EXHIBIT 10.41
________________________________________________________________________________
PURCHASE AGREEMENT
AMONG
KFX INC., ("BUYER")
AND
PEGASUS TECHNOLOGIES, LTD.,
AND
THE XXXXXX GROUP AND THE XXXX GROUP
("SELLERS")
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DATED AS OF MARCH 23, 1998
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________________________________________________________________________________
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TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS
ARTICLE II PURCHASE AND SALE OF THE PERCENTAGE INTERESTS
Section 2.01. PURCHASE AND SALE....................................... 4
Section 2.02. PURCHASE PRICE.......................................... 4
Section 2.03. METHOD OF PAYMENT....................................... 4
Section 2.04. ADDITIONAL CONSIDERATION................................ 4
Section 2.05. CLOSING................................................. 4
Section 2.06. CLOSING DELIVERIES...................................... 5
Section 2.07. FURTHER ASSURANCES...................................... 6
Section 2.08. CONSUMMATION OF CLOSING................................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLING HOLDERS
Section 3.01. ORGANIZATION EXISTENCE AND POWER........................ 6
Section 3.02. AUTHORIZATION........................................... 7
Section 3.03. GOVERNMENTAL AUTHORIZATION.............................. 7
Section 3.04. EFFECT OF AGREEMENT ON THE COMPANY...................... 7
Section 3.05. CAPITALIZATION.......................................... 7
Section 3.06. SUBSIDIARIES............................................ 8
Section 3.07. FINANCIAL STATEMENTS.................................... 8
Section 3.08. ABSENCE OF CERTAIN CHANGES.............................. 8
Section 3.09. NO UNDISCLOSED LIABILITIES.............................. 9
Section 3.10. RELATED PARTY TRANSACTIONS.............................. 9
Section 3.11. MATERIAL CONTRACTS...................................... 9
Section 3.12. LITIGATION.............................................. 11
Section 3.13. COMPLIANCE WITH LAWS AND COURT ORDERS; NO DEFAULTS...... 11
Section 3.14. PROPERTIES.............................................. 11
Section 3.15. PRODUCTS................................................ 12
Section 3.16. INTELLECTUAL PROPERTY................................... 13
Section 3.17. INSURANCE COVERAGE...................................... 15
Section 3.18. LICENSES AND PERMITS.................................... 15
Section 3.19. INVENTORIES............................................. 15
Section 3.20. LOANS, NOTES, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.. 15
Section 3.21. PROJECTIONS............................................. 15
Section 3.22. FINDERS' FEES........................................... 16
Section 3.23. EMPLOYEES............................................... 16
Section 3.24. LABOR MATTERS........................................... 16
Section 3.25. ENVIRONMENTAL MATTERS................................... 16
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Section 3.26. FULL DISCLOSURE......................................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLING HOLDERS
Section 4.01. TITLE TO PERCENTAGE INTERESTS........................... 16
Section 4.02. EFFECT OF AGREEMENT ON SELLING HOLDERS.................. 17
Section 4.03. LITIGATION.............................................. 17
Section 4.04. SELLING HOLDER AGREEMENTS............................... 17
Section 4.05. FULL DISCLOSURE......................................... 17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
Section 5.01. CORPORATE EXISTENCE AND POWER........................... 18
Section 5.02. CORPORATE AUTHORIZATION................................. 18
Section 5.03. GOVERNMENTAL AUTHORIZATION.............................. 18
Section 5.04. NON-CONTRAVENTION....................................... 18
Section 5.05. FINDERS' FEES........................................... 18
ARTICLE VI COVENANTS OF THE PARTIES
Section 6.01. BEST EFFORTS............................................ 19
Section 6.02. CERTAIN FILINGS......................................... 19
Section 6.03. NONCOMPETITION; NONSOLICITATION......................... 19
Section 6.04. CONFIDENTIALITY......................................... 20
ARTICLE VII TAX REPRESENTATIONS AND COVENANTS
Section 7.01. TAX DEFINITIONS......................................... 20
Section 7.02. TAX REPRESENTATIONS AND COVENANTS....................... 21
ARTICLE VIII EMPLOYEE BENEFITS
Section 8.01. EMPLOYEE BENEFITS DEFINITIONS........................... 23
Section 8.02. EMPLOYEE PLANS.......................................... 23
Section 8.03. BENEFIT ARRANGEMENTS.................................... 23
Section 8.04. NO THIRD-PARTY BENEFICIARIES............................ 23
ARTICLE IX CONDITIONS TO CLOSING
Section 9.01. CONDITIONS TO OBLIGATIONS OF THE PARTIES................ 24
Section 9.02. CONDITIONS TO OBLIGATION OF BUYER....................... 24
Section 9.03. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SELLING
HOLDERS................................................. 25
ARTICLE X CREDIT ACCOMMODATIONS
Section 10.01. WORKING CAPITAL LINE................................... 25
Section 10.02. FORM OF ADVANCES....................................... 25
Section 10.03. CONDITIONS TO ADVANCES................................. 26
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Section 10.04. COVENANTS OF COMPANY................................... 26
Section 10.05. TERM OF OBLIGATION..................................... 26
Section 10.06. ADVANCES SUBJECT TO SETOFF............................. 26
ARTICLE XI SURVIVAL; INDEMNIFICATION
Section 11.01. SURVIVAL............................................... 27
Section 11.02. INDEMNIFICATION OBLIGATIONS............................ 27
Section 11.03. METHOD OF ASSERTING CLAIMS, ETC........................ 28
Section 11.04. PAYMENT................................................ 30
Section 11.05. SERVICE OF PROCESS..................................... 30
Section 11.06. EQUITABLE RELIEF....................................... 31
ARTICLE XII MISCELLANEOUS
Section 12.01. RELEASE OF THE COMPANY/SELLING HOLDERS................. 31
Section 12.02. NOTICES................................................ 32
Section 12.03. AMENDMENTS AND WAIVERS................................. 33
Section 12.04. EXPENSES............................................... 33
Section 12.05. SUCCESSORS AND ASSIGNS................................. 33
Section 12.06. GOVERNING LAW.......................................... 33
Section 12.07. ENTIRE AGREEMENT....................................... 33
Section 12.08. SPECIFIC PERFORMANCE................................... 33
Section 12.09. RELIANCE............................................... 33
Section 12.10. INTERPRETATION......................................... 34
Section 12.11. COUNTERPARTS; THIRD PARTY BENEFICIARIES................ 34
Appendix A: Percentage Interest Holders
Appendix B: Payment of Cash Consideration
Exhibit A: Form of Notes
Exhibit B: Administrative Services Agreement
Exhibit C: Form of Amended and Restated Operating Agreement
Exhibit D: Form of Transfer and Assignment Agreement
Exhibit E: Form of Opinion of Xxxxxx Xxxxxx and Xxxxxxxxx Limited
Exhibit F: Form of Manager's Certificate
Exhibit G: Employment Agreements of Messrs. Xxxx, Xxxxxx and Xxxxxx
Exhibit H: Form of Proprietary Information and Invention Agreements
Exhibit I: Form of Master Note
Exhibit J: Form of Security Agreement
Schedule 3.03: Governmental Authorization
Schedule 3.04: Exceptions to Validity of Agreement
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Schedule 3.05: Capitalization
Schedule 3.06: Subsidiaries
Schedule 3.08: Certain Changes
Schedule 3.09: Undisclosed Liabilities
Schedule 3.10: Related Party Transactions
Schedule 3.11: Material Contracts
Schedule 3.12: Litigation
Schedule 3.14: Properties
Schedule 3.15: Proprietary Software
Schedule 3.16: Intellectual Property
Schedule 3.17: Exceptions to Insurance Coverage
Schedule 3.18: Licenses and Permits
Schedule 3.23: Employees
Schedule 3.25: Environmental Matters
Schedule 4.04: Exception to Selling Holder Agreements
Schedule 7.02: Exceptions to Tax Warranties
Schedule 8.02: Employee Benefit Plans
Schedule 8.03: Benefit Arrangements
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EXHIBIT 10.39
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") dated as of March 23, 1998, is
entered into among KFx Inc. a Delaware corporation ("Buyer"), Pegasus
Technologies, Ltd., an Ohio limited liability company (the "Company"), P.
Xxxxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx (collectively, the "Xxxxxx
Group"), and Xxxx X. Xxxx, Xxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, Xx., Xxxxx X.
Xxxx and Xxxxxxx X. Xxxxx (collectively, the "Xxxx Group"). The Xxxxxx Group and
the Xxxx Group are sometimes collectively referred to herein as the "Selling
Holders" and individually as a "Selling Holder."
W I T N E S S E T H :
WHEREAS, the Selling Holders own an aggregate 85% Percentage Interest (as
defined below) in the Company, with each Selling Holder owning that Percentage
Interest set forth opposite such Selling Holder's name in column B of Appendix
A; and
WHEREAS, Buyer is willing to buy and the Selling Holders are willing to sell
the Percentage Interests set forth opposite such Selling Holder's name in column
C of Appendix A (the "Purchased Interests") on the terms and conditions and in
reliance on the representations and warranties set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
convenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Balance Sheet" means the balance sheet of the Company as of December 31,
1997.
"Balance Sheet Date" means December 31, 1997.
"Closing Date" means the date of the Closing.
"Company Note" means that certain promissory note dated February 4, 1998
among Buyer, as payee, and the Company and Messrs. Xxxxxx and Xxxx, as makers,
in the aggregate principal amount of $300,000.
"Confidential Information" means any information relating to the properties,
prospects, products, services or operations of the Company or any direct or
indirect Affiliate thereof that is not generally known, is proprietary to the
Company or such Affiliate and is made known to such Person
or learned or acquired by such Person while such Person was a Member, Manager,
employee or independent contractor of the Company, including, without
limitation, information relating to the software developed by the Company,
information as to sources of, and arrangements for, hardware supplied to
customers or clients of the Company, submission and proposal procedures of the
Company, customer or contact lists, information concerning trade secrets of the
Company, or any of the Company's Affiliates and any improvements relating to the
products of the Company in accounting, marketing, selling, leasing, financing
and other business methods and techniques.
