EXHIBIT 10.1
MEMBERSHIP INTEREST PURCHASE AGREEMENT
by and among
BDR Broadband, LLC,
Blonder Tongue Laboratories, Inc.
and
DirecPath Holdings, LLC
Dated as of December 15, 2006
MEMBERSHIP INTEREST PURCHASE AGREEMENT
MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of December 15, 2006 (this
"Agreement"), by and among BDR Broadband, LLC, a Delaware limited liability
company (the "Company"), Blonder Tongue Laboratories, Inc., a Delaware
corporation (the "Seller" and sometimes referred to herein as "Blonder Tongue"),
and DirecPath Holdings, LLC, a Delaware limited liability company (the
"Purchaser").
Recitals
WHEREAS, the Seller owns of record 100% of the membership interests of the
Company (the "Interests"), which constitute all of the issued and outstanding
membership interests of the Company, all of which are uncertificated interests;
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the Interests for the purchase price and
upon the terms and conditions hereinafter set forth; and
WHEREAS, certain terms used in this Agreement are defined in Section 1.1
hereof.
NOW, THEREFORE, in consideration of the premises, and of the mutual
representations and agreements contained in this Agreement, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I - DEFINITIONS
1.1 Definitions of Certain Terms. In this Agreement, the following terms
are used with the meanings assigned below:
"AAA" has the meaning assigned in Section 2.4(d).
"Actual Customers" means the actual number of Basic Customers as of
the Effective Time.
"Affiliate" means, with respect to any Person, (i) any other Person
directly or indirectly controlling, controlled by or under common control
with such other Person and (ii) in the case of a Person who is a natural
Person, also such Person's spouse or child. For the purposes of this
definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" has the meaning assigned in the Preamble.
"Applicable Order" means, with respect to any Person, all judgments,
injunctions, writs, decrees, rulings, assessments, orders and arbitration
awards of any Governmental Authority, in each case legally binding on such
Person or on any of such Person's properties or assets.
"AV Subscriber" has the meaning assigned in the definition of "Basic
Customer" in this Section 1.1.
"Base Purchase Price" has the meaning assigned in the definition of
Estimated Purchase Price in this Section 1.1.
"Basic Customer(s)" means, as of any date of determination, without
duplication the sum of: (i) any DirecTV digital subscriber on the Company's
signal distribution network that DirecTV considers an "active" customer and
for which the Company receives a monthly residual payment from DirecTV
("DTV Subscriber"), (ii) any analog video subscriber billed by the Company
at least $29.00 per month for such service ("AV Subscriber"), and (iii) any
community access video subscriber also subscribing to the Company's
high-speed data services billed by the Company at least $40.00 per month
for such services ("HSD Subscriber"); provided, however, that to be counted
as a Basic Customer, a customer (a) shall subscribe for services in Texas,
(b) shall be in good standing with the Company and shall not be more than
sixty (60) days past due on any invoice (or more than seventy-five (75)
days past due after any invoice date), (c) shall not have received, nor
provided the Company with, a notice of disconnection (without subsequent
payment of all past due amounts and reconnection prior to the date of
determination) and (d) shall not have been added as a customer pursuant to
a promotional offer with respect to which the promotional rate or
promotional discount extends beyond the Closing Date, except that
notwithstanding the foregoing, any AV Subscriber that also subscribes to
the Company's high-speed data services may be offered a promotional
discount of up to $10.00 per month (which may continue indefinitely) as set
forth in the Company's standard marketing materials and such subscriber
shall be a Basic Customer for purposes of this Agreement.
"Blonder Tongue" has the meaning assigned in the Preamble.
"Books and Records" means all books, records, original documents,
files and papers maintained by the Company, whether in hard copy or
electronic format, in such form as they may exist.
"BT Note" has the meaning assigned in Section 3.24.
"BT Payoff Letter" has the meaning assigned in Section 7.2(m).
"Business" means the business of providing pay television and high
speed internet services to tenants of multi-family residential properties
and related ancillary services.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks located in the City of Dallas, Texas generally are
authorized or required by law or executive order to close.
"Cash" means the aggregate amount of cash and cash equivalents in the
Company's bank or brokerage accounts, minus outstanding (uncleared) checks,
drafts and wire transfers from the Company's accounts and excluding (i)
restricted balances (which, for the avoidance of doubt, shall not include
any amount on hold or otherwise restricted by the bank in connection with
checks or other deposits that are in the process of being cleared from
another financial institution, subject to any subsequent adjustments
pursuant to Section 2.4 for such checks and other deposits that fail to
clear as cash to the account), (ii) amounts held in escrow to secure
performance by customers and the like and (iii) the proceeds of any
casualty loss with respect to any asset reflected in the Company's latest
balance sheet (to the extent that any such asset has not been repaired or
replaced or the liability for the repair or replacement of such asset has
not been paid or accrued as a current liability).
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"Claimant" has the meaning assigned in Section 8.3(a).
"Closing" has the meaning assigned in Section 2.5(a).
"Closing Date" has the meaning assigned in Section 2.5(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning assigned in the Preamble.
"Company Contract" means any Contract of, or binding on, the Company
or to which the Company (or its properties or assets) is subject.
"Company Documents" has the meaning assigned in Section 3.4.
"Company Employee" means any individual employed by the Company.
"Company Guarantees" means all guaranties, letters of credit,
bonds, sureties and other credit support or assurances provided by Blonder
Tongue in support of any obligations of the Company, including those set
forth on Schedule 6.1.
"Constituent Documents" means the certificate or articles of
incorporation and bylaws of a corporation or banking organization, the
certificate of limited partnership and partnership agreement of a limited
partnership, the certificate of formation and limited liability company
agreement of a limited liability company, the trust agreement of a trust
and the comparable documents of other entities.
"Contract" means, with respect to any Person, any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement by which that Person, or any of its
properties or assets, is bound, whether written or oral.
"Copyrights" has the meaning assigned in the definition of
"Intellectual Property" in this Section 1.1.
"Corporate Name" means the legal name "BDR Broadband, LLC" and the
name "BDR Broadband."
"CPR" has the meaning assigned in Section 2.4(d).
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"Customer Adjustment Amount" means, (i) if the Actual Customers are
less than 2,960 Basic Customers, the amount that equals the result of the
product of (A) $1,000, multiplied by (B) the result (which shall equal a
negative number) of (x) the Actual Customers minus (y) 2,960 or (ii) if the
Actual Customers are more than 3,060 (of which, exclusively for purposes of
calculating the Customer Adjustment Amount, (1) at least 1,650 Basic
Customers must be AV Subscribers, (2) at least 858 Basic Customers must be
either HSD Subscribers or AV Subscribers that also subscribe to high-speed
data services of the Company and (3) all Basic Customers exceeding 3,060
that are AV Subscribers, and up to fifty (50) Basic Customers exceeding
3,060 that are DTV Subscribers shall be included in the Customer Adjustment
Amount, provided, however, that no more than a total of one hundred (100)
Basic Customers shall be included in the Customer Adjustment Amount
pursuant to this subsection (3)), the amount that equals the result of the
product of (A) $1,000, multiplied by (B) the result of (x) the Actual
Customers minus (y) 3,060. Notwithstanding the foregoing, in no event shall
the upward or positive amount of the Customer Adjustment Amount exceed
$100,000; no such limitation applies to a downward or negative amount of
the Customer Adjustment Amount. For the purposes of the Customer Adjustment
Amount, the number of Actual Customers at Fairways at South Shore, League
City, Texas shall be disregarded and shall have no effect on the Customer
Adjustment Amount.
"Cut-Off Date" has the meaning assigned in Section 8.4(a).
"Disputed Item(s)" has the meaning assigned in Section 2.4(d).
"Disputed Items Notice" has the meaning assigned in Section 2.4(b).
"Domain Name" means the website domain name
xxxx://xxx.xxxxxxxxxxxx.xxx/.
"Domain Name License" has the meaning assigned in Section 6.9(c).
"DTV Subscriber" has the meaning assigned in the definition of "Basic
Customer" in this Section 1.1.
"Effective Time" means 12:01 a.m. Dallas, Texas time on the Closing
Date.
"Election Notice" has the meaning assigned in Section 2.4(d).
"Environmental Law" means any Requirement of Law relating to the
protection of the environment, natural resource or human health or safety
as it relates to environmental protection.
"ERISA" has the meaning assigned in Section 3.16.
"Escrow Agent" has the meaning assigned in Section 2.3(b).
"Escrow Agreement" has the meaning assigned in Section 2.3(b).
"Escrow Fund" has the meaning assigned in Section 2.3(b).
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"Estimated Cash" has the meaning assigned in Section 2.2.
"Estimated Customer Adjustment Amount" has the meaning assigned in
Section 2.2.
"Estimated Indebtedness" has the meaning assigned in Section 2.2.
"Estimated Purchase Price" means the amount that equals (i) $3,130,000
(the "Base Purchase Price"), (ii) plus, the amount, if any, by which the
Initial Working Capital exceeds the Target Working Capital, (iii) minus,
the amount, if any, by which the Target Working Capital exceeds the Initial
Working Capital, (iv) plus, Estimated Cash, (v) minus, Estimated
Indebtedness, and (vi) plus, the Estimated Customer Adjustment Amount.
"Estimated Purchase Price Certificate" has the meaning assigned in
Section 2.2.
"Final Cash" has the meaning assigned in Section 2.4(h).
"Final Customer Adjustment Amount" has the meaning assigned in Section
2.4(h).
"Final Indebtedness" has the meaning assigned in Section 2.4(h).
"Final Purchase Price" means the amount that equals (i) the Base
Purchase Price, (ii) plus, the amount, if any, by which the Final Working
Capital exceeds the Target Working Capital, (iii) minus, the amount, if
any, by which the Target Working Capital exceeds the Final Working Capital,
(iv) plus, Final Cash, (v) minus, Final Indebtedness, and (vi) plus, the
Final Customer Adjustment Amount.
"Final Purchase Price Certificate" has the meaning assigned in Section
2.4(a).
"Final Working Capital" has the meaning assigned in Section 2.4(h).
"Financial Statements" means the internally prepared balance sheet of
the Company as of December 31, 2005 and as of August 31, 2006 and the
related statements of income of the Company for the twelve-month period
ended December 31, 2005 and the eight-month period ended August 31, 2006.
"Fundamental Representation" has the meaning assigned in Section
8.4(a). "GAAP" means generally accepted accounting principles in the United
States.
"Governmental Authority" means any domestic, whether federal, state or
local, or foreign governmental, regulatory or self-regulatory authority,
agency, court, commission or other governmental, regulatory or
self-regulatory entity.
"HSD Subscriber" has the meaning assigned in the definition of "Basic
Customer" in this Section 1.1.
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"Hybrid" has the meaning assigned in Section 6.8.
"Indebtedness" means, without duplication, (i) all principal,
interest, fees, expenses and other amounts (including any and all
prepayment premiums and breakage fees) in respect of (A) borrowed money
incurred by the Company, whether from third parties or the Seller or
Hybrid, and outstanding immediately prior to the Closing and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable;
(ii) all obligations of the Company issued or assumed as the deferred
purchase price of property, all conditional sale obligations of the Company
and all obligations of the Company under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities);
(iii) all obligations of the Company under leases required to be
capitalized in accordance with GAAP; (iv) all obligations of the Company
for reimbursement of any obligation or on any letter of credit, banker's
acceptance or similar credit transaction; (v) all obligations of the type
referred to in clauses (i) through (iv) of any other Persons for the
payment of which the Company is responsible or liable, directly or
indirectly, as obligor, guarantor, surety or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (iii) of other
Persons secured by any Lien on any property or asset of the Company
(whether or not such obligation is assumed by such Person), provided,
however, notwithstanding anything herein to the contrary, "Indebtedness"
shall not include the obligations of the Company under the Vehicle Lease.
"Indemnifiable Claim" has the meaning assigned in Section 8.3(a).
"Indemnifying Party" has the meaning assigned in Section 8.3(a).
"Independent Accountant" has the meaning assigned in Section 2.4(c).
"Initial Working Capital" has the meaning assigned in Section 2.2.
"Intellectual Property" means all intellectual property rights owned
or used by the Company, and related priority rights arising from or in
respect of the following, whether protected, created or arising under the
laws of the United States or any other jurisdiction or under any
international convention: (i) patents and patent applications, including
continuations, divisionals, continuations-in-part, extensions,
reexaminations, renewals, substitutions and reissues, and patents issuing
thereon (collectively, "Patents"), (ii) trademarks, service marks
(including the Registered Marks), corporate names (including the Corporate
Name), trade names, service names, brand names, trade dress, logos and
Internet domain names (including the Domain Name), together with the
goodwill associated with any of the foregoing (collectively, "Marks"),
(iii) copyrights, works of authorship and moral rights (collectively,
"Copyrights"), (iv) confidential and proprietary information, including
trade secrets, discoveries, concepts, ideas, research and development,
know-how, formulae, inventions (whether or not patentable and whether or
not reduced to practice), compositions, manufacturing and production
processes and techniques, data, procedures, designs, drawings,
specifications, databases, customer lists, supplier lists, pricing and cost
information, and business and marketing plans and proposals of the Company,
in each case excluding any rights in respect of any of the foregoing that
comprise or are protected by Patents (collectively, "Trade Secrets"), (v)
Software and Technology of the Company and (vi) registrations and
applications for registration of any and all of the foregoing in clauses
(i) through (v) above.
Membership Interest Purchase Agreement
6
"Intellectual Property Licenses" means (i) any grant by the Company or
Blonder Tongue or any of its Affiliates to a third Person of any right to
use any of the Intellectual Property, whether by license, sublicense,
agreement, consent, permission or otherwise, and (ii) any grant to the
Company of a right to use a third Person's intellectual property rights,
whether by license, sublicense, agreement, consent, permission or
otherwise.
"Interests" has the meaning assigned in the Recitals.
"Interim Balance Sheet" has the meaning assigned in Section 3.7.
"Interim Balance Sheet Date" has the meaning assigned in Section 3.7.
"Inventory" means all equipment, instruments, spare parts and other
supplies that are owned and held for use by the Company in connection with
the operation of the Business.
"Inventory Credit" means an amount equal to the product of (i) the
book value of the Inventory as set forth on Schedule 1.1(b), which amount
has been agreed to by the parties as set forth on Schedule 1.1(b), minus
One Hundred Thousand Dollars ($100,000), multiplied by (ii) fifty-five
percent (55%).
"IRS" means the United States Internal Revenue Service.
"Knowledge" means, (i) with respect to the Company, the actual
knowledge of the persons listed on Schedule 1.1(a), and (ii) with respect
to the Seller, the actual knowledge of any of the chief executive officer
or chief financial officer of the Seller or of such other individual who,
in the course of his employment with Seller, would be responsible for
knowing the applicable information, and in all cases, without independent
investigation.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits, investigation, proceedings, claims, mediations, hearings or
audits by or before, or otherwise involving, a Governmental Authority.
"Lien" means any lien, encumbrance, pledge, mortgage, deed of trust,
security interest, charge, lease, easement, equitable servitude or other
preferential arrangement having substantially the same economic effect.
"Losses" means any and all losses, liabilities, claims, obligations,
deficiencies, demands, judgments, damages (including incidental and
consequential damages), interest, fines, penalties, suits, actions, causes
of action, assessments, awards, costs and expenses (including costs of
investigation and defense and attorneys' and other professionals' fees), or
any diminution in value, whether or not involving third-Person claims.
"Marks" has the meaning assigned in the definition of "Intellectual
Property" in this Section 1.1.
"Material Adverse Effect" means (i) with respect to the Company, an
adverse change in, or an adverse effect upon, the Business, assets,
properties, prospects, results of operations or condition (financial or
Membership Interest Purchase Agreement
7
otherwise) resulting in or reasonably likely to result in Losses to the
Company equal to or exceeding $50,000 in the aggregate and (ii) with
respect to the Seller, a material impairment of the ability of the Seller
to perform its obligations under this Agreement.
"Material Contracts" has the meaning assigned in Section 3.13.
"Net Adjustment Amount" has the meaning assigned in Section 2.4(h).
"Ordinary Course of Business" means the ordinary and usual course of
day-to-day operations of the Business of the Company through the date
hereof consistent with past practice.
"Patents" has the meaning assigned in the definition of "Intellectual
Property" in Section 1.1.
"Permit" means any approvals, authorizations, consents, licenses,
permits or certificates of a Governmental Authority.
"Permitted Liens" means (a) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings,
provided an appropriate reserve has been established therefore in the
Financial Statements in accordance with GAAP, (b) any Lien of a landlord,
carrier, warehouseman, mechanic, materialman, or any other statutory Lien,
in each case arising in the Ordinary Course of Business that are not
resulting from a breach, default or violation by the Company of any
Contract or Requirement of Law or (c) any Lien that otherwise does not
materially or adversely detract from the value of the property as now used
or materially interfere with any present use of the property.
