Defend. If there occurs an event which an Indemnified Party
asserts is an indemnifiable event pursuant to Section 8.1, it shall notify the
Founder and Founder LLC (each, an “Indemnifying Party”)
promptly, but no later than ninety (90) days, after such indemnifiable event by
providing written notice of any claim, event or matter as to which indemnity may
be sought (a “Claim
Notice”). Each Claim Notice shall contain a reasonable
estimate of the Damages (each such estimate, a “Damage Estimate”)
against which such Indemnified Party seeks indemnification, to the extent such
an estimate can be made. The failure of the Indemnified Party to give
notice as provided in this Section 8.2 shall not relieve any Indemnifying Party
of its obligations under this Section 8, except to the extent that such failure
materially prejudices the rights of any such Indemnifying Party. The
Indemnifying Party, in the defense of any such claim or litigation, shall not,
except with the consent of the Indemnified Party, consent to entry of any
judgment or entry into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Indemnified Party of
a release from all Liability in respect of such claim or
litigation. The Indemnified Party shall not settle or compromise any
such claim without prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld. The Indemnified Party
shall furnish such information regarding itself or the claim in question as the
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
8.3 Resolution of
Claims. In the event that any Indemnifying Party objects to
the amount of any Damages claimed in any Claim Notice or disputes the
Indemnifying Party’s liability therefor, the Indemnifying Party shall, prior to
thirty (30) calendar days following the Indemnifying Party’s receipt of such
Claim Notice (the “Response Date”),
deliver to the Indemnified Party a written notice (a “Response Notice”)
specifying in reasonable detail each amount set forth in such Claim Notice to
which the Indemnifying Party objects and the nature and basis for each such
objection. If the Indemnified Party shall not have received a
Response Notice prior to the Response Date, the Indemnified Party and the
Indemnifying Party shall be deemed to have agreed to the Claim Notice and to
have acknowledged the correctness of the amounts claimed therein and the
Indemnifying Party’s liability therefor. If the Indemnified Party
shall have received a Response Notice prior to the Response Date, the
Indemnifying Party and the Indemnified Party shall negotiate in good faith
concerning the related Claim Notice and the amounts claimed and other matters
set forth therein until such Claim Notice, amounts and matters shall have been
finally determined. A Claim Notice, any amounts claimed therein and
any other matters set forth therein shall be deemed to be “finally determined”
for purposes of this Agreement when such Claim Notice, amounts and matters have
been resolved (i) by a written agreement of the Indemnifying Party and the
Indemnified Party, or (ii) by order of a court having
jurisdiction.
8.4 Sole
Recourse. The sole recourse of any Indemnified Party for
indemnification under this Agreement shall be to (i) the interests in the
Company held by Founder LLC, (ii) the interests in Founder LLC held by the
Founder and (iii) the interests set forth on Section 8.4 of the Disclosure
Schedule held by the Founder.
8.5 Limitations on Disposition
of Interests. Until the matters set forth on Section 8.1 of
the Disclosure Schedule have been released and extinguished pursuant to a
written binding release between the parties thereto of all such matters,
(a) Founder LLC shall not sell, transfer, assign or otherwise dispose
(“Dispose”) any
of its interests in the Company, except for payment of solicitation agent
services (b) Founder shall not Dispose of any of his interests in Founder LLC,
except for estate planning purposes, (c) Founder LLC shall not issue any
additional interests, and (d) Founder shall not Dispose of any of the interests
set forth on Section 8.4 of the Disclosure Schedule held by him; except with
respect to clauses (c) and (d) of this Section 8.5, issuances or Dispositions,
respectively, to the Founder’s spouse, child (natural or adopted), or
any other direct lineal descendant or sibling thereof (or his spouse)
(all of the foregoing collectively referred to as “family members”), or any
custodian or trustee of any trust, partnership or limited liability company (or
similar vehicle) for the benefit of, or the ownership interests of which are
owned wholly by, the
Founder or any such
family members;
provided, that the Founder shall deliver prior written
notice to the Company of such transfer and such interest shall at all times
remain subject to the terms and restrictions set forth in this Agreement and
such transferee shall, as a condition to such issuance, deliver a counterpart
signature page to this Agreement as confirmation that such transferee shall be
bound by all the terms and
conditions of this
Agreement as the
Founder (but only with
respect to the securities so transferred to the
transferee); and
provided, further, that in the case of any such Disposition, such Disposition is made pursuant to a transaction in
which there is no consideration actually paid for such
Disposition.
[Signature page
follows]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
AdvisorShares
Investments, LLC
By: /ss/ Xxxx
Xxxxxx
Name: Xxxx
Xxxxxx
Title:
Xxxx.xxx
Inc.
By: /ss/ Xxxxxxx
Xxxxxxx
Name: Xxxxxxx
Xxxxxxx
Title: Chief
Executive Officer
Xxxxxx
Xxxx Group, LLC
By: /ss/ Xxxx
Xxxxxx
Name: Xxxx
Xxxxxx
Title: Managing
Member
/ss/
Xxxx
Xxxxxx
Xxxx
Xxxxxx
Exhibit
A
Amended and Restated Limited
Liability Company Agreement
of
AdvisorShares Investments,
LLC
Exhibit
B
Employment
Agreement
Exhibit
C
Disclosure
Schedule
Exhibit
D
Current
Budget