However, Confidential Information shall not include (i) at the time of
disclosure to any Person such information that was in the public domain or later
entered the public domain other than as a result of a breach of an obligation
herein; or (ii) subsequent to disclosure to any Person, such Person received
such information from a third party under no obligation to maintain such
information in confidence, and the third party came into possession of such
information other than as a result of a breach of an obligation herein.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, now in effect,
relating to human health, the environment or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances or wastes into the
environment, including without limitation ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Environmental Liabilities" means any and all liabilities of or relating to
the Company (including any entity which is, in whole or in part, a predecessor
of the Company), whether vested or unvested, contingent or fixed, actual or
potential, known or unknown, which (a) arise under or relate to matters covered
by Environmental Laws (including without limitation any matters disclosed or
required to be disclosed in Schedule 3.25 hereto), and (b) relate to actions
occurring or conditions existing on or prior to the Closing Date.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of governmental authorities relating to or required
by Environmental Laws and necessary or proper for the business of the Company as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles, consistently applied.
"Hazardous Substances" means any toxic, radioactive, corrosive or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics, including, without limitation, any substance
regulated under Environmental Laws.
"Immediate Family Member" means, with respect to any Person, such Person's
spouse, parents, children and siblings.
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"Intellectual Property Right" means any trademark, service xxxx, trade name
and patent (including any registrations or applications for registration of any
of the foregoing).
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Manager" shall have the meaning assigned to such term in the Operating
Agreement.
"Material Adverse Effect" means an effect or occurrence that would reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company, taken as
whole.
"Member" shall have the meaning assigned to such term in the Operating
Agreement and shall include, for purposes of this Agreement, a Person who owns
an Economic Interest (as defined in the Operating Agreement) in the Company.
"NeuSight Software" means the Company's process monitoring and optimization
software program for application in the utilities industry, including all
subsequent upgrades, modifications, enhancements and releases thereof.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Operating Agreement" means the Operating Agreement dated August 16, 1996
entered into by and among the Company, the Selling Holders and AIW/P Holdings,
Inc.
"Person" means an individual, corporation, partnership, association, trust or
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Percentage Interest" shall have the meaning assigned to such term in the
Operating Agreement and shall include "Membership Interests" as defined in the
Operating Agreement.
"Purchased Interest" shall mean the Percentage Interests set forth opposite
such Selling Holder's name in column C of Appendix A.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Company.
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"Transaction Documents" means this Agreement and any other document
contemplated hereby or thereby, including, without limitation, the Letter of
Intent dated February 2, 1998, by and among Buyer, the Company and the Selling
Holders.
ARTICLE II
PURCHASE AND SALE OF THE PERCENTAGE INTERESTS
Section 2.01. PURCHASE AND SALE. Upon the basis of the representations and
warranties herein contained and on the terms and subject to the conditions of
this Agreement, the Selling Holders agree to sell, convey, transfer, assign and
deliver the Purchased Interests to Buyer at the Closing, free and clear of all
Liens, covenants, conditions or restrictions of any kind or nature whatsoever,
and Buyer agrees to purchase and accept the Purchased Interests from the Selling
Holders at Closing.
Section 2.02. PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") for the Purchased Interests shall be $2,200,000, less the outstanding
principal and interest on the Company Note.
Section 2.03. METHOD OF PAYMENT. The Purchase Price shall be payable by
Buyer as follows:
(a) $1,100,000 (the "Cash Consideration") payable to the Selling
Holders in the amounts set forth in Appendix B to this Agreement;
(b) $600,000 payable in the form of promissory notes (the "Notes"), in
the following aggregate principal amounts: $360,000 to P. Xxxxxxx Xxxxxx,
$180,000 to Xxxxx X. Xxxxxx and $60,000 to Xxxxxx X. Xxxxxx in the forms
attached hereto as Exhibit A; and
(c) $500,000 payable to the Company less the outstanding principal
amount of the Company Note and any accrued interest due thereon.
Section 2.04. ADDITIONAL CONSIDERATION. As additional consideration to
the Company and the Selling Holders, Buyer shall provide the Company with a line
of credit in the amount of $1,400,000 (the "Working Capital Line") in accordance
with the terms and conditions set forth in Article X of this Agreement.
Section 2.05. CLOSING. The closing (the "Closing") of the purchase and
sale of the Purchased Interests hereunder shall take place at the offices of
Xxxxxxxx & Xxxxxxxx, 000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000,
concurrently with the execution of this Agreement, or at such other time and
place as the parties shall mutually agree.
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Section 2.06. CLOSING DELIVERIES. At the Closing:
(a) Buyer shall deliver to the Company and the Selling Holders, as the
case may be:
(i) The Cash Consideration as set forth in Sections 2.03(a) and
(c) in immediately available funds by wire transfer to an account of
each Selling Holder and the Company as specified in the notice to
Buyer, given not later than two business days prior to the Closing
Date, or, if not so designated, then by certified or official bank
check payable in immediately available funds to the order of the
Company and the Selling Holders, as the case may be;
(ii) The Notes, duly executed by Buyer;
(iii) The Administrative Services Agreement, duly executed by
Buyer, in the form attached hereto as Exhibit B;
(iv) The Amended and Restated Operating Agreement, duly executed
by Buyer in the form attached hereto as Exhibit C; and
(v) The original Company Note, marked cancelled.
(b) Each Selling Holder shall deliver to Buyer:
(i) a duly executed Transfer and Assignment Agreement in the
form attached hereto as Exhibit D; and
(ii) Amended and Restated Operating Agreement executed by all
remaining Members of the Company.
(c) The Company shall deliver to Buyer the following:
(i) An opinion of Xxxxxx, Lipton and Xxxxxxxxx Limited, counsel
to the Company, dated as of the Closing Date, substantially identical
in form and substance to Exhibit E attached hereto;
(ii) All consents, authorizations or approvals from the
governmental agencies referred to in Section 3.03, if any, in each
case in form and substance reasonably satisfactory to Buyer, and no
such consent, authorization or approval shall have been revoked;
(iii) A Manager's Certificate, in the form attached hereto as
Exhibit F;
(iv) Executed employment agreements for Messrs. Xxxx, Xxxxxx and
Xxxxxx in the forms attached hereto as Exhibit G;
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(v) Executed Proprietary Information and Invention Agreements,
in the form attached hereto as Exhibit H, for those persons set forth
on Schedule 3.23 of this Agreement;
(vi) The Administrative Services Agreement, duly executed by the
Company; and
(vii) The Master Note and the Security Agreement, duly executed
by the Company in the forms attached hereto as Exhibits I and J,
respectively.
The parties shall deliver such further documents, resolutions, certificates
and instruments as any party or his, her or its counsel reasonably requests to
facilitate the consummation of the transactions contemplated hereby.
Section 2.07. FURTHER ASSURANCES. At any time and from time to time after
the Closing Date, at the request of the Buyer and without further consideration,
each Seller (and, as and to the extent necessary or appropriate, the Company or
its officers will execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation as may be reasonably requested in order
to more effectively transfer, convey and assign to the Buyer and to confirm the
Buyer's title to the Percentage Interest.
Section 2.08. CONSUMMATION OF CLOSING. All acts, deliveries and
confirmations comprising the Closing regardless of chronological sequence shall
be deemed to occur contemporaneously and simultaneously upon the occurrence of
the last act, delivery or confirmation of the Closing and none of such acts,
deliveries, or confirmations shall be effective unless and until the last of the
same shall have occurred.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLING HOLDERS
The Company and each Selling Holder (except for Xx. Xxxxxxx X. Xxxxx, and
with respect to Sections 3.15, 3.20 and 3.21 except for the Xxxxxx Group, and
with respect to Section 3.11 except for Xxxxx X. Xxxxxx and Xxxxxx X. Xxxxxx)
jointly and severally represent and warrant to Buyer as of the date hereof as
follows:
Section 3.01. ORGANIZATION EXISTENCE AND POWER. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has all powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted. The Company is duly qualified to do
business as a foreign limited liability company, where required, and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified, individually or in the
aggregate, would not have a Material Adverse Effect. The Company has delivered
to Buyer true and complete copies of its Certificate of Organization and
Operating Agreements currently in effect.
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Section 3.02. AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and the other Transaction Documents to which it is
a party are within the Company's powers, and this Agreement and the other
Transaction Documents have been duly authorized by all necessary action on the
part of the Company.
Section 3.03. GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
3.03, the execution, delivery and performance by the Company of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official.
Section 3.04. EFFECT OF AGREEMENT ON THE COMPANY. Except as set forth in
Schedule 3.04, neither the execution and delivery of this Agreement, the
Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) result in the acceleration
or termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any contract or other obligation or liability to
which the Company is a party or is bound or to which the Company's assets are
subject, (ii) conflict with, violate or result in a breach of any provision of
its Articles of Organization or Operating Agreement, or (iii) conflict with or
violate any law, rule, regulation, ordinance, order, writ, injunction or decree
applicable to the Company or by which any of its respective properties or assets
is bound or affected. This Agreement has been duly executed and delivered by the
Company and (assuming that it has been duly executed and delivered by Buyer),
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms except as enforcement thereof
may be limited by liquidation, conservatorship, bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion. Each of the Transaction
Documents to which the Company is a party, when executed and delivered in
accordance with the terms hereof (and assuming that each such Transaction
Document has been duly executed and delivered by the other parties thereto),
will constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except as
enforcement thereof may be limited by liquidation, conservatorship, bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
Section 3.05. CAPITALIZATION.
(a) As of the date hereof, all of the Percentage Interests in the
Company are owned by the Percentage Interest holders in the respective
amounts set forth opposite their names in column B of Schedule A hereto,
free and clear of all Liens.