"Person" means any individual, corporation, trust, partnership,
association, limited liability company, firm, unincorporated organization
or similar organization or entity, or any Governmental Authority or body.
"Personal Property Leases" has the meaning assigned in Section 3.11.
"Phoenix Cable System" means the cable system located at 0000 X. 00xx
Xxxxxx, Xxxxxxx, Xxxxxxx, 00000.
"Pier Village Cable System" means the cable system located at 0
Xxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxx Xxxxxx, 00000.
"Priority Communications" has the meaning assigned in the definition
of "Specified Party Accounts Receivable."
"Purchaser" has the meaning assigned in the Preamble.
"Purchaser Documents" has the meaning assigned in Section 5.2.
"Purchaser Surviving Matter" has the meaning assigned in Section
8.4(a).
Membership Interest Purchase Agreement
8
"Real Property Lease" has the meaning assigned in Section 3.10(a).
"Real Property Rights of Access" has the meaning assigned in Section
3.10(b).
"Registered Marks" means the following registered trademarks/service
marks used by the Company in connection with the Business, ownership of
which will be transferred by the Company to Blonder Tongue prior to
Closing: "BDR Broadband" (typed drawing), U.S. Registration No. 2,913,636
and "BDR Broadband a Blonder Tongue Company" (design plus words), U.S.
Registration No. 2,913,635.
"Registered Xxxx License" has the meaning assigned in Section 6.9(b).
"Related Persons" has the meaning assigned in Section 3.22.
"Requirement of Law" means, with respect to any Person, any law,
treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case legally binding on that Person or any
of its properties or assets.
"Restricted Business" has the meaning assigned in Section 6.8.
"Restriction" means any options, rights of first refusal or transfer
restrictions.
"Xxxxx Mountain Cable System" means the cable system located at 0000
Xxxxxxxxx Xxxxx Xxxxxx Xxxxx, Xxxxxxxx, Xxxxxx.
"Securities Act" has the meaning assigned in Section 5.7.
"Seller Documents" has the meaning assigned in Section 4.1.
"Seller" has the meaning assigned in the Preamble.
"Seller Surviving Matter" has the meaning assigned in Section 8.4(a).
"Service Technicians" has the meaning assigned in Section 3.17.
"Software" means any and all (i) computer programs, including any and
all software implementations of algorithms, models and methodologies,
whether in source code or object code, (ii) databases and compilations,
including any and all data and collections of data, whether machine
readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing,
screens, user interfaces, report formats, firmware, development tools,
templates, menus, buttons and icons, and (iv) all documentation, including
user manuals and other training documentation, related to any of the
foregoing.
"Sonoma Villero Cable System" means the cable system located at 00000
Xxxxxxx Xxxxxxxxxxx Xxx, X.X., Xxxxxxx, Xxxxxxxxxx.
"Specified Party Accounts Receivable" means those accounts receivable
due to the Company as of November 30, 2006 from (i) Telepro Communications,
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9
Inc. ("Telepro") in the amount of approximately $14,900 as a reimbursement
for amounts paid on Telepro's behalf to a third party service provider
which performed cable system installation services in the Houston region
and (ii) Priority Communications System, LLC ("Priority Communications"),
in the amount of approximately $9,000 arising from errors in billing to the
Company resulting in overpayment by the Company for services provided.
"Straddle Period" has the meaning assigned in Section 6.4(c).
"Subsidiary" means, for any Person, any other Person of which the
initial Person directly or indirectly owns more than 50% of the voting
equity interest or of which such Person is entitled, directly or
indirectly, to appoint a majority of the board of directors, board of
managers or comparable body of such Person.
"Target Working Capital" means $0.00.
"Tax Claim" has the meaning assigned in Section 6.4(f).
"Tax Package" has the meaning assigned in Section 6.4(g).
"Tax Returns" means all returns and reports (including elections,
refund claims, declarations, disclosures, schedules, attachments,
supplements, appendices, estimates and information returns, whether in
tangible, electronic or other form) supplied or required to be supplied to
any Taxing Authority relating to Taxes, including any related or supporting
information with respect to any of the foregoing.
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including all income, gross
receipts, capital, sales, communications, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, imposed or assessed
by any Taxing Authority (ii) all interest, penalties, fines, additions to
tax or additional amounts imposed by any Taxing Authority in connection
with any item described in clause (i) and (iii) any liability in respect of
any items described in clauses (i) or (ii) payable by reason of Contract,
assumption, transferee liability, operation of law, legal requirement
(including by reason of having filed or been required to file a
consolidated, combined or unitary Tax Return) or otherwise.
"Taxing Authority" means the IRS and any other Governmental Authority
responsible for the administration of any Tax.
"Technology" means, collectively, all designs, formulae, algorithms,
procedures, methods, techniques, ideas, know-how, research and development,
data, programs, subroutines, tools, materials, specifications, processes,
inventions (whether or not patentable and whether or not reduced to
practice), apparatus, creations, improvements, works of authorship and
other similar materials, and all recordings, graphs, drawings, reports,
analyses, and other writings, and other tangible embodiments of the
foregoing, in any form whether or not specifically listed herein, and all
related technology, that are used in, incorporated in, embodied in,
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displayed by or relate to, the research, development, manufacture, use,
sale, distribution or other exploitation of the products or services of the
Company or are otherwise owned or used by the Company.
"Telepro" has the meaning assigned in the definition of "Specified
Party Accounts Receivable."
"Termination Date" has the meaning assigned in Section 2.4(d).
"Trademark Assignment" has the meaning assigned in Section 3.12(a).
"Trade Secrets" has the meaning assigned in the definition of
"Intellectual Property" in this Section 1.1.
"Transaction Expenses" means (i) the aggregate amount of all
out-of-pocket fees and expenses incurred on or before the Closing Date
(whether or not paid prior to the Closing Date) by the Company in
connection with the transactions contemplated by this Agreement, including
all fees and expenses of Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP and all other
out-of-pocket expenses incurred by the Company in connection with the sale
or attempted sale of the Company plus, (ii) all fees and expenses payable
by the Company to any broker, finder or agent in connection with the
transactions contemplated by this Agreement.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the Code, as amended.
"Vehicle Lease" means that certain Vehicle Lease Agreement between the
Company and LAI Trust dated as of February 10, 2006, together with the five
(5) Lease Supplements attached thereto, copies of which have been delivered
by the Company to Purchaser.
"Working Capital" means as of any date the difference between (i) the
book value of the Company's current assets and (ii) the book value of the
Company's current liabilities, each of the above being determined in
accordance with GAAP except for, and subject to, the following adjustments
and/or deviations from GAAP:
(a) current assets will not include Cash (Cash is the subject of a
separate adjustment under this Agreement);
(b) current assets will include the value of Inventory as set forth on
Schedule 1.1(b) attached hereto, minus $100,000, minus the Inventory
Credit;
(c) current assets will not include any current or deferred income tax
benefits/assets, to the extent such items are included in current assets;
(d) current assets will not include amounts due from Seller or its
Affiliates;
(e) the account denominated on the Company's books as "Prepaid
Expenses" (account # 1630) is not comprised of prepaid expenses as
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contemplated by GAAP and will not be included in current assets, provided,
however that any prepaid expenses (as contemplated by GAAP) will be
included in current assets;
(f) Inventory is not comprised solely of inventory (as defined under
GAAP) and may include certain assets which otherwise would be categorized
as capital assets or equipment (Inventory is represented as accounts #1410
and #1420);
(g) current liabilities will not include any liability for Taxes to
the extent that such Taxes are required to be paid by Seller pursuant to
this Agreement, including without limitation the Taxes contemplated by the
Escrow Agreement;
(h) current liabilities will not include deferred revenues relating to
installation fees charged by the Company for new customers since the
Company records the entire amount as revenue and as such no adjustment
would be made for the portion thereof that would otherwise be deferred
under GAAP;
(i) current liabilities will not include deferred revenues relating to
commissions received by the Company from DirecTV relating to new accounts
since the Company records the entire amount as revenue and as such no
adjustment would be made for the portion thereof that would otherwise be
deferred under GAAP;
(j) current liabilities will not include any amounts owing by the
Company to either Hybrid or Seller, all of which shall be deemed to
constitute Indebtedness and all of which is required to be paid and
satisfied prior to Closing;
(k) current liabilities does not include the current portion of lease
payments due under the vehicle leases with LAI Trust that would otherwise
be recorded as a capital lease under GAAP; and
(l) reserve for bad debts (account #1106) will be equal to the amount
of accounts greater than sixty (60) days past due as determined per the
Accounts Receivable Aging Report.
Notwithstanding the foregoing, Working Capital will be calculated in a
manner consistent with the calculation on Schedule 1.1(c). For illustrative
purposes only, Schedule 1.1(c) sets forth the calculation of Working
Capital assuming that the Closing had been consummated on October 31, 2006.
1.2 Interpretation.
(a) In this Agreement, unless the context otherwise requires,
references:
(i) to the Preamble or to the Recitals, Sections, Annexes,
Exhibits or Schedules are to the Preamble or a Recital or Section of,
or Annex, Exhibit or Schedule to, this Agreement;
(ii) to any agreement (including this Agreement), contract,
statute or regulation are to the agreement, contract, statute or
regulation as amended, modified, supplemented or replaced from time to
Membership Interest Purchase Agreement
12
time, and to any section of any statute or regulation are to any
successor to the section;
(iii) to any Governmental Authority include any successor to that
Governmental Authority; and
(iv) to this Agreement are to this Agreement and the Annexes,
Exhibits and Schedules hereto, taken as a whole.
(b) The table of contents and headings contained herein are for
reference purposes only and do not limit or otherwise affect any of the
provisions of this Agreement.
(c) Whenever the words "include," "includes" or "including" are used
in this Agreement, they will be deemed to be followed by the words "without
limitation."
(d) Whenever the words "herein" or "hereunder" are used in this
Agreement, they will be deemed to refer to this Agreement as a whole and
not to any specific Section.
(e) Any reference in this Agreement to gender shall include all
genders, and words imparting the singular number only shall include the
plural and vice versa.
ARTICLE II - PURCHASE AND SALE
2.1 Purchase and Sale. Subject to, and on the terms and conditions of, this
Agreement, effective at the Effective Time the Purchaser is purchasing from the
Seller, and the Seller is selling, transferring, conveying, assigning and
delivering, free and clear of any and all Liens and Restrictions, to the
Purchaser, all of the Interests.
2.2 Delivery of Estimated Purchase Price Certificate. Prior to the Closing,
Blonder Tongue shall have furnished to the Purchaser: (a) a certificate (the
"Estimated Purchase Price Certificate"), prepared in good faith by Blonder
Tongue in accordance with this Agreement, setting forth an estimate of (i) the
amount of expected Working Capital as of immediately prior to the Effective Time
(the "Initial Working Capital"), (ii) the projected Cash as of immediately prior
to the Effective Time (the "Estimated Cash"), (iii) the amount of Indebtedness
outstanding as of immediately prior to the Effective Time (the "Estimated
Indebtedness") and (iv) the projected number of Actual Customers (including
amounts for each element thereof) and the corresponding Customer Adjustment
Amount based on such number (the "Estimated Customer Adjustment Amount") and (b)
a payoff letter from each holder of any portion of Indebtedness (including for
all Indebtedness of the Company owed to Blonder Tongue), which letter indicates
the amount required to discharge in full such portion of Indebtedness as of the
Closing and which includes an undertaking by such holder to provide all
authorizations, instructions and documents necessary to discharge upon receipt
of such amount of Indebtedness as of the Closing any further obligations of the
Company with respect to such Indebtedness and any Liens securing such portion of
Indebtedness.
Membership Interest Purchase Agreement
13
2.3 Payment of Estimated Purchase Price.
(a) On the Closing Date, the Purchaser shall pay the Estimated
Purchase Price as set forth in the Estimated Purchase Price Certificate
(absent manifest error), by making the following payments by wire transfer
of immediately available funds: (A) first, all principal and accrued but
unpaid interest on all outstanding Indebtedness (exclusive of the BT Note)
to the holders of such Indebtedness; (B) second, to the Escrow Agent, the
escrow funds pursuant to Section 2.3(b); and (C) the balance to Blonder
Tongue, which payment shall be applied first against the Payoff Amount (as
defined in the BT Payoff Letter) and such payment shall be in complete
satisfaction of and will discharge in full on the Closing Date all
Indebtedness arising under the BT Note held by Blonder Tongue as set forth
in the BT Payoff Letter, with the balance from the Escrow Fund applied in
consideration of the sale of the Interests.
(b) On the Closing Date, the Purchaser shall deposit with U.S. Bank
National Association (the "Escrow Agent") by wire transfer of immediately
available funds an amount equal to $769,298 in cash to be used toward
satisfaction of the Seller's indemnification obligations hereunder as well
as to fund Seller's payment of certain outstanding Taxes of the Company,
into an interest bearing account with the interest accruing to the benefit
of Blonder Tongue (the "Escrow Fund"), to be governed in accordance with
the terms of this Agreement and an escrow agreement in substantially the
form attached hereto as Exhibit A (the "Escrow Agreement"), among the
Purchaser, Blonder Tongue and the Escrow Agent.
2.4 Post-Closing Purchase Price Adjustment.
(a) Within ninety (90) days after the Closing Date, the Purchaser will
cause the Company to deliver to Blonder Tongue a certificate (the "Final
Purchase Price Certificate") prepared in good faith by the Purchaser in
accordance with this Agreement, setting forth a calculation of the Working
Capital, Cash, Indebtedness, Actual Customers (including amounts for each
element thereof and based upon, among other things, the DirecTV Commission
Report that reflects the DTV Subscribers as of the Closing Date) and the
corresponding Customer Adjustment Amount based on such number, each as of
immediately prior to the Effective Time, and the Final Purchase Price.
Immediately following the delivery of the Final Purchase Price Certificate,
Purchaser agrees to promptly deliver and furnish Blonder Tongue any
supporting or underlying documentation pertinent thereto as may be
reasonably requested by Blonder Tongue.
(b) If Blonder Tongue delivers written notice (the "Disputed Items
Notice") to the Purchaser within sixty (60) days after receipt by Blonder
Tongue of the Final Purchase Price Certificate and any supporting documents
reasonably requested by Blonder Tongue, stating that Blonder Tongue objects
to any of the amounts set forth in the Final Purchase Price Certificate and
specifying the nature of the dispute and the basis therefore, Blonder
Tongue and the Purchaser will in good faith attempt to resolve any dispute
and, if the parties so resolve all disputes, the Final Purchase Price
Certificate (and the computation of the Working Capital, Cash,
Indebtedness, Actual Customers and the corresponding Customer Adjustment
Amount, and the Final Purchase Price indicated therein), as amended to the
extent necessary to reflect the resolution of the dispute, shall be
conclusive and binding on the parties.
Membership Interest Purchase Agreement
14
(c) If Blonder Tongue and the Purchaser are unable to agree upon the
Final Purchase Price within twenty (20) days after delivery of the Disputed
Items Notice, Blonder Tongue and the Purchaser shall engage Ernst & Young,
or if such party declines such engagement or is otherwise unable to serve
in such capacity, Blonder Tongue shall engage another accounting firm,
subject to the approval of the Purchaser (such approval not to be
unreasonably withheld or delayed) (such engaged party, the "Independent
Accountant"), to resolve the disputed items and to make a determination of
the Final Purchase Price. The determination of the Independent Accountant
shall be made within thirty (30) days after its engagement and, except as
set forth in Section 2.4(d) below, will be final and binding on the
parties. The Independent Accountant shall resolve only the items or amounts
in dispute and make a determination of the Final Purchase Price, which,
except as set forth in Section 2.4(d), shall be conclusive and binding on
the parties. In resolving any disputed item, the Independent Accountant (i)
shall be bound by the provisions of this Section 2.4 and (ii) may not
assign a value to any item greater than the greatest value for such items
claimed by either party or less than the smallest value of such items
claimed by either party. The fees, costs and expenses of the Independent
Accountant will be borne proportionately by the Seller and the Purchaser.
The Purchaser shall be responsible for the proportion of such cost equal to
the quotient of (A) the absolute value of the difference of (w) the
Purchaser's calculation of the Final Purchase Price minus (x) the Final
Purchase Price as determined by the Independent Accountant divided by (B)
the absolute value of the difference of (y) the Purchaser's calculation of
the Final Purchase Price minus (z) Blonder Tongue's calculation of the
Final Purchase Price. Blonder Tongue shall be responsible for the
proportion of such cost equal to the quotient of (A) the absolute value of
the difference of (w) Blonder Tongue's calculation of the Final Purchase
Price minus (x) the Final Purchase Price as determined by the Independent
Accountant divided by (B) the absolute value of the difference of (y)
Blonder Tongue's calculation of the Final Purchase Price minus (z) the
Purchaser's calculation of the Final Purchase Price.