(b) The Percentage Interests have been duly authorized and are validly
issued, are fully paid and non-assessable and the Percentage Interest
holders thereof are not, or will not be, entitled to any preemptive or
other similar rights. Except as set forth in Schedule 3.05 or as
contemplated by the Transaction Documents, there are no outstanding (i)
Percentage Interests or other voting securities of the Company, (ii)
securities of the Company convertible into or exchangeable for Percentage
Interests or voting securities of the Company or (iii) options or other
rights to acquire from the Company, or other obligation of the Company to
issue, any Percentage Interests, voting securities or securities
convertible into or exchangeable for Percentage Interests or voting
securities of the Company (the items in clauses (i), (ii) and (iii) being
referred to collectively as the
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"Company Percentage Interests"). There are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any Company
Percentage Interests.
Section 3.06. SUBSIDIARIES. The Company does not own any interest in any
corporation or other business entity and, except as set forth in Schedule 3.06,
the Company is not a participant in any partnership or any joint venture with
any third party.
Section 3.07. FINANCIAL STATEMENTS. The Company has delivered to Buyer
(a) the Company's balance sheet for the years ended December 31, 1996 and 1997,
(b) its related statements of income and retained earnings for the fiscal years
then ended, and all related information in connection therewith (collectively,
the "Financial Statements"). All of the Financial Statements present fairly and
accurately the financial position of the Company as of such dates and the
results of the Company's operations for such periods, and are true, correct and
complete in all material respects.
Section 3.08. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.08, since the Balance Sheet Date, the business of the Company has been
conducted in the ordinary course consistent with past practices and, except
pursuant to or as contemplated under any Transaction Documents, there has not
been:
(a) any event, occurrence, development, state of circumstances or
facts which has had or could reasonably be expected to have a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any distribution with
respect to any Percentage Interests, or any repurchase, redemption or other
acquisition by the Company of any Percentage Interests or other securities
of, or other ownership interests in, the Company;
(c) any amendment of any material term of any outstanding security of
the Company;
(d) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money exceeding $5,000;
(e) any creation or assumption by the Company of any Lien on any
material asset;
(f) any making of any loan, advance or capital contributions to or
investment in any Person;
(g) any damage, destruction or other casualty loss affecting the
business or assets of the Company not covered by insurance;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including
the acquisition or disposition of any assets) or any relinquishment by the
Company of any contract or other right, in either case, material to the
Company, taken as a whole, other than transactions and commitments in the
ordinary course of business consistent with past practices;
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(i) any change in any method of accounting or accounting practice by
the Company;
(j) any (i) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any Manager, Member, officer
or employee of the Company (or any amendment to any such existing
agreement), (ii) grant of any severance or termination pay to any Manager,
Member, officer or employee of the Company other than under existing
arrangements which have been disclosed to Buyer, or (iii) change in
compensation or other benefits payable to any Manager, Member, officer or
employee of the Company pursuant to any severance or retirement plans or
policies thereof, other than in the ordinary course of business consistent
with past practice; or
(k) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company, which employees were not subject to
a collective bargaining agreement at the Balance Sheet Date, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to any employees of the Company.
Section 3.09. NO UNDISCLOSED LIABILITIES. There are no liabilities of the
Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than:
(a) liabilities provided for in the Balance Sheet;
(b) liabilities disclosed on Schedule 3.09; and
(c) liabilities incurred for accounts payable and any accruals of
current liabilities since the Balance Sheet Date in each case in type and
amounts which are accrued in the ordinary course of the Company's business.
Section 3.10. RELATED PARTY TRANSACTIONS. Schedule 3.10 contains a
complete list of all transactions and agreements between the Company, on the one
hand, and any Managers, Members, suppliers, customers or other parties ("Related
Parties"), on the other hand, where an officer, Manager, Member, employee or
holder of 5% or more of the outstanding equity of such Related Party is an
Immediate Family Member of an officer, Manager, Member, employee or holder of 5%
or more of the Percentage Interests in the Company.
Section 3.11. MATERIAL CONTRACTS.
(a) Except as disclosed in Schedule 3.11 and except pursuant to or
as contemplated under any of the Transaction Documents, the Company is not
a party to or bound by:
(i) any lease (whether of real or personal property) providing
for annual rentals of $5,000 or more;
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(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets that provides for either
(A) annual payments by the Company of $5,000 or more or (B) aggregate
payments by the Company of $5,000 or more;
(iii) any sales, distribution or other similar agreement
providing for the sale by the Company of materials, supplies, goods,
services, equipment or other assets that provides for either (A)
annual payments to the Company of $5,000 or more or (B) aggregate
payments to the Company of $5,000 or more;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any agreement relating to the acquisition or disposition
of any business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money
or the deferred purchase price of property (in either case, whether
incurred, assumed, guaranteed or secured by any asset), except any
such agreement with an aggregate outstanding principal amount not
exceeding $5,000 and which may be prepaid on not more than 30 days
notice without the payment of any penalty;
(vii) any license, franchise or similar agreement that provides
for either (A) annual payments to or from the Company of $5,000 or
more or (B) aggregate payments to or from the Company of $5,000 or
more;
(viii) any agency, dealer, sales representative, marketing or
other similar agreement for that provides for either (A) annual
payments by the Company of $5,000 or more or (B) aggregate payments by
the Company of $5,000 or more;
(ix) any agreement that limits the freedom of the Company to
compete in any line of business or with any Person or in any area or
which would so limit the freedom of the Company;
(x) any agreement with any other Person directly or indirectly
owning, controlling or holding with power to vote 5% or more of the
outstanding voting securities of any Affiliate;
(xi) any agreement with any Manager, Member, officer of the
Company or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and
16a-1 of the 0000 Xxx) of any such Manager, Member or officer; or
(xii) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the
Company, taken as a whole.
(b) Each agreement, commitment, arrangement or plan disclosed in any
Schedule to this Agreement or required to be disclosed pursuant to this
Section is a valid and
10
binding agreement of the Company, and is in full force and effect, and
neither the Company nor any other party thereto is in default or breach in
any material respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment.
Section 3.12. LITIGATION.
(a) There is no action, suit, investigation or proceeding (or any
basis therefor) pending against or to the best of the Company's or Selling
Holder's knowledge threatened against or affecting, the Company or any of
its properties before any court or arbitrator or any governmental body,
agency or official. None of the Company, the Selling Holders or any
Manager has any reason to believe that any such action, suit, investigation
or proceeding will be brought against the Company.
(b) Except as disclosed on Schedule 3.12, no officer, Manager, Member,
key management employee or sales representative or Immediate Family Member
of an officer, Manager, Member, key management employee or sales
representative of the Company has been convicted in a criminal proceeding,
is a named subject of a criminal proceeding which is presently pending
(excluding traffic violations and other minor offenses) or is to the
knowledge of such Person the subject of a criminal investigation.
Section 3.13. COMPLIANCE WITH LAWS AND COURT ORDERS; NO DEFAULTS. The
Company is not in violation of, and has not since the Balance Sheet Date
violated, any applicable law, rule, regulation, judgement, injunction, order or
decree except for a violation that could not be reasonably expected to have a
Material Adverse Effect.
Section 3.14. PROPERTIES.
(a) Except as set forth on Schedule 3.14, the Company has good title
to, or in the case of leased property has valid leasehold interests in, all
personal property and assets (whether tangible or intangible) reflected on
the Balance Sheet or acquired after the Balance Sheet Date, except for
property and assets sold since the Balance Sheet Date in the ordinary
course of business consistent with past practices. The Company has a valid
and insurable fee simple title to, or in the case of leased real property
has valid leasehold interests in, all real property reflected on the
Balance Sheet or acquired after the Balance Sheet Date. None of such
property or assets (whether real or personal) is subject to any Liens,
except:
(i) Liens disclosed on the Balance Sheet; or
(ii) Liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on
the Balance Sheet).
(b) There are no developments affecting any such property or assets
(whether real or personal) pending or threatened, which might materially
detract from the value of such property or assets, or materially interfere
with any present use of any such property or assets.
(c) Except as set forth in Schedule 3.14, the plant and equipment
owned by the Company has been reasonably maintained consistent with
standards generally followed in
11
the industry (giving due account to the age and length of use of same,
ordinary wear and tear excepted) and are adequate and suitable for their
present uses and, in the case of plants, buildings and other structures
(including the roofs thereof), are structurally sound.
(d) All real property currently has access to (i) public roads or
valid easements for such ingress to and egress from all such real property
and (ii) water supply, storm and sanitary sewer facilities, telephone, gas
and electrical connections, fire protection, drainage and other public
utilities, in each case as is necessary for the conduct of the businesses
of the Company as heretofore conducted and none of the structures on any
such owned or leased real property encroaches upon real property of another
person, and no structure of any other person substantially encroaches upon
any of such owned or leased real property.
(e) Except as disclosed in Schedule 3.14, the property and assets
owned or leased by the Company, or which it otherwise has the right to use,
constitutes all of the property and assets held for use or used in
connection with the business of the Company and is generally adequate to
conduct such business as currently conducted by the Company.
Section 3.15. PRODUCTS.
(a) Each of the products produced, developed or sold by the Company
is, and at all times up to and including the sale thereof by the Company
has been (a) in compliance in all material respects with all applicable
federal, state, and local laws and regulations and (b) conforms in all
material respects to any promises or affirmations of fact made on the
container or label for such product or in connection with its sale, subject
to returns, repairs, defects and allowances consistent with past practice.
(b) There is no design defect with respect to any of such products
and, to the best of the Company's or Selling Holder's knowledge, each of
such products contains adequate warnings, presented in a reasonably
prominent manner, in accordance with applicable laws, rules and regulations
and current industry practice with respect to its contents and use.
(c) The NeuSight Software and such other proprietary software
currently used by the Company as set forth in Schedule 3.15(c), and any and
all enhancements, upgrades, customizations, modifications and maintenance
thereof (the "Proprietary Software"), currently sold, licensed or otherwise
used by the Company in its business, containing or calling on a calendar
function including without limitation, any function indexed to the CPU
clock, and any function providing specific dates or days, or calculating
spans of dates or days, shall record, store, process, provide, and, where
appropriate, insert true and accurate dates and calculations for dates and
spans including January 1, 2000.
(d) The NeuSight Software is free from significant programming errors
and operates in substantial conformity with its user documentation and
other descriptions and standards applicable thereto provided by the Company
and, to the best of the Company's knowledge, after due inquiry, does not
contain any known virus, timer, clock, counter or other limiting design,
instruction or routine, that would erase data, programming or become
inoperable or otherwise incapable of being used in the full manner for
which it was designed and created.
12
Section 3.16. INTELLECTUAL PROPERTY.
(a) Schedule 3.16 contains a list of all Intellectual Property Rights
owned or licensed and used or held for use by the Company ("Company
Intellectual Property Rights"), specifying as to each, as applicable: (i)
the nature of such Intellectual Property Right; (ii) the owner of such
Intellectual Property Right; (iii) the jurisdictions by or in which such
Intellectual Property Right is recognized without regard to registration or
has been issued or registered or in which an application for such issuance
or registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which any Person is
authorized to use such Intellectual Property Right, including the identity
of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof.
(b) The Company Intellectual Property Rights constitute all
Intellectual Property Rights necessary for the operation of the Company's
business as presently conducted and as presently proposed to be conducted.
The Company Intellectual Property Rights will be owned or available for use
by the Company on identical terms and conditions immediately subsequent to
the Closing hereunder. The Company has taken all necessary and desirable
action to protect the Company Intellectual Property Rights. No Company
Intellectual Property Rights are involved in any interference or re-
examination or cancellation or opposition proceeding and neither the
Company nor each Selling Holder, as to itself, has been notified or alerted
that any such proceeding will hereafter be commenced. Except as set forth
in Schedule 3.16, neither the Company nor each Selling Holder, as to
itself, has any basis for provoking or initiating an interference or
opposition proceeding with respect to any Intellectual Property Right held
or used by others, and does not have any basis for believing that any of
the Company Intellectual Property Rights are being infringed by others.
(c) The Company has not been a defendant in any action, suit,
investigation or proceeding relating to, or otherwise has been notified of,
any alleged claim or infringement of the Company Intellectual Property
Rights, and the Company and the Selling Holders have no knowledge of any
such infringement by the Company or the Company Intellectual Property
Rights with the intellectual property of others, and (ii) the Company and
the Selling Holders have no knowledge of any continuing infringement by any
other Person of any Company Intellectual Property Rights. Except as set
forth on Schedule 3.16, the Company has not entered into any agreement to
indemnify any other Person against any charge of infringement,
misappropriation or other conflict with respect to any Intellectual
Property Right.
(d) The Company has delivered to Buyer correct and complete copies of
all such Company patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) relating to Company
Intellectual Property Rights and has made available to Buyer correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such Company Intellectual Property
Right. With respect to each Intellectual Property Right that the Company
owns:
13
(i) all patents, copyrights and trademarks included in the Company
Intellectual Property Rights are valid and in full force and all
applications listed on Schedule 3.16 as pending have been prosecuted in
good faith as required by law and are in good standing;
(ii) the identified owner possesses all right, title, and interest
in and to the item;
(iii) the item is not subject to any outstanding judgment, order,
decree, stipulation, injunction, or charge; and
(iv) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demands pending or to the knowledge of the Company
and the Selling Holders (and employees with responsibility for Intellectual
Property Right matters) is threatened which challenges the legality,
validity, enforceability, use, or ownership of the Intellectual Property
Right.
(e) The Company has supplied Buyer with correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to date)
with respect to such Intellectual Property Right. With respect to each such
Intellectual Property Right:
(i) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in fully force and effect on
identical terms following the Closing;
(iii) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true and
correct with respect to the underlying license;
(vi) the underlying item of the Intellectual Property Right is not
subject to any outstanding judgment, order, decree, stipulation,
injunction, or charge; and
(vii) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending, or to the knowledge of any of
the Company and the Selling Holders and officers (and employees with
responsibility for Intellectual Property Right matters) is threatened which
challenges the legality, validity, or enforceability of the underlying item
of the Intellectual Property Right.
14
Section 3.17. INSURANCE COVERAGE. The Company has furnished to Buyer a
list of, and true and complete copies of, all insurance policies and fidelity
bonds relating to the assets, business, operations, employees, officers or
Managers or Members. There is no claim by the Company pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights. All premiums payable under all such
policies and bonds have been paid timely and the Company has otherwise complied
fully with the terms and conditions of all such policies and bonds. Such
policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) are in full force and effect. Such
policies and bonds are of the type and in amounts customarily carried by Persons
conducting businesses similar to those of the Company. The Company does not
know of any threatened termination of, premium increase with respect to, or
material alteration of coverage under, any of such policies or bonds. Except as
disclosed in Schedule 3.17, the Company shall after the Closing continue to have
coverage under such policies and bonds with respect to events occurring prior to
the Closing.
Section 3.18. LICENSES AND PERMITS.
(a) Schedule 3.18 correctly describes each license, franchise, permit
or other similar authorization affecting, or relating in any way to, the
assets or business of the Company which are material to the Company taken
as a whole (the "Permits") together with the name of the government agency
or entity issuing such Permit. Except as set forth on the Schedule 3.18,
such Permits are valid and in full force and effect and none of the Permits
will be terminated or impaired or become terminable, in whole or in part,
as a result of the transactions contemplated hereby.
(b) The Company has all licenses, franchises, permits or other similar
authorizations, and all approvals of governmental or regulatory authorities
as are required to operate its business, as presently conducted and as
presently proposed to be conducted, in each state of the United States
where it is engaged in such activity.
Section 3.19. INVENTORIES. The inventories set forth in the Balance Sheet
were properly stated therein at the lesser of cost or fair market value. Since
the Balance Sheet Date, the inventories of the Company have been maintained in
the ordinary course of business.
Section 3.20. LOANS, NOTES, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. All
receivables of the Company, including the loans, notes and accounts receivable
reflected on the Balance Sheet and all such loans, notes and accounts receivable
arising after the Balance Sheet Date, (i) arose, and have arisen, from bona fide
transactions of the Company in the ordinary course of business; (ii) represent
the actual obligations of its customers or the party to the instrument; (iii)
are current and are expected to be collected in the aggregate face amounts
thereof without any counterclaim or setoff when due; and (iv) the reserves
accrued for doubtful accounts are reasonably valued and are computed in
accordance with past practice as reflected in the Balance Sheet. Accounts
payable of the Company reflected on the Balance Sheet and all accounts payable
arising after the Balance Sheet Date arose, and have arisen, from bona fide
transactions in the ordinary course of business.
Section 3.21. PROJECTIONS. The financial projections relating to the
Company delivered to Buyer are made in good faith and are based upon reasonable
assumptions, and the Company and the
15
Selling Holders are not aware of any fact or set of circumstances that would
lead it to believe that such projections are incorrect or misleading in any
material respect.
Section 3.22. FINDERS' FEES. No investment banker, broker, finder or
other intermediary is entitled to any fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 3.23. EMPLOYEES. Schedule 3.23 sets forth a true and complete
list of the names, titles, annual salaries and other compensation of all
officers of the Company and all other employees, consultants and independent
contractors to the Company, and none of such employees and no other key employee
of the Company has indicated to the Company or the Selling Holders that he
intends to resign or retire as a result of the transactions contemplated by this
Agreement or otherwise within three years after the Closing Date.
Section 3.24. LABOR MATTERS. The Company is in compliance with all
currently applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and is not engaged in any
unfair labor practice. There is no unfair labor practice complaint pending or
threatened against the Company before the National Labor Relations Board or any
other similar state or local agency.
Section 3.25. ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
3.25, the Company is not in violation of any federal, state, or local
Environmental Laws applicable to it or its properties, or any material
limitations, restrictions, conditions, standards, obligations or timetables
contained in any Environmental Law. No notice or action alleging such violation
is pending or, to the Company's knowledge, threatened, and no past or present
condition or practice of the businesses conducted by the Company would prevent
continued compliance with any Environmental Permits or give rise to any common
law or statutory liability or otherwise form the basis of any claim, action or
proceeding with respect to the Company involving any Hazardous Substances. To
the Company's knowledge, the Company has no Environmental Liability.
Section 3.26. FULL DISCLOSURE. No representation or warranty made by the
Company and the Selling Holders in this Agreement, nor any written statement
furnished to Buyer pursuant hereto, or in connection with the transactions
contemplated hereby, heretofore furnished to Buyer by the Company and the
Selling Holders, contains or will contain any statement which constitutes an
untrue statement of a material fact or fails or will fail to state a material
fact which was necessary to make the statements or facts contained herein or
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING HOLDERS
Each of the Selling Holders hereby represents and warrants to Buyer with
respect to itself, and not with respect to any other Selling Holder, as follows:
Section 4.01. TITLE TO PERCENTAGE INTERESTS. Each Selling Holder owns the
Percentage Interests set forth opposite its name in column B of Schedule A
hereto free and clear of any Lien, adverse claim, restriction on sale or
transfer (other than restrictions imposed by applicable securities
16
laws), preemptive right, limitations on voting rights or option and has the
authority to dispose of such Purchased Interests pursuant to this Agreement.