(d) If for any disputed items set forth in the Disputed Items Notice,
the difference between the Independent Accountant's assigned value and the
value asserted by either Blonder Tongue or the Purchaser exceeds $125,000,
individually or in the aggregate (each, a "Disputed Item" and collectively,
the "Disputed Items"), Blonder Tongue or Purchaser, as applicable, shall
have the right, upon written notice to the other party within thirty (30)
days from the date of the Independent Accountant's determination (the
"Election Notice"), to elect to use the following dispute resolution
procedure.
(i) Mediation. If either party submits an Election Notice to the
other for the resolution of the Disputed Items, then the parties shall
endeavor to resolve the Disputed Items by mediation under the then
current CPR Institute for Conflict Prevention and Resolution ("CPR")
model procedure for mediation of business disputes. The parties shall
select a mediator by mutual agreement; provided however, if the
parties fail to agree upon a mediator within ten (10) days of the date
of the Election Notice, they shall proceed with selection of a
mediator using the services and procedures of the CRP for selection of
a mediator. The mediator shall be neutral, disinterested, unbiased and
independent of the parties and others having an interest in the
outcome. The place of mediation shall be New York, New York. Each
party will bear its own cost of mediation, including any counsel fees,
provided, however, the cost charged by any independent third party
mediator will be shared equally by the parties. In consultation with
the mediator, the parties shall promptly designate a mutually
convenient time and place for the mediation, and unless circumstances
Membership Interest Purchase Agreement
15
require otherwise, such time shall not be later than fifteen (15) days
after selection of the mediator. If the parties do not agree promptly,
then the mediator shall determine the time and place. In the event any
party has substantial need for information in the possession of
another party in order to prepare for the mediation, all parties shall
attempt in good faith to agree on procedures for the expeditious
exchange of such information, with the help of the mediator if
required. The bias shall be against discovery which is not clearly
essential and the parties agree to be bound by the mediator's
determination of what discovery, if any, shall be had. The parties'
efforts to reach a settlement of the Disputed Items will continue
until (i) a written settlement agreement is executed by the parties,
or (ii) the mediator concludes and informs the parties in writing that
further efforts to mediate the dispute would not be useful, or (iii)
one of the parties notifies the other in writing that an impasse has
been reached (the "Termination Date"). Notwithstanding the foregoing,
either party may withdraw from the mediation proceeding without
liability therefor in the event such proceeding continues for more
than fifteen (15) days from the commencement of such proceeding. For
purposes of the preceding sentence, the proceeding will be deemed to
have commenced following the completion of the selection of the
mediator.
(ii) In the event the parties fail to resolve all of the Disputed
Items by the Termination Date, the Disputed Items shall be resolved in
a final and binding manner in arbitration under the then-prevailing
Commercial Arbitration Rules of the American Arbitration Association
("AAA"). The place of arbitration shall be New York, New York. A panel
of three (3) arbitrators qualified as certified public accountants and
experienced in resolving matters similar to those in dispute under
this Section 2.4 shall be selected by the joint agreement of the
parties, but if they do not so agree within ten (10) days after the
Termination Date, the selection of the arbitrators shall be made
pursuant to the rules from the panels of the arbitrators maintained by
the AAA, subject to the aforementioned qualifications for the
arbitrators. Consistent with the expedited nature of arbitration, each
party will, upon the reasonable written request of the other party,
promptly provide the other with copies of documents directly relevant
to the Disputed Items. Any dispute regarding discovery, or the
relevance or scope thereof, shall be determined by the arbitrators,
which determination shall be conclusive. The arbitrators shall render
their decision within sixty (60) days of appointment. Any decision
rendered by the arbitrators regarding the Disputed Items shall be
conclusive and binding upon the parties hereto; provided, that such
decision may not assign a value to any item greater than the greatest
value for such items claimed by either party or less than the smallest
value of such items claimed by either party; provided, further, that
any such decision shall be accompanied by a written opinion of the
arbitrators giving the reasons for the award. Each party will bear its
own cost of arbitration, including any counsel fees. The fees, costs
and expenses of the arbitrators will be borne proportionately by the
Seller and the Purchaser. The Purchaser shall be responsible for the
proportion of such cost equal to the quotient of (A) the absolute
value of the difference of (w) the Purchaser's calculation of the
Disputed Items minus (x) the Disputed Items as determined by the
arbitrators divided by (B) the absolute value of the difference of (y)
the Purchaser's calculation of the Disputed Items minus (z) Blonder
Tongue's calculation of the Disputed Items. Blonder Tongue shall be
responsible for the proportion of such cost equal to the quotient of
(A) the absolute value of the difference of (w) Blonder Tongue's
calculation of the Disputed Items minus (x) the Disputed Items as
determined by the arbitrators divided by (B) the absolute value of the
difference of (y) Blonder Tongue's calculation of the Disputed Items
minus (z) the Purchaser's calculation of the Disputed Items.
Membership Interest Purchase Agreement
16
(iii) The parties agree that the mediation and arbitration
procedures set forth in this Section 2.4(d) are obligatory and
participation therein legally binding upon each of them once an
Election Notice is delivered. In the event that either party refuses
to submit to the dispute resolution procedures pursuant to this
Section 2.4(d), the other party may bring an action to seek
enforcement of such obligation in any court of competent jurisdiction.
(e) If Blonder Tongue does not deliver a Disputed Items Notice to the
Purchaser within sixty (60) days after receipt by Blonder Tongue of the
Final Purchase Price Certificate and any supporting documents reasonably
requested by Blonder Tongue, the computation of the Working Capital, Cash,
Indebtedness, Actual Customers and the corresponding Customer Adjustment
Amount, and the Final Purchase Price specified in the Final Purchase Price
Certificate will be conclusively presumed to be true and correct in all
respects and will be binding upon the parties.
(f) If the Net Adjustment Amount (as defined below) is positive, the
Purchaser shall promptly (but in any event within five (5) Business Days
after the final determination of all amounts pursuant to this Section 2.4)
deliver to Blonder Tongue the Net Adjustment Amount by wire transfer of
immediately available funds to an account or accounts designated by Blonder
Tongue.
(g) If the Net Adjustment Amount is negative, the Purchaser shall be
entitled to (and upon the demand of Seller, shall be obligated to) satisfy
the absolute value of the Net Adjustment Amount, up to $25,000, out of the
Escrow Fund and, upon Purchaser's request, Blonder Tongue shall execute
joint instructions to the Escrow Agent to release such amounts from the
Escrow Fund. To the extent the Net Adjustment Amount is negative and the
absolute value of the Net Adjustment Amount is an amount greater than
$25,000, Blonder Tongue shall promptly (but in any event within five (5)
Business Days after the final determination of all amounts pursuant to this
Section 2.4) deliver to the Purchaser an amount equal to the absolute value
of the Net Adjustment Amount in excess of $25,000 by wire transfer of
immediately available funds to an account designated by the Purchaser to
Blonder Tongue.
(h) "Net Adjustment Amount" shall mean an amount equal to zero plus
(i) the amount by which Estimated Working Capital is less than Working
Capital as finally determined pursuant to this Section 2.4 ("Final Working
Capital"), minus (ii) the amount by which Estimated Working Capital is
greater than Final Working Capital, plus (iii) the amount by which
Estimated Cash is less than Cash as finally determined pursuant to this
Section 2.4 ("Final Cash"), minus (iv) the amount by which Estimated Cash
is greater than Final Cash, minus (v) the amount by which Estimated
Indebtedness is less than the amount of Indebtedness as finally determined
pursuant to this Section 2.4 ("Final Indebtedness"), plus (vi) the amount
by which Estimated Indebtedness is greater than Final Indebtedness, minus
(vii) the amount by which the Estimated Customer Adjustment Amount is
greater than the Customer Adjustment Amount as finally determined pursuant
to this Section 2.4 ("Final Customer Adjustment Amount"), plus (viii) the
amount by which the Estimated Customer Adjustment Amount is less than the
Final Customer Adjustment Amount.
Membership Interest Purchase Agreement
17
2.5 Closing.
(a) The closing of the transactions contemplated hereby (the
"Closing") shall be held on the date hereof (the "Closing Date"), with the
participation therein by Seller and Purchaser via teleconference and
exchange of execution copies of documents through the use of electronic
signatures, email and telecopy. Original copies of all execution documents
and other deliverables will be exchanged via overnight courier.
(b) At the Closing, the Seller shall deliver, or cause the Company to
deliver, as applicable, to the Purchaser:
(i) copies of resolutions, certified by the Manager of the
Company and an authorized officer of the Seller, as to the
authorization of this Agreement and all of the transactions
contemplated hereby;
(ii) copies of releases from Affiliates of the Company pursuant
to Section 6.6 hereof;
(iii) a written assignment of the uncertificated Interests
sufficient to transfer the Interests to the Purchaser, free and clear
of all Liens and Restrictions;
(iv) certificates of good standing for each jurisdiction in which
the Company does business;
(v) an affidavit of non-foreign status that complies with
Treasury Regulations Section 1.1445-(2)(b)(1);
(vi) a promissory note executed by each of Telepro and Priority
Communications affirming the obligations of each such party in
connection with the Specified Party Accounts Receivable; and
(vii) such other documents as the Purchaser may reasonably
request in writing.
(c) At the Closing, the Purchaser shall deliver to the Seller:
(i) copies of resolutions, certified by the Member of the
Purchaser and an authorized officer of the Purchaser, as to the
authorization of this Agreement and all of the transactions
contemplated hereby; and
(ii) such other documents as the Seller may reasonably request in
writing.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents to the Purchaser, as of the Closing
Date, as follows:
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18
3.1 Existence and Authority. The Company has been duly formed and is a
validly existing limited liability company in good standing under the laws of
the State of Delaware. The Company has the limited liability company power and
authority to own or lease its current assets and carry on its Business as
currently conducted and is duly qualified to do business in each jurisdiction
where the ownership or lease and operation of its property and assets or the
conduct of its Business requires such qualification. The Company is duly
qualified or authorized to do business as a foreign limited liability company
and is in good standing in each of the jurisdictions in which it is so
qualified, except for any failure to be so qualified, authorized or in good
standing would not reasonably be expected to have a Material Adverse Effect on
the Company.
3.2 Subsidiaries. The Company has no Subsidiaries and does not own any
capital stock or other equity interests in any Person.
3.3 Capitalization.
(a) The Company has provided the Purchaser with a true, correct and
complete copy of (i) that certain letter agreement dated July 31, 2002 by
and among Blonder Tongue, Priority Systems, LLC and Paradigm Capital
Investments, LLC, (ii) that certain PMG-Blonder Tongue Settlement
Agreement, dated as of July 16, 2003 by and between Blonder Tongue and
Paradigm Marketing Group, Inc., (iii) that certain Membership Interest
Purchase Agreement, dated as of October 19, 2006 by and between Blonder
Tongue and Priority Systems, LLC and (iv) that certain Termination
Agreement, dated as of October 19, 2006 among Blonder Tongue, Priority
Systems, LLC and Paradigm Capital Investments, LLC, whereby such documents
set forth the capitalization of the Company consistent with Blonder Tongue
owning all of the Interests in the Company. Other than the agreements set
forth in the previous sentence, there are no other Contracts or
arrangements with respect to the equity interests of the Company and the
Company has not otherwise had, nor does it otherwise have, an operating
agreement. All of the issued and outstanding membership interests of the
Company are owned of record by the Seller. Other than the Interests, there
are no other equity interests in the Company.
(b) All of the Interests (i) were duly authorized for issuance and are
validly issued, fully paid and non-assessable, (ii) were issued in
compliance with all applicable state and federal securities laws and (iii)
were not issued in violation of any preemptive rights or rights of first
refusal or similar rights. There are no options, warrants, preemptive
rights or other rights of any kind to acquire, or any restriction upon the
voting or transfer of, any membership interests in the Company. Except for
those Contracts listed in Section 3.3(a) above, the Company is not party to
any voting trust or other Contract with respect to the voting, redemption,
sale, transfer or other disposition of the membership interests of the
Company.
3.4 Authorization and Validity. This Agreement and each other agreement,
document, instrument or certificate contemplated to be performed by the Company
by this Agreement or to be executed by the Company in connection with the
transactions contemplated hereby (the "Company Documents"), and the consummation
of each of the transactions to be performed by the Company contemplated hereby
and thereby, has been duly authorized and approved by all required action on the
part of the Company. The Company has the requisite limited liability power and
authority to execute and deliver this Agreement and each of the Company
Membership Interest Purchase Agreement
19
Documents, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated to be performed by the Company hereby and thereby.
This Agreement has been, and each of the Company Documents will be at or prior
to the Closing, duly and validly executed and delivered by the Company and
(assuming due authorization, execution and delivery by the Purchaser and the
Seller) this Agreement constitutes and each other Company Document when so
executed and delivered will constitute legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms.
3.5 Governmental and Third-Person Consents. Except as set forth on Schedule
3.5, no notices, reports or other filings are required to be made by the Company
with, nor are any consents, registrations, approvals, Applicable Orders, Permits
or authorizations required to be obtained by the Company from, any Governmental
Authority or any other Person in connection with the execution, delivery or
performance of this Agreement or the Company Documents by the Company or the
consummation of the transactions contemplated hereby and thereby.
3.6 No Conflicts. Except as set forth on Schedule 3.6, the execution,
delivery and performance by the Company of this Agreement and each of the other
Company Documents does not, and the consummation of the transactions
contemplated hereby and thereby or the compliance by the Company with any of the
provisions of this Agreement or the Company Documents does not:
(a) create any Lien or violate any Restrictions on the Interests or on
the properties or assets of the Company; or
(b) conflict with, result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, acceleration or cancellation under, any provision of (i) the
Constituent Documents of the Company, (ii) any Requirement of Law or
Applicable Order or (iii) any Company Contract or give any Person the right
to terminate or cancel any right of the Company under any Company Contract
or accelerate the obligations of any of them thereunder.
3.7 Financial Statements. The Company has delivered copies of the Financial
Statements to the Purchaser. Each of the Financial Statements is complete and
correct in all material respects and fairly presents in all material respects
the financial condition of the Company and the results of its operations as of
the dates and for the periods specified therein, and was prepared in accordance
with the Books and Records in conformity with GAAP consistently applied during
the periods covered thereby, except as set forth on Schedule 3.7 hereto and
except for the omission of footnotes and subject to normal year end adjustments
which are not expected to be material. The balance sheet as of August 31, 2006
included in such Financial Statements is referred to in this Agreement as the
"Interim Balance Sheet" and August 31, 2006 is referred to in this Agreement as
the "Interim Balance Sheet Date".
3.8 Undisclosed Liabilities. The Company has no liability or obligation
(including with respect to any Transaction Expenses), either accrued, absolute,
contingent or otherwise (whether or not required by GAAP to be reflected on a
balance sheet or the notes thereto), except for such liabilities (other than
Transaction Expenses) that (i) do not exceed $1,000, individually, or $10,000,
in the aggregate, (ii) are set forth on Schedule 3.8, (iii) are reflected,
Membership Interest Purchase Agreement
20
reserved or disclosed in the Interim Balance Sheet, or (iv) were incurred in the
Ordinary Course of Business subsequent to the Interim Balance Sheet Date.