Section 4.02. EFFECT OF AGREEMENT ON SELLING HOLDERS. The execution,
delivery and performance of this Agreement and the Transaction Documents to
which it is a party by each Selling Holder and the consummation by each Selling
Holder of the transactions contemplated hereby and thereby will not require any
notice to, filing with, or the consent, approval or authorization of any person
or governmental authority. This Agreement when executed and delivered by the
Selling Holders will constitute the legal, valid and binding obligation of the
Selling Holders, enforceable against the Selling Holders in accordance with its
terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Each of the Transaction Documents to which the Selling Holders are a party, when
executed and delivered in accordance with the terms thereof, will constitute the
legal, valid and binding obligation of the Selling Holders, enforceable against
the Selling Holders in accordance with its terms, except as enforcement thereof
may be limited by liquidation, conservatorship, bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
Section 4.03. LITIGATION. There are no claims, actions, suits,
arbitrations, grievances, proceedings or investigations pending or, to the best
knowledge of each Selling Holder threatened, against such Selling Holder, at
law, in equity or before any federal, state, municipal or other governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, involving the transactions contemplated
hereby.
Section 4.04. SELLING HOLDER AGREEMENTS. Except as set forth in Schedule
4.04, there are no agreements, written or oral, between the Company and any
Selling Holder or between the Selling Holders, relating to the acquisition
(including without limitation rights of first refusal or pre-emptive rights),
disposition, registration under the 1933 Act, as amended, or voting of the
Percentage Interests or any other agreements between the Company and the Selling
Holders.
Section 4.05. FULL DISCLOSURE. No representation or warranty of the
Selling Holders made in this Agreement, nor any written statement furnished to
Buyer pursuant hereto, or in connection with the transactions contemplated
hereby, heretofore furnished to Buyer by the Selling Holders, contains or will
contain any statement which constitutes an untrue statement of a material fact
or fails or will fail to state a material fact which was necessary to make the
statements or facts contained herein or therein not misleading.
17
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the Selling Holders
as follows:
Section 5.01. CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all corporate or powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted.
Section 5.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement and any other Transaction Document to
which it is a party are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer.
Section 5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement and any other Transaction Document to
which it is a party require no action by or in respect of, or filing with, any
governmental body, agency or official.
Section 5.04. NON-CONTRAVENTION. The execution, delivery and performance
by Buyer of this Agreement and any other Transaction Document to which it is a
party do not and will not (a) violate its certificate of incorporation, as
amended, or Bylaws, as amended, (b) violate any applicable law, rule,
regulation, judgment, injunction, order or decree binding upon Buyer, or (c)
require consent or other action to any Person under any agreement or other
instrument binding upon Buyer. This Agreement has been duly executed and
delivered by the Buyer and (assuming that it has been duly executed and
delivered by the Company and Selling Holders), constitutes a legal, valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Each of the Transaction Documents to which the Buyer is a party, when executed
and delivered in accordance with the terms hereof (and assuming that each such
Transaction Document has been duly executed and delivered by the other parties
thereto), will constitute the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms except as enforcement
thereof may be limited by liquidation, conservatorship, bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
Section 5.05. FINDERS' FEES. With the exception of Xxxxx Xxxxx of STEP
Management which will receive a fee from Buyer, for which Buyer shall be solely
responsible, no investment banker, broker, finder or other intermediary is
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by Buyer.
18
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties will use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Each of the parties agrees to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this Agreement.
Section 6.02. CERTAIN FILINGS. Each of the parties shall cooperate with
one another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 6.03. NONCOMPETITION; NONSOLICITATION. In order that Buyer may
have and enjoy the benefit of the acquisition of the Purchased Interests, each
individual of the Xxxxxx Group, Xxxxx X. Xxxx and Xxxxxxx X. Xxxxx shall not,
and shall cause its or their Affiliates and associates not to, directly or
indirectly, for a period of five years commencing on the Closing Date, (a)
engage (as owner, stockholder, partner or otherwise, except as a holder of fewer
than 5% of the outstanding common stock or other equity interests of a company
whose common stock or other equity interests are publicly traded) in any
business which directly or indirectly competes with the business of the Company
or its Affiliates, as now conducted or currently intended to be conducted; (b)
induce any employee of the Company or any of its Affiliates to engage in any
activity in which the Xxxxxx Group, Xxxxx X. Xxxx or Xxxxxxx X. Xxxxx are
prohibited from engaging by subsection (a) or to terminate his employment with
the Company or any of its Affiliates, and will not directly or indirectly employ
or offer employment to any person who was employed by the Company or any of its
Affiliates unless such person shall have been terminated without cause or ceased
to be employed by the Company or any of its Affiliates for a period of at least
12 months; or (c) make any statement or take any action intended to impair the
goodwill or the business reputation of the Company, its Affiliates or
Subsidiaries, or to be otherwise detrimental to the interests of the Company, or
any of its Affiliates or Subsidiaries, including any action or statement
intended, directly or indirectly, to benefit a competitor of the Company, its
Affiliates or Subsidiaries (notwithstanding the foregoing, Xxxxxxx X. Xxxxx'x
current and continued employment with Xxxxxx Controls shall not be deemed to
violate the terms and provisions of clause (a) of this Section 6.03). It is
expressly understood and agreed that although the Xxxxxx Group, Xxxxx X. Xxxx,
Xxxxxxx X. Xxxxx and the Company consider the restrictions contained in this
Section 6.03 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time and territory or any other
restriction contained in this Section 6.03 is an unenforceable restriction
against the Xxxxxx Group, Xxxxx X. Xxxx or Xxxxxxx X. Xxxxx the provisions of
this Section 6.03 shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such maximum extent as such
court may judicially determine or indicate to be enforceable. Alternatively, if
any court of competent jurisdiction finds that any restriction contained in this
Section 6.03 is unenforceable, and
19
such restriction cannot be amended so as to make it enforceable, such finding
shall not affect the enforceability of any of the other restrictions contained
herein.
Section 6.04. CONFIDENTIALITY. Each individual of the Xxxxxx Group, Xxxxx
X. Xxxx and Xxxxxxx X. Vessel will treat and hold as such all Confidential
Information, refrain from using any of the Confidential Information except in
connection with this Agreement, and deliver promptly to the Company or destroy,
at the request and option of the Company, all tangible embodiments (and all
copies) of the Confidential Information which are in his or its possession. In
the event that any individual of the Xxxxxx Group, Xxxxx X. Xxxx and Xxxxxxx X.
Xxxxx are requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information that
individual will promptly notify the Company of the request or requirement so
that the Company may seek an appropriate protective order or waive compliance
with the provisions of this Section 6.04. If, in the absence of a protective
order or the receipt of a waiver hereunder, any individual of the Xxxxxx Group
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, that individual may disclose
the Confidential Information to the tribunal; provided, however, that the
disclosing individual shall use his best efforts to obtain, at the request of
the Buyer, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
Section 7.01. TAX DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means any Tax period ending on or before the close
of business on the Closing Date or, in the case of any Tax period which
includes, but does not end on, the Closing Date, the portion of such period up
to and including the Closing Date.
"Tax" means (a) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalty, addition
to tax or additional amount imposed by any governmental authority (domestic or
foreign) responsible for the imposition of any such tax (a "Taxing Authority"),
(b) any liability of the Company for the payment of any amount of the type
described in clause (a) above as a result of being a member of an affiliated,
consolidated, combined or unitary group and (c) any liability of the Company for
the payment of any amount as a result of being party to any Tax Sharing
Agreement or with respect to the payment of any amounts of the type described in
clauses (a) or (b) above as a result of any express or implied obligation to
indemnify any other Person.
20
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction carryover or any other credit
or tax attribute which could reduce Taxes (including, without limitation,
credits or other tax attributes which could reduce alternative minimum Taxes).
"Tax Sharing Agreement" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Company and any other
agreement or arrangement (including any arrangement required or permitted by
law) which (a) requires the Company to make any Tax payment to or for the
account of any other Person, (b) affords any other Person to utilize any Tax
Asset of the Company to reduce such other Person's Taxes, (c) affords the
Company to utilize any Tax Asset of any other Person to reduce any Taxes of the
Company (d) requires or permits the transfer or assignment of income, revenues,
receipts, or gains or (e) requires or permits the Company to determine its Tax
liability by taking into account or by reference to the Tax liability, income,
revenues, receipts or gains of any other Person.
Section 7.02. TAX REPRESENTATIONS AND COVENANTS.
(a) Except as set forth in the Balance Sheet or otherwise disclosed to
Buyer or on Schedule 7.02(a) the Company represents and warrants to Buyer
as of the date hereof as follows:
(i) all Tax returns, statements, reports and forms (including
estimated tax or information returns and reports) required to be filed with
any Taxing Authority with respect to any Pre-Closing Tax Period by or on
behalf of the Company (collectively, the "Returns") have been or will be
timely filed when due in accordance with all applicable laws, except where
the failure to file would not subject the Company to any liabilities
(including any interest, penalties or addition-to-tax);
(ii) as of the time of filing, the Returns correctly reflected
(and, as to any Returns not filed as of the date hereof, will correctly
reflect) in all material respects the facts regarding the income, business,
assets, operations, activities and status of the Company and any other
information, as required to be shown therein;
(iii) all Taxes shown as due and payable on the Returns that
have been filed have been timely paid, or withheld and remitted to the
appropriate Taxing Authority;
(iv) the charges, accruals and reserves for Taxes with respect
to the Company for any Pre-Closing Tax Period (including any Pre-Closing
Tax Period for which no Return has yet been filed) reflected on the Balance
Sheet and the books of the Company (excluding any provision for deferred
income taxes) are adequate to cover such Taxes;
(v) the Company is not delinquent in the payment of any Tax or
has requested any extension of time within which to file any Return, which
Return has not yet been filed;
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(vi) the Company (or any member of any affiliated,
consolidated, combined or unitary group of which the Company is or has
been a member) has not granted any extension or waiver of the statute
of limitations period applicable to any Return, which period (after
giving effect to such extension or waiver) has not yet expired;
(vii) there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened (including, any issues that,
to the knowldge of the Company, may be raised by any Taxing Authority)
against or with respect to the Company in respect of any Tax or Tax
Asset;
(viii) the Company has not filed any request for ruling or
determination of any Taxing Authority in respect of any Tax which has
been denied during the past five years or which is pending;
(ix) the Company does not own any interest in real property in
the State of New York or in any other jurisdiction in which a Tax is
imposed on the transfer of a controlling interest in an entity that
owns any interest in real property;
(x) the Company has not been a member of an affiliated,
consolidated, combined or unitary group;
(xi) the Company is not a party to any Tax Sharing Agreement or
is otherwise under any obligation to pay any third party an amount
with respect to any Tax;
(xii) the Company or any Affiliate of the Company has not, to
the extent it may affect or relate to the Company, made or changed any
tax election, changed any annual tax accounting period, adopted or
changed any method of tax accounting, filed any amended Return,
entered into any closing agreement, settled any Tax claim or
assessment, surrendered any right to claim a Tax refund, consented to
any extension or waiver of the limitation period applicable to any Tax
claim or assessment, which would have the effect of increasing the Tax
liability or decreasing any Tax Asset of the Company; and
(xiii) prior to the Closing Date, the Company shall not reserve
any amount for or make any payment of Taxes to any other person or any
Taxing Authority except for such Taxes as are due or payable to the
Taxing Authority or have been properly estimated in accordance with
applicable law as applied in a manner consistent with past practice of
the Company.
(b) Schedule 7.02(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by the Company.
(c) Schedule 7.02(c) contains an accurate description of current
audit issues relating to any Tax, and Schedule 7.02(c) contains copies of
revenue agent's or similar reports furnished by any Taxing Authority for
the taxable years which have not been
22
examined and closed or with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or
waivers, has expired.
ARTICLE VIII
EMPLOYEE BENEFITS
Section 8.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used
herein, shall have the following meanings:
"Benefit Arrangement" means each employment, severance or other similar
contract, arrangement or policy or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, options, or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (a) is entered into, maintained or contributed to, as the case
may be, by the Company or any of its Affiliates and (b) covers any employee or
former employee of the Company.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3)of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained,
administered or contributed to by the Company or any of its ERISA Affiliates and
(iii) covers any employee or former employee of the Company.
Section 8.02. EMPLOYEE PLANS. The Company does not maintain any Employee
Plans except for those Employee Plans disclosed on Schedule 8.02.
Section 8.03. BENEFIT ARRANGEMENTS.
(a) Schedule 8.03 identifies each Benefit Arrangement. The Company
has provided Buyer with copies or descriptions of each Benefit Arrangement.
Each Benefit Arrangement has been maintained in substantial compliance in
all material respects with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations which are applicable
to such Benefit Arrangement.
(b) Except as disclosed in writing to Buyer prior to the date hereof,
there has been no amendment to employee participation or coverage under any
Benefit Arrangement which would increase materially the expense of
maintaining such Employee Plan or Benefit Arrangement above the level of
the expense incurred in respect thereof for the most recent fiscal year.
Section 8.04. NO THIRD-PARTY BENEFICIARIES. No provision of this Article
VIII shall create any third-party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the Company
in respect of continued employment (or resumed employment) with the Company and
no provision of this Article VIII shall create any such rights in any such
Persons in respect of any benefits that may be provided, directly or indirectly,
under any Benefit Arrangement or any plan or arrangement which may be
established by the Company after the Closing Date. No provision of this
Agreement shall constitute a limitation on rights to amend,
23
modify or terminate after the Closing Date any Benefit Arrangement or any other
plans or arrangements of the Company.
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.01. CONDITIONS TO OBLIGATIONS OF THE PARTIES. The obligations
of each of the parties to consummate the Closing shall be conditioned upon the
satisfaction or waiver (in whole or in part) of each of the following conditions
concurrently with or prior to Closing:
(a) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(b) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of
the Closing shall have been taken, made or obtained.
(c) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially
delay the consummation of this Agreement shall have been instituted by any
Person before any court, arbitrator or governmental body, agency or
official and be pending.
Section 9.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer
to consummate the Closing shall be conditioned upon the satisfaction or waiver
(in whole or in part) of each of the following conditions concurrently with or
prior to Closing:
(a) The Company and the Selling Holders shall have performed in all
material respects all of their obligations hereunder required to be
performed by them on or prior to the Closing Date, (ii) the representations
and warranties of the Company and the Selling Holders contained in this
Agreement and in any certificate or other writing delivered by the Company
and the Selling Holders pursuant hereto, disregarding all qualifications
and exceptions contained therein relating to materiality or Material
Adverse Effect, shall be true at and as of the Closing Date, and (iii)
Buyer shall have received a certificate signed by an authorized Manager of
the Company and the Selling Holders to the foregoing effect.
(b) There shall not be threatened, instituted or pending any action
or proceeding by any Person before any court or governmental authority or
agency, domestic or foreign, (i) seeking to restrain or prohibit the
ownership or operation by Buyer or any of its Affiliates of all or any
material portion of the business or assets of the Company or of Buyer or
any of their Affiliates or to compel Buyer or any of its Affiliates to
dispose of all or any material portion of the business or assets of the
Company or of Buyer or any of their Affiliates, (ii) seeking to impose or
confirm limitations on the ability of Buyer or any of its Affiliates
effectively to exercise full rights of ownership of the Percentage
Interests, including without limitation, the right to vote any Percentage
Interests acquired or owned by Buyer or any of its Affiliates on all
matters properly presented to the Members, or (iii) seeking to require
divestiture by Buyer or any of its Affiliates of any Percentage Interests.
24
Section 9.03. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SELLING
HOLDERS. The obligation of the Company and the Selling Holders to consummate
the Closing shall be conditioned upon the satisfaction or waiver (in whole or in
part) of each of the following conditions concurrently with or prior to Closing:
(a) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, (ii) the representations and warranties of Buyer contained in
this Agreement and in any certificate or other writing delivered by Buyer
pursuant hereto, disregarding all qualifications and exceptions contained
therein relating to materiality or Material Adverse Effect, shall be true
at and as of the Closing Date, and (ii) the Company shall have received a
certificate signed by an officer of Buyer to the foregoing effect.
ARTICLE X
CREDIT ACCOMMODATIONS
Section 10.01. WORKING CAPITAL LINE. Buyer hereby covenants and agrees to
make available, or cause to be made available, to the Company a line of credit
("Working Capital Line") in the maximum amount of $1,400,000 (the "Maximum
Amount"), subject to the terms and conditions contained in this Article X. Each
advance by Buyer to the Company under the Working Capital Line shall be
individually an "Advance and collectively the "Advances."
Section 10.02. FORM OF ADVANCES. Advances under the Working Capital Line
shall at the option of Buyer be in the form of direct advances, third party
advances or a combination of both, as follows:
(a) Direct Advances. Any Advance directly funded by Buyer shall be
----------------
evidenced by a master promissory note ("Master Note"), duly executed by the
Company, in the form of Exhibit I attached hereto. The Master Note shall
be secured by a first priority perfected security interest in all of the
Company's assets as evidenced by a security agreement substantially in the
form of Exhibit J attached hereto.
(b) Third Party Advances. In satisfaction of Buyer's obligation
---------------------
hereunder Buyer may enter into an agreement with a third party to provide
an Advance (a "Third Party Advance"). Third Party Advances may be made in
the form of a government grant, bank letter of credit or other form of
financing. No Third Party Advance shall cause the Percentage Interests of
the Members to be diluted. In addition, (i) for bank lines of credit or
other bank financings, the terms and conditions of the Third Party Advance
shall be substantially similar to Advances made by Buyer pursuant to the
Master Note; and (ii) for Advances made other than pursuant to clause (i)
shall be made in accordance with terms and provisions mutually acceptable
to Buyer and the Company. If the Company rejects the terms of a Third
Party Advance, made in accordance with clause (i) Buyer shall have no
further obligations to fund an Advance or make any other Advance for a
period of six months after the date of such rejection.
25
Section 10.03. CONDITIONS TO ADVANCES. Buyer's obligations to provide or
arrange for an Advance is expressly conditioned upon the following:
(a) The Company shall provide Buyer with written notice (the
"Notice") at least 30 days prior the date of an Advance. The Notice shall
specify the date the Company requires the Advance, the aggregate dollar
amount of the Advance, and a description of the specific purpose for which
the Advance shall be used (accompanied by such supporting information as
Buyer shall reasonably request); and
(b) Buyer shall not be obligated to make an Advance or arrange for a
Third Party Advance if, since the Closing Date, a Material Adverse Effect
has occurred with respect to the Company's financial condition or business
operations.
Section 10.04. COVENANTS OF COMPANY. The Company covenants and agrees
that Advances will be used only for the purposes set forth in the Notice and
will in no event be used to make any distributions, payments, loans or other
accommodations, to its Members; provided, however, that this provision shall not
be deemed to prohibit the payment of salaries, bonuses or reimbursable expenses
of the Company's employees under current or future employment agreements.
Section 10.05. TERM OF OBLIGATION. Buyer's obligations to provide
Advances shall commence on the Closing Date and continue until the second
anniversary thereafter (the "Initial Term"), subject to the extension and
earlier termination as hereinafter provided. The term of obligation shall be
automatically extended for additional terms of one year (each a "Renewal Term")
after the Initial Term and each Renewal Term, unless no later than 60 days prior
to the end of the Initial Term or any Renewal Term either party gives notice to
the other, in accordance with Article XII, that the term of the obligation shall
not be so extended. In no event shall Buyer be obligated to make Advances in
excess of the Maximum Amount taking into account all Advances made during the
Initial Term and any Renewal Term. In addition, Buyer's obligation to provide
Advances shall automatically terminate on the date Buyer ceases to own 51% or
more of the Percentage Interests.