3.9 Absence of Certain Developments. Except for the transactions
contemplated hereby and except as set forth on Schedule 3.9, since the Interim
Balance Sheet Date the Company has conducted its Business only in the Ordinary
Course of Business and there has not been any event, change, occurrence or
circumstance that, individually or in the aggregate with any such events,
changes, occurrences or circumstances, has had or could reasonably be expected
to have a Material Adverse Effect. Without limiting the generality of the
foregoing, since the Interim Balance Sheet Date:
(a) except as set forth on Schedule 3.9(a), there has not been any
damage, destruction or loss, whether or not covered by insurance, with
respect to the property and assets of the Company having a replacement cost
of more than $10,000 for any single loss or $25,000 for all such losses;
(b) except as set forth on Schedule 3.9(b), there has not been any
declaration, setting aside or payment of any dividend or other distribution
in respect of any membership interest of the Company or any repurchase,
redemption or other acquisition by the Company of any outstanding
membership interest or other securities of, or other ownership interest in,
the Company;
(c) except as set forth on Schedule 3.9(c), there has not been any
change by the Company in accounting or tax reporting principles, methods or
policies;
(d) except as set forth on Schedule 3.9(d), the Company has not made,
modified or rescinded any election relating to Taxes or settled or
compromised any claim relating to Taxes;
(e) except as set forth on Schedule 3.9(e), the Company has not
entered into any transaction or Contract other than in the Ordinary Course
of Business;
(f) except as set forth on Schedule 3.9(f), the Company has not failed
to promptly pay and discharge current liabilities except where disputed in
good faith by appropriate proceedings;
(g) except as set forth on Schedule 3.9(g), the Company has not made
any loans, advances or capital contributions to, or investments in, any
Person or paid any fees or expenses to the Seller or any director, officer,
partner, stockholder or Affiliate of the Seller;
(h) except as set forth on Schedule 3.9(h), the Company has not (i)
mortgaged, pledged or subjected to any Lien or Restriction any of its
assets, or (ii) acquired any assets or sold, assigned, transferred,
conveyed, leased or otherwise disposed of any assets of the Company,
except, in the case of clause (ii), for assets acquired, sold, assigned,
transferred, conveyed, leased or otherwise disposed of in the Ordinary
Course of Business;
(i) except as set forth on Schedule 3.9(i), the Company has not
discharged or satisfied any Lien, or paid any liability, except in the
Ordinary Course of Business;
Membership Interest Purchase Agreement
21
(j) except as set forth on Schedule 3.9(j), the Company has not
canceled or compromised any debt or claim owing to the Company or amended,
canceled, terminated, relinquished, waived or released any Contract or
right except in the Ordinary Course of Business and which, in the
aggregate, would not be material to the Company taken as a whole;
(k) except as set forth on Schedule 3.9(k), the Company has not made
or committed to make any capital expenditures or capital additions or
betterments in excess of $10,000 individually or $25,000 in the aggregate;
(l) except as set forth on Schedule 3.9(l), the Company has not
issued, created, incurred, assumed, guaranteed, endorsed or otherwise
become liable or responsible with respect to (whether directly,
contingently, or otherwise) any Indebtedness in an amount in excess of
$10,000 in the aggregate;
(m) except as set forth on Schedule 3.9(m), the Company has not
granted any license or sublicense of any rights under or with respect to
any Intellectual Property;
(n) except as set forth on Schedule 3.9(n), the Company has not
instituted or settled any Legal Proceeding; and
(o) except as set forth on Schedule 3.9(o), neither the Company, nor
the Seller on the Company's behalf, has agreed, committed, arranged or
entered into any understanding to do anything set forth in this Section
3.9.
3.10 Real Property.
(a) The Company is the lessee under one (1) real property lease for
approximately 680 square feet of office and warehouse space located in
Lewisville, Texas, which as of the Closing Date will not be subject to any
Lien or security interest of any Person other than Permitted Liens (the
"Real Property Lease"), and the Real Property Lease is the only real
property lease to which the Company is a party. The Company has not
received any notice of termination under the Real Property Lease. The
Company does not own any real property.
(b) The Company has certain possessory rights to real estate,
including certain rights of way, easements, communications services
agreements, rights of entry agreements, licenses and other rights of use,
as listed on Schedule 3.10(b)(1) (the "Real Property Rights of Access").
The Real Property Rights of Access are subject to a security interest by
the Company's lender, which security interest will be released prior to
Closing. The Company has the exclusive and/or nonexclusive rights of entry
and operations specified in each of the Real Property Rights of Access to
which it is a party, free and clear of all Liens except Liens set forth on
Schedule 3.10(b)(2). Except as set forth as Item 2 on Schedule 3.10(b)(3),
each of the Real Property Rights of Access is in full force and effect,
enforceable by the Company, and except as set forth on Schedule 3.10(b)(3),
(i) since January 1, 2006, the Company has not received or given any notice
of any default or event that with notice or lapse of time, or both, would
constitute a default by the Company under any of the Real Property Rights
of Access, (ii) to the Knowledge of the Company or the Seller, no other
party is in default thereof, and (iii) no party to the Real Property Rights
Membership Interest Purchase Agreement
22
of Access has exercised any termination rights with respect thereto or
provided the Company or the Seller with any notice of the intention to
terminate any such Real Property Rights of Access.
(c) The Real Property Lease and the Real Property Rights of Access
constitute all interests in real property currently used or currently held
for use in connection with the Business of the Company and that are
necessary for the continued operation of the Business of the Company as the
Business is currently conducted; provided, however, that certain
administrative functions of the Company are performed on the Company's
behalf at the offices of Blonder Tongue. All of the fixtures and
improvements thereon owned or leased by the Company, if any, are in
operating condition and repair (subject to normal wear and tear). The
Company has delivered to the Purchaser true, correct and complete copies of
(i) the Real Property Lease, together with all amendments, modifications or
supplements, if any, thereto and (ii) all Real Property Rights of Access,
together with all amendments, modifications or supplements, if any,
thereto. Except as set forth on Schedule 3.10(c), the Company does not own
or hold, and is not obligated under or a party to, any option, right of
first refusal or other contractual right to purchase, acquire, sell, assign
or dispose of any real estate or any portion thereof or interest therein.
3.11 Tangible Personal Property. Schedule 3.11 sets forth all leases of
personal property involving annual payments in excess of $10,000 relating to
personal property used in the Business of the Company or to which the Company is
a party or by which the properties or assets of the Company is bound ("Personal
Property Leases"). All of the items of personal property under the Personal
Property Leases are in operating condition and repair (ordinary wear and tear
excepted) and are suitable for the purposes used, and such property is in all
material respects in the condition required of such property by the terms of the
lease applicable thereto. Each of the Personal Property Leases is in full force
and effect, and the Company has not received or given any notice of any default
or event that with notice or lapse of time, or both, would constitute a default
by the Company under any of the Personal Property Leases and, to the Knowledge
of the Company, no other party is in default thereof, and no party to the
Personal Property Leases has exercised any termination rights with respect
thereto. The Company has delivered to the Purchaser true, correct and complete
copies of all Personal Property Leases. The Inventory is as set forth in
Schedule 1.1(b) and is in operating condition in all material respect.
3.12 Intellectual Property.
(a) The Company has no issued Patents or registered Copyrights. The
Company uses the Registered Marks, ownership of which has been transferred
and assigned to Blonder Tongue prior to the date hereof or is in the
process of being assigned to Blonder Tongue (the "Trademark Assignment").
If the Trademark Assignment is not completed prior to the Closing, the
Company shall cooperate with Blonder Tongue and use its commercially
reasonable efforts after the Closing, at Blonder Tongue's sole cost and
expense, to consummate the Trademark Assignment. The Registered Marks are
the only registered Marks owned, filed or used by the Company. The Company
has no pending applications for registration of Marks, no pending
applications for registration of Copyrights and no pending Patent
applications. The Domain Name is owned by Blonder Tongue and is licensed to
the Company for use in connection with the Business. The Company has no
unregistered Marks (other than the Domain Name).
Membership Interest Purchase Agreement
23
(b) Prior to the Trademark Assignment, the Company was, or is, the
sole and exclusive owner of all right, title and interest in and to the
Registered Marks and the Corporate Name, free and clear of all Liens or
obligations except for Permitted Liens and those Liens set forth on
Schedule 3.23(b). The Seller is the sole and exclusive owner of all right,
title and interest in and to the Domain Name, free and clear of all Liens,
Restrictions or obligations to others (other than the license granted by
the Seller to the Company for the Company's use of the Domain Name in
connection with the Business), except for Permitted Liens. The Company is
the sole and exclusive owner of, or has valid and continuing rights to use,
sell, license and otherwise exploit, as the case may be, all other
Intellectual Property used, sold, licensed or otherwise exploited by the
Company in its Business as currently conducted and as currently proposed to
be conducted, free and clear of all Liens, Restrictions or obligations to
others except Permitted Liens.
(c) The Intellectual Property owned, used, practiced, licensed or
otherwise exploited by the Company, the development, manufacture,
reproduction, use, license, marketing, importation, exportation, offer for
sale or sale of the products or services of the Company or of the
Technology in connection with its Business as currently conducted and as
currently proposed to be conducted, and the current and currently proposed
business practices and methods of the Company do not, to the Knowledge of
the Company and Blonder Tongue, infringe, violate or constitute an
unauthorized use or misappropriation of any Patent, Copyright, Xxxx, Trade
Secret or other similar right of any Person.
(d) The Intellectual Property owned by or licensed to the Company
includes all of the intellectual property rights used by, and necessary to
enable, the Company to conduct its Business in the manner in which such
Business is currently being conducted and as currently proposed to be
conducted, subject to Section 6.9 below.
(e) Except with respect to licenses of commercial off-the-shelf
Software, and except pursuant to the Intellectual Property Licenses listed
in Schedule 3.12(e), the Company is not required, obligated, or under any
liability whatsoever, to make any payments by way of royalties, fees or
otherwise or provide any other consideration of any kind, to any owner,
licensor of, or other claimant to any Intellectual Property, or other
Person, with respect to the use thereof or in connection with the conduct
of the Business of the Company as currently conducted or currently proposed
to be conducted.
(f) Schedule 3.12(f) sets forth a complete and accurate list of all
Contracts to which the Company is a party containing an agreement by the
Company to indemnify any other Person against any claim of infringement,
violation, misappropriation or unauthorized use of any Intellectual
Property. The Company has delivered to the Purchaser true, correct and
complete copies of each Contract set forth on Schedule 3.12(f), together
with all amendments, modifications or supplements thereto.
(g) The Company has taken reasonable security measures, consistent
with security measures generally taken in the industry in which the Company
operates, to protect the secrecy, confidentiality and value of all material
Trade Secrets of the Company and any confidential information owned by any
third Person to whom the Company has a confidentiality obligation.
Membership Interest Purchase Agreement
24
(h) As of the date hereof, the Company is not the subject of any
pending or, to the Knowledge of the Company, threatened Legal Proceedings
that involve a claim of infringement, misappropriation, unauthorized use or
violation of any Intellectual Property rights by any Person against the
Company or challenging the ownership, use, validity or enforceability of
any Intellectual Property. The Company has not received notice of any such
threatened claim and, to the Knowledge of the Company and Blonder Tongue,
there are no facts or circumstances that would form the basis for any claim
of infringement, misappropriation, unauthorized use or violation or any
Intellectual Property rights by any Person against the Company, or
challenging the ownership, use, validity or enforceability of any
Intellectual Property. All of the Company's rights in and to the
Intellectual Property are valid and enforceable.
(i) To the Knowledge of the Company and Blonder Tongue, no Person is
infringing, violating, misusing or misappropriating any Intellectual
Property, and no such claims have been made against any Person by the
Company or Blonder Tongue.
(j) There are no Applicable Orders, settlement agreements or
stipulations to which the Company or Blonder Tongue is a party or by which
the Company or Blonder Tongue is bound that restrict the right to use any
of the Intellectual Property.
(k) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of Purchaser's right to own or use any of
the Intellectual Property (other than the use of (i) the Corporate Name,
(ii) the Registered Marks and (iii) the Domain Name, all as specified in
Section 6.9 below).
(l) The Company does not own any proprietary Software. Schedule
3.12(l) sets forth a complete and accurate list of all Software that is
used by the Company that is not exclusively owned by the Company, excluding
Software licensed under a shrink-wrap or click-through agreement on
reasonable terms through commercial distributors or in consumer retail
stores for a license fee of no more than $10,000.
(m) Neither this Agreement nor the transactions contemplated hereby
will result in the grant of any right or license with respect to any
Intellectual Property to any Person pursuant to any Contract to which the
Company is a party or by which any assets or properties of the Company are
bound (other than the rights and licenses granted to the Company by Blonder
Tongue under Section 6.9 below with respect to the Company's use of (i) the
Corporate Name, (ii) the Registered Marks and (iii) the Domain Name).
3.13 Material Contracts.
(a) Schedule 3.13 contains an accurate and complete list of the
following Contracts to which the Company is a party or to which the Company
is subject (the "Material Contracts"):
(i) any Contract if (A) the performance remaining thereunder
involves aggregate consideration payable to or by the Company in
excess of $10,000 and (B) such Contract is not cancelable, without
penalty, by the Company on notice of thirty (30) days or less;
Membership Interest Purchase Agreement
25
(ii) any Contract obligating the Company to provide services to
(1) any multiple dwelling unit or gated community, in each case
involving more than fifty (50) units or (2) any Person if the
performance remaining thereunder involves annual consideration to the
Company in excess of $20,000;
(iii) any Contract granting the Company a "right of entry"
(including, for each such Contract, the counter party thereto, the
expiration of the term thereof, the number of units in the
multi-family residential property, the number of DTV Subscribers, HSD
Subscribers and AV Subscribers as of November 20, 2006, the number of
internet subscribers as of November 20, 2006 and the services that the
Company has a right to provide on either an exclusive or non-exclusive
basis;
(iv) any Contract that restricts or contains limitations on the
ability of the Company from freely engaging in any line of business or
with any Person in any geographical area or covenants of any other
Person not to compete with the Company in any line of business or in
any geographic area or not to solicit or hire any Person with respect
to employment;
(v) any collective bargaining Contract with any labor union or
association representing any Company Employee;
(vi) any Contract with the Seller or any of its Affiliates,
including any Contract constituting or reflecting any Indebtedness,
guaranty, receivable, payable or other account maintained between the
Company and the Seller and any of its Affiliates;
(vii) any Contract for the employment of any Company Employee or
other Person on a full-time, part-time or consulting basis or other
basis providing annual compensation in excess of $25,000 or any
severance agreements binding on the Company;
(viii) any Contract, including any guarantees, loans or credit or
sale and leaseback agreements, relating to the borrowing of money by
the Company in excess of $20,000 in principal amount;
(ix) any mortgage, pledge, indenture or security agreement,
Contract or similar arrangement constituting a Lien or a Restriction
upon the assets or properties of the Company or the Interests;
(x) any Contract with respect to the lending or investing of
funds;
(xi) any Contract under which the Company is lessor of, or
permits any Person to hold or operate, any personal property owned or
controlled by the Company;
(xii) Intellectual Property Licenses and Contracts for joint
ventures, strategic alliances, partnerships, sharing of profits or
proprietary information;
(xiii) any Contract providing for severance, retention, change in
control or other similar payments;
Membership Interest Purchase Agreement
26
(xiv) all other Contracts, whether or not entered into in the
Ordinary Course of Business, other than this Agreement and the Seller
Documents, the Purchaser Documents and the Company Documents, which
involve more than $10,000 individually or $25,000 in the aggregate;
and
(xv) any Contract for the sale or purchase of personal property
having a value individually, with respect to all sales or purchases
thereunder, in excess of $10,000.
(b) Except as set forth as Item 2 on Schedule 3.10(b)(3), each
Material Contract is a valid and binding obligation of the Company in full
force and effect except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the enforcement of creditors rights generally and subject to
general principles of equity. Except as set forth on Schedule 3.13(b), the
Company is not in default under any Material Contract nor, to the Knowledge
of the Company, is any other party to any Material Contract in breach of or
default thereunder, and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a breach or default by the
Company or any party thereunder. The Company has delivered to the Purchaser
true, correct and complete copies of all written Material Contracts and has
set forth the material terms of all verbal Material Contracts on Schedules
3.13(a)(i) and (ii). The Company has not received a notice of termination
under any of the Material Contracts other than as set forth in Schedule
3.10(b)(3).
3.14 Litigation. Except as set forth on Schedule 3.14, there are no
actions, suits, claims, proceedings or investigations (to the Knowledge of the
Company) now pending or, to the Company's Knowledge, threatened, in arbitration
or before any Governmental Authority, against the Company or any of its
properties or assets, or which would question the validity or enforceability of
this Agreement or any Company Document or any action contemplated herein or
therein. Except as set forth on Schedule 3.14, there are no outstanding or
unsatisfied orders issued by any Government Authority in any proceeding to which
the Company is a party or which apply to the Company's properties or assets.
3.15 Permits, Approvals and Compliance with Laws.
(a) Except as set forth on Schedule 3.15, the Company:
(i) has all Permits that are material to the Business and has
made all filings, applications and registrations with any Governmental
Authority that are necessary for it to own its properties and assets
and to carry on its Business as currently conducted. All such Permits
are valid and in full force and effect. Schedule 3.15 contains a
complete list of all such Permits;
(ii) is in compliance in all material respects with the
requirements of such Permits;
(iii) is in compliance in all material respects with all
Requirements of Law relating to its Business operations or assets;
(iv) does not provide, nor is it obligated to provide, any video
programming through a signal distribution system which utilizes public
easements, crosses public rights of way or any similar land rights or
Membership Interest Purchase Agreement
27
which otherwise operates a video programming service which would
subject the Company, the Company's equityholders, or any of their
respective Affiliates to federal, state or local cable operator
regulations;
(v) is not a party to any franchise agreement nor licensed by any
local, state or federal franchise authority to provide video
programming; and
(vi) has not received any notice from any Governmental Authority
that (A) alleges any noncompliance with or failure to obtain any
Permit or approval, or failure to make any filings, applications or
registrations, described above, (B) alleges any noncompliance with any
Requirement of Law relating to its Business, or (C) threatens to
revoke any such license, franchise, permit or governmental
authorization.