Section 10.06. ADVANCES SUBJECT TO SETOFF. Notwithstanding the provisions
contained in Section 10.02 of this Agreement, in the event the Company or any
Selling Holder breaches any representation, warranty, covenant or agreement
contained in this Agreement or the Transaction Documents, and which breach
results in a Material Adverse Effect, in addition to and not in limitation of
any other rights or remedies Buyer may have under such agreements, Buyer shall
(i) no longer be required to make any further Advances until such breach is
cured to Buyer's reasonable satisfaction, and (ii) the Maximum Amount shall be
decreased by any damages Buyer reasonably believes it has incurred or suffered
as a result of such breach.
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ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing for a period of four years after the Closing Date;
provided that (a) the covenants, agreements, representations and warranties
contained in Section 6.03 shall survive for the period of time specified therein
and the covenants, agreements, representations and warranties contained in
Articles VII or VIII shall survive until expiration of the statute of
limitations applicable to the matters covered thereby (giving effect to any
waiver, mitigation or extension thereof). Notwithstanding the preceding
sentence, any covenant, agreement, representation or warranty in respect of
which indemnity may be sought under this Agreement shall survive the time at
which it would otherwise terminate pursuant to the preceding sentence, if notice
of the inaccuracy or breach thereof giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
Section 11.02. INDEMNIFICATION OBLIGATIONS.
(a) Indemnification by the Company and Selling Holders. The Company
and the Selling Holders (with the exception of Xx. Xxxxxxx X. Xxxxx),
jointly and severally shall indemnify, defend and hold harmless Buyer, its
officers, directors and employees from, against and in respect of any and
all claims, damages, losses, deficiencies, liabilities, assessments,
judgments, costs, fees and expenses (including reasonable attorneys fees)
(collectively, "Damages") resulting from, relating to or arising out of (i)
any misrepresentation, inaccuracy in or breach of representations or
warranties; (ii) any failure to perform, satisfy, or observe or the non-
fulfillment of any agreement or covenant on the part of the Company or the
Selling Holders, (iii) any claim by any former or other equity interest
owner of the Company for any prior transaction involving any Percentage
Interest or other equity interest of the Company or any predecessor entity,
or (iv) any legal proceeding relating to any actual inaccuracy, breach or
failure, or liability referred to in clauses (i) through (iii) above. The
Selling Holders and the Company shall have no responsibility for Damages
claimed by Buyer until such claims exceed $50,000, in the aggregate, and
then shall be responsible for the first dollar of Damages claimed in excess
of $50,000.
(b) Indemnification by Buyer. Buyer shall indemnify, defend and hold
harmless the Company and the Selling Holders from, against and in respect
of any and all Damages resulting from, relating to or arising out of any
(i) misrepresentation, (ii) any failure to perform, satisfy, or observe or
the non-fulfillment of any agreement or covenant on the part of Buyer, or
(iii) any legal proceeding relating to any actual inaccuracy, breach or
failure, or liability referred to in clauses (i) through (ii) above. The
Buyer shall have no responsibility for Damages claimed by the Company or
the Selling Holders until such claims exceed $50,000, in the aggregate, and
then shall only be responsible for the first dollar of Damages claimed in
excess of $50,000.
(c) Each indemnifying party or parties hereto will indemnify and hold
harmless the indemnified party or parties hereto from, against and in
respect of any and all actions, suits, proceedings, demands, assessments,
judgments, costs (including attorneys' fees) and
27
legal and other expenses incident to any of the foregoing or to the
enforcement of this Article XI.
Section 11.03. METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification under this Article XI shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an indemnifying
party would be liable to an indemnified party hereunder is asserted against
or sought to be collected by a third party, the indemnified party shall:
(i) promptly notify the indemnifying party of such claim or demand,
specifying the nature of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of such claim or demand) (the "Claim
Notice"); provided, however, that the failure of an indemnified party to
give notice as provided herein shall not relieve an indemnifying party of
its obligations under this Article XI; (ii) an indemnifying party shall
have 10 days from their receipt of the Claim Notice (the "Notice Period")
to notify the indemnified party (x) whether or not the indemnifying party
disputes its liability to the indemnified party hereunder with respect to
such claim or demand, and (y) if they do not dispute such liability,
whether or not they desire, at their sole cost and expense, to defend the
indemnified party against such claim or demand; provided, however, that the
indemnified party is hereby authorized prior to and during the Notice
Period to file any motion, answer or other pleading which it shall deem
necessary or appropriate to protect its interests; (iii) in the event that
the indemnifying party notifies the indemnified party within the Notice
Period that the indemnifying party does not dispute such liability and
desires to defend against such claim or demand, then except as hereinafter
provided, the indemnifying party shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to avoid any risk of
the indemnified party becoming subject to liability for any other matter;
(iv) if the indemnified party desires to participate in, but not control,
any such defense or settlement it may do so at its sole cost and expense;
provided, however, that the indemnifying party shall pay such expense if
representation of the indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between the indemnified party and any other party
represented by such counsel in such proceeding; (v) if, in the reasonable
opinion of the indemnified party, any such claim or demand involves an
issue or matter which could have a materially adverse effect on the
business, operations, assets, properties or prospects of the indemnified
party, or Affiliate of the indemnified party, the indemnified party shall
have the right to control the defense or settlement of any such claim or
demand, and its reasonable costs and expenses thereof shall be included as
part of the indemnification obligations of the indemnified party hereunder;
(vi) if the indemnifying party disputes the indemnifying party' liability
with respect to such claim or demand or elects not to defend against such
claim or demand, whether by not giving timely notice as provided above or
otherwise, then the amount of any such claim or demand, or, if the same be
contested by the indemnifying party or by the indemnified party (but the
indemnified party shall not have any obligation to contest any such claim
or demand), then that portion thereof as to which such defense is
unsuccessful, shall be conclusively deemed to be a liability of the
indemnifying party hereunder (subject, if the indemnifying party has timely
disputed liability, to a determination that the disputed liability is
covered by these indemnification provisions).
28
(b) In the event the indemnified party should have a claim against the
indemnifying party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
indemnified party shall promptly send a Claim Notice with respect to such
claim to the indemnifying party. If the indemnifying party does not notify
the indemnified party within the Notice Period that they dispute such
claim, the amount of such claim shall be conclusively deemed a liability of
the indemnifying party hereunder.
(c) Nothing herein shall be deemed to prevent any indemnified party
from making a claim hereunder for potential or contingent claims or demands
provided the Claim Notice sets forth the specific basis for any such
potential or contingent claim or demand and the estimated amount thereof to
the extent then feasible and the indemnified party has reasonable grounds
to believe that such a claim or demand will be made.
(d) Without limiting Buyer's rights, Buyer shall have the option of
recouping all or any part of its Damages after a final determination
thereof in accordance with subsection (e) of this Section in lieu of
seeking any cash indemnification therefor to which it is entitled under
this Article XI by notifying (i) any member of the Xxxxxx Group that Buyer
is reducing or setting off any such amount against the outstanding
principal and interest under the Note issued by Buyer to such person, or
(ii) notifying the Company that it is reducing the Working Capital Line.
If Buyer elects to proceed under clause (i), this shall affect the timing
and amount of payments required under the Notes in the same manner as if
Buyer had made a permitted prepayment (without premium or penalty)
thereunder.
(e) A final determination of a disputed claim as to Damages shall be
(i) as to third party claims, a judgment of any court determining the
validity of a disputed claim, if no appeal is pending from such judgment
or if the time to appeal therefrom has elapsed, (ii) as between the
Company, the Selling Holders and/or the Buyer an award of any arbitration
determining the validity of such disputed claim; (iii) a written agreement
as to the termination of the dispute with respect to such claim signed by
all of the parties thereto or their attorneys, (iv) a written
acknowledgement of the indemnifying party that he or it no longer disputes
the validity of such claim, or (v) such other evidence of final
determination of a disputed claim as shall be acceptable to the parties.
(f) Arbitration. All disputes under this Article XI and all other
controversies or claims arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in
Cleveland, Ohio. One arbitrator shall be selected by the indemnifying
party or parties, one arbitrator shall be selected by the indemnified
party, and the third arbitrator shall be chosen by the first two
arbitrators chosen. The cost and expense of arbitration shall be shared
equally by the parties to the arbitration, regardless of which party or
parties prevail. The arbitration shall be conducted in accordance with the
following time schedule unless otherwise mutually agreed to in writing by
the parties: (i) parties to the arbitration proceeding shall each appoint
their respective arbitrator within fifteen business days after the
occurrence of the event giving rise to arbitration; (ii) within five
business days thereafter, such arbitrators shall appoint the third
arbitrator; (iii) within ten business days after the appointment of the
third arbitrator, parties to the arbitration proceeding shall provide all
documents, records and
29
supporting information reasonably necessary to resolve the dispute; and
(iv) within 15 business days after the date the above records are due, the
arbitrators shall render their decision The decision or award of the
arbitrators shall be final and binding upon the parties hereto to the same
extent and to the same degree as if the matter had been adjudicated by a
court of competent jurisdiction and shall be enforceable under the Federal
Arbitration Act.
Section 11.04. PAYMENT.
(a) In the event that any party is required to make any payment under
this Article XI, such party shall promptly pay the indemnified party the
amount so determined. If there should be a dispute as to the amount or
manner of determination of any indemnity obligation owed under this Article
XI, the party from which indemnification is due shall nevertheless pay when
due such portion, if any, of the obligation as shall not be subject to
dispute. The difference, if any, between the amount of the obligation
ultimately determined as properly payable under this Article XI and the
portion, if any, theretofore paid shall bear interest as provided in
Section 11.04(c). Upon the payment in full of any claim, either by setoff
or otherwise, the party or entity making payment shall be subrogated to the
rights of the indemnified party against any person, firm, corporation or
other entity with respect to the subject matter of such claim.
(b) The foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory or common law remedy any party may have
for breach of representation, warranty, or covenant.