(b) Except as set forth on Schedule 3.15(b), no event has occurred
which, with notice or the lapse of time or both, would constitute a default
or violation in any material respect of any term, condition or provision of
any Permit to which it is a party, to which its Business is subject or by
which its properties or assets are bound, and no proceeding is pending or,
to the Knowledge of the Company, threatened to revoke or amend any of the
Permits and there are no facts or circumstances which could form the basis
for any default or violation of any Permit to which it is a party.
3.16 Employee Benefits and Labor Matters. The Company has never had, does
not have and will not have through the Closing Date, any obligation or liability
(contingent or otherwise) with respect to any "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or any other benefit or compensation plan, program,
policy or arrangement. The Company has never had, does not have and will not
have through the Closing Date, any obligation or liability, contingent or
otherwise, under Title IV of ERISA.
3.17 Employees. The Company has never had, does not have and will not have
through the Closing Date, any obligation or liability (contingent or otherwise)
with respect to any employee. Schedule 3.17 sets forth a complete and correct
list of the five (5) employees employed by Blonder Tongue who provide
maintenance and technical services in support of the Company's Business on a
full-time basis (the "Service Technicians") and, with respect to each such
Service Technician, (i) job duties and (ii) salary.
3.18 Taxes. Except as set forth on Schedule 3.18:
(a) the Company is and always has been classified as a "partnership"
or "disregarded as an entity separate from its owner" (as such terms are
defined in Treasury Regulations Section 301.7701-2(c)) for U.S. federal
income tax purposes, and has not made an election pursuant to Treasury
Regulations Section 301.7701-3(c) to be treated as an association taxable
as a corporation for U.S. federal income tax purposes.
(b) (i) all Tax Returns required to be filed by or on behalf of the
Company have been duly and timely filed with the appropriate Taxing
Authority in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make
Membership Interest Purchase Agreement
28
such filings), and all such Tax Returns are true, complete and correct in
all material respects; (ii) all Taxes payable by or on behalf of the
Company have been fully and timely paid; (iii) with respect to any period
for which Tax Returns are not yet required to be filed and have not yet
been filed or for which Taxes are not yet due or owing, the Company has
made due and sufficient accruals for such Taxes in the Financial Statements
and its Books and Records; and (iv) all required estimated payments of
Taxes sufficient to avoid any underpayment penalties have been made by or
on behalf of the Company;
(c) the Company has complied in all material respects with any
Requirement of Law relating to the payment and withholding of Taxes and has
duly and timely withheld and paid over to the appropriate Taxing Authority
all amounts required to be so withheld and paid under any Requirement of
Law;
(d) the Purchaser has received true and complete copies of (i) all
federal, state, local and foreign income, sales or franchise Tax Returns of
the Company relating to the taxable periods since December 31, 2001 and
(ii) any audit report issued within the last three (3) years relating to
any Taxes due from or with respect to the Company;
(e) no income or franchise Tax Returns filed by or on behalf of the
Company have been examined by the relevant taxing authority, nor, to the
knowledge of Seller, has the statute of limitations with respect to any
such Tax Returns expired;
(f) no written claim has been made by a Taxing Authority in a
jurisdiction where the Company does not file Tax Returns such that it is or
may be subject to taxation by that jurisdiction;
(g) all deficiencies asserted or assessments made as a result of any
examinations by any taxing authority of the Tax Returns of, or including,
the Company have been fully paid, and there are no other audits or
investigations by any Taxing Authority in progress, nor has the Company
received any written notice from any Taxing Authority that it intends to
conduct such an audit or investigation;
(h) the Company has not (i) agreed to nor is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar
Requirement of Law or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
the Company, (ii) executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any similar Requirement of Law with respect to
the Company, (iii) requested any extension of time within which to file any
Tax Return, which Tax Return has since not been filed, (iv) granted any
extension of time for the assessment or collection of Taxes, which Taxes
have not since been paid, or (v) granted to any Person any power of
attorney that is currently in force with respect to any matter relating to
Taxes;
(i) the Company is not a party to any tax sharing, allocation,
indemnity or similar agreement or arrangement (whether or not written);
Membership Interest Purchase Agreement
29
(j) other than the Blonder Tongue consolidated group, the Company has
never been a member of any consolidated, combined, affiliated or unitary
group of corporations for any tax purposes;
(k) there are no Liens as a result of any unpaid Taxes upon any of the
assets of the Company, except for Permitted Liens;
(l) no property or asset owned by the Company is (i) "tax-exempt use
property" within the meaning of section 168(h)(1) of the Code, (ii)
"tax-exempt bond financed property" within the meaning of section 168(g)(5)
of the Code, (iii) "limited use property" within the meaning of IRS Revenue
Procedure 2001-28, (iv) subject to section 168(g)(1)(A) of the Code, (v)
subject to a "section 467 rental agreement" as defined in section 467 of
the Code or (vi) subject to any provision of any Law comparable to any of
the provisions listed above;
(m) the Company does not have, nor has ever had, a permanent
establishment in any country other than the United States, and is not, nor
has ever been, subject to tax in a jurisdiction outside the United States;
(n) the Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to substantial understatement
of federal income tax within the meaning of Section 6662 of the Code; and
(o) there is no taxable income of the Company that will be required
under applicable tax law to be reported by the Purchaser or any of its
Affiliates, including the Company, for a taxable period beginning after the
Closing Date which taxable income was realized (and reflects economic
income) prior to the Closing Date.
3.19 Insurance. Schedule 3.19 lists the insurance policies maintained by
the Company setting forth in respect of each such policy, the policy name,
policy number, carrier, term, type and amount of coverage and annual premium.
The Company has previously delivered or made available to the Purchaser true and
complete copies of all of the material insurance policies, binders or bonds
maintained by or for the Company. Excluding insurance policies that have expired
and been replaced in the Ordinary Course of Business, no insurance policy has
been cancelled within the last two (2) years and to the Company's Knowledge, no
threat has been made to cancel any insurance policy of the Company during such
period. The Company is insured against such risks and in such amounts as
required under any Contract, Permit or Requirement of Law. All of such insurance
policies are in full force and effect, all premiums with respect thereto have
been paid through the Closing Date and no notice of cancellation has been
received, and the Company is not in material default with respect to any of its
obligations under any of such insurance policies.
3.20 Environmental Matters. Except as set forth on Schedule 3.20:
(a) the Company is and has been in material compliance with
Environmental Laws, which compliance includes the possession and
maintenance of all Permits, approvals or consents required by such
Environmental Laws to operate the Business as currently operated;
Membership Interest Purchase Agreement
30
(b) there are no claims or proceedings pending or, to the Knowledge of
the Company, threatened against the Company alleging the violation of or
liability under any Environmental Laws, including any claims alleging
liability as a result of exposure to hazardous or toxic materials; and
(c) The Company is not aware of any facts, circumstances or conditions
that could reasonably be expected to result in the Company incurring
liabilities under Environmental Laws in excess of $10,000 individually or
$25,000 in the aggregate.
3.21 Accounts Receivable and Payable. All accounts receivable of the
Company (i) represent valid obligations arising from bona fide sales actually
made or services actually performed in the Ordinary Course of Business and are
payable on ordinary trade terms, except for the Specified Party Accounts
Receivable and (ii) are valid and legally binding obligations of the respective
debtors, enforceable in accordance with their terms. The Company records
allowances for doubtful accounts on a monthly basis of $5,000 or 4% of the gross
accounts receivable, whichever is higher. Except for the BT Note and amounts due
to Hybrid, all accounts payable of the Company reflected on the Interim Balance
Sheet or arising after the date thereof are the result of bona fide transactions
in the Ordinary Course of Business and have been paid or are not yet due and
payable.
3.22 Affiliate Transactions. Except as set forth on Schedule 3.22, the
Company is not a party to any Contract or arrangement, or indebted, either
directly or indirectly, to any of its officers, directors or equity holders
(including the Seller) or any member of their immediate families or any of their
respective Affiliates ("Related Persons") or to any Affiliate of the Company,
except for the payment of employee compensation in the Ordinary Course of
Business, nor does any Related Person owe any amount to the Company nor has the
Company committed to make any loan or extend or guarantee credit to or for the
benefit of any Related Person and (ii) none of such persons is indebted to the
Company.
3.23 Sufficiency of Assets. The assets of the Company are structurally
sound, are in operating condition and repair, and are adequate for the uses to
which they are being put. Such assets are not in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. Except as set forth on Schedule 3.23(a), the assets owned,
leased or licensed by the Company are sufficient for the continued conduct of
the Company's Business after the Closing in substantially the same manner as
conducted prior to the Closing, except that (i) the Registered Marks will be
transferred to Blonder Tongue prior to Closing and the Company will be granted
certain rights to use the Registered Marks as set forth in Section 6.9(b) below,
and (ii) the Company will be granted certain rights to use the Domain Name as
set forth in Section 6.9(c) below. The Company owns good and marketable title to
all of its tangible and intangible assets, free and clear of any Liens and
Restrictions, except Permitted Liens, Liens to be released upon the Closing
which are set forth on Schedule 3.23(b) and those Liens or Restrictions set
forth on Schedule 3.23(c).
3.24 Blonder Tongue Debt Obligations. The promissory note made by the
Company in favor of Blonder Tongue, dated as of July 31, 2002, in the amount of
up to $6,000,000 (the "BT Note") has not been amended, revised, modified or
Membership Interest Purchase Agreement
31
supplemented and represents the only outstanding debt obligation of the Company
to Blonder Tongue, other than changes in the principal amount outstanding from
time to time to reflect the value of goods and services obtained from Blonder
Tongue. The outstanding principal and interest under the BT Note as of the
Closing Date is $2,135,320.87 principal and $ 1,384,134.00 interest. The Company
has delivered a true, correct and complete copy of the BT Note to Purchaser and
will provide an updated Grid (as defined in the BT Note) as of the Closing Date.
3.25 Books and Records. The Books and Records are in all material respects
accurate and correct and have been maintained in the Ordinary Course of Business
and in accordance with all Requirements of Law insofar as they relate to the
maintenance of such Books and Records, except (i) for the recordation of journal
entries and/or the classification of certain assets, liabilities, expenses and
items of income on the Books and Records related to the exceptions from GAAP set
forth on Schedule 3.7, and (ii) that the Company has not had formal regular
meetings of its members, nor has it prepared or maintained written records of
all meetings or actions taken by its Managing Membership Committee or Managing
Members. The Company has delivered (or made available for inspection, to the
extent that delivery is unfeasible) to the Purchaser true and correct copies of
all Books and Records.
3.26 Banks; Power of Attorney. Schedule 3.26 contains a complete and
correct list of the names and locations of all banks in which the Company has
accounts or safe deposit boxes and the names of all persons authorized to draw
thereon or to have access thereto. Except as set forth on Schedule 3.26, no
person holds a power of attorney to act on behalf of the Company.
3.27 No Brokers or Finders. The Company has no liability or obligation for
any financial advisory fees, brokerage fees, commissions or finder's fees
directly or indirectly to any broker, finder or agent in connection with this
Agreement or the transactions contemplated hereby.
3.28 No Other Representations or Warranties. Except for the provisions
contained in this Article III and statements made in any certificate delivered
pursuant to this Agreement or any of the Company Documents, neither the Company
nor any other Person on the Company's behalf makes any other express or implied
representations or warranties, written or oral, related to this Agreement or the
transactions contemplated hereby.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents to the Purchaser, as of the Closing Date, as follows:
4.1 Existence and Authority. The Seller is organized, validly existing and
in good standing under the laws of its jurisdiction of formation and has all
requisite power and authority to conduct its business as heretofor conducted.
The Seller is qualified and in good standing in every jurisdiction where the
Seller is required to be so qualified as a result of the ownership of the
Seller's Interests and where required in order to perform the Seller's
obligations arising under, and to consummate the transactions contemplated by
this Agreement and each other agreement, document, instrument or certificate
Membership Interest Purchase Agreement
32
contemplated by this Agreement to be executed by the Seller in connection with
the consummation of the transactions contemplated hereby to which the Seller is
a party (the "Seller Documents").
4.2 Authorization and Validity. This Agreement and each Seller Document,
and the consummation of each of the transactions contemplated to be performed by
Seller hereby and thereby, has been duly authorized and approved by all required
action on the part of the Seller. The Seller has the requisite corporate power
and authority to execute and deliver this Agreement and each of the Seller
Documents, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated to be performed by Seller hereby and thereby. This
Agreement has been, and each of the Seller Documents will be at or prior to the
Closing, duly and validly executed and delivered by the Seller and (assuming due
authorization, execution and delivery by the Purchaser and the Company) this
Agreement constitutes and each other Seller Document when so executed and
delivered will constitute legal, valid and binding obligations of the Seller,
enforceable against the Seller in accordance with their respective terms.
4.3 Governmental and Third-Person Consents. Except as set forth on Schedule
4.3, no notices, reports or other filings are required to be made by the Seller
with, nor are any consents, registrations, approvals, Applicable Orders, Permits
or authorizations required to be obtained by Seller from, any Governmental
Authority or any other Person in connection with the execution, delivery or
performance of this Agreement and the other Seller Documents by Seller or the
consummation of the transactions contemplated hereby and thereby.
4.4 No Conflicts. Except as set forth on Schedule 4.4, the execution,
delivery and performance by the Seller of this Agreement and each of the other
Seller Documents does not, and the consummation by it of the transactions
contemplated hereby and thereby or the compliance by the Seller with any of the
provisions of this Agreement or the Seller Documents does not:
(a) create any Lien or Restrictions on the Seller's Interests; or
(b) conflict with, result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, acceleration or cancellation under, any provision of (i) the
Constituent Documents of the Seller, (ii) any Requirement of Law or
Applicable Order or (iii) any Contract or Permit of, or binding on, the
Seller or by which any of the properties or assets of the Seller is bound.
4.5 Title. The Seller is the record and beneficial owner of the Interests.
The Seller has good title to the Interests, free and clear of all Liens and
Restrictions, and has the power and authority to sell, transfer, assign and
deliver such Interests as provided in this Agreement and such delivery will
convey to the Purchaser good and marketable title to such Interests, free and
clear of any and all Liens and Restrictions. There are no authorized or
outstanding warrants, options or rights of any kind to acquire from the Seller
any equity or debt interests of the Company or interests convertible into or
exchangeable for equity or debt interests of the Company, including the
Interests. There are no voting trusts, irrevocable proxies or other Contracts or
understandings to which the Seller is a party or is bound with respect to the
voting or consent of any of the Interests.
Membership Interest Purchase Agreement
33
4.6 Litigation. There are no actions, suits, proceedings, investigations
(to Seller's Knowledge) or claims now pending or, to the Seller's Knowledge,
threatened, in arbitration or before any Governmental Authority, against or
affecting the Seller that question the validity or enforceability of this
Agreement, the Seller Documents or any action contemplated herein or therein.
4.7 Section 1445. The Seller is not a foreign person within the meaning of
Section 1445 of the Code.
4.8 No Brokers or Finders. The Seller has no liability or obligation for
any financial advisory fees, brokerage fees, commissions or finder's fees
directly or indirectly to any broker, finder or agent in connection with this
Agreement or the transactions contemplated hereby.
4.9 No Other Representations or Warranties. Except for the provisions
contained in this Article IV and statements made in any certificate delivered
pursuant to this Agreement or any of the Seller Documents, neither the Seller
nor any other Person on the Seller's behalf makes any other express or implied
representations or warranties, either written or oral, related to this Agreement
or the transactions contemplated hereby.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents to the Company and the Seller as follows:
5.1 Existence and Authority. The Purchaser is a formed and validly existing
limited liability company in good standing under the laws of the State of
Delaware and has the limited liability company power and authority to own or
lease its current assets and carry on its business as currently conducted and is
duly qualified to do business in each jurisdiction where the ownership or lease
and operation of its property and assets or the conduct of its business requires
such qualification.
5.2 Authorization and Validity. This Agreement and each other agreement,
document, instrument or certificate contemplated by this Agreement or to be
executed by the Purchaser in connection with the transactions contemplated by
this Agreement (the "Purchaser Documents"), and the consummation of each of the
transactions contemplated hereby and thereby, has been duly authorized and
approved by all required action on the part of the Purchaser. The Purchaser has
the requisite limited liability company power, authority and legal authority to
execute and deliver this Agreement and each of the Purchaser Documents, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and each
of the Purchaser Documents will be at or prior to the Closing, duly and validly
executed and delivery by the Purchaser and (assuming due authorization,
execution and delivery by the Company and the Seller) this Agreement constitutes
and each other Purchaser Document when so executed and delivered will constitute
legal, valid and binding obligations of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms.