(c) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the indemnifying party or parties
shall pay the indemnified party or parties interest on the unpaid amount of
the obligation for each day from the date the amount became due until
payment in full, payable on demand, at the fluctuating rate per annum which
at all times shall be the lowest rate of interest generally charged from
time to time by the Colorado National Bank and publicly announced by such
bank as its so-called "prime rate."
Section 11.05. SERVICE OF PROCESS. The Company and the Selling Holders
irrevocably consent to the service of any process, pleading, notices or other
papers by the mailing of copies thereof by registered, certified or first class
mail, postage prepaid, to the Company and the Selling Holders at such address
set forth in Section 12.02 herein, or by any other method provided or permitted
under Colorado law.
30
Section 11.06. EQUITABLE RELIEF. In the event of a breach or threatened
breach by the Xxxxxx Group, Xxxxx X. Xxxx or Xxxxxxx X. Xxxxx of Section 6.03
hereof regarding noncompetition and nonsolicitation, the Xxxxxx Group, Xxxxx X.
Xxxx or Xxxxxxx X. Xxxxx hereby consent and agree that Buyer shall be entitled
to an injunction or similar equitable relief restraining the breaching party
from committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Xxxxxx Group,
Xxxxx X. Xxxx or Xxxxxxx X. Xxxxx under any such provision, without the
necessity of showing any actual damage or that money damages would not afford an
adequate remedy and without the necessity of posting any bond or other security.
Nothing herein shall be construed as prohibiting Buyer, the Company or the
Selling Holders from pursuing any other remedies at law or in equity which it
may have.
ARTICLE XII
MISCELLANEOUS
Section 12.01. RELEASE OF THE COMPANY/SELLING HOLDERS.
(a) Release of the Company. The Selling Holders hereby release and
forever discharge the Company, and its respective Mangers, Members,
officers, employees, agents, successors and assigns from and against any
and all claims, demands, liabilities, obligations, damages, costs,
expenses, actions and causes of action, in law or in equity, known or
unknown, which the Selling Holders ever had or now have against the Company
as of the date hereof.
Notwithstanding the foregoing, the Selling Holders do not release the
Company from (i) claims directly resulting from the Company's willful
misconduct or fraud; (ii) covenants, obligations, or liabilities explicitly
set forth in the Agreement or sums or amounts owed by the Company to the
Selling Holders; (iii) indemnification obligations of the Company to the
Selling Holders or Buyer; (iv) the Company's obligations under any
agreement to which they are a party, which will remain in effect after the
Closing; or (v) Buyer's or the Selling Holders' rights under the Agreement
or any agreement or certificate delivered expressly pursuant thereto.
(b) Release of the Selling Holders. The company hereby releases and
forever discharges the Selling Holders from and against any and all claims,
demands, liabilities, obligations, damages, costs, expenses, actions and
causes of action, in law or in equity, known or unknown, which the Company
ever had or now has against the Selling Holders as of the date hereof.
Notwithstanding the foregoing, the Company does not release the
Selling Holders from (i) claims directly resulting from the Selling Holders
willful misconduct or fraud; (ii) covenants, obligations, or liabilities
explicitly set forth in the Agreement or sums or amounts owed by the
Selling Holders to the Company; (iii) indemnification obligations of the
Selling Holders to the Company or Buyer; (iv) the Selling Holders'
obligations under any agreement to which they are a party, which will
remain in effect after the Closing; or (v) Buyer's or the Company's rights
under the Agreement or any agreement or certificate delivered expressly
pursuant thereto.
31
Section 12.02. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be deemed to have been given if delivered personally, mailed by certified
mail (return receipt requested) or sent by cable, telegram, telecopier or
recognized overnight delivery service to the parties at the following addresses
or at such other addresses as, specified by the parties by like notice:
If to Buyer: KFX Inc.
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
With a copy to: Xxxxxxxx & Xxxxxxxx LLP
000 00xx Xxxxxx - Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
To the Company: Pegasus Technologies, Ltd.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
With a copy to: Xxxxxx, Lipton & Xxxxxxxxx Limited
000 Xxxxx XxXxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
If to the Xxxxxx Group: 0000 Xxxx Xxxxxxxx Xxxx
Xxxxxxxxx Xxxxxxx, XX 00000
Attention: P. Xxxxxxx Xxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
If to the Xxxx Group: Pegasus Technologies, Ltd.
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
Notice so given shall (in the case of notice so given by mail) be deemed given
and received (i) if by mail on the fourth calendar day after posting; (ii) if by
cable, telegram, telecopier, telex of personal delivery on the date of actual
transmission; and (as the case may be) personal or other delivery; and
32
(iii) if by overnight courier, on the next business day following the day such
notice is delivered to the courier service.
Section 12.03. AMENDMENTS AND WAIVERS.
(a) Any provision of this Agreement may be amended or waived prior to
the Closing Date if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver
is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 12.04. EXPENSES. Except as otherwise provided in this Agreement,
all costs and expenses incurred in connection with this Agreement shall be paid
by the Company including, but not limited to reasonable fees and expenses of
Buyer's counsel.
Section 12.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto. Any purported assignment in
violation of this Agreement shall be void.
Section 12.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, without regard to
the conflicts of law rules of such state.
Section 12.07. ENTIRE AGREEMENT. This Agreement, together with all
appendices, schedules and exhibits identified in this Agreement and that certain
Clarification Letter to the Amended and Restated Operating Agreement/Purchase
Agreement dated March 23, 1998 between the Company and KFx, constitutes the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Neither this Agreement nor any provision hereof is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Section 12.08. SPECIFIC PERFORMANCE. Each of the parties hereto agrees
that any breach by it of any provision of this Agreement would irreparably
injure the other party and that money damages would be an inadequate remedy
therefore. Accordingly, each of the parties hereto agrees that the other party
shall be entitled to one or more injunctions enjoining any such breach or
requiring specific performance of this Agreement and consents to the entry
thereof, this being in addition to any other remedy to which the non-breaching
party is entitled hereunder.
33
Section 12.09. RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained in this Agreement and the certificates expressly
delivered hereby.
Section 12.10. INTERPRETATION. The parties hereto acknowledge and agree
that: (a) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement except with respect to the schedules which are the
sole responsibility of the Company and Selling Holders (or certain of them) and
have contributed to its revision; (b) the rule of construction to the effect
that any ambiguities are resolved against the drafting party shall not be
employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
Section 12.11. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Signatures on this Agreement may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the same by
facsimile transmission. Counterparts with original signatures shall be provided
within seven (7) days of the applicable facsimile transmission, provided,
however, that the failure to provide the original counterpart shall have no
effect on the validity or the binding nature of the Agreement. If executed in
counterparts, the Agreement shall be effective as if simultaneously executed.
No provision of this Agreement is intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PEGASUS TECHNOLOGIES, LTD., an Ohio
Limited Liability Company
By _______________________________________________
Xxxx X. Xxxx, President
KFX, INC., a Delaware corporation
By _______________________________________________
Xxxxxxxx Xxxxxxx, Chairman and Chief
Executive Officer
SELLING HOLDERS:
THE XXXXXX GROUP
__________________________________________________
P. Jeffrey, Lucier, an individual
__________________________________________________
Xxxxx X. Xxxxxx, an individual
__________________________________________________
Xxxxxx X. Xxxxxx, an individual
THE XXXX GROUP
__________________________________________________
Xxxx X. Xxxx, an individual
__________________________________________________
Xxxxxx X. Xxxxxx, an individual
35
__________________________________________________
Xxxxxx X. Xxxxxx, Xx., an individual
__________________________________________________
Xxxxx X. Xxxx, an individual
__________________________________________________
Xxxxxxx X. Xxxxx, an individual
36
APPENDIX A
PEGASUS TECHNOLOGIES, LTD.-SELLING HOLDERS
(A) (B) (C)
Name Percentage Interests Percentage Interest
--------------------
of Selling Holder Owned to be Sold
----------------- ----- ----------
XXXXXX GROUP
P. Xxxxxxx Xxxxxx 34.2% 34.2%
Xxxxx X. Xxxxxx 17.1% 17.1%
Xxxxxx X. Xxxxxx 5.7% 5.7%
---------------- ----- ----
Total Xxxxxx Group 57.0% 57.0%
----- ----
XXXX GROUP
Xxxx X. Xxxx 16.9% 1.81%
Xxxxxxx X. Xxxxxx 8.0% .86%
Xxxxxx X. Xxxxxx, Xx. 1.4% .15%
Xxxxx X. Xxxx 1.4% .15%
Xxxxxxx X. Xxxxx (Economic
Selling Holder) .3% .03%
---------------------- ----- ----
Total Xxxx Group 28.0% 3.0%
----- ----
NON-SELLING SELLING HOLDER
AIW/P Holdings, Inc. 15.0% 0.0%
-------------------- ----- ----
Total 100.0% 60.0%
===== ====
00
XXXXXXXX X
PEGASUS TECHNOLOGIES, LTD.-SELLING HOLDERS
CASH CONSIDERATION
(A) (B) (C)
Name
of Selling Holder Purchased Interest Cash Consideration/
----------------- ------------------ -------------------
Bonus
-----
XXXXXX GROUP
P. Xxxxxxx Xxxxxx 34.2% $ 540,000
Xxxxx X. Xxxxxx 17.1% $ 270,000
Xxxxxx X. Xxxxxx 5.7% $ 90,000
---------------------- ---- ----------
Total Xxxxxx Group 57.0% $ 900,000
==== ==========
XXXX GROUP
Xxxx X. Xxxx 1.81% $ 88,284
Xxxxxx X. Xxxxxx .86% $ 62,907
Xxxxxx X. Xxxxxx, Xx. .15% $ 44,110
Xxxxx X. Xxxx .15% $ 3,760
Xxxxxxx X. Xxxxx (Economic
Selling Holder) .03% $ 939
---------------------- ---- ----------
Total Xxxx Group 3.0% $ 200,000
==== ==========
Total 60.0% $1,100,000
==== ==========
38