5.3 Governmental and Third-Person Consents. Except as set forth on Schedule
5.3, no notices, reports or other filings are required to be made by the
Purchaser with, nor are any consents, registrations, approvals, Applicable
Orders, Permits or authorizations required to be obtained by the Purchaser from,
Membership Interest Purchase Agreement
34
any Governmental Authority or any other Person in connection with the execution,
delivery and performance of this Agreement and the other Purchaser Documents by
it and the consummation by it of the transactions contemplated hereby and
thereby.
5.4 No Conflicts. The execution, delivery and performance by the Purchaser
of this Agreement and each of the other Purchaser Documents does not, and the
consummation of the transactions contemplated hereby and thereby or the
compliance by the Purchaser with any of the provisions of this Agreement or the
Purchaser Documents does not:
(a) create any Lien or violate any Restriction on the properties or
assets of the Purchaser; or
(b) conflict with, result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, acceleration or cancellation under, any provision of (i) its
Constituent Documents, (ii) any Requirement of Law or Applicable Order or
(iii) any Contract or Permit of, or binding on, the Purchaser or by which
any of the properties or assets of the Purchaser is bound.
5.5 Litigation. There are no actions, suits, proceedings, investigations
(to Purchaser's knowledge) or claims now pending or, to the Purchaser's
knowledge, threatened, in arbitration or before any Governmental Authority,
against or affecting the Purchaser that question the validity or enforceability
of this Agreement, the Purchaser Documents or any action contemplated herein.
5.6 No Brokers or Finders. Except as set forth on Schedule 5.6, the
Purchaser has not incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees directly or indirectly in
connection with this Agreement or the transactions contemplated hereby and, to
the extent it does incur any such liability, the Purchaser alone shall be
responsible for the payment of such fees.
5.7 Investor Representations. The Purchaser (i) is an "accredited investor"
as that term is defined in Rule 501(a) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), (ii) has the requisite knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of an investment in the Company and is able to bear the
economic risk of this investment, (iii) is acquiring the Interests for
investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof in violation of any securities laws,
(iv) understands that the Interests have not been registered under the
Securities Act and (v) understands the nature of the Business and has been given
an opportunity to evaluate the Business from an investment standpoint.
5.8 No Other Representations or Warranties. Except for the provisions
contained in this Article V and statements made in any certificate delivered
pursuant to this Agreement or any of the Purchaser Documents, neither the
Purchaser nor any other Person on the Purchaser's behalf makes any other express
or implied representations or warranties, either written or oral, related to
this Agreement or the transactions contemplated hereby.
Membership Interest Purchase Agreement
35
ARTICLE VI - COVENANTS
6.1 Company Guarantees. The Purchaser shall use its commercially reasonable
efforts to obtain from the respective beneficiary, in form and substance
reasonably satisfactory to Blonder Tongue, on or before the Closing, valid and
binding written releases of Blonder Tongue from any liability or obligation
under any Company Guarantees in effect as of the Closing, including by providing
substitute guarantees or making other arrangements as the counterparty may
reasonably request. If any Company Guarantee has not been released as of the
Closing Date, then the Purchaser shall continue to use its commercially
reasonable efforts after the Closing to cause each such unreleased Company
Guarantee to be released promptly and agrees to indemnify, defend and hold
Blonder Tongue harmless from and against any Losses arising from or relating to
any Company Guarantees, including any Company Guarantees set forth on Schedule
6.1.
6.2 Further Assurances. Each of the Purchaser and the Seller is executing
and delivering, or will execute and deliver promptly, as applicable, such other
bills of sale, endorsements, consents, assignments and other good and sufficient
instruments of conveyance and assignment (at the requesting party's expense) as
the Purchaser or Seller reasonably has requested or will request to vest in the
Purchaser all of the Seller's right, title and interest in and to the Interests.
6.3 Access and Preservation of Books and Records. The Purchaser will retain
all Books and Records for a period of seven (7) years after the Closing Date.
The Purchaser will, upon reasonable notice, afford to Blonder Tongue, its
Affiliates and its representatives access (including the right to copy at
Blonder Tongue's expense) during normal business hours to such Books and Records
(prior to their destruction) as Blonder Tongue or any of its Affiliates may
reasonably request for purposes related to this Agreement or to the
determination of any matter related to any period (or portion thereof) ending at
or before the Effective Time.
6.4 Tax Matters.
(a) Seller's Liability for Taxes. Except as otherwise set forth
herein, the Seller shall be liable for, and shall indemnify the Purchaser
for, all Losses in respect of:
(i) any Taxes imposed on the Company or for which the Company may
otherwise be liable for (A) any taxable year or period that ends prior
to the Closing Date and (B) for the portion of any Straddle Period
ending prior to the Closing Date (determined as provided in Section
6.4(c));
(ii) any Taxes for which the Seller is responsible pursuant to
Section 6.4(j);
(iii) any Taxes imposed on any member of a consolidated, combined
or unitary group of which the Company (or any predecessor thereof) is
or was a member prior to the Closing Date, by reason of the liability
of the Company (or any predecessor thereof), pursuant to Treasury
Regulation Section 1.1502-6(a) (or any predecessor or successor
thereof or any analogous or similar Requirement of Law);
Membership Interest Purchase Agreement
36
(iv) any failure to perform any covenant contained in this
Agreement to be performed by the Company or the Seller with respect to
Taxes, including this Section 6.4;
(v) any failure of any of the representations made by the Company
in Section 3.18 to be true and correct in all respects (calculated
without regard to any qualification related to materiality contained
therein);
(vi) any claims by any Taxing Authority or other Governmental
Authority (other than for Taxes) against the Purchaser, the Company,
any Affiliate thereof or any of their respective officers, directors,
employees or agents, related to, or arising directly or indirectly out
of, Seller's fraud, gross negligence, bad faith or willful misconduct
in connection with its representation of the Company as contemplated
by Section 6.4(f); and
(vii) without duplication, any Losses related to, or arising
directly or indirectly out of the matters addressed in this Section
6.4.
(b) Purchaser Tax Matters. Except as otherwise set forth herein, the
Purchaser shall be liable for, and shall indemnify the Seller for, all
Losses in respect of:
(i) any failure to perform any covenant contained in this
Agreement to be performed by the Purchaser (or, after the Closing
Date, the Company) with respect to Taxes, including this Section 6.4;
and
(ii) without duplication, any Losses related to, or arising
directly or indirectly out of the matters addressed in this Section
6.4.
(c) Straddle Period Tax Allocation. The Seller and the Purchaser will,
unless prohibited by any Requirement of Law, close the taxable period of
the Company as of the Effective Time. If applicable law does not permit the
Company to close its taxable year as of the Effective Time or in any case
in which Taxes are assessed with respect to a taxable period which includes
the Effective Time (but does not begin or end as of such time) (a "Straddle
Period"), the Taxes, if any, attributable to a Straddle Period shall be
allocated (i) to the Seller for the period up to and including the day
preceding the Closing Date and (ii) to the Purchaser for the period
beginning on the Closing Date. Any allocation of income or deductions
required to determine any Taxes attributable to a Straddle Period shall be
made by means of a closing of the books and records of the Company as of
the Effective Time, provided that exemptions, allowances or deductions that
are calculated on an annual basis (including, but not limited to,
depreciation and amortization deductions) shall be allocated between the
period ending at the Effective Time and the period beginning on the
Effective Time in proportion to the number of days in each such period, and
provided further that property Taxes whose lien date is prior to the
Closing Date shall be allocated to the period prior to the Closing Date.
(d) Adjustment to Purchase Price. Any payment under this Section 6.4
shall be reflected on the books of each of the parties hereto as an
adjustment to the Final Purchase Price,
(e) Filing of Tax Returns and Payment of Taxes.
Membership Interest Purchase Agreement
37
(i) The Seller shall file or cause to be filed when due all Tax
Returns required to be filed by or with respect to the Company for
taxable years or periods ending before the Closing Date and shall pay
or cause to be paid any Taxes due in respect of such Tax Returns, and
all such Tax Returns shall be prepared in a manner consistent with
this Agreement and with prior practice. Unless contrary to applicable
Law, the Seller shall provide the Purchaser with copies of such
completed Tax Returns at least twenty (20) days prior to the due date
for filing thereof, along with supporting workpapers, for the
Purchaser's review and approval, such approval not to be unreasonably
withheld or delayed (except to the extent that the required time for
filing the same does not allow sufficient time for a 20 day review
period, Seller will use reasonable best efforts to allow Purchaser as
much time as is reasonably possible). The Seller and the Purchaser
shall attempt in good faith to resolve any disagreements regarding
such Tax Returns prior to the due date for filing. In the event that
the Seller and the Purchaser are unable to resolve any dispute with
respect to such Tax Return at least ten (10) days prior to the due
date for filing, such dispute shall be resolved pursuant to Section
6.4(k), which resolution shall be binding on the parties.
(ii) Following the Closing, the Purchaser shall file or cause to
be filed all Tax Returns required to be filed by or with respect to
the Company for taxable years or periods ending on or after the
Closing Date and, subject to the rights to payment from the Seller
under Section 6.4(e)(iii), and to review by the Seller (in the same
manner as prescribed under Section 6.4(e)(i) above) for any Tax
Returns for Taxes for which the Purchaser is to be indemnified under
Section 6.4(a), pay or cause to be paid all Taxes shown due thereon.
(iii) Not later than ten days prior to the due date for the
payment of Taxes on any Tax Returns which the Purchaser has the
responsibility to cause to be filed pursuant to Section 6.4(e)(ii),
the Seller shall pay to the Purchaser the amount of Taxes, as
reasonably determined by the Purchaser, owed by the Seller pursuant to
the provisions of Section 6.4(a). No payment pursuant to this Section
6.4(e)(iii) shall excuse the Seller from its indemnification
obligations pursuant to Section 6.4(a) if the amount of Taxes as
ultimately determined (on audit or otherwise) for the periods covered
by such Tax Returns exceeds the amount of the Seller payment under
this Section 6.4(e)(iii).
(f) Contests.
(i) If notice of any administrative, legal or other proceeding
with respect to Taxes of the Company (a "Tax Claim") shall be received
by either party for which the other party may reasonably be expected
to be liable pursuant to Section 6.4(a), the notified party shall
notify such other party in writing of such Tax Claim; provided,
however, that the failure of the notified party to give the other
party notice as provided herein shall not relieve such other party of
its obligations under this Section 6.4, except to the extent that the
other party is actually and materially prejudiced thereby. For purpose
of this Section 6.4(f), the term "Tax Claim" shall also include any
administrative, legal or other proceeding relating to Taxes, that may
arise without notification, including, without limitation, where a
party who reasonably expected to be liable for Taxes of the Company
initiates such an administrative, legal or other proceeding.
(ii) To the extent such Tax Claim is subject to indemnification
by the Seller pursuant to Section 6.4(a) hereof, the Seller shall have
the exclusive right, at its own expense, to represent the interests of
Membership Interest Purchase Agreement
38
the Company in such Tax Claim and to employ counsel of its choice at
its own expense; provided, however, the Seller shall provide the
Purchaser and the Company with copies of all correspondence related to
any such Tax Claim and shall keep Purchaser and the Company apprised
of any developments related thereto; provided further that unless any
settlement, compromise or disposition of such Tax Claim will not under
any circumstances cause any adverse tax consequences whatsoever to the
Company in any period subsequent to the Effective Time, the Seller
shall not so compromise, settle or otherwise dispose of any Tax Claim
without the consent of the Purchaser, which consent shall not be
unreasonably withheld, conditioned or delayed; and provided further,
that notwithstanding the foregoing, in the event the Seller does not
elect to exercise its exclusive right to represent the interests of
the Company with respect to any Tax Claim as described in this Section
6.4(f)(ii), the Purchaser shall have the sole and exclusive right to
represent the interests of the Company in, and otherwise control, such
Tax Claim (including any settlement, compromise or disposition
thereof), at the Seller's sole expense. The Purchaser shall provide
such authorizations and documentation (including powers of attorney)
as are reasonably necessary to enable the Seller to represent the
interests of the Company as set forth herein.
(iii) Except as set forth in Section 6.4(f)(ii), neither the
Purchaser nor the Company shall enter into any closing agreement (as
defined in Section 7121 of the Code, or any comparable provision of
state, county, local or foreign law) which is binding on the Seller or
the Company for any taxable period ending before the Closing Date,
without the prior written consent of the Seller, which consent shall
not be unreasonably withheld, delayed or conditioned; provided,
however, that this sentence shall only apply if the closing agreement
relates to Taxes for which Purchaser is entitled to indemnification
under Section 6.4(a). Further, neither the Purchaser nor the Company
shall agree to any settlement concerning Taxes for any taxable period
ending on or after the Closing Date which may result in an increase in
Taxes of the Seller or the Company (for which the Purchaser is
entitled to indemnification under Section 6.4(a)) for any taxable
period ending prior to the Closing Date, without the prior written
consent of the Seller, which consent shall not be unreasonably
withheld, delayed or conditioned.
(g) Information to be Provided by the Purchaser. With respect to the
taxable period of the Seller for the year 2006 prior to the Closing Date,
the Purchaser will promptly cause the Company to prepare and provide to the
Seller a package of tax information materials (the "Tax Package"), which
shall be completed in accordance with past practice including past practice
as to providing the information, schedules and work papers and as to the
method of computation of separate taxable income or other relevant measure
of income of the Company. The Purchaser shall cause the Tax Package for the
portion of the taxable period ending on the Effective Time to be delivered
to the Seller within sixty (60) days after the Closing Date.
(h) Refunds. The Seller will be entitled to any refund of Taxes
(whether taken in cash or as a credit against Taxes arising after the
Closing Date) pertaining to the activities or income of the Company for
periods ending prior to the Closing Date. The Purchaser shall be entitled
to any refund of Taxes pertaining to the activities or income of the
Company for periods ending on or after the Closing Date.
(i) Assistance and Cooperation. After the Closing Date, the Seller and
Purchaser each will:
Membership Interest Purchase Agreement
39
(i) assist (and cause their respective Affiliates to assist) the
other party in preparing any Tax Returns or reports that such other
party is responsible for preparing and filing in accordance with this
Section 6.4(i);
(ii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Company;
(iii) make available to the other and to any Taxing Authority as
reasonably requested all information, records, and documents relating
to Taxes of the Company;
(iv) provide timely notice to the other in writing of any pending
or threatened tax audits or assessments of the Company for taxable
periods for which the other may have a liability under this Section
6.4; and
(v) furnish the other with copies of all correspondence received
from any taxing authority in connection with any Tax Claim or other
audit or information request with respect to any such taxable period.
(j) Transfer Taxes. The Seller and the Purchaser shall each be
responsible for any Taxes in the nature of excise, sales, use, value added,
transfer (including real property transfer or gains), stamp, documentary,
filing, recordation and any other similar taxes (and any Taxes relating to
such Taxes) that may be imposed, assessed or determined to be due as a
result of the transfer of the Interests in accordance with their respective
liability for such Taxes under the laws of the jurisdiction imposing such
Taxes. Seller and Purchaser shall cooperate with one another to establish,
memorialize, and/or substantiate any exemptions that may be available with
respect to any Taxes.
(k) Disputes. Any dispute as to any matter covered by this Section 6.4
shall be resolved by the Independent Accountant. The fees and expenses of
the Independent Accountant in such capacity shall be borne equally by the
Seller, on the one hand, and the Purchaser on the other. If any dispute
with respect to a Tax Return is not resolved prior to the due date of such
Tax Return, such Tax Return shall be filed in the manner which the party
responsible for preparing such Tax Return deems correct; provided, however,
that by making such filing, the filing party shall not be released from any
liability for Losses for which it may be liable under this Section 6.4.
(l) Limitations. Any claim for indemnity under this Section 6.4 may be
made at any time prior to sixty (60) days after the expiration of the
statute of limitations applicable to such Taxes with respect to the
relevant taxable period (including all periods of extension, whether
automatic or permissive). The Purchaser may satisfy any claim for indemnity
by the Purchaser against the Seller under this Section 6.4 out of the
Escrow Fund in the manner contemplated by the Escrow Agreement and, to the
extent that the funds therein are insufficient to cover such claim, by
proceeding directly against the Seller.
(m) Exclusivity. The indemnification provided for in this Section 6.4
shall be the sole remedy for any claim in respect of Taxes. In the event of
a conflict between the provisions of this Section 6.4, on the one hand, and
the provisions of Article VIII, on the other, the provisions of this
Membership Interest Purchase Agreement
40
Section 6.4 shall control. For the avoidance of doubt, the limitations set
forth in Section 8.4 hereof shall not apply to any claim made pursuant to
this Section 6.4.
(n) Tax Records Retention. Purchaser hereby agrees that it will retain
(or cause Company to retain), until sixty (60) days following the
applicable statutes of limitations (including extensions) expire, copies of
all Tax Returns, supporting work schedules and other records or information
which may be relevant to such Tax Returns of the Company for all taxable
periods ending on or prior to the Company's taxable year or period that
includes the Closing Date. Further, the Purchaser agrees not to destroy or
otherwise dispose of such Tax Returns and other materials without first
providing the Seller with a reasonable opportunity to review and copy such
items.
6.5 Publicity. The Purchaser and Blonder Tongue will consult with each
other and have an opportunity to review and comment on the substance of the
initial public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby, including press releases and public
announcements; provided, that (i) to the extent such disclosure is necessary to
comply with any Requirement of Law, all responsive comments must be provided to
the other party within one (1) business day after receipt of a disclosure
document for review, (ii) for any disclosure document not covered by clause (i)
above, all responsive comments must be provided to the other party within five
(5) business days after receipt of a disclosure document for review and (iii)
each party may make such disclosures as are necessary to comply with any
Requirement of Law after making good faith efforts to consult with the other
party.
6.6 Related-Party Transactions. Except as set forth on Schedule 6.6 or with
respect to the payments due from Telepro and Priority Communications in
connection with the Specified Party Accounts Receivable, on or prior to the
Closing Date the Company shall have (i) terminated all Contracts with any
Affiliates of the Company and the Seller and (ii) delivered releases executed by
such parties with whom the Company has terminated such Contracts pursuant to
this Section 6.6 providing that no further payments are due, or may become due,
under or in respect of any such terminated Contacts; provided, that in no event
shall the Company or the Purchaser pay any fee or otherwise incur any expense or
financial exposure with respect to any such termination or release.
6.7 Employment Matters. With respect to each Service Technician actively
employed by Seller on the Closing Date, (i) effective as of the Closing Date,
Blonder Tongue shall terminate the employment of such Service Technicians and
(ii) commencing as of the date immediately following the Closing Date, Purchaser
or one of its Affiliates shall offer an immediate, full-time employment position
to each such Service Technician on an at-will basis, with job duties and salary
substantially similar to such Service Technician's job duties and salary at
Blonder Tongue immediately prior to Closing.
6.8 Non-Competition. For a period of two (2) years from and after the
Closing Date, the Seller shall not, and shall cause its Affiliates not to,
directly or indirectly, own, manage, engage in, operate, control, maintain any
interest in (proprietary, financial or otherwise) or participate in the
ownership, management, operation or control of, any business, whether in
corporate, proprietorship or partnership form or otherwise, engaged in the
Business, in each case in the States of Texas, Florida, Georgia, South Carolina,
Alabama, North Carolina, Tennessee, Louisiana, Kentucky and Mississippi (each a
"Restricted Business"); provided, however, that the restrictions contained in
Membership Interest Purchase Agreement
41
this Section 6.8 shall not (i) restrict the acquisition by the Seller, directly
or indirectly, of less than five percent (5%) of the outstanding capital stock
of any publicly-traded company engaged in a Restricted Business, (ii) restrict
any activities of Hybrid Networks LLC ("Hybrid") after the date hereof similar
to the Business of the Company involving transactions with Archstone Xxxxx or
Forest City or any of their respective Affiliates or (iii) be binding on any
third party purchaser of Hybrid, whether by purchase of all or substantially all
of the membership interests or assets of Hybrid, or by merger or consolidation
(regardless of whether or not Hybrid is the surviving entity in such merger or
consolidation) or otherwise, provided, that such purchaser is not an Affiliate
of Blonder Tongue, nor will any of the foregoing restrictions be binding upon
Hybrid following such third party membership interest acquisition, merger,
consolidation or similar transaction. Notwithstanding the foregoing, in no event
shall sales of services or equipment sold in the ordinary course of Blonder
Tongue's business be deemed to violate this Section 6.8.
6.9 Corporate Name; Registered Marks; Domain Name. The Purchaser
acknowledges that each of the Corporate Name, Registered Marks and Domain Name
includes a direct reference to Blonder Tongue through the incorporation of
Blonder Tongue's ticker symbol used on the American Stock Exchange, "BDR."
Accordingly, the parties agree to the following:
(a) The Purchaser shall, as soon as reasonably practicable after the
Closing Date, but in no event longer than six (6) months following the
Closing Date (or such longer period of time as Blonder Tongue and the
Purchaser may mutually agree upon in writing) (i) change the legal name of
the Company in its jurisdiction of formation and in all jurisdictions where
the Company is qualified to do business, (ii) cease using the Corporate
Name for any and all purposes (including in connection with any marketing,
sales or promotional materials), except that the Purchaser and the Company
shall have the right, for a period of three (3) months following the date
the Company's name is legally changed, to state that the Company was
formerly known as "BDR Broadband, LLC" or "BDR Broadband," provided,
however, that in each such instance, the Purchaser or the Company, as
applicable, shall clarify that the Company is no longer affiliated with
Blonder Tongue, and (iii) take any and all other actions reasonably
necessary in connection with the cessation of use of the Corporate Name.
Subject to the limitations set forth in this Section 6.9(a), and the rights
contemplated to be retained by Blonder Tongue or licensed to a third party
under Section 6.9(d) hereof, effective as of the Closing Date, Blonder
Tongue hereby grants the Company an exclusive, worldwide, non-transferable,
royalty-free, fully paid-up right and license to use the Corporate Name as
it is currently being used in connection with the operation of the Business
by the Company (and for no other purpose) for a period ending six (6)
months after the Closing Date. Notwithstanding the foregoing, Blonder
Tongue shall be entitled to use the Corporate Name in any disclosure
pursuant to applicable securities laws.
(b) On or prior to the date of Closing Date, the Company shall make
the Trademark Assignment to Blonder Tongue, and Blonder Tongue and the
Company shall take all action necessary, both before and after the Closing,
to effectuate and perfect the Trademark Assignment. Subject to the rights
contemplated to be retained by Blonder Tongue or licensed to a third party
under Section 6.9(d) hereof, effective as of even date as the effective
date of the Trademark Assignment, Blonder Tongue hereby grants the Company
an exclusive, worldwide, non-transferable, royalty-free, fully paid-up
right and license to use the Registered Xxxx "BDR Broadband" as it is
currently being used in connection with the operation of the Business by
Membership Interest Purchase Agreement
42
the Company (and for no other purpose) for a period ending six (6) months
after the Closing Date (or such longer period of time as Blonder Tongue and
the Purchaser may mutually agree upon in writing) (the "Registered Xxxx
License"). The Company shall have no right to sublicense the Registered
Xxxx License. The Registered Xxxx License shall automatically terminate six
(6) months after the Closing Date (or such longer period of time as Blonder
Tongue and the Purchaser may mutually agree upon in writing) and the
Company shall thereafter cease using such Registered Xxxx for any and all
purposes, including, in connection with any marketing, sales or promotional
materials. No license is granted hereby to use the Registered Xxxx "BDR
Broadband, a Blonder Tongue Company" and in no event shall any marketing,
sales or promotional materials (whether in written, electronic or audible
form) containing the name "Blonder Tongue" be used or distributed by the
Company on or after the Closing Date, unless such use is exclusively to
clarify that the Company is no longer affiliated with Blonder Tongue.
(c) The Domain Name is owned and has always been owned by Blonder
Tongue and, prior to the date hereof, has been licensed to the Company
pursuant to an oral license agreement. Effective as of the Closing Date,
Blonder Tongue hereby grants the Company an exclusive, worldwide,
non-transferable, royalty-free, fully paid-up right and license to use the
Domain Name for a period ending six (6) months after the Closing Date (the
"Domain Name License"), provided, however, that Seller shall be permitted
to and shall remove all references to "Blonder Tongue" or "Blonder Tongue
Laboratories" from the website associated with such Domain Name within ten
(10) days following the Closing Date. For six (6) months following such
initial six month period, Blonder Tongue shall establish a redirection from
the website associated with the Domain Name to a website address provided
by the Purchaser to Blonder Tongue. The Company shall have no right to
sublicense the Domain Name License. Upon the first anniversary of the
Closing Date, Blonder Tongue shall have the right to immediately shut down
the Domain Name and cease operations of the website associated with the
Domain Name, it being understood and agreed by Blonder Tongue and the
Purchaser that the website associated with the Domain Name excludes any
website of the Purchaser or the Company to which a Person is redirected
when using the Domain Name.
(d) Blonder Tongue agrees that, for a period of twenty-four (24)
months after the Closing Date, none of Blonder Tongue or any of its
Affiliates will (or will grant any license or other rights to any Person
(other than the Purchaser or the Company) to) use any of the Corporate
Name, Registered Marks or Domain Name in connection with the operation or
promotion of any business that involves providing pay television, high
speed internet services or any other cable television programming services,
cable broadcasting services, electronic transmission of messages or data,
or any services related to any of the foregoing. Notwithstanding the
foregoing, Blonder Tongue or its Affiliates may use the name "BDR
Broadband" at the Phoenix Cable System and the Pier Village Cable System
until such systems are sold to a third party, and further provided, that
Blonder Tongue shall have the right to license the name "BDR Broadband" to
any purchaser of such systems exclusively for use with respect to such
systems for a period of six (6) months following the sale of such systems.
6.10 Insurance Matters. The Company's motor vehicles shall be insured under
and through Blonder Tongue's existing insurance policy covering such vehicles
until the Effective Time, at which time such insurance will terminate.
Membership Interest Purchase Agreement
43
6.11 Transaction Expenses. The Seller shall pay any Transaction Expenses
and any out-of-pocket fees and expenses incurred by it or the Company on or
before the Closing Date in connection with the transactions contemplated by this
Agreement that have not been paid or accrued by the Company (and incorporated
into the Working Capital calculation) at or prior to Closing, including all fees
and expenses of Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP and all other out-of-pocket
expenses incurred by the Seller in connection with the sale or attempted sale of
the Company and all fees and expenses payable by the Seller to any broker,
finder or agent in connection with the transactions contemplated by this
Agreement.
ARTICLE VII - CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Transactions. The
obligation of each party hereto to effect the transactions contemplated by this
Agreement is subject to the fulfillment or written waiver, at or prior to the
Closing, of the following conditions:
(a) Governmental and Regulatory Approvals. All approvals or
authorizations of, filings and registrations with, and notifications to,
all Governmental Authorities required to effect the transactions
contemplated by this Agreement, if any, shall have been obtained or made
and shall be in full force and effect and all waiting periods required by
law shall have expired.
(b) No Injunction. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other Applicable Order (whether temporary,
preliminary or permanent) and no action, suit or proceeding shall be
pending or threatened before any Governmental Authority wherein an
unfavorable result would prevent the performance of this Agreement or the
transactions contemplated hereby, declare unlawful the transactions
contemplated hereby, cause such transactions to be rescinded or adversely
affect the right of the Purchaser to own the Interests and no Applicable
Order shall have been entered that has any of the foregoing effects.
7.2 Conditions to the Obligations of the Purchaser. The obligation of the
Purchaser to effect the transaction contemplated hereby is subject to the
fulfillment or written waiver, at or prior to the Closing, of the following
additional conditions:
(a) The Company's and the Seller's Representations and Warranties. The
representations and warranties made by the Company and the Seller in
Articles III and IV, respectively, shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true
and correct in all respects) on and as of the Closing Date, except to the
extent that such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties shall be
true and correct in all material respects (except for those representations
and warranties that are qualified by materiality or Material Adverse
Effect, which shall be true and correct in all respects) on and as of such
earlier date); and the Purchaser shall have received a signed certificate
of the Company and the Seller, as the case may be, to the foregoing effect.
Membership Interest Purchase Agreement
44
(b) Consents. All consents or approvals of all Persons, including
Governmental Authorities, set forth on Schedule 7.2(b) shall have been
obtained and shall be in full force and effect.
(c) Performance of Obligations. The Company and the Seller shall have
performed in all material respects all of their respective covenants and
agreements set forth in this Agreement to the extent required at or prior
to the Closing and the Purchaser shall have received a signed certificate
of the Company and the Seller, as the case may be, to the foregoing effect.
(d) Purchase of Interests. The purchase of the Interests by the
Purchaser hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject the Purchaser to any penalty,
liability or other materially adverse condition under or pursuant to any
applicable law and shall be permitted by the laws of the jurisdictions to
which the Purchaser is subject.
(e) Closing Deliveries. The Purchaser shall have received the closing
deliverables set forth in Section 2.5(b).
(f) Release of Liens. The Purchaser shall have received all
instruments and documents necessary to release any and all Liens other than
(i) Permitted Liens and (ii) those Liens set forth on Schedule 3.23(c),
including appropriate UCC financing statement amendments (termination
statements).
(g) Resignations. The Purchaser shall have received written
resignations of each officer or manager of the Company and member of the
Managing Membership Committee.
(h) Material Adverse Effect. Except as set forth on Schedule 7.2(h),
since the Interim Balance Sheet Date, no Material Adverse Effect shall have
occurred or be existing.
(i) Escrow Agreement. The Purchaser shall have received delivery of
the Escrow Agreement duly executed and delivered by Blonder Tongue and the
Escrow Agent.
(j) Transition Services Agreement. The Purchaser shall have received
delivery of the Transition Services Agreement, substantially in the form
attached hereto as Exhibit B attached hereto, duly executed and delivered
by the Seller.
(k) Supply Agreement. The Purchaser shall have received delivery of
that certain Purchase and Supply Agreement, substantially in the form
attached hereto as Exhibit C, duly executed and delivered by Blonder
Tongue.
(l) Phoenix and Pier Village Cable Systems. The Seller shall have
transferred all of the assets and liabilities of the Phoenix Cable System
and Pier Village Cable System to an Affiliate of Blonder Tongue pursuant to
documentation reasonably satisfactory to the Purchaser, and such Affiliate
shall provide a release to the Company for any and all claims with respect
to the Phoenix Cable System and the Pier Village Cable System and shall
hold the Company harmless for any claims against the Company arising
therefrom, in form and substance reasonably satisfactory to the Purchaser.
Membership Interest Purchase Agreement
45
(m) BT Note. The Purchaser shall have received a payoff letter (the
"BT Payoff Letter") from Blonder Tongue in form reasonably satisfactory to
the Purchaser acknowledging that the payments to be received by Blonder
Tongue pursuant to Section 2.3(a) will be less than the aggregate amount
outstanding under the BT Note, but shall nonetheless be accepted by Blonder
Tongue as payment in full and shall release all obligations thereunder, and
Blonder Tongue shall deliver to the Purchaser the original BT Note marked
"Cancelled" and "Paid in Full."
(n) Customers. The Purchaser shall have received a signed certificate
of the Company certifying and representing that there are at least 2,700
Basic Customers immediately prior to the Effective Time, of which at least
1,400 must be AV Subscribers and at least 858 are either HSD Subscribers or
AV Subscribers that also subscribe to high-speed data services.
7.3 Conditions to the Obligations of the Company and the Seller. The
obligations of the Company and the Seller to effect the transactions
contemplated by this Agreement are subject to the fulfillment or waiver in
writing, at or prior to the Closing, of the following additional conditions:
(a) The Purchaser's Representations and Warranties. The
representations and warranties made by the Purchaser in Article V shall be
true and correct in all material respects (except for those representations
and warranties that are qualified by materiality, which shall be true and
correct in all respects) on and as of the Closing Date, except to the
extent that such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties shall be
true and correct in all material respects (except for those representations
and warranties that are qualified by materiality, which shall be true and
correct in all respects) on and as of such earlier date); and the Seller
shall have received a signed certificate of the Purchaser to the foregoing
effect.
(b) Performance of Obligations. The Purchaser shall have performed in
all material respects all of its covenants and agreements set forth in this
Agreement to the extent required at or prior to the Closing; and the Seller
shall have received a signed certificate of the Purchaser to the foregoing
effect.
(c) Sale of Interests. The sale of the Interests by the Seller
hereunder shall not be prohibited by any applicable law or governmental
regulation, shall not subject the Seller to any penalty, liability or other
materially adverse condition under or pursuant to any applicable law and
shall be permitted by the laws of the jurisdictions to which the Seller is
subject.
(d) Closing Deliverables. The Seller shall have received the closing
deliverables set forth in Section 2.5(c).
(e) Escrow Agreement. The Seller shall have received delivery of the
Escrow Agreement duly executed and delivered by the Purchaser and the
Escrow Agent.
(f) Transition Services Agreement. The Seller shall have received
delivery of that certain Transition Services Agreement, substantially in
the form attached hereto as Exhibit B attached hereto, duly executed and
delivered by the Purchaser.
Membership Interest Purchase Agreement
46
(g) Supply Agreement. The Seller shall have received delivery of that
certain Purchase and Supply Agreement, substantially in the form attached
hereto as Exhibit C, duly executed and delivered by DirecPath LLC.
ARTICLE VIII - INDEMNIFICATION AND OTHER MATTERS
8.1 Indemnification by the Seller. Subject to Section 8.4, the Seller will
and hereby does indemnify and hold the Purchaser and any Affiliate of the
Purchaser, and their respective officers, directors, employees and agents,
harmless from and against any Losses incurred by them related to, or arising
directly or indirectly out of:
(a) any breach of a representation or warranty of the Seller or the
Company, as applicable, contained in this Agreement or any certificate,
document or instrument delivered by or on behalf of the Seller or the
Company, as applicable, pursuant to this Agreement;
(b) any breach of any covenant or obligation of the Seller or the
Company, as applicable, contained in this Agreement or any certificate,
document or instrument delivered by or on behalf of the Seller or the
Company pursuant to this Agreement;
(c) any "employee benefit plan" (as defined in Section 3(3) of ERISA)
or any other benefit or compensation plan, program, policy or arrangement
with respect to which Blonder Tongue or any trade or business (whether or
not incorporated) (i) under common control within the meaning of Section
4001(b)(1) under ERISA with Blonder Tongue or (ii) which together with
Blonder Tongue is treated as a single employer under Section 414(b), (c),
(m), (n) or (o) of the Code, has any obligation or liability (contingent or
otherwise), including any liability under Title IV of ERISA;
(d) the employment, or termination of employment, of any Service
Technician or other employee of Blonder Tongue or any of its Affiliates
involved with the Business of the Company in connection with such Service
Technician's or employee's employment with, or termination by, Blonder
Tongue or any of its Affiliates;
(e) the ownership and operation of the Business at the Pier Village
Cable System, Phoenix Cable System, Xxxxx Mountain Cable System and Sonoma
Villero Cable System prior to, at, or after the Closing Date;
(f) the use of the name "BDR Broadband" in connection with the
Business of the Phoenix Cable System and the Pier Village Cable System;
(g) that certain Telephony Easement and Right of Entry Agreement,
dated as of August 18, 2004, for Mansions in the Forest and that certain
Telephony Easement and Right of Entry Agreement, dated as of August 18,
2004, for The Estates-Woodland; and
(h) any and all other obligations and liabilities of the Seller.
8.2 Indemnification by the Purchaser. Subject to Section 8.4, the Purchaser
will and hereby does indemnify and hold the Seller and its Affiliates, and their
Membership Interest Purchase Agreement
47
respective officers, directors, employees and agents, harmless from and against
any Losses incurred by them related to, or arising directly or indirectly out
of:
(a) any breach of a representation or warranty of the Purchaser
contained in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Purchaser pursuant to this Agreement;
(b) any breach of any covenant or obligation of the Purchaser
contained in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Purchaser pursuant to this Agreement;
(c) the operation of the Business of the Company or the ownership of
the Company from and after the Closing Date;
(d) the employment of any Service Technician or other employee by
Purchaser or any Affiliate of Purchaser, at or after the Effective Time;
(e) those matters set forth in Section 6.1(b); and
(f) any and all other obligations and liabilities of the Purchaser.
8.3 Notice of Claim.
(a) If any action is brought against any Person entitled to
indemnification pursuant to Section 8.1 or 8.2 (a "Claimant") in respect of
a claim under Section 8.1 or 8.2 (an "Indemnifiable Claim"), the Claimant
shall promptly notify the Indemnifying Party (as defined below) in writing
of the institution of such action (but the failure so to notify shall not
relieve the Seller or the Purchaser, as the case may be (the "Indemnifying
Party"), from any liability the Indemnifying Party may have except to the
extent such failure materially prejudices the Indemnifying Party). Unless
otherwise agreed to by the applicable Claimant, the Indemnifying Party
shall assume and direct the defense of such action, including the
employment of counsel, and all fees, costs and expenses incurred in
connection with defending or settling the Indemnifiable Claim shall be
borne solely by the Indemnifying Party; provided, however, that such
counsel shall be satisfactory to the Claimant in the exercise of its
reasonable judgment, and that the Indemnifying Party shall not settle or
compromise any claim, other than any settlement or compromise involving
only the payment of monetary damages, without the prior written consent of
the Claimant, which consent shall not be unreasonably withheld or delayed.
If the Indemnifying Party shall undertake to settle, compromise or defend
any such asserted liability, it shall promptly notify the Claimant of its
intention to do so, and the Claimant agrees to cooperate fully with the
Indemnifying Party and its counsel in the settlement, compromise of, or
defense against, any such asserted liability. Notwithstanding an election
by the Indemnifying Party to assume the defense of such action or
proceeding, the Claimant shall have the right to employ one firm of
separate counsel (and one firm of local counsel) and to participate in the
defense of such action or proceeding, and the Indemnifying Party shall bear
the reasonable fees, costs and expenses of such separate counsel (and shall
pay such fees, costs and expenses at least quarterly), if (i) the use of
counsel chosen by the Indemnifying Party to represent the Claimant would
present such counsel with a conflict of interest or could reasonably
present such a conflict at any point in the representation, (ii) the
Membership Interest Purchase Agreement
48
defendants in, or targets of, any such action or proceeding include both a
Claimant and the Indemnifying Party, and the Claimant shall have reasonably
concluded that there may be legal defenses available to it that are
different from or additional to those available to the Indemnifying Party
(in which case the Indemnifying Party shall not have the right to direct
the defense of such action or proceeding on behalf of the Claimant) or
(iii) the Indemnifying Party shall authorize the Claimant to employ
separate counsel at the expense of the Indemnifying Party. The Claimant
shall cooperate in all reasonable respects with the Indemnifying Party and
such attorneys in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. All costs and expenses incurred in
connection with a Claimant's cooperation shall be borne by the Indemnifying
Party. In any event, the Claimant shall have the right at its own expense
to participate in the defense of such asserted liability. The party
controlling the defense of any such asserted liability shall deliver, or
cause to be delivered to the other party, upon the request of the other
party, copies of all correspondence, pleadings, motions, briefs, appeals or
other written statements relating to or submitted in connection with the
defense of any such claim, and timely notices of, and the right to
participate in (as an observer), any hearing or other court proceeding
relating to such claim.
(b) A claim for indemnification for any matter not involving a
third-Person claim may be asserted by notice to the party from whom
indemnification is sought; provided, however, that failure to so notify the
Indemnifying Party shall not preclude the Claimant from any indemnification
which it may claim in accordance with this Article VIII.
8.4 Limitations.
(a) The rights of indemnification provided in Sections 8.1 (other than
in respect of a breach of the representations contained in Sections 3.1,
3.3, 3.4, 4.1, 4.2 and 4.5 (each, a "Fundamental Representation") or with
respect to any claims for indemnification pursuant to Sections 8.1(c),
8.1(d), 8.1(e), 8.1(f),8.1(g) and 8.1(h) (each, a "Seller Surviving
Matter")) and Section 8.2 (other than with respect to any claims for
indemnification pursuant to Sections 8.2(c), 8.2(d) and 8.2(e) (each a
"Purchaser Surviving Matter")) of this Agreement shall survive the
consummation of the transactions contemplated by this Agreement for a
period of twelve (12) months following the Closing Date. The rights of
indemnification provided in Section 8.1(a) in respect of any breach of a
Fundamental Representation or with respect to a Seller Surviving Matter or
Purchaser Surviving Matter shall survive the consummation of the
transactions contemplated hereunder and shall remain in effect
indefinitely. No claim for indemnification hereunder may be brought after
the expiration date of the aforementioned twelve (12) month survival period
(the "Cut-Off Date"), except for claims of breach of a Fundamental
Representation, a Seller Surviving Matter, a Purchaser Surviving Matter or
claims of which the Indemnifying Party has been notified in writing with
reasonable specificity by the Claimant prior to the Cut-Off Date.
Notwithstanding any of the foregoing, any right to indemnification provided
in Section 8.1(b) or 8.2(b) arising out of the breach of a covenant set
forth in this Agreement that extends by its terms beyond the Cut-Off Date
shall survive until the expiration of the obligation of such covenant
pursuant to its terms.
(b) The provisions for indemnity contained in Section 8.1(a) shall be
effective only in the event that the aggregate amount of all indemnifiable
Losses for which the Seller is liable under this Agreement exceeds
$50,000.00 (other than in respect of any breach of a Fundamental
Membership Interest Purchase Agreement
49
Representation), but at such time as the aggregate amount of such Losses
does exceed $50,000.00, then Seller shall be liable for the aggregate
amount of all such Losses in excess of $50,000.00; provided, however, in no
event shall the aggregate indemnification amount to be paid by the Seller
with respect to all claims made under Section 8.1(a) hereof (other than in
respect of any breach of a Fundamental Representation) exceed $325,000 and
in no event shall the aggregate indemnification amount to be paid by the
Seller with respect to all claims made under Section 8.1(a) exceed the
Final Purchase Price.
(c) In determining the foregoing threshold and in otherwise
determining the amount of any Losses for which a Claimant is entitled to
assert a claim for indemnification hereunder, the amount of any such Losses
shall be determined after deducting therefrom the amount of any insurance
proceeds (after giving effect to any applicable deductible or retention)
and other third-Person recoveries actually received by the Claimant or its
Affiliates in respect of such Losses. If an indemnification payment is
received by the Claimant or its Affiliates and the Claimant or its
Affiliates later receive insurance proceeds or other third-Person
recoveries in respect of the related Losses, the Claimant shall immediately
refund to the Indemnifying Party, paying last dollars first, in a sum equal
in the aggregate to the lesser of (i) the actual amount of such insurance
proceeds or other third-Person recoveries or (ii) the actual amount of the
indemnification payment previously paid by the Indemnifying Party with
respect to such Losses.
(d) For purposes of calculating Losses hereunder, any materiality or
Material Adverse Effect qualifications in the representations, warranties,
covenants and agreements shall be disregarded.
(e) The Seller shall have no right of contribution or other recourse
against the Company or its respective Company Employees, directors,
Affiliates, agents, attorneys, representatives, assigns or successors for
any Indemnifiable Claims asserted by Claimants, it being acknowledged and
agreed that the covenants and agreements of the Company are solely for the
benefit of such Claimants.
(f) Any amount paid under this Article VIII shall be reflected on the
books of each of the parties hereto as an adjustment to the Final Purchase
Price.
(g) Notwithstanding anything in this Article VIII to the contrary,
nothing in this Article VIII shall apply to a claim in respect of Taxes,
and all such claims shall be governed exclusively by Section 6.4 hereof.
(h) In no event (other than with respect to claims arising out of
fraud) shall any party be liable for any punitive, treble or exemplary
damages or damages, losses and injuries that do not flow directly from the
underlying act or breach; other than any such damages, losses or injuries
that are components of awards by claims from third parties.
ARTICLE IX - OTHER MATTERS
9.1 Waiver; Amendment. Any provision of this Agreement may be amended or
waived, but only if the amendment or waiver is in writing and signed, in the
case of the amendment, by the Seller and the Purchaser or, in the case of a
waiver, by the party or parties that would have benefited by the provision
Membership Interest Purchase Agreement
50
waived. No action taken pursuant to this Agreement, including any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representation, warranty,
covenant or agreement contained herein. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
further or continuing waiver of such breach or as a waiver of any other or
subsequent breach. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.
9.2 Expenses. Except as otherwise provided in this Agreement, each party
will bear all expenses incurred by it in connection with this Agreement and each
other agreement, document and instrument contemplated by this Agreement and the
consummation of the transactions contemplated hereby and thereby, it being
understood that in no event shall the Company bear any of such costs and
expenses.
9.3 Notices. All notices, requests and other communications hereunder to a
party shall be in writing and shall be deemed to have been given (i) on the
Business Day sent, when delivered by hand or facsimile transmission (with
confirmation) during normal business hours, (ii) on the Business Day following
the Business Day of sending, if delivered by an overnight courier recognized as
providing services nationally in the United States, or (iii) on the third (3rd)
Business Day following the Business Day of sending, if mailed by registered or
certified mail return receipt requested, in each case to such party at its
address (or number) set forth below or such other address (or number) as the
party may specify by notice to the other parties hereto.
If to the Purchaser, to:
DirecPath Holdings, LLC
c/o Hicks Holdings LLC
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to (which shall not constitute notice):
Weil, Gotshal & Xxxxxx, LLP
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: S. Xxxxx Xxxxx
Facsimile: (000) 000-0000
If to the Seller, to:
Blonder Tongue Laboratories, Inc.
Xxx Xxxx Xxxxx Xxxx
Xxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Chief Executive Officer
Facsimile: 000-000-0000
Membership Interest Purchase Agreement
51
with a copy to (which shall not constitute notice):
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esquire
Facsimile: (000) 000-0000
If to the Company, prior to Closing, to:
BDR Broadband, LLC
Xxx Xxxx Xxxxx Xxxx
Xxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Chief Executive Officer
Facsimile: 000-000-0000
with a copy to (which shall not constitute notice):
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP
0000 Xxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to the Company, after Closing, to:
BDR Broadband, LLC
c/o Hicks Holdings LLC
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Chief Executive Officer
with a copy to (which shall not constitute notice):
Weil, Gotshal & Xxxxxx, LLP
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: S. Xxxxx Xxxxx
Facsimile: (000) 000-0000
9.4 Entire Understanding; No Third-Person Beneficiaries. This Agreement
(including the schedules and exhibits hereto), the Seller Documents, the
Purchaser Documents and the Company Documents constitute the entire agreement
Membership Interest Purchase Agreement
52
between the parties with respect to the transactions contemplated hereby and
supersedes all prior agreements, written or oral, among the parties with respect
to the subject matter of this Agreement. No representation, warranty,
inducement, promise, understanding or condition not set forth in this Agreement
has been made or relied on by any party in entering into this Agreement. Nothing
in this Agreement, expressed or implied, is intended to confer on any Person,
other than the parties hereto or their respective successors, any rights,
remedies, obligations or liabilities.
9.5 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by either of the parties (whether by
operation of law or otherwise) without the prior written consent of the other
party hereto, and any purported assignment in violation of this Section 9.5 will
be void; provided, that this Agreement (including the rights, interests and
obligations hereunder) may be assigned by each of the Seller and the Purchaser
(i) for the benefit of any of its respective creditors as collateral, (ii) to
any of its respective Affiliates and (iii) to any Person proposing to purchase
all or substantially all of the assets or membership interests of the Company or
the capital stock of the Seller, respectively; provided, however, that in all
cases, such an assignment will not relieve the Purchaser or the Seller of its
respective obligations under this Agreement. 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 permitted assigns.
9.6 Specific Performance. Without limiting or waiving in any respect any
rights or remedies of a party under this Agreement now or hereafter existing at
law in equity or by statute, each of the parties hereto shall be entitled to
such specific performance of the obligations to be performed by the other
parties, including the Seller's obligation to sell the Interests to the
Purchaser and the Purchaser's obligation to pay the Final Purchase Price to
Seller, in accordance with the provisions of this Agreement. Such remedies
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which any party may have under this Agreement or otherwise.
9.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will constitute an original and all of which, when
taken together, will constitute one Agreement. Any signature pages of this
Agreement transmitted by telecopier will have the same legal effect as an
original executed signature page.
9.8 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement, and
all claims or causes of action (whether in contract or tort) that may be based
upon, arise out of or relate to this Agreement or the negotiation, execution or
performance of this Agreement (including any claim or cause of action based
upon, arising out of or related to any representation or warranty made in or in
connection with this Agreement), shall be governed by and construed in
accordance with the internal laws of the State of Delaware. Any action against
any party relating to the foregoing shall be brought in any federal or state
court of competent jurisdiction located within the State of Delaware, and the
parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of
any federal or state court located within the State of Delaware over any such
action. The parties hereby irrevocably waive, to the fullest extent permitted by
Requirements of Law, any objection which they may now or hereafter have to the
laying of venue of any such action brought in such court or any defense of
inconvenient forum for the maintenance of such action. EACH OF THE PARTIES
Membership Interest Purchase Agreement
53
HERETO HEREBY ACKNOWLEDGE, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHTS IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION, PROCEEDING, CLAIM FOR
INDEMNIFICATION OR OTHER CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT AND ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY AND HEREBY AGREES THAT IT SHALL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION
WITH ANY ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.
9.9 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. Upon such
determination that any term or other provision is invalid, illegal, or incapable
of being enforced, (i) the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible and (ii) the remainder of this Agreement and the application of
such provision to other Persons, entities or circumstances shall not be affected
by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
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Membership Interest Purchase Agreement
54
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
BDR BROADBAND, LLC
By: /s/ Xxxxx X. Xxxxxx.
Name: Xxxxx X. Xxxxxx
Title: Member
SELLER:
BLONDER TONGUE LABORATORIES, INC.
By:/s/Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: Chief Executive Officer
PURCHASER:
DIRECPATH HOLDINGS, LLC
By:/s/ Xxxxxx X. Xxxxx
Name:Xxxxx X. Xxxxx
Title: Executive Vice President and Secretary
